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Unformatted text preview: ISE 2014 Engineering Economy Test #2 — Fall 2007 Name (Printed) Honor Pledge: I have neit er given nor received unauthorized assistance on this test. (Signed) IF YOU ARE IN THE WRONG TEST LOCATION YOUR EXAM WILL NOT BE
GRADED! Please circle your section and your major. 8:00am — 93449 10:10am  93450
ISE Major Mech. Eng. Major Other Major This test is closed book, closed notes. Please be sure to show all work. Make sure you
set up solutions to all problems. Failure to demonstrate the process used to solve
each problem will result in zero (0) credit for that problem (except T/F and multiple
choice). Failure to complete this first page of the test with your correct personal
information will result in a five point deduction (5) in your overall test score.
Make your answers explicit—if we cannot find or decipher your answer, it will be marked
wrong. If a box is provided for your answer, you must place your answer in that box. Please wait until you are told to begin to start working on the test. When time is called,
stop working immediately. Continuing to work after time has been called is
considered a violation of the Honor Code. Any use of a PDA, cellular telephone,
pager, or other communication device during the exam is considered a violation of the
Honor Code. You must present your Hokie Passport when handing in your test. CALCULATOR SHARING AND BOOK SHARING ARE NOT ALLOWED AT ANY TIME
DURING THIS EXAMINATION. Do Not Write Below This Line (Ofﬁce use only) Problem 1 __ Problem 2 _
Problem 3 __ Problem 4 __
Problem 5 _ Problem 6 __
Problem 7 _ Problem 8 _
Problem 9 TOTAL SCORE Problem 1 (15 points) ‘
The table below shows cash ﬂows to two mutually exclusive alternatives, and also shows their respective market (salvage) values at the end of any particular year. The
MARR is 9% per year. EOY Alt. 1 Salvage Value Alt. 2 Salvage Value
for Alt. 1 for Alt. 2 0
1
2
3
4
5
6
7
8
9
10 Compare the two alternatives using a 5 year study period. 7.)“), : ~70/Wf/é30w9921 5’)+STS:O¢0(9¢J 7 2, 4‘) 3. 8’??? a. 6m
im, = igswm pkg. :: égowiL/QVO/o/A/ﬂJjIQi boom/6’7? Jj
J, .
mg: (OJ 357.57 Maw; Problem 2 (12 points)
For the multiple choice questions please circle the letter of the response that is most correct. (No partial credit on these. Four points each.) a) How much would you need to put in the bank today, a onetime deposit, to have
accumulated $1,000 after four years? Use an interest rate of 6% per year,
compounded monthly. i. $960
" $836 $787 iv. $760 b) If you retired today with a retirement fund of $1,000,000 earning at an annual
rate of 9%lyear, how much could you withdraw each year if you wanted your
money to last for 20 years? GD $109,550
ii. $50,000
iii. $90,900
iv. $19,550 c) How much state funding was provided to the VT Corporate Research Center? Problem 3 (5 points)
Acme Manufacturing is considering a new furnace that will allow them to be more
productive. The cash ﬂows for one of the alternative furnaces are given below. Furnace A
Initial Investment $450,000
Annual Revenues $80,000
Annual Costs $10,000
Salvage Value $50,000
Life of Asset 15 years Write below the equation you would write, and solve, to ﬁnd the internal rate of return.
Do not solve this equation! Rik—a = «646,0» ﬂew/M/WQWMW Problem 4 (20 points) Bill Fitselﬁk is considering purchasing a new machine to increase the output of an
existing production process. If each of these machines provides exactly the same
service over their useful lives and the MARR is 12%, which machine should be selected
based on sound engineering economy principles? Alternative D I $100,000 $50,000
' $22,675 $17,879 — .— — Salvae Value $15,000 $1 .000 $25,000 $12,000
Useful Life 5 ears m 10 ears
IE3 22.10% 9 o. 1741? 05ml“ A M, 3 we mod/6W? ro)+<9570wﬂ/7a%@+ 0’22, 675/ Problem 5 (20 points) Jimmy Bob Mitselfik owns a bond that has a face value of $25,000 and has a
bond rate of 16% per year, payable semiannually. The bond matures 20 years from
now. Jimmy’s friend, Ferd, would like to purchase the bond from Jimmy at a price that
would allow Ferd to earn the current market interest rate of 14% per year compounded semiannually.V:&S~% hzajé (:1 j 2?: 2,52%?
) a) What is the price that Ferd should pay (right now, today) for the bond? (10 oi s 33:QjaooKO/A§ '22) 403+ geese/.71, “ﬂ (3,3317 0. 064? {3: {men/7’0 _v/ b) Assume that Jimmy Bob purchased the bond, for face value, five years ago and
needs to sell it (today) at a price that will allow him to get an 18% return
(compounded semiannually). At what price should Jimmy Bob sell the bond to
receive his desired return? (10 points) 6.50/7 0. (“7) 437%: a,w¢(¢/47z,x<9+>< (4073/9 x : “SW? Problem 6 (12 points) GreenGen, Inc., provides environmental consulting services to local
governments. Chickasha, Oklahoma, is considering the development of a new
greenway that will provide both natural recreation and new plant growth and will provide
annual savings in the form of reduced maintenance burden. The table below lists the
mutually exclusive alternatives being considered. Each of these projects will last
indefinitely. Which investment should GreenGen recommend, using sound engineering
economy principals, if the desired MARR is 25%? Circle your selection (no partial
credit). ___—?1
30.000 60.000 75.000 mm
10,000 18,000 21,000 m Rate of Return V
are
" [Note/Hint: for indefinite investments, one can find the rate of return on an investment,
or on an incremental investment, simply by dividing the annual savings by the initial
investment. For example, the rate of return for investment B is 18,000/60,000=30%.] AZ a.A Problem 7 (5 points)
Consider the following table. Incremental Rate of Return, %,
When Compared with
tive Alternative A B Initial
investment, $ Alternative 28.9 
19.7 1.5   
39.8 49.4 — 
24.7 28.0 0.6 lTlUOUJ> Using a MA R of 25%, which alternative should be selected? :13 1. lug 6»... mm ﬁmﬂ/e
% Problem 8 (5 points) RRS, Inc, has a corporate policy that every capital expenditure must achieve a
three year discounted payback in order to be considered for funding. The MARR for
RRS is 9%. Consider the following capital project.  Expenditure or Revenue
Year $ _ 325.ooo
— 50,ooo —.\ . 500.000 What is the simple (no interest) payback period for this expenditure? Show all work! :ér £16 We
5) «395:050 » p450
/ 2377 we 335000
$1
3
17/ 2 453000 ,3/J"9c5 0 /@OOO w/éf)7>00 @Mr
9.23000 7470 Problem 9 (6 points)
For each of the following questions, circle T(rue) or F(ase). One point each. The NASDAQ is an index based on the stock performance of forty
selected companies. When “APR” is mentioned in an advertisement it is referring to a nominal
interest rate. The MARR represents the average return on all a company’s investments. The P/F term returns a present worth “F” periods before the ﬁnal cash
flow. Unless there is only one compounding period, an effective interest rate is
ALWAYS more than the nominal interest rate from which it was derived. The future value of a series of uniform cash ﬂows is always greater than
the present amount, independent of interest rate. 10 ...
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This note was uploaded on 03/31/2008 for the course ISE 2014 taught by Professor Cpkoelling during the Spring '07 term at Virginia Tech.
 Spring '07
 CPKoelling

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