Final Exam.docx - Review Test Submission Final Exam Course Test Status Attempt Score Results Displayed 2019 r Cost Capital Project Analysis Final Exam

Final Exam.docx - Review Test Submission Final Exam Course...

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Review Test Submission: Final Exam Course 2019 r Cost Capital Project Analysis Test Final Exam Status Completed Attempt Score 30 out of 100 points Results Displayed All Answers, Submitted Answers, Correct Answers, Feedback, Incorrectly Answered Questions Question 1 0 out of 10 points Machine A which is a basic model costs \$25,000 and lasts 5 years. At the end of the 5 years it has a salvage value of \$1,500 and its market value at the end of 3 years is \$7,000. An enhanced model, Machine B sells for \$36,000 and has a life of 8 years with a salvage value of \$8,500. The benefit that these two machines are anticipated to provide is \$9,500 per year, indefinitely. Looking at an 8-year window with a rate of 12% APR compounded yearly, what is the difference between the net present worth of Machine B over Machine A? (Hint: the second copy of Machine A can be sold at the end of the 8th year for the price that it will command after a 3-year life.) Selected Answer: \$4,291 Answers: \$11,565 \$8,428 \$4,291 \$2,940 Respo nse Feedba ck: Answer is D. \$2,940. Machine A (Basic Model) Machine B (Improved Model) Years Initial cost Salvage Benefit Cash flow Initial cost Salvage Benefit Cash flow 0 (\$25,000) (\$25,000) (\$36,000) (\$36,000) 1 \$9,500 \$9,500 \$9,500 \$9,500 2 \$9,500 \$9,500 \$9,500 \$9,500 3 \$9,500 \$9,500 \$9,500 \$9,500 4 \$9,500 \$9,500 \$9,500 \$9,500 5 (\$25,000) \$1,500 \$9,500 (\$14,000) \$9,500 \$9,500 6 \$9,500 \$9,500 \$9,500 \$9,500 7 \$9,500 \$9,500 \$9,500 \$9,500 8 \$7,000 \$9,500 \$16,500 \$8,500 \$9,500 \$18,000Difference Rate 12%NPW \$11,685 NPW \$14,626 Question 2 0 out of 10 points
For two mutually exclusive machines, which machine will you select if the MARR is 10% based on the concept of IRR or B/C ratio? Machine A: Cash flows for Years 0 to 6: (-\$2000), \$500, \$500, (-\$1000), (-\$1000), \$3500 and \$4000. Machine B: Cash flows for Years 0 to 6: (-\$3000), \$0, \$1000, (-\$500), \$1800, (- \$3500) and \$9000. Selected Answer: Both need to be rejected. Answers: Machine A Machine B Both need to be rejected.

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• Spring '14
• MerwanB.Mehta

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