Summer SampClassTests

# Summer SampClassTests - MIME 310 ENGINEERING ECONOMY SAMPLE...

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M I M E 3 1 0 E N G I N E E R I N G E C O N O M Y SAMPLE CLASS TESTS Department of Mining and Materials Engineering McGill University

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ii F O R E W O R D The following are recent Engineering Economy class tests. Their purpose is to give you exam- ples of typical problems that you should be able to solve in the course of such tests. These are supplied without solutions (answers are given for numerical problems), to maximize the benefits that you will derive from solving them on your own. If you have questions concerning any par- ticular problem, please consult the TAs or course instructor(s) during the appropriate hours. Prof. Bilodeau Note : Prior to the Fall 2003 term, the second class test covered material from chapters 1 to 6.
1 TEST # 2 – FALL '04 ——————————————————————————————————————— PART 1. Multiple-choice Problems and Statements Use the following information to answer questions 1 to 3. A fiberglass boat producer has the following production variables: Fixed cost (FC), \$15 000 per month; constant average variable cost (vc), \$320; selling price (p), \$500. 1. Determine the contribution margin if the fixed cost is reduced to \$5000, the average variable cost is increased to \$520, and the selling price is increased to \$720. [\$200] 2. By how much must the fixed cost be reduced if the break-even rate is to be 40 units per month? [ \$7800] 3. Which statement(s) is/are correct when the situation in question 1 above is compared to the original situation described in the problem statement? [I, II & III] I) More flexible operation II) Less risk III) Higher profit growth 4. RJ purchased at par a bond with a 10% annual coupon, 5 years to maturity and a face value of \$1000. On the day he received the second coupon payment, RJ sold the bond for \$1200 and immediately rein- vested this amount in other bonds with a 7% annual coupon, 3 years to maturity and selling at their par value of \$1000 (assume that RJ can purchase a fraction of a bond, so that the full \$1200 can be rein- vested). If RJ kept these second bonds to maturity, what was his yield-to-maturity over the five-year pe- riod? [12.28 %] 5. A project with an initial investment of \$10 000 will generate cash flows of \$3000 per year over a 5-year period. The discount rate is 15.235%. The project’s net present value (NPV) and internal rate of return (IRR) are, respectively: [\$0.764 and 15.2 %] 6. A project that costs \$1.5 million today will generate annual cash flows of \$1 million for the next 3 years. At the end of 3 years, the project’s salvage value will be zero, but there will be a disposal expenditure of \$500 000. The internal rate of return (IRR) of this project is: [34.6 %] 7. Consider a 10-year period characterised by payments of \$20 000 at the beginning of years 8, 9 and 10. Determine the equivalent ordinary annuity over the first seven-year period using an interest rate of 12% compounded annually over the first seven years, and 10% compounded annually over the final three years. (Round to the nearest hundred dollars) [\$5400] 8.

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## This note was uploaded on 10/06/2009 for the course MIME 310 taught by Professor Bilido during the Summer '08 term at McGill.

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Summer SampClassTests - MIME 310 ENGINEERING ECONOMY SAMPLE...

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