exam2solution - 1.
 The
 cash
 flows
 (in
...

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Unformatted text preview: 1.
 The
 cash
 flows
 (in
 thousands)
 associated
 with
 Fisher‐Prices
 Touch
learning
system
are
shown
below.
You
want
to
determine
 the
 uniform
 quarterly
 series
 (call
 it
 x)
 in
 quarters
 0
 through
 8
 that
would
be
equivalent
to
the
cash
flows
shown
at
an
interest
 rate
of
16%
per
year,
compounded
quarterly.
 (a)
Find
the
future
worth
of
the
cash
flow
above
in
quarter
8.
 (b)
Calculate
x
based
on
(a)
 2.
NASA
is
considering
two
materials
for
use
in
a
space
vehicle.
 The
 costs
 are
 shown
 below.
 Which
 should
 be
 selected
 on
 the
 basis
 of
 a
 PRESENT
 WORTH
 comparison
 at
 an
 interest
 rate
 of
 10%
per
year?
 3.
 Two
 processes
 can
 be
 used
 for
 producing
 a
 polymer
 that
 reduces
 fricTon
loss
in
engines.
Process
K
will
have
a
first
cost
of
$160,000,
an
 operaTng
cost
of
$20,000
per
quarter,
and
a
salvage
value
of
$40,000
 aYer
 its
 2‐year
 life.
 Process
 L
 will
 have
 a
 first
 cost
 of
 $210,000,
 an
 operaTng
cost
of
$15,000
per
quarter,
and
a
$26,000
salvage
value
 aYer
its
4‐year
life.
Which
process
should
be
selected
on
the
basis
of
 an
ANNUAL
WORTH
ANALYSIS
(AW
in
dollar
per
quarter)
at
an
interest
 rate
of
16%
per
year,
compounded
quarterly?
 4.
AMD
issues
100,000
debenture
bonds
now
with
a
face
value
of
 $1,000
each
and
bond
interest
rate
of
10%
per
year
payable
 semiannually.
The
bonds
have
a
maturity
date
of
10
years
from
today.
 The
market
interest
rate
is
8%
per
year
compounded
semiannually
and
 you
want
to
calculate
the
ANNUAL
WORTH
(AW
in
dollar
per
year)
of
 one
bond.
(Hint:
you
will
get
the
bond
interest
every
6
months
and
the
 face
value
in
year
10.)
 (a)
What
is
the
bond
interest
of
one
bond
per
6
months?
 (b)
What
is
the
PRESENT
WORTH
of
one
bond?
 (c)
What
is
the
EFFECTIVE
market
interest
rate
PER
YEAR?
 (d)
 Based
 on
 (b)
 and
 (c),
 calculate
 the
 ANNUAL
 WORTH
 of
 one
 bond
for
10
years.
 5.
You
are
going
to
deposit
money
starTng
year
1
and
conTnuing
each
 year
through
year
10
(i.e.,
10
deposits).
The
amount
you
deposit
each
 year
 increases
 by
 10%
 per
 year.
 You
 will
 withdraw
 $80,000
 per
 year
 forever
 beginning
 31
 years
 from
 now.
 You'll
 also
 withdraw
 addiTonal
 $100,000
every
6
years
starTng
from
year
36
(i.e.
withdrawals
in
year
 36,
 42,
 48,
 ...).
 Assuming
 the
 account
 earns
 interest
 at
 10%
 per
 year,
 you
 would
 like
 to
 calculate
 the
 amount
 of
 deposit
 in
 year
 1.
 Let
 x
 be
 the
amount
of
deposit
in
year
1.
 (a)
What
is
the
PRESENT
WORTH
of
your
deposits
from
year
1
to
year
 10?
Your
answer
should
include
x.
 (b)
What
is
the
PRESENT
WORTH
of
your
withdrawals?
 (c)
Determine
the
amount
of
deposit
(x)
in
year
1
based
on
(a)
 and
(b).
 ...
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