exam2solution

# 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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