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Unformatted text preview: ISyE 3025 Engineering Economy Spring 2011 Professor Nagi Gebraeel Solution to Exam IIB 1.  Consider the following cash diagram. Which of the following expressions is NOT valid for the Present Worth? [Positive cash flow of 100 in year 1, 150 in year 2, 200 in year 3, and 250 in years 4 , 5 , 6] (a) P = 100( P/A, 10% , 6) + 50( P/G, 10% , 3) + 150( P/A, 10% , 3)( P/F, 10% , 3) (b) P = 100( P/A, 10% , 3) + 50( P/G, 10% , 3) + 250( P/A, 10% , 3)( P/F, 10% , 3) (c) P = 250( P/A, 10% , 6)- 50( P/G, 10% , 3) X (d) P = 100( P/A, 10% , 4) + 50( P/G, 10% , 4) + 250( P/A, 10% , 2)( P/F, 10% , 4) 2.  A company is considering two alternatives, one of which must be implemented. Of the two projects, Project A has the higher maintenance cost, but Project B has the higher investment cost. After performing an incremental analysis the resulting incremental IRR was 17 . 6%. Which alternative is preferred if the minimum attractive rate of return is 20%. (Hint: Recall the first step in incremental analysis is arranging the alternatives in ascending order of initial investment) (a) A X (b) B (c) The company is indifferent between A and B (d) Cannot be determined from the information given. Solution: Since one of the alternatives must be implemented, we know that do nothing is not an option and should not be our first defender. Our first defender then is A because it has the lower investment cost. The incremental IRR from A to B is less than the MARR so we should reject Project B and choose Project A. 3.  If an investment alternative has a single IRR which is equal to the MARR, which of the following statements about the other measures must be true? 1. PW= 0 2. AW= 0 (a) (1) only is True (b) (2) only is True (c) Both (1) and (2) are True X (d) Neither (1) nor (2) is True 4.  A city is considering replacement for its police radio. The benefits and costs of the replacement are (1) Purchase cost is $7 , 000, (2) Annual savings are $1 , 500, and (3) Useful Life is 15 years. What is the replacements benefit/cost ratio if the effective annual interest rate is 8%?...
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This note was uploaded on 08/28/2011 for the course ISYE 3025 taught by Professor Lee during the Spring '09 term at Georgia Institute of Technology.
- Spring '09