ISyE 3025
Engineering Economy
Spring 2011
Professor Nagi Gebraeel
Solution to Exam IIB
1. [10] 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. [5] 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)
3. [5] 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
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 Spring '09
 Lee
 Time Value Of Money, Future Value, Net Present Value, MARR

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