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Unformatted text preview: 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) (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. [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 (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. [5] 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
 Lee

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