cee167-fa03-mt1-Ibbs-soln - CE 167 Midterm #1 Fall 2003...

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CE 167 Midterm #1 Fall 2003 Prof. C.W. Ibbs Directions : Put your name on your bluebook. This exam is to be completed in a bluebook – answers not recorded in a bluebook will not be graded. Place the exam on the inside of you bluebook when finished. Read the question thoroughly before answering. Point totals for each question are listed. Write legibly and express yourself logically and explicitly. Write short, concise answers. If you have a question regarding any portion of this exam, approach the proctor privately. Question #1 [10 points] You have the opportunity to invest $10,000 now. Find the IRR if you receive $1,200 per year at the beginning of the year for 10 years. IRR = i @ NPV = 0 NPV = 0 = -$10,000 + $1,200 + $1,200(P/A, i, 9) NPV = -$8,800 + $1,200(P/A, i, 9) (P/A, i, 9) = 7.333 -> i 4.5% Question #2 [25 points total] You are considering buying a bulldozer for $100,000. You expect this investment to provide a yearly benefit of $21,300 for five years, and can be sold at the end of the fifth year for $10,000. The current interest rate for construction equipment is 5%. $10,000 $1,200 1 2 3 4 5 6 7 8 9 10 Equivalent to (A, i, n = 9)
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(a) What is the net present value of this investment? [10 points] NPV = -$100,000 + $21,300(P/A, 5%, 5) + $10,000(P/F, 5%, 5) NPV = -$100,000 + $21,300(4.3294) + ($10,000)(0.7835) NPV $50 (b) Conduct a sensitivity analysis on the interest rate and the annuity. Discuss
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cee167-fa03-mt1-Ibbs-soln - CE 167 Midterm #1 Fall 2003...

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