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# lecture notes - NAME(Printed(Last(First Purdue University...

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NAME (Printed): _________________,________________ (Last) (First) Purdue University Fall 2011 – IE 343 – Section 2 Instructor: Tian Ni Midterm Exam #2, Nov. 16, 2011 1 IE 343 Midterm Exam 2 Nov 16, 2011 Closed book, closed notes. 50 minutes Write your printed name in the spaces provided above on every page. Show all of your work in the spaces provided. Exam 2 has three parts totally 5 problems: Part I – Old problems (Difficulty: Easy), 3 old problems are selected from homework, quizzes, lecture notes Examples or textbook examples. Part II – New problems (Difficulty: Median), 1 new problem. Part III – Bonus (Difficulty: Hard), 1 bonus problem. Exam 2 has totally 105 Points = Part I (67 Points) + Part II (33 Points) + Part III (5 Points) You are suggested to do Part 1 first, and then part 2. Part 3 is optional.

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NAME (Printed): _________________,________________ (Last) (First) Purdue University Fall 2011 – IE 343 – Section 2 Instructor: Tian Ni Midterm Exam #2, Nov. 16, 2011 2 Part I, 3 Problems, 67 Points: Old problems selected from homework, quizzes, lecture notes examples or textbook examples Question 1 (29 Points) Consider Projects (A – D) that has the following cash flows over a study period of 5 years. We are looking for the best project to invest. The MARR is 20%, Project A Project B Project C Project D Initial Investment: \$100 \$300 \$150 \$200 Annual Revenues: \$60 \$90 \$70 \$65 Annual Expenses: \$20 \$15 \$15 \$20 Salvage Value: \$20 \$100 \$50 \$50 Useful Life: 5 Year 5 Year 5 Year 5 Year (a) Is Project A an investment alternative or cost alternative? Explain the reason why? (4 Points) Solution: (a) Investment alternative, because there’s annual revenue for Project A. (b) We claim that Project D can be directly eliminated from the analysis. Why? Please explain the reason. (4 Points) Solution: (b) Project D has higher initial investment than Project C (\$200 > \$150), but Project D has lower net annual revenues less expenses than Project C (\$45 < \$55). Project C and D have the same Salvage Value \$50, So Project C is a strictly better project than Project D. So Project D can be directly eliminated.
NAME (Printed): _________________,________________ (Last) (First) Purdue University Fall 2011 – IE 343 – Section 2 Instructor: Tian Ni Midterm Exam #2, Nov. 16, 2011 3 (c) You are calculating the IRR of the Project A. You get PW(15%) = 15.5, and PW(25%) = -9.5 by trial and error. What is the approximated IRR using linear interpolation? Based on this approximated IRR, is project A profitable? Explain the reason why? (6 Points) Solution: (c) By linear interpolation: 25% 15% 9.5 15.5 = °′ % 15% 0 15.5 ° ± % = 21.2% > ²³´´ = 20% Project A is profitable.

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## This note was uploaded on 01/28/2012 for the course IE 343 taught by Professor Vincent,g during the Winter '08 term at Purdue.

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lecture notes - NAME(Printed(Last(First Purdue University...

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