midterm 2 make up solutions (1)

midterm 2 make up solutions (1) - IE 343 Fall 2009 Name: _...

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IE 343 Fall 2009 Name: _______________________ Student ID: ___________________ IE 343 Midterm 2. Make-up exam Closed Book, Closed Notes Show all of your work . Your work and answers must be shown on the pages provided. Write your name and student ID in the spaces provided above. For problems 4 and 5, note that no interest tables are required; you are to carry your answer to the point where the equation for each problem is specified –e.g., “1,000(A/P, 10%, 5) + 1,500 + 200(A/F, 10%, 5)” and stop here. Your grade on this problem will be based on the correctness of the equation and the clarity of your work leading up to the equation. For problems 1, 2, 3 and 6 , interest tables may be used and are provided for you to perform your calculations. 1
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Name: _______________________ Student ID: ___________________ 1. A firm is considering investing in a machine that has an initial cost of $36,000. For a period of 10 years, operating and maintenance costs are expected to be $4,000 a year while estimated annual revenues are expected to be $10,000 a year. At the end of 10 years, the machine has a salvage value of $5,000. The firm’s MARR is 10% a year. a) Determine the simple payback period for this investment. 6 points Annual net revenue = $6,000 θ = 6 years b) What is your recommendation for this project using the IRR method? 12 points PW ( i ’%, ) = -36,000 + 6,000 (P/A, i ’%, 10) + 5,000 (P/F, i ’%, 10) PW (10%) = 2,795.119 PW (12%) = -488.796 Therefore, by linear interpolation, i ’ = 11.7%. 2
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This note was uploaded on 02/07/2012 for the course IE 343 taught by Professor Vincent,g during the Spring '08 term at Purdue University-West Lafayette.

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midterm 2 make up solutions (1) - IE 343 Fall 2009 Name: _...

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