MSCI261 Fall 2010
Midterm Solution
Question 1
1.
C
2.
C
3.
D
4.
D
Question 2
a.
b.
A = 10,000(A/F, 10%, 5) = 1,638
c.
X = 20,000
–
500(P/A, 1%, 30) = 7096
d.
P = [8,000 + 1,000*(A/G, 10%, 6)](P/A, 10, 6) = 44,257
Question 3
b.
P =
–
65,000 + 5,000(P/F, 10%, 7) + 20,000(P/A, 10%, 7)
–
2,500
*
= $19,867
Question 4
a.
SUMY:
ROVNO:
PSEL:
Choose ROVNO since it has smallest payback period.
b.
PW(SUMY) =
–
1,000 + 10*50(P/A, 10%, 3) = 243.45
PW(ROVNO) =
–
1,200 + 10*70(P/A, 10%, 3) = 540.83
PW(PSEL) =
–
1,500 + 10*80(P/A, 10%, 3) = 478.52
Choose ROVNO since it has largest present worth.
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Question 5
a.
X =
–
Where
=
= 11.65%
=
= 9.52%
b.
If x
≥
3, do not produce since not profitable
Otherwise produce
Question 6
AW(normal) =
–
22,000(A/P, 10%, 5) + 8,000 (A/F, 10%, 5)
–
7,500
–
1,500
=
–
13,493
AW(high efficiency) =
–
30,000(A/P, 10%, 5) + 10,000(A/F, 10%, 5)
–
4,500
–
2,500
=
–
13, 276
Choose high efficiency since it has higher lower cost
Question 7
LCM = 12 years
PW(A) = [
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 Net Present Value, Internal rate of return

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