Quiz 4 -inclass
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Louisiana State University *
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Industrial Engineering
Date
Jan 9, 2024
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3
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IE 3201: Amous,Engineering Economy
pg. 1
IE 3201: Engineering Economy
Fall 2023
Quiz -4
Name __________________________________
November 10
th
, 2023
“I certify that the work I have submitted is my own work and that I have not collaborated with any
other students on this
examination nor used the text book or notes during the exam.”
Signed: _______________________________________
Part I. True and False Questions-
circle the correct answer to each question
(1
points each question for a total of 10 points)
1.
Correct interpretaion whether the money is borrowed (intrest rate on loan is
the ROR) or lent (interest rate is the return ROR).
T
F
2.
Numercal value of ROR can range from 100% to infinity.
T
F
3.
ROR can be determined ONLY using PW relation set to zero.
T
F
4.
Spreadsheet function RATE or IRR are used to display
i*
value(s)
T
F
5.
Rate paid or earned on unrecovered balance of money such that final payment
brings balance to exactly zero with interest considered.
T
F
6.
ROR Incremental Analsis is not Necessary
T
F
7.
Selecting an alternative with the large ROR may NOT
yield the best return on
available capital, if not all funds are used for the project.
T
F
8.
For
independent project, select all that have ROR ≥ MARR
T
F
9.
Independent projects: Compare i* for each project against DN and select all
that have i* ˂ MARR
T
F
10.
Mutually exclusive alternatives: Detrmin incremental cash flows.
T
F
2
Part II. Multiple Choice Questions-
circle the correct answer to each question.
(2.5 points each question for a total of 5 points)
1.
When positive net cash flows are generated before the end of a project,
and when these cash flows are reinvested at an interest rate that is greater than the
internal rate of return,
A. The resulting rate of return is less than the internal rate of return.
B.
The resulting rate of return is equal to the einvestiment rate of return.
C
.
The resulting rate of return is greater than the internal rate of return
D. The resulting rate of return is equal to the internal rate of return.
2.
A chemical engineer working for a large chemical products company was
asked to make a recommendation about which of three mutually
exclusive
revenue
alternatives should be selected for improving the marketability
of personal care products used for conditioning hair, cleansing skin, removing
wrinkles, etc. The alternatives (X, Y, and Z) were ranked in order of increasing
initial investment and then compared by incremental rate of return analysis. The
rate of return on each increment of investment was less than the company’s
MARR of 17% per year. The alternative to select is.
A
.
DN.
B.
Alternative Y.
C.
Alternative Z.
D
.
Alternative X.
Part III. Fill-in the blanks-
clearly write the answer on the line. Note: Please write
clearly and legible!!!. (1 points each question for a total of 5 points)
1.
When the algebraic signs on the net cash flows change more than once. The
cash flow sequence is called
_____________________________________.
2.
An interest rate calculated on the original amount each period is ______________
than one based on the unrecovered balance.
3.
When only one alternative is to be selected from multiple alternatives, the
alternatives are said to be ______________________________________________________.
4.
In evaluating multiple independent alternatives, each alternative is
compared against the ______________________________________________alternative.
IE 3201: Amous,Engineering Economy
pg. 3
5.
In evaluating mutually exclusive alternatives on the basis of rate of return, it
is necessary to conduct a (an) _________________________________________________
ROR analysis in order to obtain the same ranking as the PW and AW
methods.
Part IV. Case study (5 points)
A $90,000 is available for investment and MARR = 16% per year. Alternative A can earn
35% per year on an investment of $50,000. B can earn 29% per year on an investment of
$85,000.
1-
Determine the overall weighted ROR average?
2-
Which investment is better economically -- A or B, why?
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