Exam_1_EF

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George Washington University *

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6250

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Management

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Apr 3, 2024

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12

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Question 1 5 out of 5 points (5pts) A strength of the weighted factor comparison technique is its scientific foundation and its elimination of subjectivity from decision making. Selected Answer: False Answers: True False Question 2 5 out of 5 points (5pts) A project with a higher net PW than a competing project of the same service life will also always have a higher B/C ratio. Selected Answer: False Answers: True False Question 3 5 out of 5 points (5pts) If money is worth 5% compounded annually to you, then you should prefer to receive $1750 per year for 5 years than to receive $1,000 per year for 10 years, assuming the first receipt occurs one year from today in both cases. Selected Answer: False Answers: True False Question 4 5 out of 5 points (5pts) Annual $5,000 investments are to be made in either Fund A or Fund B. Fund A pays interest of 5% the 1 st year, 5.25% the 2 nd year, 6% the 3 rd year; Fund B pays interest at the same rates, but in the reverse order. True or False: Fund A will have a greater portfolio value after 3 years than Fund B. Selected Answer: True Answers: True False Question 5 5 out of 5 points (5pts) If AW (A) > AW(B), then AW(B-A) > 0. Selected Answer: False Answers: True False Question 6 5 out of 5 points (5pts) When comparing mutually exclusive alternatives with the same service lives, the alternative with the highest net AW value is the most economical alternative. Selected Answer: True Answers: True False
Question 7 5 out of 5 points (5 pts ) In order for an investment to be attractive, the internal rate of return (IRR) must be greater than or equal to MARR. Selected Answer: True Answers: True False Question 8 5 out of 5 points (5pts) If PW(A) > PW(B) > $0, then IRR(A) > IRR(B) > MARR. Selected Answer: False Answers: True False Question 9 5 out of 5 points (5pts) If PW > 0, then IRR > MARR . Selected Answer: True Answers: True False Question 10 5 out of 5 points (5pts) If PW (A) > PW (B), then FW (A) > FW (B), AW (A) > AW (B), CW (A) > CW (B), and IRR (A) > IRR (B). Selected Answer: False Answers: True False Question 11 10 out of 10 points (10pts) An alumnus of a GWU donated $500,000 to establish a permanent endowment for scholarships. The first scholarship was awarded 1 year after the money was donated. If the amount awarded (i.e. interest) each year is $35,000, the rate of return earned on the fund is closest to: Selected Answer: 7% Answers: 7% 14.3% 14.28% 10% Question 12 10 out of 10 points (10pts) The correct formula to calculate how much must you deposit, today, in order to accumulate $10,000 in 4 years, if you earn 5% compounded annually on your investment is- Selected Answer: P = $10,000(P|F 5%,4) Answers: P = $10,000(P|A 5%,4)
P = $10,000(P|F 5%,4) A = PMT(5%,4,-10000) F = $10,000(F|P 5%,4) Question 13 10 out of 10 points (10pts) The cost and production data in 2021 for a manufacturing company in Maryland is provided in the table below. Material and Parts Cost $1,000,000 Labor Costs $3,000,000 Overhead Cost $2,500,000 Annual Production Quantity 500,000 units The selling price is fixed adding a 40% mark- up on the production cost. The selling price/unit is ___. Selected Answer: $18.20 Answers: $14.20 $12.80 $16.20 $18.20 Question 14 10 out of 10 points (10pts) Washington Automation Corporation must choose the better economical alternative between the two listed below. If 1,000 units are required per year, which alternative is economically attractive? Assume that the life of the automated equipment is 5 years. Alternative Resources Required A Skilled Operator at $25 per hour; 35 minutes per unit of skilled labor time is required. B Unskilled operator at $12 per hour plus automated equipment costing $50,000; 10 minutes of operator time per unit is required. Selected Answer: Alternative B is more attractive. Answers: Alternative A is more attractive. Alternative B is more attractive. Alternative A and B are equally attractive. I cannot tell based on the information provided above.
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Question 15 10 out of 10 points (10pts) A sum of $3,000 is invested for five years with varying annual interest rates of 9%, 6%, 9%, 7%, and 12%, respectively. The future amount after 5 years is equal to ____________. Selected Answer: $4,527.74 Answers: $4,527.74 $4,036.04 $4,546.24 $4,052.55 Question 16 10 out of 10 points (10pts) An individual wishes to deposit an amount of money now to have an accumulation of $10000 at the end of five years. If the interest rate is at 5% per year, compounded semiannually, determine how much should be deposited now? Selected Answer: $7811.98 Answers: $7811.98 $8620.61 $5580.39 $7470.26 Question 17 0 out of 10 points (10pts) The rate of return on an investment of $10,000 which will be worth $20,000 at the end of 10 years is equal to ________. Selected Answer: 14.87% Answers: 10.45% 14.87% 7.18% 5.91% Question 18 10 out of 10 points (10pts) Given the cash flow table below, the value of X may be determined by the equation in _________, if the interest rate is 6%. Year Cash Flow 1 -$1,000
2 $2,000 3 $4,000 4 X Selected Answer: X = 4,000(F/P, 6%, 1) + 2,000(F/P, 6%, 2) - 1,000(F/P, 6%, 3) Answers: X = 4,000(P/F, 6%, 1) + 2,000(P/F, 6%, 2) - 1,000(F/P, 6%, 3) X = 4,000(P/F, 6%, 2) + 2,000(P/F, 6%, 1) - 1,000(F/P, 6%, 3) X = 4,000(F/P, 6%, 1) + 2,000(F/P, 6%, 2) - 1,000(F/P, 6%, 3) X = 4,000(F/P, 6%, 1) + 2,000(F/P, 6%, 2) + 1,000(F/P, 6%, 3) Question 19 10 out of 10 points (10pts) Mike Brown borrowed $20,000 at an annual interest rate of 7% and paid off the loan, principal and interest, after several years with a $30,000 check. The number of years she has had the privilege of using the money is _______________. Selected Answer: 5.99 Answers: 5.99 6.51 4.72 6.96 Question 20 10 out of 10 points (10pts) You are planning to send your child to a summer camp in 9 months. The camp will cost you $1,200 at that time. You have decided to invest a lump sum of money now that will grow to $1,200 by the time it is needed. Assuming the money grows at a nominal annual interest rate of 8% compounded monthly, how much money should you set aside now to have the funds available when needed? Selected Answer: $1,130.14 Answers: $1,130.14 $909.5 $1,097.12 $878.87 Question 21 10 out of 10 points (10pts) For the cash flow diagram shown below, compute the value of P.
Selected Answer: $3,869.61 Answers: $3,816.79 $3,415.07 $2,679.64 $3,869.61 Question 22 10 out of 10 points (10pts) Given the cash flow diagram below, determine the value of X using an interest rate of 10%. Selected Answer: $5,682.00 Answers: $4,707.64 $5,324.28 $5,476.36 $5,682.00 Question 23 10 out of 10 points (10pts) The effective interest rate of 15% interest rate compounded quarterly is: Selected Answer: 15.87% Answers: 3.75% 15.68% 15.87%
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15.00% Question 24 10 out of 10 points (10pts) The annual benefits of $4,000 every year for three years may be obtained for an investment on a production equipment costing $20,000 with a salvage value of $5,000. If MARR is 6%, choose the right equation to determine the NPW. Selected Answer: NPW = -20,000 + 4,000(P/A, 6%, 3) + 5,000(P/F, 6%, 3) Answers: NPW = 20,000(F/P, 6%, 3) + 4,000(F/A, 6%, 3) + 5,000 NPW = 20,000(P/F, 6%, 3) + 4,000(F/A, 6%, 3) + 5,000 NPW = -20,000 + 4,000(P/A, 6%, 3) + 5,000(P/F, 6%, 3) NPW = -20,000(P/F, 6%, 3) + 4,000(P/A, 6%, 3) + 5,000(P/F, 6%, 3) Question 25 10 out of 10 points (10pts) A series of end -of -the -year cash flows of $2,000 for ten years at an annual interest rate of 8% is nearly equal to a series of end -of -the -year cash flows at 10% interest for eight years. Determine the value of the uniform amount, A. Selected Answer: $2,515 Answers: $1,678 $2,515 $1,590 None of these Question 26 10 out of 10 points (10pts) Given the cash flow table below, Alice was asked to compute the value of P for the cash flow at 8% interest. She wrote four equations. Which is the correct equation? Given the cash flow table below, Alice was asked to compute the value of P for the cash flow at 8% interest. She wrote four equations. Which is the correct equation? Year 0 1 2 3 4 5 6 7 8 Cash Flow -P 1,000 1,150 1,300 1,450 1,600 1,600 1,600 1,600 Selected Answer: P = 150( P/G , 8%, 4) + 1,000( P/A , 8%, 4) + 1,600( P/A , 8%, 4) ( P/F , 8%, 4) Answers: P = 1,600( P/A , 8%, 8) - 600( P/A , 8%, 5) - 150( P/G , 8%, 4) P = 1,000( P/A , 8%, 8) + 150( P/G , 8%, 8) - 150( P/G , 8%, 4) ( P/F , 8%, 4)
P = 150( P/G , 8%, 4) + 1,000( P/A , 8%, 4) + 1,600( P/A , 8%, 4) ( P/F , 8%, 4) P = 1,600( P/A , 8%, 8) + 150( P/G , 8%, 8) - 150( P/G , 8%, 4) ( P/F , 8%, 4) Question 27 10 out of 10 points (10pts) Jim Clark borrowed $20,000 from a friendly credit union to buy a car at 5.5% interest per year compounded monthly for 60 months. The monthly payment for Jim is nearly equal to _______________. Selected Answer: $382.02 Answers: $333.33 $382.02 $430.33 $520.43 Question 28 0 out of 10 points (10pts) When the inputs are fixed in engineering economic decision making, the criterion to use is ___________________. Selected Answer: Maximize the inputs Answers: Maximize the inputs Minimize the inputs Maximize the difference between outputs and inputs Maximize the benefits Question 29 10 out of 10 points (10pts) A federal government contractor is considering buying a software package at a cost of $500,000. The software company will charge an annual maintenance fee of $30,000 payable at the beginning each year including the very first year. The contracting company is bidding on a four-year government contract. The equivalent uniform annual cost of the software that should be included in the bid at an interest rate of 15% is ______. Selected Answer: $598,497 Answers: $517,346 $615,649 $598,497 $527,650 Question 30
10 out of 10 points (10pts) The equivalent uniform annual worth (EUAW) of alternative M may be expressed as below. (MARR =10%) Data M N Initial Cost $20,000 $80,000 Uniform Annual Benefits $6,000 $10,000 Salvage Value $5,000 $20,000 Useful Life in years 4 Selected Answer: -20,000(A/P, 10%, 4) + 5,000(A/F, 10%, 4) + 6,000 Answers: -20,000(A/P, 10%, 4) + 5,000(A/F, 10%, 4) + 6,000 6,000 - {20,000(A/P, 10%, 4) + 5,000(A/F, 10%, 4)} 6,000 - {20,000 (1.15) -4 - 5,000(1.10) 4 } - 6,000 - 5,000(A/F, 10%, 4) + 20,000(A/P, 10%, 4) Question 31 10 out of 10 points (10pts) Bounce Corporation in Silver Springs is considering an extended warranty on production equipment it bought recently. The extended warranty will cover repair year-end expenses of $2,000, $3,000, $4,000, and $5,000, respectively, for the next 4 years. If the interest rate is 5%, what is the worth of the extended warranty? Selected Answer: $12,194 Answers: $11,300 $12,194 $10,985 $10,400 Question 32 15 out of 15 points
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(15pts) A bridge in a metropolitan area is being considered at a cost of $150M. The annual maintenance cost is estimated to be $100K. A major renovation at a cost of $30M is required every 100 years. What is the capitalized cost of the bridge at an interest rate of 6%? Selected Answer: $151.75M Answers: $140.09M $122.38M $151.75M $180.10M Question 33 10 out of 10 points (10pts) It is expected that an investment of “P” at time “0” to provide an income of $1,000 every year for the next 12 years. If the investor expects to have a rate of return of 8% per year, what is the value of “P”? Selected Answer: $7,536 Answers: $6,266 $7.246 $7,107 $7,536 Question 34 10 out of 10 points Four different alternative designs as shown in table below are available for a public interest project. Determine using the capitalized cost approach which alternative is the most desirable one. MARR =5% Selected Answer: Alternative Z Answers: Alternative X Alternative Y Alternative Z Do nothing Question 35 10 out of 10 points
(10pts) The incremental cash flow between two alternative is shown below. The equation(s) that can be used to correctly solve for the incremental rate of return is (are): Year Incremental Cash Flow 0 -$20,000 1 through 10 +$3,000 10 +$400 Selected Answer: All of the above Answers: 0 = -20,000 (F/P, i, 10) + 3000 (F/A, i, 10) + 400 0 = -20,000 (A/P, i, 10) + 3000 + 400 (A/F, i, 10) 0 = -20,000 + 3000 (P/A, i, 10) + 400 (P/F, i, 10) All of the above Question 36 15 out of 15 points (15pts) Mason Inc. is considering two mutually exclusive equipment alternatives to increase its production volume. The respective financial estimates for each alternative are as follows. Data Equipment A Equipment B Initial Cost $50K $80K EUAB $16K $20K Salvage Value $9K $3K If the useful life of equipment A is 4 years, with a MARR of 10%, the useful life in years of equipment B that makes both the equipment equally desirable is most nearly equal to : Selected Answer: 6 Answers: 4 5 6
7 Question 37 10 out of 10 points (10pts) Great Motor Company took a short loan of $100M for two years from friendly bank. The company made a monthly payment of $1M for two years and wrote a check for $100M at the end of two years in addition to the $1M monthly payment. Determine the nominal interest GM paid to the bank. Selected Answer: 12% Answers: 8% 9% 10% 12% Question 38 10 out of 10 points (10pts) The rate of return for alternative X is 18% and for alternative Y is 16%, with Y requiring a larger initial investment. If a company has a minimum attractive rate of return of 16%, the company should _________________. Selected Answer: Do an incremental analysis to select the right alternative Answers: Choose Alternative Y. Do an incremental analysis to select the right alternative Choose the Do Noting Alternative. Choose Alternative X. Question 39 10 out of 10 points (10pts) Given that two projects have the same rate of return of 12% each. The incremental rate of return is 15%. If MARR is 15%, determine which alternative should be chosen. Selected Answer: Choose neither one Answers: Choose the higher-cost alternative Choose the lower-cost alternative 7.2% Choose neither one Choose either one
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