Problem 8 A colleague has completed the following set of estimated costs and salvage values for a proposed machine with an initial cost of $15,000. However, he doesn't know how to find the most economic useful life. To demonstrate, you compute the equivalent uniform annual cost (EUAC) for year eight (EUAC) using a MARR of 15% Useful Estimated Estimated Life End-of- Salvage (years) Year MX Value 1 $0 $10,000 2 $0 $9000 3 $300 $8000 4 $300 $7000 5 $800 $6000 6 $1300 $5000 7 $1800 $4000 8 $2300 $3000 9 $2800 $2000 10 $3300 $1000

In the Southern Company Managerial Challenge, which alternative for complying with the Clean Air Act creates the greatest real option value? How exactly does that alternative save money? Why? Explain why installing a scrubber burns this option.

Bell Greenhouses has estimated its monthly demand for potting soil to be the following: N=400+4X where N=monthlydemandforbagsofpottingsoil X=timeperiodsinmonths(March2006=0) Assume this trend factor is expected to remain stable in the foreseeable future. The following table contains the monthly seasonal adjustment factors, which have been estimated using actual sales data from the past five years: Forecast Bell Greenhouses demand for potting soil in March, June, August, and December 2007. If the following table shows the forecasted and actual potting soil sales by Bell Greenhouses for April in five different years, determine the seasonal adjustment factor to be used in making an April 2008 forecast.

The Questor Corporation has experienced the following sales pattern over a 10-year period: Compute the equation of a trend line (similar to Equation 5.4) for these sales data to forecast sales for the next year. (Let 2004=0,2005=1, etc., for the time variable.) What does this equation forecast for sales in the year 2014? Use a first-order exponential smoothing model with a w of 0.9 to forecast sales for the year 2014.

What is deflation?

Logarithms are especially useful for comparing series with two divergent scales since 10 percent growth always looks the same, regardless of the starting level. When absolute levels matter, the raw data are more appropriate, but when growth rates are whats important, log scales are better.

If a government gains from unexpected inflation when it borrows, why would it choose to offer indexed bands?

Exercise A3 What dome slices of a pie chart represent?

What do economists mean when they refer to improvements in technology?

The forecasting staff for the Prizer Corporation has developed a model to predict sales of its air-cushioned-ride snowmobiles. The model specifies that sales S vary jointly with disposable personal income Y and the population between ages 15 and 40, Z, and inversely with the price of the snowmobiles P. Based on past data, the best estimate of this relationship is S=kYZP where k has been estimated (with past data) to equal 100. If Y=11,000,Z=1,200, and P=20,000, what value would you predict for S? What happens if P is reduced to $17,500? How would you go about developing a value for k? What are the potential weaknesses of this model?