Question 2 (5 points)
When you are evaluating projects by the present worth method, how do you know which one(s) to select if the projects are mutually exclusive?
Question 3 (5 points)
Two methods can be used for producing expansion anchors. Method A costs $80,000 initially and will have a $15,000 salvage value after 3 years. The operating cost with this method will be $30,000 per year. Method B will have a first cost of $120,000, an operating cost of $8000 per year, and a $40,000 salvage value after its 3-year life. At an interest rate of 12% per year, which method should be used on the basis of a present worth analysis?
Question 4 (5 points)
Two processes can be used for producing a polymer that reduces friction loss in engines. Process K will have a first cost of $160,000, an operating cost of $7000 per quarter, and a salvage value of $40,000 after its 2-year life. Process L will have a first cost of $210,000, an operating cost of $5000 per quarter, and a $26,000 salvage value after its 4-year life. Which process should be selected on the basis of a present worth analysis at an interest rate of 8% per year, compounded quarterly?
Question 5 (5 points)
The cost of extending a certain road at Yellowstone National Park is $1.7 million. Resurfacing and other maintenance are expected to cost $350,000 every 3 years. What is the capitalized cost of the road at an interest rate of 6% per year?
Question 6 (5 points)
What is the bond interest rate on a $20,000 bond that has semiannual interest payments of $1500 and a 20-year maturity date?
Question 7 (5 points)
What is the present worth of a $50,000 municipal bond that has an interest rate of 4% per year, payable quarterly? The bond matures in 15 years, and the market interest rate is 8% per year, compounded quarterly.
Question 8 (5 points)
For the mutually exclusive alternatives shown below, determine which one(s) should be selected.
| Alternative |
Present Worth, $ |
| A |
–25,000 |
| B |
–12,000 |
| C |
10,000 |
| D |
15,000 |
Question 9 (5 points)
A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of $26,000, an operating cost of $2000, and a salvage value of $12,000 after 3 years. A Ford model will have a first cost of $29,000, an operating cost of $1200, and a $15,000 resale value after 3 years. At an interest rate of 15% per year, which model should the consulting firm buy? Conduct an annual worth analysis.
Question 10 (5 points)
A mechanical engineer is considering two types of pressure sensors for a low-pressure steam line. The costs are shown below. Which should be selected based on an annual worth comparison at an interest rate of 12% per year?
| |
Type X |
Type Y |
| First cost, $ |
–7,650 |
–12,900 |
| Maintenance cost, $/year |
–1,200 |
–900 |
| Salvage value, $ |
0 |
2,000 |
| Life, years |
2 |
4 |
Question 11 (5 points)
Two processes can be used for producing a polymer that reduces friction loss in engines. Process K will have a first cost of $160,000, an operating cost of $7000 per month, and a salvage value of $40,000 after its 2-year life. Process L will have a first cost of $210,000, an operating cost of $5000 per month, and a $26,000 salvage value after its 4-year life. Which process should be selected on the basis of an annual worth analysis at an interest rate of 12% per year, compounded monthly?
Question 12 (5 points)
Determine the perpetual equivalent annual worth (in years 1 through infinity) of an investment of $50,000 at time 0 and $50,000 per year thereafter (forever) at an interest rate of 10% per year.
Question 13 (5 points)
How much must you deposit in your retirement account each year for 10 years starting now (i.e., years 0 through 9) if you want to be able to withdraw $50,000 per year forever beginning 30 years from now? Assume the account earns interest at 10% per year.
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