CEE Exam 2

¡Supera tus tareas y exámenes ahora con Quizwiz!

An economic evaluation of the following mutually exclusive alternatives is being conducted. Since they have different service​ lives, repeatability is assumed and an analysis period of 18 years is used. The MARR is 10​%. Alternative A Alternative B Initial cost ​$35,000 ​$120,000 Annual revenues ​$25,000 ​$40,000 Service life​ (years) 6 9 1.​(1) The net AW of Alternative B over the analysis period is​ (select the closest​ value) 2.The net PW of Alternative B over the analysis period is​ (select the closest​ value)

1. $19163 2.$157164

An economic evaluation of the following mutually exclusive alternatives is being conducted. Since they have different service​ lives, repeatability is assumed and an analysis period of 18 years is used. The MARR is 12​%. Alternative A Alternative B Initial cost ​$30,000 ​$120,000 Annual revenues ​$15,000 ​$35,000 Service life​ (years) 6 9 Answer the following two​ questions ​(1) The net AW of Alternative A over the analysis period is​ (select the closest​ value) (2) The net PW of Alternative A over the analysis period is​ (select the closest​ value)

1.​$7,703 2.55,844

Given the following information for a​ project: initial capital cost​ = $900,000; annual revenues​ = $60,000 and annual costs​ = $15,000; its simple payback period is most nearly equal to

20 years

Two mutually exclusive investment projects with service lives of 8 and 12 years are being compared. Using the repeatability​ assumption, which of the following is the most reasonable common analysis period to be used in the analysis.

24 years

The following four alternative investments are being compared at MARR of​ 12%. Which investment is the most economical over the service​ life? Alt. E Alt. Q Alt. L Alt. S

Alt E because it has the highest net PW

The following two alternative investments are being evaluated at a MARR of ​ 12%. Alt. P Alt. Q Alt. Q versus P

Alt P is more economical because the incremental​ B/C ratio is​ < 1

The following mutually exclusive alternative investments are being compared at MARR of​ 12%. Alt. X Alt. Y Service life​ (years) 10 10 Net AW ​ $534,000 ​ $422,000 IRR ​ 13.4% ​ 16.2% Which of the two investments is more​ economical:

Alt X because it has a higher net AW

The following mutually exclusive alternative investments are being compared at MARR of ​10%. X Y Y versus X Initial cost ​$250,000 ​$400,000 ​$150,000 Service life​ (years) 10 10 10 IRR ​17.2% ​15.1% ​11.5% Which of the two investments is more​ economical:

Alt Y because the incremental IRR​ > MARR

The following two mutually exclusive alternative investments with different service lives are being compared at MARR of​ 6%. Alt. W Alt. V Service life​ (years) 15 20 Net PW​ (over service​ life) ​ $1,834,000 ​ $2,312,000 Net AW​ (over service​ life) ​ $249,182 ​ $238,050 Based on the information​ given, which of the two investments is more​ economical?

Alt. W because it has a higher net AW

The table below summarizes the comparison between four mutually exclusive alternatives using the IRR method. The MARR is​ 10%. Which alternative should be the base alternative in the first step of the incremental​ analysis? Alternative P Q R S Initial Cost ​$110,000 ​$130,000 ​$95,000 ​$354,000 Annual Income ​$21,500 ​$31,200 ​$20,000 ​$74,000 IRR ​14.5% ​20.2% ​16.5% ​16.3%

Alternative R because it has the lowest initial cost

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.

False

Although changing the value of MARR changes the values of the PW of alternatives being​ compared, it never changes the relative rankings of the alternatives in terms of their economic preference.

False

For selecting between mutually exclusive​ projects, the net PW of the projects over their respective service lives can be compared directly and used to make recommendations even if the projetcs have different service​ lives, as long as the repeatability assumption is made.

False

If project A has a higher PW than project B at MARR​ = i, then project A will always have a higher PW than B for all values of MARR ≥i.

False

When comparing mutually exclusive alternatives with the same service​ lives, the alternative with the highest IRR value is always the most economical.

False

When comparing mutually exclusive alternatives with the same service​ lives, the alternative with the highest​ B/C ratio is always the most economical.

False

If the IRR of project A is​ IRR(A), and that of a higher cost project B is​ IRR(B), then project B will be preferred over A if the incremental IRR is greater​ than:

MARR

​(2) Given that the internal rate of return for project X is​ IRR(X) and that of higher ranked project Y is​ IRR(Y), then project Y will be preferred over X if the incremental rate of return is greater than.

MARR

(1) Given that the​ benefit/cost ratio for project X is​ B/C(X) and that of higher ranked project Y is​ B/C(Y), then project Y will be preferred over X if the incremental​ benefit/cost ratio is greater than

One

An investment project is more economical than the​ "do nothing" alternative if its​ B/C ratio calculated at the desired MARR over its service life is

greater than one

An investment project is more economical than the​ "do nothing" alternative if its net PW calculated over its service life is

greater than zero

If​ , for a given value of​ MARR, Alternative A has a higher net PW than Alternative B with the same service​ life, then Alternative A should also have a net AW.

higher

For projects with the same service​ lives, If the net PW over the service life for project A is higher than that of project​ B, then the net AW of project A will be​ _________ that of B.

higher than

One of the shortcomings of using the discounted payback period to select alternatives is that

it ignores all the cash flows beyond the payback period

An alternative investment with a higher net PW compared to a competing alternative with the same​ lifetime, will also have a higher IRR.

sometimes, not always

In computing the IRR for a project by​ trial-and-error method, at i​ = 9%, net PW​ = ​ -$100, and at i​ = 10%, the net PW​ = $50. What is the best estimate for the​ IRR?

​9.67% USE NOTES EQUATION

Changing the value of MARR used in comparing several alternatives may change the rankings of the alternatives in terms of their economic preference.

True

Comparing several mutually exclusive alternative investments over the same analysis period using the net present worth method will result in the same recommendation as comparing them using the net annual worth method.

True

For selecting between mutually exclusive​ projects, the net AW of the projects over their respective service lives can be compared directly and used to make recommendations even if the projects have different service lives​, as long as the repeatability assumption is made.

True

Using the incremental IRR method for comparing alternatives always results in the same economically preferred alternative as using the PW method.

True

Using the incremental​ B/C ratio method for economic comparizons of mutually exclusive alternatives gives the same results as using the net AW method.

True

When comparing mutually exclusive alternatives with the same service​ lives, the alternative with the highest net PW value is the most economical alternative

True

When selecting projects based on the payback period​ method, a project with a shorter payback period is generally preferred.

True

The table below summarizes the comparison between four mutually exclusive alternatives using the IRR method. The MARR is​ 15%. Step 1 of the incremental analysis has been done as shown. Which two alternatives should be compared in Step​ 2? Alternative V W X Y Step 1 W vs V Step 2 ​? Initial Cost ​$80,000 ​$130,000 ​$220,000 ​$354,000 ​$50,000 Annual Income ​$21,500 ​$31,200 ​$46,500 ​$74,000 ​$9,700 IRR ​23.7% ​20.2% ​16.6% ​16.3% ​14.3%

X vs V

A county director of public works is evaluating a project with the following cash​ flows: Initial cost​ = ​$100,000​; Annual benefits​ = ​$80,000​; Annual costs​ = ​$20,000​; and a service life of 20 years with a salvage value of ​$20,000. The county uses a MARR is 4​% for its economic analysis. 1.​(a) The conventional​ B/C ratio for the project is equal to ​(b) The modified​ B/C ratio for the project is equal to

a. 3.00 b. 8.97


Conjuntos de estudio relacionados

Federal Tax COnsiderations for Life Insurance

View Set

Chapter 10,11,12 Child Development

View Set

Chapter 6- Professional Organizations

View Set

PSYCH 1XX3 - Quiz Questions and Answers

View Set