APSC 221 Final Exam

Working capital refers to the funds required for current assets that are needed for the start-up and support of operational activities. (T/F)

True

Chloe invests $65,000 today. At the end of year 4 she will start to withdraw a consistent amount annually until the end of year 24. If the interest rate is 14%, how much money can be withdrawn each year?

$14,401

A North American company is considering expanding its marketing efforts into Asia. It is, however, concerned with the uncertainty around possible shipping delays and quality control problems associated with the expansion. You estimate that shipping may be delayed 61% of the time due to the distance. There might also be a poor quality problem 59% of the time due to communication difficulties. Payoff information is given below. Shipping Quality Amount No Shipping Delay Acceptable $175,000 No Shipping Delay Poor $35,000 Shipping Delay Acceptable $90,000 Shipping Delay Poor $-95,000 Sketch out your decision tree and determine the final expected value (EV) for this possible opportunity. [Use two decimal place accuracy for probabilities and round your answer to the whole dollar.]

$24,355

17 years ago you put $38,000 in an investment account earning 14%. In year 6 you took out a sum of $9,000 from the account. How much money do you have now?

$314,469.55

You purchase a car for $11,650. Determine the book value of the car at the end of 2 years if it depreciates by 25% each year.

$6,553.13

Adam withdraws uniformly from a savings account, at a rate of $7,000 for 10 years. Then due to unforeseen circumstances he needs to increase his annual withdrawal by an additional $1300. He continues to withdraw money at this increased rate for another 5 years until the account is exhausted. With an interest rate of 8%, what was the initial value of the savings account?

$62,320.57

The purchase price of a new printing press is $18,500 with $4,600 in installation cost and would have a salvage value that can be estimated using a declining balance approach with d=22%. Operating and maintenance costs will be $4,130 this year and will increase by $145 per year. If the company's MARR is 9%, what is the EAC if the press is kept for 14 years? Use a positive sign convension for your answer, i.e EAC will be >0 and round your answer to the nearest penny.

$7,819.10

A company is consider buying a new machine for $8,570. The manufacturer tells you that the machine, with regular maintenance of around $190 per year, should be able to continue working for 13 years. Based on your calculations the salvage value at that time should be about $750. According to the current asset class table the allowable depreciation rate for this machine would be 27%. If the company's tax rate is 50% and their after-tax MARR is 8%, what is the after tax annual worth of this investment? Use four decimal place accuracy for the CTF and CSF.

-755.12

Maturity 0.9 Cost 0.6 Complexity 0.5 Schedule 0.8 Dependency 0.8 Reliability 0.8 Performance 0.9 Calculate the overall risk factor for the project to 2 decimal places of accuracy.

.94

The cost of standard lithography equipment with a capicity of 115 circuit boards per hour is $2,400. If the cost for custom lithography equipment with a capcity of 210 circuit boards per hour is $6,600, what is the value of the cost capacity factor?

1.67991

If your company's real MARR is 12.6% and inflation is expected to average at 0.5% for the next 5 years. What is the actual MARR? [two decimal places accuracy - for example if your answer is 0.12345 you input 12.35 (without the percentage sign)]

13.16%

An internet provider has a fixed cost of $740 a month and variable costs of $50a month per subscriber. If the company charges $70 a month for the service, what is the breakeven point for the company in terms of subscribers per month? (round to nearest whole number)

37

What is the annual effective interest rate equivalent for a nominal rate of 6.000%, compounded semi-annually? (three decimal places accuracy)

6.090 (ie = (1 + r/m)^m - 1)

One reason why perfect monopolies rarely occur in practice is because: a) Few products are so unique that substitutes cannot be used. b) A large number of vendors can supply the same product. c) Additional suppliers can enter the marker freely d) People usually stop buying the product before this occurs.

A

What does Cn stand for in the index equation? a) Reference year for which cost is known. b) Cost or price of the item in reference year. c) Year for which the cost is to be estimated. d) Estimated cost of price of the item in year being analyzed.

D

The payback period is the number of years it takes for an investment to be recouped when the interest rate is assumed to be zero. (T/F)

True

To find the annuity value, A, equivalent to a present amount, P, with a given interest rate, i, and the number of periods over which this annuity will be paid, N, one would use the __________ factor. a) Capital recovery b) Uniform series compound amount c) Series present worth d) None of the above

A

Actual dollars, sometimes called current or nominal dollars are expressed ________ a) as a ratio of future dollars normalized to the consumer price index. b) at the time the cash flow occurs. c) as the numerical value of the consumer price index. d) in terms of constant purchasing power. e) None of the above

B

Models of cash flows which assume that all cash flows and all compounding of cash flows occur at the ends of conventionally defined periods are called __________. a) Continuous models b) Discrete Models c) Irregular models d) End of period models

B

Nominal interest rate is found by multiplying the __________ by the number of compounding periods per year. a) Principle sum b) Interest rate per compounding period c) Effective interest rate d) None of the above

B

The IRR is the interest rate at which a project _____. a) Makes a profit b) Just breaks even c) Fails d) Incurs a loss

B

The ______ can also be used for the annual worth method if the assumption of being able to indefinitely repeat the choice of alternatives is not justified. a) Payback period b) Study period c) MARR d) Independent project

B

The costs discussed in Chapter 13 can be related to the more general ideas of _________ and ________ costs. a) increasing, decreasing b) fixed, variable c) primary, secondary d) None of the above e) All of the above

B

The economic life of an asset is found at the point where the rate of increase in operating and maintenance costs per period _______ the rate of decrease in capital costs per period. a) is greater than b) equals c) is less than d) crosses e) None of the above

B

What does 'd' stand for in the CSF equation? a) Depreciation b) The CCA rate c) Salvage Value d) After-tax MARR

B

An asset is purchased for $5000. The salvage value at the end of its four year life is $1000. What is the annual depreciation charge assuming the rate of loss in asset value is constant? a) 400 b) 500 c) 1000 d) 4000

C

Bicycles have a limited lifespan because the tires wear out. This is an example of: a) Time-related physical loss b) Functional loss c) Use-related physical loss d) None of the above

C

Change is made by ... A) processes. B) systems. C) people. D) external forces.

C

The cost of capital for large companies is an average of the costs of borrowing and of selling shares, which is referred to as the ___ average cost of capital. a) Total b) Annual c) Weighted d) Acceptable

C

The duration and structure of change initiatives vary significantly, but all have a degree of complexity and ... A) monitor resources, costs, quality and budget. B) require equity sources of funding. C) are outside the normal daily workload. D) involve cost accounting and management accounting.

C

What would the after-tax MARR be on an investment with a before-tax MARR of 16% for a company who pays 30% corporate taxes? a) 0.112% b) 1.2% c) 11.2% d)16%

C

Which technique sums the product of several quantities or components and adds these to any components estimated directly? a) Unit technique b) Power-sizing technique c) Factor technique d) Adding technique

C

Your company must decide what to do with an old pump it purchased 12 years ago. The pump hasn't been used for two years and is now in storage. You have collected the following data; Purchase price 12 years ago = $7,000 Storage costs to date = $500 Current price for a new pump = $12,000 Amount offered for the pump two years ago = $1,250 Best estimate of what the pump would bring today = $1,000 What is the opportunity cost associated with this pump? a) $1,750 b) $1,500 c) $1,000 d) $1,250

C

A project organization can choose to __________ risk. A) accept B) share C) transfer D) all of the above

D

A risk impact matrix compares ... A) likelihood and cost estimate risk. B) dependency and consequences. C) maturity and reliability. D) consequences and likelihood.

D

Mathematical equivalence is a consequence of the mathematical relationship between _______. a) First cost and salvage value b) Sunk costs and opportunity cost c) Depreciation and market value d) Time and money

D

There are four classic outcomes from change, which reflect the risks and the ways to avoid them. They are; The disaster, the lost investment, the _______ and the ideal. A) redesign success B) unlikely outcome C) complete success D) partial success

D

To protect his poultry from meteorites, the gentleman farmer made hard hats for each bird and installed a meteor detection system that opened umbrellas throughout the yard if a meteor were detected. This is an example of an event that is ... A) high in probability and low in consequence. B) low in consequence and low in probability. C) high in consequence and high in probability. D) low in probability and high in consequence.

D

Which of the following are steps for computing the ERR that belong to a more convenient, but approximate procedure than finding a precise ERR? a) Take all net receipts forward at the MARR to the times of the last cash flow. b) Take all net disbursements forward at an unknown interest rate also to the time of the last cash flow. c) Equate the future value of the receipts from the first step of the procedure to the future value of the disbursements for the second step of the procedure and solve for . d) All of the above

D

A break-even analysis could be used to _______. a) determine the MARR that results in a zero present worth b) determine what parameter value causes the performance measure to reach some threshold c) compare multiple projects d) determine the revenues required to produce a zero annual worth e) all of the above

E

Any outcome cannot have a chance of occurring _______. A) less than 0% B) greater than 0% C) greater than 100% D) less than 100% E) Both A and C

E

Inflation can also be viewed as ________ the purchasing power of money over time. a) an increase in b) a change in c) an interest rate change in d) a published number describing e) None of the above

E

A license fee is an example of an incremental cost. (T/F)

False

In the replacement case where the defender and challenger are identical, it is not necessary to assume that the two options are technologically identical. (T/F)

False

On a cash flow diagram, the vertical arrows pointing upwards represent a negative cash flow. (T/F)

False

Sensitivity graphs illustrate the sensitivity of a particular measure to multiple-at-a-time changes in the uncertain parameters of a project. (T/F)

False

The after-tax IRR is simply the IRR calculation on the before-tax cash flows. (T/F)

False

The book value is usually taken as the actual value an asset can be sold for in an open market. (T/F)

False

The payback period method will always give results consistent with rate of return or present/annual worth methods. (T/F)

False

The power-sizing technique is sometime referred to as a linear model. (T/F)

False

The timing of cash flows is always simple and regular. (T/F)

False

When future inflation is expected over the life of the project, the MARR needs to be decreased.

False

Capital purchases cannot usually be fully claimed as an expense in the year in which the purchase occurred. (T/F)

True

A cash flow diagram summarizes the timing and magnitude of cash flows as they occur over time. (T/F)

True

A random variable is a parameter that can take on a number of possible outcomes. (T/F)

True

An asset starts to lose value as soon as it's purchased. (T/F)

True

An assumption required by the principle of discrete compounding is that the compounding periods are of equal length. (T/F)

True

An index is a dimensionless number that indicates how a cost or price has changed with time with respect to a base year. (T/F)

True

An investment may be thought of as an exchange of resources now for an expected flow of benefits in the future. (T/F)

True

If there are several independent projects, the IRR for each is calculated separately. (T/F)

True

Sunk costs are irrelevant to any decision to replace the current asset. (T/F)

True

The actual MARR is the real MARR plus an upward adjustment that reflects the effect of inflation. (T/F)

True