Quiz

docx

School

Trine University *

*We aren’t endorsed by this school

Course

5203

Subject

Finance

Date

Feb 20, 2024

Type

docx

Pages

Uploaded by PresidentSnow12699

An automaton asset with a high first cost of $10 million has required capital recovery (CR) of $1,985,000 per year. The correct interpretation of this CR value is that O a. each year of its expected life, a net revenue of $1,985,000 must be realized to recover the $10 million first cost. O b. the services provided by the asset will stop if less than $1,985,000 in net revenue is reported in any year. each year of its expected life, a net revenue of $1,985,000 must be realized to recover the $10 million first cost and the required rate of return on this investment. the owner must pay an additional $1,985,000 each year to retain the asset. Clear my choice Three mutually exclusive machines (A, B, and C) were under consideration to replace an existing machine that is at the end of its service life. Annual worth for each machine was computed based on its purchase price and expected future operating and maintenance costs. The AW values of the three cost alternatives are § ~23,000 for Alternative A, $-21,600 for B, and $-27,300 for C. On the basis of these results, the best decision is to O a. select alternative A. ® b. select alternative B. O ¢ select alternative C. O d. select the Do Nothing alternative, because all of the AW values are negative. Clear my choice The capitalized cost of an initial investment of $200,000 and annual investments of $30,000 forever at an interest rate of 10% per year is closest to $230,000. $2,300,000. $300,000. @ d. $500,000. Clear my choice To get the AW of a cash flow of $10,000 that occurs every 10 years forever, with the first one occurring now, it s correct to multiply the $10,000 by (A/P, i, 10). O b. multiply the $10,000 by (AF, i, 10). ) ¢ multiply the $10,000 by i O d. multiply the $10,000 by (A/F, i, n) and then multiply by i. Clear my choice Data, which included expected first cost, future revenues, future operating cost, and the salvage value, was compiled for four independent alternatives. The computed present worth for each project s listed in the table below. Which alternative(s) should be selected? Anemative A 8 © [ Present Worth, § -5000 -2000 -3000 -1000 O a. Allof them. ® b. None of them. O ¢ Can'ttell from this information. O d. OnlyD. Clear my choice

When comparing mutually exclusive alternatives that have different lives by the present worth method, it is necessary to find the present worth over one life cycle of each alternative. always compare them over a period equal to the life of the shorter-lived alternative. ) . always compare them over a period equal to the life of the longer-lived alternative. Find the least common denominator and convert both periods to equal length. Clear my choice The present worth of an alternative that provides infinite service is called its a. discounted total cost. b. capitalized cost. ¢ perpetual annual cost. d. net present value. Clear my choice If you have the annual worth of an alternative with a 5-year life, you can calculate its perpetual annual worth by a. no calculation needed. The perpetual annual worth is equal to the annual worth. O b. multiplying the annual worth by i. multiplying the annual worth by (A/P, i, 5). O d. dividing the annual worth by i Clear my choice The estimates for two altematives (shown in the table below) are to be compared on the basis of their perpetual equivalent annual worth. At an interest rate of 10% per year, the equation that represents the perpetual AW of alterative Y is Antermative x Y Firstcost. -50000 -90000 Annual cost Syear 10000 -4000 Salvage value. $ 13000 15000 Ue, years 3 6 90,000(A/P, 10%, 6) - 4000 + 15,000(A/F, 10%, 6). O b. AWy = -90,000(0.10) - 4000 - 15,000(P/F, 10%, 3)(0.10) + 15,000(0.10). AWy = -90,000(0.10) - 4000 + 15,000(A/F, 10%, 6). AWy = -90,000(0.10) - 4000 + 15,000(0.10). Clear my choice A full life-cycle cost analysis, using the annual worth method, would be most appropriate when O a. upfront research and development represents majority of the product cost @ b. alarge proportion of all of the costs comes from annual operating and maintenance costs. O . salvage value has a big impact on the acceptability of the project. O d. revenues are significant relative to costs in the estimated cash flows. Clear my choice

GENERAL INSTRUCTIONS: ENTER YOUR ANSWER WITHOUT THE $ SIGN AND COMMA, BUT FORMATTED IN DOLLARS ROUNDED TO THE NEAREST DOLLAR, for instance if you compute $69,289.6478 then ENTER 69290 AS YOUR ANSWER. DO NOT ROUND IN YOUR CALCULATION STEPS (use calculator memory functions) TO AVOID ROUNDING ERRORS. There is a little bit of tolerance built into accepting/rejecting your answer, but if you round in your intermediate calculations you may be too far off. Prime Petroleum Inc. is considering an acquisition of a new production facility in order to expand production of its main product, a gasoline additive Gas Gain. The cost of construction (first cost) is $9,000,000. The annual operating cost is projected to be $700,000. The facility will be liquidated in 24 years, resulting in a salvage value inflow of $2,000,000. Assuming MARR of 4%, compute the annual worth of the project's cash flows, and type in your answer expressed as a cost (do not include negative sign with your answer). Answer:] 123920C -9000000 x 0.0656 - 700000 + 2000000 X 0.0256=1239200

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version