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Quize ch6

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Maysa Farron
Maysa Farron

This document appears to be a quiz from an engineering economics course assessing students' ability to analyze investment alternatives using capital budgeting techniques like net present value and internal rate of return. The quiz contains multiple choice and short answer questions testing concepts like identifying the base alternative, incremental analysis, calculating IRR, and selecting the best project. The student is provided a table with capital investments, revenues, expenses, market values, and IRRs for four alternatives and must determine the base case, compare alternatives incrementally, calculate IRR for one project, identify which should be rejected at a 15% minimum attractive rate of return, and select the best using net present value.

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Jordan University of Science and Technology Faculty of Engineering Industrial Engineering Department IE 341: Engineering economy First Semester 2011/2012 Name :. Quiz 4 Eng. Maysaa Faroon .. : #NO Q1: See the table below and solve the following problems. A B C D Capital investment 95,000 45,000 35,000 75,000 Annual expenses 45,000 30,000 20,000 40,000 Annual revenues 57,000 43,000 33,000 50,000 Market value at EOY 10 20,000 15,000 15,000 20,000 IRR 6.9% 27.1% 36.1% 8.4% a) After arranging the alternatives what is the base alternative?........................ b) After the base alternative has been identified, the first comparison to be made in an incremental analysis should be?...................................... c) Write the equation of IRR for A ? d) If the MARR is 15% which alternatives must be rejected?.................................. e) What is the best alternative? Use PW method C B D A Capital investment 35,000 45,000 75,000 95,000 Annual expenses 20,000 30,000 40,000 45,000 Annual revenues 33,000 43,000 50,000 57,000 Market value at EOY10 15,000 15,000 20,000 20,000 IRR 36.1% 27.1% 8.4% 6.9% a) The base alternative is C because: 1. The less capital investment 2. IRR(C) 36.1% acceptable b) B-C c) 裡R(PW) = 裡E(PW) OR 裡R(PW) - 裡E(PW) =0 -95,000 +(57,000 - 45,000 )(P/A,i%, 10 )+20,000(P/F,i%, 10) = 0 d) D & A (IRR<MARR) e) PW(C) = -35,000 +(33,000 - 20,000 )(P/A,15%, 10 )+15,000(P/F,15%, 10) = PW(B) = -45,000 +(43,000 - 30,000 )(P/A,15%, 10 )+15,000(P/F,15%, 10) = The biggest PW is the best alternative
Q2: For the following table assume a MARR = 10% per year and a useful life of 6 years. Complete the IRR analysis by selecting the preferred alternative. A C-A B-C Capital investment -15,000 -2,000 -3,000 Annual Revenue 4,000 900 460 Annual Expenses -1,000 -150 -100 Market Value 6,000 2,220 3,350 IRR 12.7% 10.9% ????? The answer is IRR(B-C) i = 13.4% > 10% SO B is the best alternative

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Quize ch6

  • 1. Jordan University of Science and Technology Faculty of Engineering Industrial Engineering Department IE 341: Engineering economy First Semester 2011/2012 Name :. Quiz 4 Eng. Maysaa Faroon .. : #NO Q1: See the table below and solve the following problems. A B C D Capital investment 95,000 45,000 35,000 75,000 Annual expenses 45,000 30,000 20,000 40,000 Annual revenues 57,000 43,000 33,000 50,000 Market value at EOY 10 20,000 15,000 15,000 20,000 IRR 6.9% 27.1% 36.1% 8.4% a) After arranging the alternatives what is the base alternative?........................ b) After the base alternative has been identified, the first comparison to be made in an incremental analysis should be?...................................... c) Write the equation of IRR for A ? d) If the MARR is 15% which alternatives must be rejected?.................................. e) What is the best alternative? Use PW method C B D A Capital investment 35,000 45,000 75,000 95,000 Annual expenses 20,000 30,000 40,000 45,000 Annual revenues 33,000 43,000 50,000 57,000 Market value at EOY10 15,000 15,000 20,000 20,000 IRR 36.1% 27.1% 8.4% 6.9% a) The base alternative is C because: 1. The less capital investment 2. IRR(C) 36.1% acceptable b) B-C c) 裡R(PW) = 裡E(PW) OR 裡R(PW) - 裡E(PW) =0 -95,000 +(57,000 - 45,000 )(P/A,i%, 10 )+20,000(P/F,i%, 10) = 0 d) D & A (IRR<MARR) e) PW(C) = -35,000 +(33,000 - 20,000 )(P/A,15%, 10 )+15,000(P/F,15%, 10) = PW(B) = -45,000 +(43,000 - 30,000 )(P/A,15%, 10 )+15,000(P/F,15%, 10) = The biggest PW is the best alternative
  • 2. Q2: For the following table assume a MARR = 10% per year and a useful life of 6 years. Complete the IRR analysis by selecting the preferred alternative. A C-A B-C Capital investment -15,000 -2,000 -3,000 Annual Revenue 4,000 900 460 Annual Expenses -1,000 -150 -100 Market Value 6,000 2,220 3,350 IRR 12.7% 10.9% ????? The answer is IRR(B-C) i = 13.4% > 10% SO B is the best alternative