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economics 14th global
Questions and Answers of
Economics 14th Global
True or False: In performing engineering economic analyses of replacement alternatives, it is best to perform before-tax analyses, since incorporating income tax considerations in the analysis is
True or False: The two approaches used in performing replacement analyses are the cash flow approach and the insider viewpoint approach.
True or False: Before-tax replacement analyses and after-tax replacement analyses seldom yield the same recommendation.
True or False: Section 1031 exchanges of property can be performed for any real or personal property.
True or False: If the optimum replacement interval for an over-the-road tractor is 4 years and the initial cost of the tractor is increased by 20% then the optimum replacement interval for the next
True or False: If the optimum replacement interval for an over-the-road tractor is 4 years and the salvage value for used tractors is suddenly cut in half, then the optimum replacement interval for
True or False: If the optimum replacement interval for an over-the-road tractor is 4 years and the after-tax MARR is increased from 9% to 12%, then the optimum replacement interval for the next
True or False: If the optimum replacement interval for an over-the-road tractor is 4 years and the rate of increase in O&M costs doubles, then the optimum replacement interval for the next tractor
True or False: Section 1031 Property Exchanges are no longer permitted by the U.S. Internal Revenue Service.
Consider the following binary linear programming formulation of a capital budgeting problem.\[\begin{array}{ll}\text { Max } & 1,200 x_{1}+600 x_{2}+950 x_{3}+1,650 x_{4} \\\text { s.t. } & 15,000
Mike's Veneer Shop owns a vacuum press that requires annual maintenance. Mike has a contract to cover the maintenance expenses for the next 5 years. The contract calls for an annual payment of \(\$
Give four examples of goods or services that have exhibited inflation in recent years.
True or False: The Consumer Price Index typically increases faster than the Higher Education Price Index.
Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is \($9\) million, with
What is the numeric value of the present worth of the original project (i.e., no changes)?a. -10b. 20c. 1,000d. Cannot be determined from the information given
True or False: Monte Carlo simulation is used in casinos, but has no application other than in roulette and other gambling establishments.
Gooey Bites sells snack packs for \(\$ 3\) per pack. Variable expenses involved in producing snack packs are estimated to be \(\$ 1\) per pack, and fixed costs for operating the production line are
What percentage change in initial investment would cause the project to WILEY \(\oplus\) become unattractive?a. -10b. +20c. \(+1,000\)d. Cannot be determined from the information given
True or False: Inflation decreases the purchasing power of money.
Logan is conducting an economic evaluation under inflation using the then-current approach. If the inflation rate is \(j\) and the real time value of money rate is \(d\), which of the following is
What is a good working definition of inflation in 10 words or less?
True or False: The most commonly used measure of inflation is the relative change in the Consumer Price Index.
Mike's Veneer Shop owns a vacuum press that requires annual maintenance. Mike has a contract to cover the maintenance expenses for the next 5 years. The contract calls for an annual payment of \(\$
What is the relationship between ‘‘inflation’’ and ‘‘deflation’’? Give an example of deflation experienced in your everyday life.
True or False: In performing engineering economic analyses in inflationary conditions, the after-tax present worth will always be less than it would be if inflation were negligible.
An economist has predicted that there will be a 7 percent per year inflation of prices during the next 10 years. If this prediction proves to be correct, an item that presently sells for \(\$ 10\)
Give two examples of goods or services that you have seen inflate and deflate dramatically over the past few years.
True or False: The two approaches used in considering inflation are the constant dollar and the then-current dollar approaches.
If the real discount rate is 7 percent and the inflation rate is 10 percent, which of the following interest rates will be used to find the present worth of a series of cash flows that are in
What is meant by a ‘‘market basket rate’’?
True or False: If the real minimum attractive rate of return is 8%, inflation is 4%, and the tax rate is 40%, then money should not be borrowed if the interest rate on the loan is greater than 18%.
If the real discount rate is 7 percent and the inflation rate is 10 percent, which of the following interest rates will be used to find the present worth of a series of cash flows that are in
What are the differences between the consumer price index (CPI) and the producers price index (PPI)?
True or False: if the real minimum attractive rate of return is 8%, inflation is 4%, the tax rate is 40%, and money can be borrowed at 16% annual compound interest, then the loan should be repaid
When done correctly, what is the relationship between the present worth of an alternative calculated using a then-current approach and the present worth of the alternative calculated using a
What is the higher education price index (HEPI), where does it fit in with the CPI and the PPI, and how is the HEPI related to the CPI?
True or False: If the real minimum attractive rate of return is 8%, inflation is 4%, the tax rate is 40%, and money can be borrowed at 12% annual compound interest, then the loan should be repaid
A government agency has reported the quarterly inflation rates shown below for the previous four quarters. What was the effective annual inflation rate?a. 2 percentb. 2.75 percentc. 11 percentd.
Suppose a friend argues that the CPI does not represent them because they do not purchase some of the things, including big-ticket items, in the market basket. Can they conclude that the CPI is
True or False: If the combined minimum attractive rate of return is 12% and inflation is 4%, then the real minimum attractive rate of return is approximately 7. 7%.
As reported by the Bureau of Labor Statistics, the CPI for 2005 was 585.0 (using a base year of \(1967=100\) ). The CPI for 2006 was 603.9 . Based on this data, what was the inflation rate for 2006
The CPI-U (U.S. city average, all items) has the following annual averages:a. For each year from 2007 to 2010, determine the annual inflation rate in percent to three decimal places.b. Since
True or False: When investing in capital equipment, inflation reduces the aftertax present worth because depreciation does not increase with inflation.
The seasonally adjusted rate increases for gasoline, unleaded regular, during early 2011 are as follows:a. Assuming the index value in January 2011 was 278.404, determine the index for each year from
Ten years ago, Jennifer bought an investment property for \(\$ 100,000\). Over the 10 -year period, inflation has held consistently at 3 percent annually. If Jennifer expects a 13 percent/year real
The United States manufacturing output per hour index is given as follows for years 2005 to 2009:a. For each year from 2006 to 2009, determine the rate of increase in U.S. manufacturing output per
The Korean hourly compensation percentage rates of increase, based on U.S. dollars, are presented as follows:a. Assuming the Korean compensation index in U.S. dollar was $12.73 in 2004, determine the
You are earning 5.2 percent on a certificate of deposit. Inflation is running 3.5 percent. What is the real rate of return on your investment?
You are considering a bond that pays annually at 6.2 percent. Inflation is projected to be running 4 percent. What will be your real interest rate?
Array Solutions requires a 14 percent return on their projects. Analysis shows that even though they have been earning the desired 14 percent, their real return appears to be only 10 percent when
ChevronPhillips requires a real return of 14.2 percent. If inflation is running 3.8 percent, what must be their MARR, or ‘‘hurdle rate,’’ on capital investments when using then-current
Suppose you want to earn a real interest rate of 5 percent. For inflation rates of 0.0, 1.0, 2.0, . . . , 9.0, 10.0, 15.0, 20.0, and 50.0 percent, determine the combined rate of interest you must
How much must you invest exactly 5 years from now to have $500,000 in today’s buying power 20 years from now?You can invest your money at 10 percent per year, and inflation runs 4 percent.
A software company’s labor requirements currently cost $350,000/year. The labor-hour requirements are expected to increase by 10 percent per year over the next 5 years. If inflation is 4 percent,
You invested \($10,000\) on January 1, 2014, at 7 percent interest compounded annually. You have not touched the investment since that date. You are planning to take your money and close out the
Your department is budgeting miscellaneous expenses for the next 5 years. Your best guess at the annual inflation rate is 3.9 percent, and the combined MARR is 15 percent. Expenses currently run
Shea is pricing materials (wood, wire, pipe, etc.) for new home construction on a ‘‘per unit’’ basis. Inflation on materials has been running at 16 percent for the past 3 years and is
Global steel prices have a year-over-year inflationary rate increase of 12.4 percent. Tube Fab purchased $700,000 of a particular carbon steel during the year just ended right now, and they intend to
Global steel prices have a year-over-year inflationary rate increase of 12.4 percent. Tube Fab purchased $700,000 of a particular carbon steel during the year just ended right now. Their business has
Padayappa has now retired after 40 years of employment. He just made an annual deposit to his investment portfolio and realized he has $2 million (not counting home, cars, furniture, etc.). His money
A 24-year-old December 2012 graduate wants the equivalent of \($2,500,000\) in January 1, 2013, buying power to be available exactly 40 years later on January 1, 2053. He plans to make his first
An investment of \($8,000\) is made at time 0 with returns of \($3,500\) at the end of each of years 1 through 4, with all monetary amounts being in real dollars. Inflation is running 7 percent per
The winner of a lottery is given a choice of \($1,000,000\) cash today or \($2,000,000\) paid out as follows: \($100,000\) cash per year for 20 years with the first payment today and 19 subsequent
Annual energy costs are rising at 20 percent/year, while general inflation is running 3.9 percent. Allied Energy offers an energy-saving device that would have saved $1,000 last year, with savings
A landfill has a first cost of \($270,000.\) Annual operating and maintenance costs for the first year will be \($40,000.These\) costs will increase at 11 percent annually. Income for dumping rights
A family wishes to provide for their child’s college education. Being a bit risk averse, they plan to invest in stable yet unspectacular opportunities yielding a 6 percent return. Their best guess
A ham radio operator wishes to borrow $160,000 to construct a world-class antenna system, transceiver, and amplifier at an electrically quiet location that can be accessed remotely and controlled via
For the situation stated in Problem 32, let the interest on borrowed money go from 5 percent to 15 percent in 1 percent increments. For each borrowing rate, which repayment method is preferred? Do
Steinway R&D is pursuing the development of an attachment that can easily clean the inside of grand pianos. This innovation will require a loan of $500,000 for fabrication and testing of several
For the situation stated in Problem 34, let the interest on borrowed money go from 7 percent to 20 percent in 1 percent increments. For each borrowing rate, which repayment method is preferred? Do
An economic analysis is being performed in real (not actual) dollars. The company’s combined MARR is 10 percent, and the inflation rate is 4 percent. The asset has a first cost of $10,000. It will
Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is \($9\) million. The
Reconsider Problem 37 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d.
Henredon purchases a high-precision programmable router for shaping furniture components for \($190,000.\) It is expected to last 12 years and have a salvage value of \($5,000.\) It will produce
Reconsider Problem 39 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d.
Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for
Reconsider Problem 41 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d.
Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is \($9\) million. The
Reconsider Problem 43 exactly as written.a. Determine the actual after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d.
Henredon purchases a high-precision programmable router for shaping furniture components for \($190,000.\) It is expected to last 12 years and have a salvage value of \($5,000.\) It will produce
Reconsider Problem 45 exactly as written.a. Determine the actual after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d.
Reconsider Problem 47 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d.
Henredon purchases a high-precision programmable router for shaping furniture components for \($190,000.\) It is expected to last 12 years and have a salvage value of \($5,000.\) Henredon will borrow
Reconsider Problem 49 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d.
Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for
Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is \($9\) million, with
If the total cost for producing widgets can be represented by \(T C=8,000+0.75 X\), where \(X\) is the number of widgets produced and total revenue can be represented by \(T R=4.00 X\), what is the
True or False: In the absence of perfect information accurate investment decisions cannot be made.
True or False: Break-even analysis is a brand new concept, nothing like it has been presented previously in the book.
The analysis is most sensitive to changes in which component?a. Annual revenueb. Initial investmentc. Salvage valued. Cannot be determined from the information given
True or False: Sensitivity analysis is a technique used by psychologists to gauge a person's reaction to criticism.
The analysis is least sensitive to changes in which component?a. Annual revenueb. Initial investmentc. Salvage valued. Cannot be determined from the information given
True or False: Risk analyses are performed when complete uncertainty exists and no reasonable estimates can be made regarding the probability of occurrence of parameter values.
True or False: If the cost of producing one unit of product is uniformly distributed with a mean of \(25 \phi\) and a standard deviation of \(10 \phi\), then the cost of producing 1000 units of
If a line for "annual expenses" was to be added to the graph, what slope would you expect the line to have?a. Positive slope (line rises as it goes left to right)b. Negative slope (line falls as it
True or False: If producing one unit of product has a mean cost of \(25 \phi\) and a standard deviation of \(10 \phi\), then there will be a 0.999 probability of it costing less than \$260 to produce
Which of the following is not a method typically used for supplementary analysis WILEY \(\boldsymbol{\oplus}\) of engineering economy problems?a. Break-even analysisb. Depreciation analysisc. Risk
True or False: if producing one unit of produce has a mean cost of \(25 \phi\) and a standard deviation of \(10 \phi\), then there will be a 0.841 probability of it costing less than \(\$ 260\) to
The probability of weather-related crop damage during the growing season in a typical year is given by the following table. If the interest rate is 8 percent, what is the expected present worth of
True or False: If \(X\) and \(Y\) are independent random variables with expected values and variances of \(\mathrm{E}(\mathrm{X}), \mathrm{E}(\mathrm{Y}), \mathrm{V}(\mathrm{X})\), and
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