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business
economics 14th global

Questions and Answers of Economics 14th Global

Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of \($100\),000 and a useful life of 15 years. At the
Repeat Problem 65 using payback period with no discounting (PBP).a. What is the payback period for this investment?b. If the maximum attractive PBP is 3 years, what is the decision rule for judging
Baon Chemicals Unlimited purchases a computer-controlled filter for \($100\),000. Half of the purchase price is borrowed from a bank at 15 percent compounded annually. The loan is to be paid back
Home Innovations is evaluating a new product design. The estimated receipts and disbursements associated with the new product are shown below. MARR is 10 percent/year.a. What is the discounted
Repeat Problem 67 using payback period with no discounting (PBP).a. What is the payback period for this investment?b. If the maximum attractive PBP is 3 years, what is the decision rule for judging
The engineering team at Manuel’s Manufacturing, Inc., is planning to purchase an enterprise resource planning (ERP) system. The software and installation from Vendor A costs \($380\),000 initially
Octavia Bakery is planning to purchase one of two ovens. The expected cash flows for each oven are shown below. MARR is 8 percent/year.a. What is the discounted payback period for each investment?b.
Quantum Logistics, Inc., a wholesale distributor, is considering the construction of a new warehouse to serve the southeastern geographic region near the Alabama–Georgia border.There are three
A municipality is planning on constructing a water treatment plant at an initial cost of \($10\),000,000. Every 5 years, major repairs and cleanup are required at a cost of \($2\),000,000. Due to the
Two incinerators are being considered by a waste management company. Design A has an initial cost of \($2\),500,000, has annual operating and maintenance costs of \($800\),000, and requires overhauls
A flood control project at Pleasant Valley dam is projected to cost \($2\),000,000 today, have annual maintenance costs of \($50\),000, and have major inspection and upkeep after each 5-year interval
The gaming commission is introducing a new lottery game called Infinite Progresso. The winner of the Infinite Progresso jackpot will receive \($1\),000 at the end of January, \($2\),000 at the end of
A generous benefactor donates $500,000 to a state university. The donation is to be used to fund student scholarships.Determine the dollar amount of scholarships that can be given out each year under
Reconsider the data from Problem 76.Plot a graph of scholarship dollars versus number of years, where the number of years varies from 1 year to 100 years by 2-year increments. Dollars should be on
A prospective venture has the following cash flow profile over a 5-year horizon. What is the capitalized worth at 6 percent/year assuming the pattern repeats indefinitely? End of Year Receipts
You decide to open an individual retirement account (IRA) at your local bank that pays 8 percent/year compounded annually. At the end of each of the next 40 years, you will deposit $4,000 into the
Barnard College is about to bury a time capsule. To maintain and protect the time capsule in perpetuity, three options are available. Barnard’s MARR is 6 percent/year. Based on a capitalized cost
Orpheum Productions in Nevada is considering three mutually exclusive alternatives for lighting enhancements to one of its recording studios. Each enhancement will increase revenues by attracting
True or False: Present worth analysis is the most popular \(D C F\) measure of economic worth.
True or False: Unless non-monetary considerations dictate otherwise, choose the mutually exclusive investment alternative that has the greatest present worth, regardless of the lives of the
True or False: When using present worth analysis to evaluate the economic viability of mutually exclusive alternatives, use a common period of time in the comparison.
True or False: If \(P W>M A R R=20 \%\), then \(D P B P
True or False: \(D P B P \geq P B P\).
True or False: If \(C W>0\), then \(P W>0\).
True or False: If \(P W(\mathrm{~A})>P W(\mathrm{~B})\), then \(F W(\mathrm{~A})>F W(\mathrm{~B}), A W(\mathrm{~A})>A W(\mathrm{~B})\), \(C W(\mathrm{~A})>C W(\mathrm{~B}), D P B P(\mathrm{~A})
True or False: \(P W, F W, A W, C W\), and \(B / C\) are ranking methods; therefore, the alternative having the greatest \(P W, F W, A W, C W\), or \(B / C\) should be recommended.
True or False: If \(\mathrm{PW}(\mathrm{A})>\mathrm{PW}(\mathrm{B})>\$ 0\) and \(\mathrm{PBP}(\mathrm{A})\mathrm{PBP}(\mathrm{B})\).
True or False: The "do nothing" alternative always has negligible incremental costs and revenues.
When using present worth to evaluate the attractiveness of a single investment alternative, what value is the calculated PW compared to?a. 0.0b. MARRc. 1.0d. WACC
A natural gas well is projected to produce \(\$ 200,000\) in profit during its first year of operation, \(\$ 190,000\) the second year, \(\$ 180,000\) the third year, and so on, continuing this
The present worth of a multiyear investment with all positive cash flows (incomes) other than the initial investment is \(P W=\$ 10,000\) at \(M A R R=i \%\). If MARR changes to \((i+1) \%\), the
Consider the following cash flow diagram. Which of the expressions is not valid for the present worth?a. \(\quad P=100(P \mid A 10 \%, 6)+50(P \mid G 10 \%, 3)\) \(+150(P \mid A 10 \%, 3)(P \mid F 10
Ivan, an industrial engineering student, is working on a homework problem for Engineering Economy. He needs to calculate the PW at 12 percent of a cash flow series with \(\$ 1,000\) at \(t=3, \$
The owner of a cemetery plans to offer a perpetual care service for grave sites. The owner estimates that it will cost \(\$ 120\) per year to maintain a grave site. If the interest rate is 8 percent,
Consider a palletizer at a bottling plant that has a first cost of \(\$ 150,000\), operating and maintenance costs of \(\$ 17,500\) per year, and an estimated net salvage value of \(\$ 25,000\) at
The heat loss through the windows of a home is estimated to cost the homeowner \(\$ 412\) per year in wasted energy. Thermal windows will reduce heat loss by 93 percent and can be installed for \(\$
An inline filter has an estimated life of 9 years. By adding a purifier to the filter, savings of \(\$ 300\) in annual operating costs can be obtained. Annual interest on capital is 8 percent.
The city council has approved the building of a new bridge over Running Water Creek. The bridge will cost \(\$ 17,000\) for initial construction and have an annual maintenance cost of \(\$ 1,000\).
Two projects, A and B, are analyzed using ranking present worth analysis with MARR at \(i \%\). It is found that \(\mathrm{PW}(\mathrm{A})>\mathrm{PW}(\mathrm{B})\). If \(M A R R\) is changed to
Reconsider Problem 18. Management has decided that the $5 million raised through stock should be split between common stock and preferred stock. Common stock will be used to raise $3,000,000 and
Repeat Problem 23 assuming that the stock price is growing at 3 percent per year. Data from problem 23Lahoma Enterprises, Inc., needs $15 million to finance a major product development. The project
Repeat Problem 23 assuming the stock offering will be preferred stock rather than common stock. The preferred stock will sell for $120/share, pay a $9 annual dividend, and have a cost of selling of
True or False: When dealing with multiple alternatives having unequal lives, the planning horizon equals the least common multiple of lives.
When using the "shortest life" planning horizon, what issue should you explicitly consider for alternatives whose cash flow profiles extend longer than the "shortest life"'?a. Determination of
Given the following information about sources of capital, what is the appropriate weighted average cost of capital to use in determining MARR?a. 9.87 percentb. 10.55 percentc. 12.42 percentd. 13.10
For each of the following categories, describe some of the difficulties that you would face in estimating appropriate values to be used in conducting an economic analysis.a. Cash flowsb. MARRc.
True or False: The MARR should be at least as great as the firm's weighted cost of capital and should reflect the opportunity cost for money.
Reconsider the categories in Question 1. What sources of information would you consult in order to develop the most accurate estimates for an economic analysis?Data from question 1For each of the
True or False: Among the various sources of capital, U.S. large cap equities have a lower cost of capital than do U.S. small cap equities.
Consider the net cash flows (NCF) and salvage values (SV) shown below for each of the two feasible alternatives for an economic analysis. Alternatives 1 and 2 have lives of 3 and 5 years,
When using the "longest life" planning horizon, what issue(s) might you have to consider for alternatives whose cash flow profiles are shorter than the "longest life'?a. Determination of salvage
If an annual worth analysis is used to compare alternatives having different lives, what implicit assumption is being made about the planning horizon?
True or False: If the before-tax \(\mathrm{WACC}=5.4 \%\) and the income tax rate is \(40 \%\), then the after-tax \(\mathrm{WACC}=9 \%\).
Kooche Company plans to invest \(\$ 1,000,000\) in projects next year. Of that, \(\$ 700,000\) will be provided through debt capital with a before-tax cost of 7.3 percent. The remaining \(\$
True or False: The cost of debt capital needs to reflect the tax deductibility of costs of debt.
Three alternatives are being considered. Alternative \(A\) has a useful life of 3 years; WILEY \(\oplus\) Alternative B, 5 years; and Alternative C, 6 years. Using the longest life approach, what is
Alternatives 1, 2, and 3 have lives of 3, 4, and 6 years, respectively. Their net cash flow (NCF) and salvage value (SV) profiles are as follows:Additional explanation is necessary: the NCF profile
Three alternatives are being considered to attract new clients to a health club. A jogging track has an expected useful life of 8 years; a stationary bike 4 years, and a treadmill 6 years. What is
Consider the net cash flows (NCF) and salvage values (SV) shown below. Assume the alternatives can be indefinitely renewed with the same cash flows and salvage values. Specify the planning horizon
True or False: The Eastman hurdle rate calculator can be used for any company and under any conditions that are specifically targeted by the calculator.
Three alternatives are being considered. Alternative A has a useful life of 5 years; Alternative B, 6 years; and Alternative C, 8 years. Using the least-common-multiple approach, what is the planning
True or False: A company's beta can be used to accurately forecast its stock price during the coming year.
True or False: Historical beta values are not impacted by rare events that might adversely affect a firm's stock price.
Three alternatives are being considered. Alternative A has a useful life of 6 years; WILEY \(\oplus\) Alternative B, 2 years; and Alternative C, 3 years. What is the difference (in years) between the
Which of the following best represents the relationship between the weighted average cost of capital (WACC) and the minimum attractive rate of return (MARR)?a. WACC and MARR are unrelated.b. \(W A C
Two alternatives, Alpha and Beta, have the net cash flow (NCF) and salvage value (SV) profiles shown in the table below for their first cycles. Both alternatives can be repeated; however, the cash
Three assets are being considered. Assets A, B, and C have natural lives of 4, 5, and 6 years and first costs of \(\$ 12,000, \$ 20,000\), and \(\$ 30,000\), respectively. There will be no salvage
True or False: The Federal Reserve Bank's prime lending rate should be used for the risk-free rate in the capital asset pricing model.
Consider the two one-shot investment alternatives shown in the table below. Neither alternative is expected to be available again in the future, but it is expected that investment options returning
Which of the following is true about the minimum attractive rate of return (MARR) used in judging the economic value of projects?a. MARR has no bearing on engineering projects.b. MARR is the same for
Thumbtack’s capital structure is shown in table below. If taxes are paid annually and Thumbtack’s combined tax rate is 36 percent, determine the weighted average cost of capital. Loans Bonds
True or False: When using the Eastman hurdle rate calculator, if venture capital is being sought, the hurdle rate obtained will not be affected by ownership, plant site, or technology profiles.
The after-tax cost of capital for a loan is less than the effective interest rate on the loan for which following reason?a. Discountingb. Inflationc. MARRd. Tax deductions
The city planning commission would like to create a fund to provide maintenance on a newly constructed bridge over Rain Swollen Creek. The commission estimates that it will cost \(\$ 2,000 /\) year
The "weights" in the weighted average cost of capital (WACC) approach are usually determined based on which of the following?a. \(1 / n\) where \(n\) is the number of sourcesb. Negotiations with fund
Reconsider Problem 11. Plot a graph that shows the planning horizon as the independent variable and the required deposit as the dependent variable. Plot planning horizons from 1 to 250 with a step
Within the context of engineering economy, beta \((\beta)\) symbolizes which of the following?a. The corporate tax rateb. The price of a company's preferred stockc. The ratio of common stock price to
Enhance your plot from Problem 12 with the following:a. Add a curve to your plot for 4 percent interestb. Add a curve to your plot for 6 percent interestc. Add a curve to your plot for 15 percent
When calculating the weighted average cost of capital, the costs of which of the following types of capital include a \((1-T)\) multiplier, where \(T\) is the effective tax rate?a. Debt capitalb.
A company's board of directors is considering the plan for capital expenditures. A director asks the chief financial officer how the appropriate rate of return is set for evaluating capital
To help fund an addition to your house, you borrow \(\$ 5,000\) from your bank. The conditions of your loan state that the interest rate is 10 percent compounded monthly. Assuming a tax rate of 40
Anderson Machines' common stock has a present trading price of \(\$ 75 /\) share. An annual dividend of \(\$ 10 /\) share is paid to all shareholders.a. If the share price has been stable over the
Due to the need for expanded production, Wilson and Wilson Company decides to build a new factory. The company decides to fund the investment from the sources listed below.The loan has a before-tax
Great Eats needs $2,000,000 to finance a new restaurant in Mytown. The project will be funded from the following sources.Great Eats' effective tax rate is 34 percent with taxes paid annually. Current
The management of Could Do Better has asked you to explain the concept of weighted average cost of capital. In particular, they are confused that you are encouraging the use of debt capital to fund
Lahoma Enterprises, Inc., needs $15 million to finance a major product development. The project will be financed from the following sources:Lahoma Enterprises’ effective tax rate is 34 percent with
To become more globally competitive, the Ajax Manufacturing Corporation needs to invest \(\$ 1,000,000\) in new equipment. After careful analysis, the corporate engineering economist has determined
The GOJO Steam Cleaning Corporation is preparing to purchase a new mobile steam cleaning fleet for \($5\),500,000.The proposed sources of capital are \($2\),000,000 from a bank loan, \($1\),000,000
Harold’s U-Store-It is using a loan to finance the construction of a new storage facility. The loan is for $1,000,000 to be repaid over 20 years with annual payments. The mortgage interest rate is
S&R Catering is selling bonds to finance a new franchise in Yukon. The total amount of funding is \($500\),000 with each bond having a face value of \($500\) and a 10-year life. The annual bond
Repeat Problem 28 assuming that S&R enhances the bonds by raising the interest rate to 7 percent and discounting the selling price by 10 percent of the face value.Data from problem 28S&R Catering is
Cowboy Construction buys materials on account from Highes. Highes offers a 2 percent discount for invoices paid within 10 days. Full payment is due within 90 days. Cowboy Construction routinely pays
Repeat Problem 30 assuming that Highes has changed its invoice terms such that full payment is due within 60 days.Cowboy Construction pays invoices in full on the sixtieth day.Data from problem
A team of Eastman Chemical Company’s process engineers has proposed a minor expansion project for an existing 100 percent ownership plant located in Canada. The expansion of this mature business
Eastman’s vice president for strategic planning, together with members from the business team and manufacturing, are exploring the possibility of building a greenfield plant through a joint venture
Reconsider Problem 33. Due to an economic downturn, one of the joint venture partners has withdrawn from the project. The remaining partners have agreed to redistribute the withdrawing partner’s
Reconsider Problem 33. Due to political unrest in Brazil, the CFO has suggested that either the joint venture be moved to Chile or that the location risk factor for Brazil be increased by adding an
Using Table 4.A. 1 as a guide, respond to the following questions based on the 2007 Predicted \(\beta\).a. Which corporation has the lowest volatility?b. Which corporation has the highest
Interpret the meaning of each of the following:a. \(\beta\) less than oneb. \(\beta\) equals 0c. \(\beta\) equals 1d. \(\beta\) greater than 1
Using the CAPM model, calculate the cost of equity capital for each of the following situations:a. Risk-free rate is 6 percent, expected market return is 11 percent, \(\beta\) is 0.75b. Risk-free

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