QUESTION 1 You are buying a new car and can pay $15,000 cash today or pay $350 p
ID: 1169486 • Letter: Q
Question
QUESTION 1
You are buying a new car and can pay $15,000 cash today or pay $350 per month for 60 months. If the annual interest rate is 12%, which alternative has the lower PWc?
both have the same PWc
cannot be determined from the information given.
$15,000 today
$350 per month for 60 months
QUESTION 2
You can buy a new sorting machine for $15,000. Annual operation and maintenance will cost $6000 which is $8000 less than current costs. You expect to sell the machine for $2000 at the end of 10 years. If i= 8%:
PWc = $15,000
PWc = $15,000 + 6000(P/A,8%,10) - 2000(P/A,8%,10)
PWc = $15,000 + 6000(P/A,8%,10) + 2000(P/F,8%,10)
PWc = $15,000 + 6000(P/A,8%,10) - 2000(P/F,8%,10)
QUESTION 3
You can buy a new sorting machine for $15,000. Annual operation and maintenance will cost $6000 which is $8000 less than current costs. You expect to sell the machine for $2000 at the end of 10 years. If i= 8%:
PWb = 8000
PWb = 8000(P/A,8%,10)
PWb = 14000
PWb = 14000(P/A,8%,10)
QUESTION 4
You can buy a new sorting machine for $15,000. Annual operation and maintenance will cost $6000 which is $8000 less than current costs. You expect to sell the machine for $2000 at the end of 10 years. Should you buy this machine if i = 8%?
Yes, because NPW > 0
Yes, because NPW < 0
No, because NPW > 0
No, because NPW < 0
QUESTION 5
You consider purchasing a computer system for $12,000. Annual upgrades will cost $500. Your expected salvage value is $1000 at the end of 5 years. The system is faster and will save you $4000 per year over your current system. If the interest rate = 10%:
EUAC = 12000 + 500(P/A,10%,5) - 1000(P/F,10%,5)
EUAC = 12000(A/P,10%,5) + 500 - 1000(A/F,10%,5)
EUAC = 12000(A/P,10%,5) - 500 - 1000(A/F,10%,5)
EUAC = 12000(A/P,10%,5) - 500 + 1000(A/F,10%,5)
QUESTION 6
You consider purchasing a computer system for $12,000. Annual upgrades will cost $500. Your expected salvage value is $1000 at the end of 5 years. The system is faster and will save you $4000 per year over your current system. If the interest rate = 10%:
EUAC = $1562
EUAC = $2802
EUAC = $3502
EUAC = $3719
QUESTION 7
You consider purchasing a computer system for $12,000. Annual upgrades will cost $500. Your expected salvage value is $1000 at the end of 5 years. The system is faster and will save you $4000 per year over your current system. If the interest rate = 10%:
EUAB = $500
EUAB = $1000
EUAB = $2400
EUAB = $4000
QUESTION 8
You consider purchasing a computer system for $12,000. Annual upgrades will cost $500. Your expected salvage value is $1000 at the end of 5 years. The system is faster and will save you $4000 per year over your current system. If the interest rate = 10%, should you purchase the computer system?
Yes, because B/C > 1
Yes, because B/C < 1
No, because B/C > 1
No, because B/C < 1
QUESTION 9
A successful alumna donates $500,000 to the OIT scholarship fund. If i = 6%, how much money can be given to worthy students each year without reducing the $500,000 principal?
$8333
$15,000
$30,000
$50,000
QUESTION 10
A successful OIT graduate wants to set up an endowment that will pay $50,000 per year forever for maintenance of her favorite m,ountain bike trail. If the interest rate is 5%, how much must she set aside today to fund this endowment?
$25,000
$50,000
$500,000
$1,000,000
QUESTION 11
You earn $65,000 in 2012. What will your salary be at the end of 2017 if your salary increases by 6% per year?
$68,900
$73,604
$86,985
$87,106
QUESTION 12
If you spend $5,000 on gasoline this year and prices increase 20% per year for the next three years, how much will you pay 3 years from now assuming you keep the same vehicle and drive the same number of miles?
$5,306
$8,640
$12,539
$14,633
a.both have the same PWc
b.cannot be determined from the information given.
c.$15,000 today
d.$350 per month for 60 months
Explanation / Answer
Answers with brief description are given below.
Answer 1 is (b)
Reason: the PWc of the other alternative is $350(P/A, 1%, 60) = 350(44.955) = 15,734.25
Answer 2 is (d)
Reason: the present value of salvage value is deducted from, not added to, the PWc.
Answer 3 is (d)
Reason: Total savings every year is $14,000. The present value of that is 14000(P/A, 8%, 10)
Answer 4 is (a)
Reason: PWb - Pwc > 0
Answer 5 is (b)
Reason: The equivalent uniform annual value of the salvage value is deducted from the equivalent uniform annual value of the expenses associated with the machine
Answer 6 is (c)
Reason: 12000(0.2638)+500-1000(0.1638) = 3502.
Answer 7 is (d)
Reason: total savings every year from the new system is $4000
Answer 8 is (a)
Reason: $4000/$3502 > 1
Answer 9 is (c)
Reason: 500000(0.06) = (c)
Answer 10 is (d)
Reason: 50000/0.05 = (d)
Answer 11 is (c)
Reason: 65000(1+0.06)5= (c)
Answer 12 is (b)
Reason: 5000(1+0.20)3=(b)
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