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FIN--5203-1D2-FA-2021 - Finance for

Engineers
Started on Sunday, December 5, 2021, 10:28 PM
State Finished
Completed on Sunday, December 5, 2021, 11:21 PM
Time taken 53 mins 6 secs
Grade 20.00 out of 25.00 (80%)
Question 1
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Which of the statements below is correct?

a.
A project is less likely to be rejected when using disocunted payback, as
opposed to simple (no-return) payback.

b.
A project is more likely to be rejected when using simple (no-return) payback, as
opposed to discounted payback.

c.
Simple (no-return) payback is always longer than discounted payback.

d.
Simple (no-return) payback is always shorter than discounted payback.
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Your answer is correct.
The correct answer is:
Simple (no-return) payback is always shorter than discounted payback.

Question 2
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All of the below are disadvantages of the simple (no-return) payback method of
evaluation when compared to the present worth, annual worth, and rate of
return methods, except:

a.
It is more time consuming to compute.

b.
it ignores the cash flows that occur after the payback period.

c.
It ignores the time value of money.

d.
It doesn't account for project risk.
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Your answer is correct.
The correct answer is:
It is more time consuming to compute.

Question 3
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A jalapeno canning company is faced with a make/buy decision. Cardboard
shipping cartons can be purchased for $0.60 each or made in-house. If
manufactured, two machines will be required. Machine X will cost $20,000 and
have a life of 6 years with a $2,000 salvage value. Machine Y will cost $11,000
and have a life of 4 years with no salvage value. The annual maintenance cost
for machines X and Y are $6,000 and $5,000 per year, respectively. A total of 4
operators will be required for the two machines at a rate of $22.50 per hour per
person. In a normal 8-hour day, the 4 operators and two machines can produce
1,000 cartons. The variable cost per carton associated with the in-house option
is closest to

a.
$0.10.

b.
$0.72.

c.
$0.0625.

d.
$0.81.
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Your answer is correct.
The correct answer is:
$0.72.

Question 4
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The annual worth values for a defender, which can be replaced with a similar
used asset, and a challenger are estimated below. The economic service life of
the challenger is

a.
1 year.

b.
5 years.

c.
3 years.

d.
4 years.

e.
2 years.
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Your answer is correct.
The correct answer is:
3 years.

Question 5
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The annual worth values for a defender, which can be replaced with a similar
used asset, and a challenger are estimated. The defender should be replaced

a.
2 years from now.

b.
3 years from now.

c.
1 year from now.

d.
now.
e.
5 years from now.

f.
4 years from now.
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Your answer is correct.
The correct answer is:
2 years from now.

Question 6
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All of the below are assumptions needed in a replacement study with an
unlimited time horizon, except:

a.
The services provided are needed for the indefinite future.

b.
Cost estimates for every life cycle of the defender and challenger will be the
same as in their first cycle.

c.
Once the challenger replaces the defender, the challenger cannot be repeated
for succeeding life cycles.

d.
The challenger is the best challenger available now and in the future.
Feedback
Your answer is correct.
The correct answer is:
Once the challenger replaces the defender, the challenger cannot be repeated
for succeeding life cycles.
Question 7
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Only 2 years ago, Techtron purchased for $275,000 a fully loaded SCADA
(supervisory control and data acquisition) system including hardware and
software for a processing plant operating on the Houston ship channel. When it
was purchased, a life of 5 years and salvage of $55,000 were estimated. Actual
maintenance and operating (M&O) costs were $20,000 in year 1 and $25,000 in
year 2. The M&O costs are expected to be $30,000 in year 3, $35,000 in year 4,
and $40,000 in year 5. For the purposes of evaluating whether to keep the
SCADA system or replace it with a newer model, which of the costs given above
are sunk costs?

a.
The $275,000 purchase price and the $45,000 M&O costs in years 1 and 2.

b.
The M&O costs of $150,000 in years 1-5.

c.
The $105,000 M&O costs in years 3-5, and the $55,000 salvage value.

d.
The $275,000 purchase price and the $55,000 salvage value.
Feedback
Your answer is correct.
The correct answer is:
The $275,000 purchase price and the $45,000 M&O costs in years 1 and 2.

Question 8
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 Question text
All of the below are reasons to conduct a replacement study, except:

a.
reduced market value of the existing asset

b.
altered requirements placed on the existing asset

c.
obsolescence of the existing asset

d.
reduced performance of the existing asset
Feedback
Your answer is correct.
The correct answer is:
reduced market value of the existing asset

Question 9
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In a replacement analysis, the presently-owned asset is usually known as the
_________________.

a.
Alternate

b.
Sunk Cost

c.
Defender
d.
Challenger
Feedback
Your answer is correct.
The correct answer is:
Defender

Question 10
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Revcon Products has two subcontractor bids to automate a composite winding
process. Process A will have fixed costs of $42,000 per year and will require 2
workers at $80 per day each. Together, these workers can generate 100 units.
Process B will have fixed costs of $56,000 per year, but with this process, 3
workers will generate 200 units of product. If x is the number of units, the
variable cost (VC) per year for B is best represented as

a.
VC per year = [2(80)/100]x.

b.
VC per Year = [2(80)/100]x + 42,000.

c.
VC per Year = [3(80)/200]x.

d.
VC per Year = [3(80)/200]x + 56,000.
Feedback
Your answer is correct.
The correct answer is:
VC per Year = [3(80)/200]x.

Question 11
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GENERAL INSTRUCTIONS: ENTER YOUR ANSWER AS A NUMBER WITHOUT A
COMMA, ROUNDED TO THE WHOLE NUMBER, for instance if you compute
77,342.6478 units then ENTER 77343 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.
Bikes-Are-Us, Inc. produces bicycles. One of the parts it needs to produce a
bicycle is pedals. The pedals are currently purchased from an external supplier
for $121 per unit. The company is considering to produce the pedals internally
instead. To produce the pedals internally, it would need to acquire a machine for
$46,000, which would be used for 9 years and then scrapped, with no salvage
value. The annual operating and maintenance cost of the machine is $25,000.
The internal production would also result in variable cost of $47 per unit
produced. Assume the MARR is 10%. Calculate the annual number of units
produced that would result in the company being indifferent between buying the
pedals externally and producing them internally (In other words, calculate the
annual breakeven quantity of units produced). (Hint: express the annual worth of
cost of each alternative in terms of the number of units, equate, and solve for
the number of units.)
160
Answer:
Feedback
The AW of buying the part externally is:
AW = (price)(x) = (121)(x), where x is the breakeven number of units
The AW of producing the part internally is:
AW = annual operating cost + (variable cost)(x) + machine price x (A/P, 10%,
9) = 25,000 + (47)(x) + 46,000 x (A/P, 10%, 9)
Equating the two AWs and solving for x:
(121)(x) = 25,000 + (47)(x) + 46,000 x (A/P, 10%, 9)
thus
(121)(x) - (47)(x) = 25,000 + 46,000 x (A/P, 10%, 9)
thus
x = [25,000 + 46,000 x (A/P, 10%, 9)] / [121 - 47]
x = 445.77655131648 units
The correct answer is: 446

Question 12
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GENERAL INSTRUCTIONS: ENTER YOUR ANSWER AS A NUMBER WITHOUT A
COMMA, ROUNDED TO THE WHOLE NUMBER OF YEARS (Do not include the word
"years". For instance if you calculate 12.34 then enter your answer as 12). DO
NOT ROUND IN YOUR CALCULATION STEPS (use calculator memory functions) TO
AVOID ROUNDING ERRORS.
Calculate the simple (no-return) payback period (in number of years) for a
project that requires $300,000 of initial cost today, and generates a net cash
flow of $100,000 per year for 10 years, with a $25,000 salvage value at the end
of year 10.

3
Answer:
Feedback
The payback is the number of years it takes to recover the initial investment. In
this case, we can calculate it as the initial cost divided by the annual cash flow:
PB = 300,000 / 100,000 = 3 years

The correct answer is: 3

Question 13
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GENERAL INSTRUCTIONS: ENTER YOUR ANSWER AS A NUMBER WITHOUT A
COMMA, ROUNDED TO THE WHOLE NUMBER, for instance if you compute
77,342.6478 units then ENTER 77343 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.
Crossroad Motors Inc. is a newly started automobile manufacturing company. It
is planning on selling each car that it produces for $35,000, while its variable
cost per car is $21,000. Assuming the company faces an annual fixed cost of
$144 million, how many automobiles need to be produced and sold each year to
break-even?
10286
Answer:
Feedback
The break-even quantity is:
BE = Fixed Cost / (price - unit variable cost) = 144 million / (35,000 - 21,000) =
10285.714285714 units
The correct answer is: 10286

Question 14
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GENERAL INSTRUCTIONS: ENTER YOUR ANSWER WITHOUT THE $ SIGN AND
COMMA, BUT FORMATTED IN DOLLARS ROUNDED TO THE NEAREST DOLLAR, for
instance if you compute $77,342.6478 then ENTER 77343 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.
Waldorf Manufacturing is operating a production facility, which will be closed in
3 years. A decision needs to be made whether to keep the existing machine in
operation for 3 more years, despite its significant wear and tear, or whether to
acquire a new machine instead, only to be used for 3 years before sold. The
existing machine could be sold for $42,000 today, or if kept for 3 more years,
could be sold for $19,000 in 3 years. Its annual operating and maintenance
costs are $17,000. Replacing the existing machine with a new one would have
no impact on revenues. Calculate the annual worth (AW) of keeping the
defender for 3 more years. Use 8% interest rate for discounting. (Note: your
answer should be viewed as the AW of the machine's costs, so entered as a
positive number.)
 11134
Answer:
Feedback
The annual worth of the defender is computed as:
AW = 42,000 x (A/P, 8%, 3) - 19,000 x (A/F, 8%, 3) + 17,000 =
16297.407589946 - 5852.6367668802 + 17,000 = $27444.770823066
The correct answer is: 27445
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