Information Systems And Engineering Economics Set 7

Q1 | CPI does not take into the account the price of raw material, ?nishedproduct and operating cost

Q2 | PPI measures average change over a time in selling prices by domesticproducers of goods and services.

Q3 | In?ation rate is de?ned as the rate at which the cost general level of goods and services increases resulting in decreases of purchasing

Q4 | Actual (current) dollars (An)is the dollar value that is “in?uenced” byin?ation.

Q5 | Actual (current) dollars (An)is the dollar value that is “in?uenced” by                       .

Q6 |          dollars is the dollar value that is “in?uenced” by in?ation.

Q7 | Constant (real) dollars re?ect constant purchasing power independentof the passage of time

Q8 | The current gasoline price is $4.15, and it is projected to increase next year by 5%, and 8% the following year, and -3% the third year. What is the average in?ation rate for the projected gasoline price for the next 3years?

Q9 | If the in?ation rate is 6% per year and the market interest rate is known to be 15% per year. What is the implied real interest rate in thisin?ationary economy?

Q10 | If you experience a 6 % annual in?ation, how long does it take to seethe purchasing power being reduced in half?

Q11 | The CPI for 2000 was 171.2 and the projected CPI for 2008 is 220. Whatis the general in?ation rate over the last 8 years?

Q12 | The average starting salary for engineers for 2008 is $53,000. What is the equivalent salary in terms of purchasing power of 2000? Assumethat the general in?ation rate over the last 8 years is known to be 4%.

Q13 | You are considering purchasing a $1,000 bond with a coupon rate of 9.5%, interest payable annually. If the current in?ation rate is 4% per year, which will continue in the foreseeable future, what would be thereal rate of return if you sold the bond at $1,080 after 2 years?

Q14 | You are purchasing an automobile priced at $20,000 by borrowing at 12% interest compounded monthly. The loan will be repaid in monthly installments for ?ve years. What is the constant dollar value (value at the time of ?nancing) of the 36th payment of this loan, if the generalin?ation rate is 5% compounded monthly?

Q15 | A couple wants to save for their daughter’s college expense. The daughter will enter college 8 years from now and she will need$40,000, $41,000, $42,000 and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general in?ation rate is estimated to be 6% per year and the annual in?ation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple mustsave each year until their daughter goes to college (for 8 years)?

Q16 | An investment project costs P. It is expected to have an annual netcash ?ow of 0.125P for 20 years. What is the project’s payback period?

Q17 | Which of the following statements is incorrect?

Q18 | Find the net present worth of the following cash ?ow series at aninterest rate of 10%

Q19 | You are considering buying an old house that you will convert into an o?ce building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old housenow given the following ?nancial data?

Q20 | Your R&D group has developed and tested a computer software package that assists engineers to control the proper chemical mix for the various process manufacturing industries. If you decide to market the software, your ?rst year operating net cash ?ow is estimated to be$1,000,000. Because of market competition, product life will be about 4 years, and the product’s market share will decrease by 25% each year over the previous year’s share. You are approached by a big software house which wants to purchase the right to manufacture and distribute the product. Assuming that your interest rate is 15%, forwhat minimum price would you be willing to sell the software?

Q21 | Find the capitalized equivalent worth for the project cash ?ow seriesat an interest rate of 10%.

Q22 | The following table contains a summary of how a project’s balance is expected to change over its 5 year service life at 10% interest.:Which of the following statements is incorrect?

Q23 | Reconsider the project balance table calculated at 10% given in 5.9.:Which of the following statements is correct?

Q24 | A newly constructed water treatment facility cost $2 million. It is estimated that the facility will need renovating every 30 years at a cost of $1 million. Annual repairs and maintenance are estimated to be$100,000 per year. At an interest rate of 6%, determine the capitalizedcost of the facility.

Q25 | Consider the following two investment alternatives:Suppose that your ?rm needs either machine for only 2 years. The net proceeds from the sale of machine B are estimated to be $200. What should be the required net proceeds from the sale of machine A so that both machines could be considered economically indifferent at an interestrate of 10%?