Download Exam 3 Solved Questions - Engineering Economic Analysis | IEM 3503 and more Exams Engineering in PDF only on Docsity! the depreciation deduction for the last year using regular MACRS?
a) $3.636 _-
a (03626 )(100 000)
d) $2,575.50
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2. The depreciation deduction for year 11 of an asset with a 20-year useful life is $4000, [f the salvage value of
the asset was estimated to be zero and straight line depreciation was used to calculate the depreciation deduction
for year 11, what was the initial cost of the asset? p
a) $42,105 — = 4060
b) $67,682 po
c) $72,682
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3. The depreciation deduction for year 11 of an asset classified as MACRS 15 year property &4,000. 3 the
salvage value of the asset is estimated to be $5,000, what was the initial cost of the asset?
a) $42,105 p
oe 7 4y(P) = 4000
d) $80,000
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4. If the IRR of Altemative A is [8%, the IRR of Alternative B is 16%, and MARR is 12%, which of the follawing is
correct,
a) alternative B is preferred over alternative A.
b) alternative A is preferred over alternative B.
¢)/ not enough information is given ta determine which alternative is preferred.
d) neither alternative A nor alternative B is acceptable.
5. If the future worth (FW) of a conventional investment alternative {initial negative cash flow, subsequent positive cash
flows) is positive at MARR, which of the following statements about the other measures of worth for this alternative
must be true?
I PW>0
1. IRR <MARR
(ll. SIR>1t
(a) l only (d Land IL only
(b) Il only ce Tand ILI only
(c) IL only T [, Hand [Tt
Fil (marr) >O
6. A grading contractor owns earth-moving equipment that costs $300,000 and is classed as 7-year
property. After seven years of use, its salvage value will be $50,000, Using the double declining
balance method, Compute the depreciation deduction for the second year.
(a 861.221) 2 2 om . D, > 5,
a Pa= FB, (am09-F bar]
d) $73,469 : 6 -
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7. The correctly calculated taxes due on a corporate taxable income of $16,000,000 is
a) $4,450,000
530,000 c 42 23S 09 290)
ewan 5,157 239 7
d) None of the above
8. Which of the following is NOT true about depreciation?
a) Depreciation is not a cash flow
b) To be depreciable, an asset must have a life longer than one year
c) To be depreciable, the asset must wear out or get used up.
d) Por MACRS-GDS, an estimate of the salvage value is required.
Q Tl 50,000 0.15 0.15{T1)
30,900 Tl. 75,000 0,25 7.500 - 0.25(TI - 50,000}
75,000 TI- 100,000 034 13,750 + 0.24(Tl - 75,000)
100,000 = Tl_ 335,000 0.390.34 ~ 0.05) 22,250 - 0.39{TI ~ 100,000)
336,000. TI — 10,000,000 036 713,900 = 0.34{TI - 335,000)
10,000,000 Tl 15,000,000 O36 3,400,000 + U35ITl 10,600,000)
15,000,000 TI _ 18,333,333 0.38{0.35 — 0.03) 5,750,000 = 0.38{TI - 15,000,000)
18,333,333 TI 0.35 0.35(TI)
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Problem 4 - The Foote Shoe Company has the Opportunity to expand their business. They are considering four
alternatives (A, B,C or D). Each alternative requires a single investment as shown in Table I. Table 2 shows
the incremental [RRs for pairwise comparisons between each alternative and all other projects with a smaller
initial investment...
TABLE 1 - Investments and IRRs
Alternative Investment
A $600,000
B $800,000
c $470,000
D $540,000
TABLE 2 - Incremental IRRs
Increment Incremental IRR
B-A 28.3%
B-D 48.8%
B-C 41.4%
A-D 116.5%
A-C 61.0%
D-C 18.4%
For MARR = 25%, indicate which alternative is preferred based on an IRR analysis, Clearly show the steps
you performed to reach this conclusion. (15 points)
oe B/K/A/8
4 ee A
© TKR, y - b| > As K f
Kooy 8
as “yf
Q) on = 13% >
@ on alles iN 5
Bonus (2 points)! Dr. DeYong's has two cats named Benny t Dre (+2)
More Bonus..........
Answer the questions below based on the following sensitivity graph
Sensitivity Graph
—@ Ann Rev
—m Ann Exp!
—’— Initial Inv
= MARR
—*- Salvage
Present Worth
Percent Change
Bonus 1 (2 points) If the investment = $20,000, Annual revenues = $5,888, planning horizon = 5 years and
MARR = 13.5%, give the equation for the MARR line shown in the graph above.
Pi = - 22,00 + 5088 (PIA, efx), 5) G2»
Bonus 2 (2 points) The present worth of the investment analyzed in the sensitivity graph is most sensitive to
changes in which parameter?
Ann . Rovnet (Fx)
Bonus 3 (2 points) Ifthe Annual Revenues were originally estimated to be $6000, what value of the annual
revenues (approximately) would cause the investment decision to change?
Looo(t-.ip) > 4 2)
t
5 2.0
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