Part IV: Economic Analysis

Section B: Answer all questions

1. A student deposits $1000 in a savings account that pays interest at the rate of 6% per
year. How much money will the student have after one year?
a. $1600
b. $1200
c. $1060
d. $1016

2. An investor makes a loan of $5000, to be repaid in one lump sum at the end of one year.
What annual interest rate corresponds to a lump-sum payment of $5425?
a. 7.5%
b. 8.5%
c. 9.3%
d. 4.25%

3. A student deposits $1000 in a savings account that pays interest at the rate of 6% per
year, compounded annually. If all of the money is allowed to accumulate, how much will
the student have after 12 years? What will be amount if simple interest had been paid?
a. Compound Interest $2012.20, Simple Interest $1720
b. Compound Interest $2112.20, Simple Interest $1720
c. Compound Interest $2322.20, Simple Interest $1720
d. Compound Interest $2412.20, Simple Interest $1720

4. A student who will inherit $5000 in three years has a savings account that pays 5 ½ % per
year, compounded annually. What is the present worth of the student’s inheritance?
a. $4777
b. $4258
c. $5688
d. $5550

5. At what interest rate is $500 one year ago equivalent to $600 today?
a. 20%
b. 10%
c. 15%
d. 25%

6. Suppose that a man lends $1000 for four years at 12% per year simple interest. At the end
of the four years, he invests the entire amount which he then has for 10 years at 8%
interest per year, compounded annually. How much money will he have at the end of the
14-year period?
a. $2133
b. $3500
c. $3195
d. $2890

7. Suppose that a person deposits $500 in a savings account at the end of each year, starting
now, for the next 12 years. If the bank pays 8% per year, compounded annually, how
much money will accumulate by the end of the 12-year period?
a. $9488
b. $8448
c. $8888
Part IV: Economic Analysis
Section B: Answer all questions
d. $6000

8. How much money must be deposited at the end of each year in a savings account that
pays 9% per year, compounded annually, in order to have a total of $10000 at the end of
14 years?
a. $984
b. $384
c. $484
d. $684

9. A man has deposited $50000 in a retirement income plan with a local bank. This bank
pays 9% per year, compounded annually, on such deposits. What is the maximum amount
the man can withdraw at the end of each year and still have the fund last for 12 years?
a. $4982
b. $6400
c. $6800
d. $6982

10. Rework problem 9 for an interest rate of 8 ¾ % per year, compounded annually.
a. $6894
b. $6984
c. $6888
d. $6999

11. The ABC company is building a new plant, whose equipment maintenance costs are
expected to be $500 the first year, $150 the second year, $200 the third year, $250 the
fourth year, etc., increasing by $50 per year through the 10th year. The plant is expected to
have a 10-year life. Assuming the interest rate is 8%, compounded annually, how much
should the company plan to set aside now in order to pay for the maintenance?
a. $2340
b. $4320
c. $4400
d. $12000

12. A bank pays interest at the rate of 6% per year, compounded monthly. If a person deposits
$2500 in a savings account at the bank, how much money will accumulate by the end of
2 years?
a. $2290
b. $2818
c. $2900
d. $2100
13. Is the receipt of $4000 annually for 10 years equivalent to the receipt of $5000 annually
for 8 years, if the interest rate is 8% per year, compounded annually?
a. Yes
b. No
c. Not Enough Information
d. If 9% it is same
Part IV: Economic Analysis
Section B: Answer all questions
14. How long must a temporary warehouse last to be a desirable investment if it costs $16000
to build, has annual maintenance and operating cost of $360, provides storage space
valued at $3600 per year, and if the company MARR is 10%?
a. 7 Years
b. 8 Years
c. 9 Years
d. 10 Years

15. A machine costs $40000 to purchase and $10000 per year to operate. The machine has no
salvage value, and a 10-year life. If i=10% per year, compounded annually, what is the
equipment uniform annual cost of the machine?
a. $26150
b. $22000
c. $16510
d. $17890

16. A machine that cost $30000 new has an 8-year life and a salvage value equal to 10% of
its original cost. The annual maintenance cost of this machine is $1000 the first year, with
an increase of $200 each year hereafter; the annual operating cost is $800 per year.
Determine the EUAC of this machine if the interest rate is 10% per year, compounded
annually.
a. $6791
b. $8920
c. $5980
d. $7761

17. A plant is considering buying a second-hand machine to use as stand-by equipment. The
machine costs $3000 and has an economic life of 10 years, at which time its salvage
value is $600; expected annual operating costs are $100. Without a stand-by machine, the
plant would have to shut down an average of seven days a year at a cost of $50 per day. If
the MARR is 10% is it expedient to buy the stand-by machine?
a. The stand-by machine should not be purchased
b. The stand-by machine should be purchased
c. The stand-by machine can be leased
d. Need more information, to support the answer

18. Which of the following is not a depreciation technique?

a. Straight-line Method
b. Sum-Of-Years-Digit Method
c. Sinking-Fund Method
d. Double-line Method

19. Economic Analysis should generally made

a. After-tax basis
b. After-tax basis + add back depreciation (if any)
c. After-tax basis without adding back the depreciation
d. After-tax or Before-tax will give the same result
Part IV: Economic Analysis
Section B: Answer all questions

20. In united states depreciation is calculated based on

a. Individual company preferred technique
b. MACRS
c. IFRS
d. GAAP