Answers-1

Answers to Even Numbered Problems

Chapter 1
FE2. b
FE4. a
FE6. b
FE8. d
FE10. d
FE12. c
2.
(a) Yes
(b) $1,600 to $2,400
4.
You are lender
$450-$600 interest
6.
(a) $1,900
(b) $6,400
(c)WSI-Future spending is less
(d) 2, 10
(e) 1, 4, 5, 7
8.
(a) None; C; D; CD; B; BC; BCD; AD; ABD
(b) None
(c) 1
10.
Q; P; PR
12.
(c) 2, 3, 4, 5, 9
(d) 1, 4, 5, 6, 7
14.
(a) 10 years
(b) 2, 3, 8
(c) 1, 2, 5, 7
16.
(a) BC: 879; CI: 750
(b) At least $6,000
(c) 2
(d) 1, 5, 7
18.
(a) 36.36%
(b) $11.32
20.
(a) 60% A; 40% B
(b) $2.40
22.
(a) 150 units/day
(b) 100 units /day
24.
(a) 10th floor: $4,800,000; $88,888.89
(b) 10
(c) dTC/dX=(80+4X)(400,000/X)+(200+80X+2X2)(-400,000/X2)=0
X=10
26.
(a) Loss of $25,000
(b) 220,000
(c) $125,000
(d) 132,000
28.
(a) C

Answers-2
30.

(b) $0.45/mile
(a) A
(b) B
(c) 280

Chapter 2
FE2. d
FE4. c
FE6. b
FE8. b
FE10. a
FE12. b
FE14. a
2.
1. Money has a time value
2. Money cannot be added or subtracted unless it occurs at the same point(s) in time
3. To move money forward one time unit, multiply times one plus the discount or interest rate
4. To move money backward one time unit, divide by one plus the discount or interest rate
4.
(a) $971.70
(b) $1,030.00
6.

8.

10.

Answers-3
12.

14.
16.
18.

20.
22.
24.
26.
28.
30.
32.

34.

36.
38.
40.
42.

(a) $5,000.00
(b) $4,454.70
(a) $1,240.00
(b) $1,259.71
(a) $1,150.00
(b) $150.00
(c) $1,157.63
(d) $157.63
(a) $3,705.55
(b) 11.59%
Principal $11,000.00
Interest $4,428.07
Total $15,428.07
II
$36,733.20
$49,178.78
4.864%
(a) $7,462.15
(b) $4,777.69
(c) $1,689.70
(d) $8,382.44
(a) $12,348.70
(b) $1,551.33
(c) $15.27
(d) $550.77
(e) $2,315.97
(a) $5,863.80
(b) $5,863.87
(c) $5,863.87
$12,000.00
(a) $2,714.10
(b) $2,714.10
(c) $2,714.10
18.56%

Answers-4
44.
46.
48.
50.
52.
54.
56.
58.

60.
62.
64.
66.
68.
70.
72.
74.
76.
78.
80.
82.
84.

(a) 7.18%
(b) 11.61%
(c) 14.87%
19
(a) 12
(b) 19
(c) 24
12.91%
$161,201.97
$19,949.14
(a) $150.76
(b) 97.02
(c) $97.02
(a)

(b) $2,272.61
(c) $2,272.61, $2,372.61, $2,672.61, $4,545.22
(a) $1,711.50
(b) $3,167.86
(c) $1,996.29
Payment method 2
$7,947.62
$46,573.45
$6,097.27
(a) $12,194.53
(b) $14,938.83
Prefer to receive $10K/year for 5 years; prefer to pay $5K/year for 10 years
(a) $17,908.48
(b) $25,937.42
(a) $5,746.64
(b) $10,363.63
(c) $13,999.09
$25,180.40
(a) $43,157.13
(b) $63,856.54
(c) $95,010.55
(a) 6.367
(b) 9.196%
(a) $251,582.84

Answers-5

86.
88.
90.
92.
94.
96.
98.
100.
102.
104.
106.
108.
110.
112.
114.
116.
118.
120.
122.
124.
126.
128.
130.
132.
134.
136.
138.
140.
142.
144.
146.

(b) $24,488.16
(c) $22,642.46
$11,194.61
$7,169.72
$929.42
(F|G 12%,25) = 902.78225 (Not tabulated in Appendix A)
$65,199.82
(a) $8,528.79
(b) $2,690.58
(a) $3,154.11
(b) -$719.28
$15,173.55
$107.87
$12,771.80
$13,725.51
$314.13
(a) $313,890.35
(b) $2,354.17
(a) $140,000.00
(b) $53,357.69
(c) $47,356.75
$41,322.31
(a) INR 143,957.18
(b) INR 12,960,973.36
$4,622.20
$800, $950, $500, $50, -$400, -$600, -$600, -$600
(a) (F|G i%,n)=(P|G i%,n)*(F|P i%,n)
(b) (F|G i%,n)=((1+i)^n-(1+n*i))/(i^2)
(c) $11,051.00
$926,130.51
$2,317,332.23
$25,656.82
-4.04%
$286,447.62
$8,933.81
$50,116.78
(a) $7,783.79
(b) $2,455.56
$168,206.35
(a) For year 5: $1,629,012.50; $3,509,575.68; $2,176,782.34; $7,315,370.52
(b) $8,295,499.60; $15,693,016.73; $9,307,846.73; $33,296,363.05
(c) $7,065,996.66
(a) $12,544.41
(b) $18,366.27
TO GO FROM NOMINAL ANNUAL TO EFFECTIVE ANNUAL
NOMINAL ANNUAL INTEREST RATE r=10.000%

Answers-6
NUMBER OF COMPOUNDING PERIODS PER YEAR m=4
EFFECTIVE ANNUAL INTEREST RATE ieff=10.381%

148.
150.

152.
154.
156.

158.
160.
162.

164.
166.
168.
170.
172.
174.
176.

TO GO FROM EFFECTIVE ANNUAL TO NOMINAL ANNUAL

EFFECTIVE ANNUAL INTEREST RATE ieff= 10.381%
NUMBER OF COMPOUNDING PERIODS PER YEAR m=4
NOMINAL ANNUAL INTEREST RATE r=10.000%
34.113 so go with 35 months
(a) 5.0625%
(b) 5.0838%
(c) 5.0945%
(d) 5.1053%
(e.) 5.1162%
(a) $17.99
(b) $19.10
$8,197.46
(a) $12,548.25
(b) $12,463.34
(c) $12,419.86
(d) $12,390.48
(e) $12,379.09
(f) $12,376.16
(g) $12,375.69
(h) $12,375.67
(i) $12,375.67
(a) $447,107.83
(b) $549,886.24
(c) $19,869.02
(a) 0.911%
(b) 10.932%
(c) 11.497%
(a) $970.00
(b) 3.093%
(c) 160.825%
(d) 387.382%
$965.95
36.18 quarters; go with 37 quarters
19.338 quarters; go with 19 quarters
(a) (P|F i%,n+m)=(1+i)^-(n+m)=((1+i)^-n)*((1+i)^-m)=(P|F i%,n)*(P|F i%,m)
(b) (P|F i%,n-m)=(1+i)^-(n-m)=((1+i)^-n)*((1+i)^m)=(P|F i%,n)*(F|P i%,m)
(c) (P|F i%,nm)=(1+i)^-(nm)=((1+i)^-n)^m=(P|F i%,n)^m
(a) 5.000%
(b) 5.127%
(c) 5.127%
$16,487.21
(a) $9,886.20

Answers-7

178.
180.

(b) $4,909.34
(c) $4,909.34
(a) $42,410.96
(b) $21,060.66
(c) $2,145.15
$3,972.80

Chapter 3
FE2. b
FE4. a
FE6. a
FE8. d
FE10. a
FE12. d
FE14. b
2.
(a. - Method 1) Year 2: $1,020.00; Year 4: $1,020.00
(b. - Method 2) Year 1: $3,420.00; Year 3: $3,012.00; Year 5: $2,604.00
(c. - Method 3) Year 2: $3,045.19; Year 4: $3,045.19
(d. - Method 4) Year 1: $0.00; Year 3: $0.00; Year 5: $18,043.88
(e. - Different) Year 2: $2,818.00; Year 4: $3,307.57
4.
(a. - Method 1) Year 1: $87.50; Year 6: $87.50; Year 12: $5,087.50
(b. - Method 2) Year 1: $504.17; Year 6: $467.71; Year 12: $423.96
(c. - Method 3) Year 1: $465.57; Year 6: $465.57; Year 12: $465.57
(d. - Method 4) Year 1 $0.00; Year 6: $0.00; Year 12: $6,157.20
(e. - Different) Year 1 $254.17; Year 6: $400.42; Year 12: $678.33
6.
(a. - Method 1) PW(4%) = $14,403.98
(b. - Method 2) PW(4%) = $13,480.08
(c. - Method 3) PW(4%) = $13,556.64
(d. - Method 4) PW(4%) = $14,830.75
(e. - Different) PW(4%) = $13,649.02
8.
(a. - Method 1) PW(36%) = $4,377.87
(b. - Method 2) PW(36%) = $4,644.79
(c. - Method 3) PW(36%) = $4,634.27
(d. - Method 4) PW(36%) = $4,318.53
(e. - Different) PW(36%) = $4,568.34
10.
(a) $689.86
(b) $688.23
12.
Use of Google
14.
(a) $1,241.57
(b) $178,507.54
(c) 7.0405%
(d) 6.8230%
16.
(a) $1,194.63
(b) $1,214.04
(c) $180,645.74
(d) 6.80832%

Answers-8
18.

20.

22.
24.
26.

28.
30.

32.

34.
36.
38.
40.
42.
44.
46.
48.
50.

(e) 6.60468%
(a) $1,123.92
(b) $1,193.69
(c) $187,486.61
(d) 6.6357%
(e) 6.44202%
(a) $1,552.46
(b) $1,647.25
(c)$151,783.50
(d) 6.6173%
(e) 6.42471%
$12,336.70
(a) $3,354.16; $3052.77; $3,052.77, $3,297.10, $3,543.87, $3,792.40, $4,042.06,
$4,292.22; $2,492.70
(b) -$484,135.81; -$462,540.33; -$501,614.37; -$479,239.93
(a) $658.35
(b) $150.07
(c) $6,825.49
(d) $4,473.77
(a) $2,921.71
(b) $151,127.13
(c) From $0.00 to $8,719.49
(a) $1,178.08
(b) $1,178.08; $0.00
(c) $437.14; $740.94
(d) $183.34; $994.74
(e) $14,437.43
(a) $40,015.30
(b) $940,550.79
(c) $500,000.00
(d) $423,175.45
$3,103,408.44
$619,962.84 at the end of year 20
Went to www.wachovia.com
(a) Pay $6,500 instead of PW=$6,872.76
(b) ieff=17.27%
Q=$656.97; R=$1,511.34
X=$798.12; Y=$849.73
8.82% Do not invest
$6,056.31 or less
10.00%

Answers-9

52.
54.
56.
58.
60.

(a)
(b) $9000.00
Buy bond since yield is 8.4964%
(a) $3,692.51
(b) 3.98%
The 2nd alternative at $11,818.72
(a) FW=$3,059.20
(b) PW=$2,299.18
(c) A=$918.79

Chapter 4
FE2. a
FE4. a
FE6. c
FE8. b
FE10. d
FE12. d
2.
(a) prior projects, equipment vendors, trade publications
(b) prior projects, company guidelines, federal guidelines, cost of capital
(c) prior projects, equipment guidelines, company needs, planning horizon
methodology
4.
(a)
Least Common Multiple = 15 years
EOY Alt 1
Alt 2
0
-$50,000.00
-$80,000.00
1
$25,000.00
$35,000.00
2
$30,000.00
$45,000.00
3
-$15,000.00
$50,000.00
4
$25,000.00
$55,000.00
5
$30,000.00
-$20,000.00
6
-$15,000.00
$35,000.00
7
$25,000.00
$45,000.00
8
$30,000.00
$50,000.00
9
-$15,000.00
$55,000.00
10
$25,000.00
-$20,000.00
11
$30,000.00
$35,000.00
12
-$15,000.00
$45,000.00
13
$25,000.00
$50,000.00

Answers-10

6.

8.
10.
12.
14.
16.

14
$30,000.00
$55,000.00
15
$35,000.00
$60,000.00
(b)
Shortest Life = 3 years
EOY Alt 1
Alt 2
0
-$50,000.00
-$80,000.00
1
$25,000.00
$35,000.00
2
$30,000.00
$45,000.00
3
$35,000.00
$60,000.00
(c)
Fixed Life = 2 years
EOY Alt 1
Alt 2
0
-$50,000.00
-$80,000.00
1
$25,000.00
$35,000.00
2
$40,000.00
$65,000.00
(a)
Least Common Multiple = 12 years
EOY Alt 1
Alt 2
0
-$100.00
-$70.00
1
$20.00
$30.00
2
$20.00
$40.00
3
$40.00 $20.00
4
-$40.00
$30.00
5
$20.00
$40.00
6
$20.00
-$20.00
7
$40.00
$30.00
8
-$40.00
$40.00
9
$20.00 $20.00
10
$20.00
$30.00
11
$40.00
$40.00
12
$60.00
$50.00
(b)
Shortest Life = 3 years
EOY Alt 1
Alt 2
0
-$100.00
-$70.00
1
$20.00
$30.00
2
$20.00
$40.00
3
$40.00
$50.00
(c)
Longest Life = 4 years
EOY Alt 1
Alt 2
0
-$100.00
-$70.00
1
$20.00
$30.00
2
$20.00
$40.00
3
$40.00
-$20.00
4
$60.00
$80.00
(a) 7 years; (b) SV(A)=$3,000, SV(B)=$12,000, SV(C)=$25,000
(a) 7 years; (b) FW, (c) AW; (d) FW(W)=$186.85K, FW(X)=$220.01K, prefer X
graph required
15.6%
(a) 13.33%, (b) 17.33%

Answers-11
18.
20.
22.
24.
26.
28.
30.
32.
34.
36.
38.

6.87%
10.93%
25% loan, 75% stock
19.12%
11.12%
3.84%
5.61%
10.4%
15.90%
(a) less volatile than market; (b) risk free; (c) market risk; (d) more volatile than
market
(a) 9.75%; (b) 11.50%; (c) 12.00%; (d) 6.00%; (e) 11.00%

Chapter 5
FE2. d
FE4. c
FE6. c
FE8. b
FE10. d
2.
(a) the term present value is used in multiple places
(b) the term present value is used rather than present worth
4.
(a) BTCC=10.00%; ATCC = 10.00%
(b) BTCC=10.50%; ATCC = 9.30%
(c) BTCC=11.00%; ATCC = 8.60%
(d) BTCC=11.50%; ATCC = 7.90%
(e) BTCC=12.00%; ATCC = 7.20%
6.
(a) prefer project, PW>0
(b) prefer do nothing, IRR<MARR
(c) prefer do nothing, AW<0
(d) prefer project, B/C>1
(e) prefer project, FW>0
(f) prefer project, ERR>MARR
(g) prefer do nothing, PW<0
(h) prefer project, IRR>MARR
(i) prefer project, AW>0
(j) prefer do nothing, B/C<1
(k) prefer do nothing, FW<0
(l) prefer do nothing, ERR<MARR
(m) the assumption being made is that the un-invested funds can be invested
elsewhere to earn at least MARR
(n) no, it is not possible; PW and IRR are consistent measures of worth; when
correctly calculated they will lead to the same accept/reject decision
(o) yes, it is possible; AW and B/C are consistent measures of worth and they lead
to the same accept/reject conclusion
(p) the PW must be less than zero for project (j)
(q) the IRR must be less than MARR for project (j)

Answers-12
8.
10.
12.

14.
16.
18.
20.
22.
24.
26.
28.
30.
32.

34.
36.
38.
40.

(a) (1); (b) (2), (c) (3), (d) (1), (e) (3), (f) (1)
(a) PW=-$31,203
(b) if PW >= 0, accept; otherwise, reject
(c) do not buy the gang punch
(a) PW=-$4,870
(b) if PW >= 0, accept; otherwise, reject
(c) the filter is not economically justified
(d) environmental issue
(a) PW=$838
(b) if PW >= 0, accept; otherwise, reject
(c) implement the process improvement
$79,427
(a) PW=$89
(b) if PW >= 0, accept; otherwise, reject
(c) investment is attractive
(a) PW=$3.87
(b) if PW >= 0, accept; otherwise, reject
(c) investment is attractive
(a) PW=$342.76
(b) if PW >= 0, accept; otherwise, reject
(c) pursue the new product
(a) PW=$1,480
(b) if PW >= 0, accept; otherwise, reject
(c) buy the truck
PW(A-B)=-$4,904; therefore, Vendor B is preferred
(a) PW(127B)=$17,707; PW(334A)=-$245
(b) highest PW is preferred
(c) prefer Model 127B
PW(none)=-$2,304,213; PW(1 inch)==-$353,463; PW(2 inch)=-$396,837; 1-inch
insulation is preferred
(a) PW(Lagrange)=$1,341,897; PW(Auburn)=$1,222,454;
PW(Anniston)=$1,198,722
(b) highest PW is preferred
(c) locate in Lagrange
(a) PW(7745)=-$11,650; PW(A37Y)=-$10,208
(b) highest PW is preferred
(c) purchase A37Y
(a) PW(Y)=-$20,804; PW(Z)=-$19,377
(b) highest PW is preferred
(c) use structure Z
(a) PW(I)=$2,409; PW(II)=-$1,117; PW(III)=$2,967
(b) purchase Polisher III
savings account establishes MARR at 12%, therefore,
PW(savings certificate)=-$349
PW(racehorse)=-$991
PW(savings account)=$0

Answers-13
42.

44.

46.
48.
50.
52.
54.
56.
58.
60.
62.
64.
66.

68.

70.
72.
74.
76.
78.
80.

Prefer savings account

service costs are treated as revenue is equipment is purchased, leading to
(a) PW(equipment)=-$66,099; therefore, the service contract is preferred
(b) PW(equipment)=$44,081; therefore, the equipment purchase is preferred
(c) approximately 380 units
(a) PW(T1)=$371,552; PW(T2)=$392,225; PW(T3)=$215,375;
PW(T4)=$195,575; prefer T2
(b) PW(T1)=$25,672; PW(T2)=-$33,957; PW(T3)=-$29,240; PW(T4)=-$72,095;
prefer T1
PW=-$1,859; van is not economically attractive
PW(M1)=-$926, PW(M2)=-$903; PW(M3)=-$876; prefer M3
PW=$999; sprinkler system is economically attractive
PW(D1)=-$21.22M, PW(D2)=-$23.73M; prefer Design 1
PW=$38,577; filter is economically attractive
PW=$5,652; investment is attractive; if PW>=0, then attractive; otherwise not
attractive
PW(purchase)=$4,711; PW(lease)=-$249; prefer purchase
PW(A)=-$58,327; PW(B)=-$61,979; prefer pump B
PW(I)=$2,207; PW(II)=$1,194, prefer Option I
PW(1)=$72,765; PW(2)=$76,987;PW(3)=$100,000; prefer Alternative 3
(a) PBP=10 yrs
(b) if PBP <= 3 yrs, accept; otherwise, reject
(c) do not buy the gang punch
(d) PW results in buy decision, DPBP and PBP result in not to buy decisions; PW
is a superior measure of worth, therefore the recommendation should be to buy
(a) PBP=3
(b) if PBP <= 3 yrs, accept; otherwise, reject
(c) pursue the new product
(d) PW and PBP results in pursue decision, DPBP results in do not pursue
decision; PW is a superior measure of worth, therefore the recommendation
should be to pursue the new product
DPBP(127B)=7.202 yrs; DPBP(334A)=not achieved; prefer 127B; consistent
with PW analysis
CC = $40,334,518
CC=$2,909,500
Scholarships(20yr)=$36,790; Scholarships(30yr)=$28,915
Scholarships(50yr)=$23,275; Scholarship(forever)=$20,000
CC = $210
CC(Pay-Me-Now)=$5,000; CC(Pay-Me-Later)=$3,957; CC(Pay-MeForever)=$4,167; Pay-Me-Later is preferred

Chapter 6
FE2. a
FE4. b
FE6. c
FE8. a

Answers-14
FE10.
FE12.
2.
4.
6.
8.
10.
12.
14.
16.

18.
20.
22.
24.
26.
28.
30.
32.

34.

d
b
(a) true; (b) true, (c) true, (d) true, (e) false, (f) false
(a) $4,060; (b) $3,678; (c) first=$2,285, last=$10,085;
(d) first=$2,385, last=$15,319
(a) $15,985; (b) $1,450; (c) $568
$14,401
(a) $1,075,274; (b) $141,366; (c) $126,302; (d) $118,463
(a) $3,449; (b) $2,785; (c) $2,507; (d) $2,405
(a) $17,392; (b) no need to switch, identical balance
25
$2,049.80
30
$3,343.06
35
$5,496.21
40
$9,159.04
45
$15,624.39
50
$27,816.62
55
$53,963.14
60
$129,607.38
65
$1,000,000.00
(a) FW=$7,893
(b) if FW>=0, then accept; otherwise, reject
(c) buy the gang punch
(a) FW=$1,121
(b) if FW>=0, then accept; otherwise, reject
(c) implement the process improvement
$79,427
(a) $597
(b) if FW>=0, then accept; otherwise, reject
(c) invest
(a) $12.01
(b) if FW>=0, then accept; otherwise, reject
(c) invest
(a) $552
(b) if FW>=0, then accept; otherwise, reject
(c) pursue the new product
(a) $2,822
(b) if FW>=0, then accept; otherwise, reject
(c) buy truck
(a) average for each = $9,500/yr
(b) I = varies from the average using a positive gradient
II = varies from the average using a negative gradient
III = uses the average
(c) yes, deposit sooner (negative gradient) to accumulate a larger balance
(a) FW(A)=$23,767; FW(B)=$30,947
(b) prefer highest FW
(c) purchase from Vendor B

Answers-15
36.
38.
40.

42.
44.
46.
48.
50.

52.
54.
56.
58.
60.
62.
64.
66.
68.

approximately 7,765 units/yr

FW(none)=-$5,976,534; FW(1 inch)=-$916,793; FW(2 inch)=-$1,029,293; prefer
1 inch
order: null, Auburn, Lagrange, Anniston
FW(Auburn-null)=$6,540434
FW(Lagrange Auburn)=$639,052
FW(Anniston Lagrange)=-$766.023
Prefer Lagrange
order: A37Y, 7745
FW(7745-A37Y)=-$2,582; prefer A37Y
FW(I)=$9,745; FW(II)=-$4,518; FW(III)=$12,003; prefer III
FW(savings account)=0; FW(savings certificate)=-$633; FW(race horse)=$1,800; prefer savings account
(a) FW(equipment)=-$205,292.41; prefer service contract
(b) FW(equipment)=$136,908; prefer equipment purchase
(c) approximately 380 units
(a) FW(T1)=$3,460,348; FW(T2)=$3,652,877; FW(T3)=$2,005,835;
FW(T4)=$1,821,439; prefer T2
(b) FW(T1)=$855,730; FW(T2)=-$1,131,910; FW(T3)=-$974,689; FW(T4)=$2,403,198; prefer T1
FW=-$2,637; do not purchase delivery van
FW(M1)=-$1,458; FW(M2)=-$1,420; FW(M3)=-$1,378; prefer M3
FW=$3,515; sprinkler system is economically attractive
FW(D1)=-$28.24M; FW(D2)=-$31.59M; prefer Design 1
FW=$119.8K; filter is economically justified
(a) FW=$216,688; (b) investment is attractive
(c) if FW>=0, accept; otherwise, reject
FW(purchase)=$6,270; FW(lease)=-$331; prefer purchase
(a) Total Portfolio Value(light bar)=$40,233; Total Portfolio Value(sliding
spots)=$37,634; Total Portfolio Value(light bar)=$39,459
(b) FW analysis and Total Portfolio Value analysis produce a consistent decision
FW(334A-127B)=-$124,368; prefer 127B

Chapter 7
FE2. c
FE4. a
FE6. c
FE8. d
FE10. d
2.
(a) true; (b) true, (c) true, (d) true, (e) false, (f) false
4.
(a) AW=$14,187
(b) if AW>=0, then accept; otherwise, reject
(c) project is economically justified
6.
(a) AW=$1,161; (b) investment is attractive
(c) if AW>=0, accept; otherwise, reject
8.
$7,448

Answers-16
10.
12.
14.
16.
18.
20.
22.
24.
26.
28.
30.
32.
34.
36.
38.
40.
42.
44.
46.
48.
50.
52.

(a) AW=$4,366
(b) if AW>=0, accept; otherwise, reject
(c) buy the gang punch
(a) AW=$1,107
(b) if AW>=0, accept; otherwise, reject
(c) buy the gang punch
$79,428
(a) AW=$14.18
(b) if AW>=0, accept; otherwise, reject
(c) invest
(a) AW=$0.68
(b) if AW>=0, accept; otherwise, reject
(c) invest
(a) AW=$90.42
(b) if AW>=0, accept; otherwise, reject
(c) pursue new product
(a) AW=$747
(b) if AW>=0, accept; otherwise, reject
(c) buy truck
AW(A-B)=-$1,547; therefore, Vendor B is preferred
AW(none)=-$375,000; PW(1 inch)==-$57,525; PW(2 inch)=-$64,583; 1-inch
insulation is preferred
(a) AW(Lagrange)=$247,554; AW(Auburn)=$225,519; AW(Anniston)=$221,141
(b) highest AW is preferred
(c) locate in Lagrange
(a) AW(7745)=-$1,583; AW(A37Y)=-$1,387
(b) highest AW is preferred
(c) purchase A37Y
(a) AW(A)=$806; AW(B)=-$41
(b) pursue Project A
(a) AW(A001)=$27.56; AW(B002)=$27.45; AW(C003)=$29.52
(b) recommend C003
(a) AW(T)=-$16,941; AW(M)=-$14,443
(b) purchase Drill M
(a) null, X1 only, X2 only, X1&Y1, X2&Y2
(b) AW(null)=$0; AW(X1)=-$274; AW(X2)=-$212; AW(X1Y1)=$1,101;
AW(X2Y2)=$1,601; prefer X2&Y2
AW=-$378; van is not economically attractive
AW(M1)=-$305, AW(M2)=-$297; AW(M3)=-$288; prefer M3
AW=$209; sprinkler system is economically attractive
AW(D1)=-$8.53M, AW(D2)=-$9.54M; prefer Design 1
AW=$6,828; filter is economically attractive
PW(purchase)=$1,894; PW(lease)=-$100; prefer purchase
(a) 15 years
(b) AW(1)=$9,577; AW(2)=$26,748
(c) AW(1)=$9,577; AW(2)=$26,748

Answers-17
54.
56.
58.
60.
62.
64.
66.

AW(Pipe A)=-$11,733; AW(Pipe B)=-$11,556; prefer Pipe B

(a) PW(127B)=$2,639; PW(334A)=-$37
(b) highest AW is preferred
(c) prefer Model 127B
(a) PW(Y)=-$1,508; PW(Z)=-$1,404
(b) highest AW is preferred
(c) use structure Z
CR(1)=$25,600; CR(2)=$24,831; CR(3)=$21,002; CR(4)=$18,915;
CR(5)=$16,680; CR(6)=$14,869
$6,761.20
$14,869.76
selected values of n and CR
1
$20,600.00
5
$4,838.67
10
$2,911.56
15
$2,299.76
20
$2,015.19
25
$1,859.90

Chapter 8
FE2. a
FE4. d
FE6. c
FE8. c
FE10. c
FE12. d
2.
(a) true; (b) true, (c) true, (d) true, (e) false, (f) false
4.
(a) one positive real root; (b) unique positive real root; (c) 12.98%; (d) attractive
6.
(a) 4, 2, or 0 real positive roots; (b) no conclusion; (c) 8.08% and 37.43%;
attractive
8.
(a) 9.82%, 25.67%, 57.45%; (b) not attractive
10.
(a) IRR>MARR; (b) IRR=MARR; (c) IRR<MARR
(d) IRR>MARR; (e) IRR=MARR; (f) IRR<MARR
(g) IRR>MARR; (h) IRR=MARR; (i) IRR<MARR
12.
(a) 36.35%; (b) if IRR>=MARR, accept; otherwise, reject; (c) justified
14.
(a) $7,413; (b) $10,414; (c) $20,344; (d) $3,718; (e) -$3,000
16.
(a) 7.42%; (b) if IRR>=MARR, accept; otherwise, reject; (c) not justified
18.
(a) 17.91%; (b) if IRR>=MARR, accept; otherwise, reject; (c) buy sprinkler
system
20.
(a) 16.52%; (b) if IRR>=MARR, accept; otherwise, reject; (c) do not buy
computer system
22.
(a) 15.70%; (b) if IRR>=MARR, accept; otherwise, reject; (c) do not invest
24.
(a) 25.16%; (b) if IRR>=MARR, accept; otherwise, reject; (c) buy water filtration
system
26.
(a) 7.45%; (b) if IRR>=MARR, accept; otherwise, reject; (c) do not implement
design change

Answers-18
28.
30.
32.
34.
36.
38.

40.

42.

44.

46.
48.

50.
52.
54.
56.
58.
60.
62.

IRR=-0.35%; do not purchase van

IRR=26.83%; filter is justified
(a) null; (b) A; (c) D; (d) F; (e) G
(a) in K$ by year, -$130, $80, $80, $80, $80, $80, $80, $80, $80, $80, $85; (b)
61%, (c) A; (d) C<0, D<0, A>0, B=0
IRR(A-B)=7.71%, purchase from Vendor B
order: null, Auburn, Lagrange, Anniston
IRR(Auburn-null)=40.29%
IRR(Lagrange Auburn)=25.09%
IRR(Anniston Lagrange)=4.73%
Prefer Lagrange
order: null, A, B
IRR(A-null)=13.89%
IRR(B-A)=7.75%
Prefer A
order: null, B002, C003, A001
IRR(B002-null)=42.11%
IRR(C003-B002)=16.48%
IRR(A001-C003)=5.65%
Prefer C003
(a) null, X1 only, X2 only, X1&Y1, X2&Y2
(b) order: null, B002, C003, A001;
IRR(X1-null)=5.84%
IRR(X2-null)=7.90%
IRR(X1&Y1-null)=19.44%
IRR(X2&Y2-X1Y1)=18.62%
Prefer X2Y2
IRR(onetime-extended)=7.36%; prefer onetime
order: null, bar, spots, beam
IRR(bar-null)=24.29%
IRR(spots-bar)=3.47%
IRR(beam-bar)=9.35%
Prefer light bar
IRR(purchase-lease)=17.94%; prefer purchase
ERR=11.57%; attractive
ERR=10.35%; attractive
ERR=9.9997%; not attractive
(a) ERR=8.97%
(b) if ERR >= MARR, accept; otherwise, reject
(c) implement the process improvement
(a) ERR=14.07%
(b) if ERR >= MARR, accept; otherwise, reject
(c) invest
(a) ERR=14.68%
(b) if ERR >= MARR, accept; otherwise, reject
(c) pursue new product

Answers-19
64.

66.

68.
70.
72.
74.
76.
78.
80.
82.

order: null, A, B
ERR(A-null)=12.30%
ERR(B-A)=11.28%
Prefer A
order: Gate 1, Gate 2, Gate 3
ERR(2-1)=16.81%
ERR(3-1)=21.27%
Prefer Gate 3
IRR(II-I)=21.86; prefer II
(a) IRR(equip-serv)=-8.35%; prefer service
(b) IRR(equip-serv)=22.01%; prefer equipment
IRR(D2-D1)=-21.76%; prefer Design 1
IRR(Z-Y) = 7.11%; prefer Structure Z
11.98%
6.45%
(a) 10.01%
(b) if MIRR >= MARR, accept; otherwise, reject
(c) do not invest
order: First, Second, Both
MIRR(Second-First)=12.87%
MIRR(Both-Second)=10.69%
Prefer Both

Chapter 9
FE2. c
FE4. b
FE6. d
FE8. a
FE10. d
FE12. b
2.
(a) One reason is that U.S. Tax Law prohibits simply subtracting the investment
all at one time (with certain exceptions covered in Chapter 10).
(b) Depreciation charges, while not cash flows, can be treated as expenses for the
purpose of figuring taxable income.
4.
(b) Tangible, Personal, Nondepreciable
(d) Tangible, Personal, Depreciable
(f) Tangible, Personal, Depreciable
(h) Tangible, Real, Depreciable
6.
(a) $9,974.18
(b) $15,346.51
(c) Sinking fund depreciation
(d) $110,000.00
8.
(a) Year 1: $10,574.02; Year 2: $11,631.42; Year 3: $12,794.56
(b) Less depreciation occurs in the early years and more in the back years.
(c) Because it is band end loaded.
10.
(a) Year 2: $300,000.00

Answers-20

12.
14.

16.
18.
20.
22.

24.
26.

28.

30.
32.
34.
36.
38.

(b) Year 2: $391,238.40

(c) Year 2: $384,000.00
(d) Year 2: $384,000.00
(e) Year 2: $400,000.00
(a) $38,000.00
(b) $1,500.00
(c) (i) $14,300.00; (ii) $2,781.79; (iii) $6,708.00; (iv) $6,708.00; (v) $6,900.00
(a) Year 4: $24,000.00
(b) Year 4: $0.00
(c) Year 4: $10,368.00
(d) Year 4: $12,960.00
(e) Year 4: $16,000.00
Year 1: 1.7708% and $1,558.33
Year 5: 2.5000% and $2,200.00
Year 41: 0.7292% and $641.67
Year1: 20.00%; Year 2: 32.00%; Year 3: 19.20%; Year 4: 11.52%; Year 5:
11.52%; Year 6: 5.76%
Year 1: 25.00%; Year 2: 37.50%; Year 3: 18.75%; Year 4: 12.50%; Year 5:
6.25%
(b) MACRS-GDS(3); 200% DBSLH
(d) NA; NA
(f) MACRS-GDS(5); 200% DBSLH
(h) MACRS-GDS(27.5); SLM
(a) $800,000.00
(b) $449,820.00 using MACRS-GDS(7)
(a) MACRS-GDS(5)
(b) Depreciation deduction in years 1, 3, 5, 7: $70,000.00; $67,200.00;
$40,320.00; $0.00
(c) Unrecovered investment in years 1, 3, 5, 7: $280,000.00; $100,800.00;
$20,160.00; $0.00
(a) MACRS-GDS(3)
(b) Depreciation and unrecovered investment in year 4: $6,669.00; $0.00
(c) Depreciation and unrecovered investment in year 4: $3,334.50; $3,334.50
(d) Depreciation and unrecovered investment in year 3: $6,664.50; $13,333.50
(a) MACRS-GDS(5)
(b) Depreciation and unrecovered investment in year 3: $307,200.00; $460,800.00
(c) Depreciation and unrecovered investment in year 3: $153,600.00; $614,400.00
(a) $4,400.00; $4,224.00; $1,267.20
(b) $4,400.00; $4,224.00; $1,267.20
(a) MACRS-GDS(10)
(b) Depreciation in years 5 and 6: $23,050.00; $9,212.50
(c) Depreciation in years 6 and 7: $18,425.00; $8,187.50
(a) MACRS-GDS(10)
(b) Depreciation and unrecovered investment in year 5: $248,940.00; $995,220.00
(a) MACRS-GDS(39)
(b) $15,996.50; $16,666.00; $16,666.00

Answers-21
40.

42.

(c) $15,996.50; $16,666.00; $9,027.42

(a) MACRS-GDS(27.5)
(b) Years 1-7: $16,864.60; $19,270.80; $19,270.80; $19,270.80; $19,270.80;
$19,270.80; $4,014.75
(c) Years 0-7: $530,000.00; $513,135.40; $493,864.60; $474,593.80;
$455,323.00; $436,052.20; $416,781.40; $412,766.65
(a) MACRS-GDS(27.5)
(b) Years 1-5: $1,932.05; $3,090.60; $3,090.60; $3,090.60; $2,189.18
(c) Years 0-5: $85,000.00; $83,067.95; $79,977.35; $76,886.75; $73,796.15;
$71,606.98

44.
Depreciation in year 3 PW of Depreciation Unrecovered Investment end year 3
(a)
$125,885.00
$695,417.17
$62,985.00
(b
$125,925.93
$674,681.95
$62,962.96
)
(c)
$62,962.96
$709,854.95
$31,481.48
(d
$94,444.44
$732,873.93
$0.00
)
(e)
$283,333.33
$692,385.84
$0.00
(f)
$283,333.33
$658,078.43
$141,666.67
(g
$141,666.67
$0.00
$716,428.02
)
46.
(a) 1600; 9350; 7600; 1190
(b) 4260
48.
(a) $380,000.00
(b) $60,000.00
(c) 4
(d) $32,000.00; $64,000.00; $96,000.00; $128,000.00
50.
(a) $200,000.00
(b) $148,500.00
52.
(a) $255,555.56
(b) $202,500.00
Chapter 10
FE2. b
FE4. b
FE6. b
FE8. b
FE10. b
2.
One is: Perform after-tax analyses, not before-tax analyses, except in unusual
situations
4.
(a) Gross income a companys income before taking deductions or taxes into
account
(c) Depreciation method of attributing cost of assets across its useful life
6.
(a) $1,800.00; 15%; 15%
(b) $11,250.00; 17.31%; 25.00%

Answers-22

8.
10.

12.

14.
16.

(c) $69,050.00 31.39%; 39.00%

(d) $340,000.00; 34.00%; 34.00%
(e) $6,754,999.99; 35.00%; 35.00%
(a) $100,001.00
(b) $335,000.00
(c) $18,333,333.33
(a) 15.00%
(b) 31.25%
(c) 35.05%
(d) 39.00%
(a) 35.00%
(b) 35.00%
(c) 35.00%
(d) 35.00%
(a) $7,325,000.00
(b) $4,210,000.00
(a) $70,000.00
(b) $18,850.00

18.
ATCF(2)
ATCF(7)
PW
AW
IRR
ERR
(a)
$300,000.0 $300,000.0 $293,779.3 $55,067.1 15.24
12.65%
0
0
4
8
%
(b M(5) $419,200.0 $240,000.0 $369,389.0 $69,239.7 17.34
13.27%
)
0
0
1
6
%
(c)
$345,000.0 $259,667.9 $343,590.8 $64,404.0 16.61
13.06%
0
7
5
5
%
20.
ATCF(2)
ATCF(4)
PW
AW
IRR
ERR
(a)
$225,000.0 $1,125,000.0 $16,519.6 $5,099.10 9.42% 9.33%
0
0
6
(b M(7) $312,246.0 $956,142.00
$38,021.0 $11,735.9 10.03
9.76%
)
0
9
2
%
(c)
$255,000.0 $1,032,500.0 $31,038.3 $9,580.56 9.83% 9.62%
0
0
4
22.
ATCF(2)
ATCF(8)
PW
AW
IRR
ERR
(a) $57,000.0 $75,000.0 $50,425.3 $10,150.7 17.63
14.70%
0
0
6
7
%
(b) PW here is $50,425.36 versus only $8,520.80 where MACRS-GDS(5) is used.
Expensing the entire marketing study in year 0 is far more attractive than
depreciating an asset over years 1-6.
24.
ATCF(2)
ATCF(4)
PW
AW
IRR
ERR
(a) $22,200.0 $25,800.0 $18,829.8 $5,940.2 24.90
18.54%
0
0
6
7
%

Answers-23
(b) PW here is $18,829.86 versus only $12,790.37 where MACRS-GDS(3) is
used. Expensing the entire 100-day project in year 0 is far more attractive than
depreciating an asset over years 1-4.
26.

28.

30.
32.
34.

36.
38.
40.

ATCF(2)
ATCF(12) PW
AW
IRR
ERR
(a) $27,000.0 $30,000.0 $70,925.5 $13,294.5 21.44
14.53%
0
0
7
7
%
(b) PW here is $70,925.57 versus only $49,755.75 where MACRS-GDS(7) is
used. Expensing the entire design portfolio in year 0 is far more attractive than
depreciating an asset over years 1-8.
(a) Select virtual mold apparatus costing $87,500.00 since its AW is -$85,494.12
versus the higher cost AW of -$97,016.07.
(b) Select virtual mold apparatus costing $87,500.00 since its AW is -$86, 304.66
versus the higher cost AW of -$97,557.97.
Investment A is (slightly) less costly at -$9,181.26 versus -$9,249.26.
(a) Select investment A with AW=-$16,878.62 versus -$17,368.53.
(b) $104,039.51
(a) -$109,854.04 (MACRS_GDS(39))
(b) -$90,480.00
(c) -$97,221.43
(d) -$90,480.00
When we use BTCF, that means we have not yet deducted taxes from the cash
flow. Also, there is no cash flow due to a loan considered. When we use BTLCF,

(a) $148,020.00
(b )$59,208.00
(c) $260,292.00
(a) $183,408.00
(b) $6,000.00
(c) $77,592.00

42.
PW
FW
AW
IRR
(a) $470,030.0 $936,564.3 $84,922.3 29.39
9
9
9
%
(b $451,256.9 $899,157.6 $81,530.5 24.04
)
2
8
6
%
(c) $453,286.6 $903,202.0 $81,897.2 24.54
3
0
8
%
(d $464,294.9 $925,136.8 $83,886.2 31.54
)
7
0
0
%
44.
(a) $220,209.06
(b) $215,428.05
(c) $216,512.27
(d)$216,872.68
46.
PW
AW
IRR
ERR

ERR
16.11%
16.43%
16.45%
15.73%

Answers-24
(a)
(b
)
(c)
(d
)
(e)
(f)
48.

$37,475.30
-$38,519.14

$5,839.40
-$6,002.06

9.50%
8.64%

9.25%
8.72%

-$25,820.80 -$4,023.40 8.74% 8.81%

$105,148.1 $16,384.2 10.52
9.69%
8
0
%
$29,153.73 $4,542.74 9.29% 9.21%
$41,852.08 $6,521.40 9.44% 9.30%
(a) MACRS(7)
(b) 12.00%
(c) $5,000.00
(d) 15.00%
(e) Interest payment (3) = -$1,713.82; TI(3) = -$16,811.82; ATCF(3) =
$33,921.66 plus more
50.
(a) LTD/TSE = $1,157,000/$15,935,000 or 7.26% on 29 March 2007
Plus more. These will vary over time.
52.
(a) $460,332.97
(b) $442,250.38
Chapter 11
FE2. d
FE4. c
FE6. a
FE8. a
FE10. b
2.
(i) A dishwasher that lasted 22 years; (ii) A 10 year old desktop computer; (iii)
incandescent lighting, plus more.
4.
(a) Replace EUAC of replacement is $297,425.02
(b) Replace EUAC of replacement is $306,965.93
6.
(a) $17,000.00
(b) Invest in new DL technology; its EUAC is $28,729.62
(c) $17,000.00
(d) Invest in new DL technology; its EUAC is $33,214.18
8.
(a) Trade in existing and purchase new MH system; EUAC = $40,099.51
10.
(a) CF for years 0 to 8 for new turret lathe: -$47,000.00; -$10,000.00; $10,000.00; -$10,000.00; -$10,000.00; -$10,000.00; -$10,000.00; -$10,000.00; $6,252.88
EUAC = $20,200.98
(b) Replace with new turret lathe
(c) CF for years 0 to 8 for new turret lathe: -$65,000.00; -$10,000.00; $10,000.00; -$10,000.00; -$10,000.00; -$10,000.00; -$10,000.00; -$10,000.00; $6,252.88
EUAC = $24,212.28
(d) Replace with new turret lathe

Answers-25
12.

14.
16.
18.
20.

22.

24.
26.
28.
30.

(a) CF for years 0 to 10 for existing plus buy additional: -$18,000.00; -$5,050.00;
-$5,400.00; -$5,750.00; -$6,100.00; -$6,450.00; -$6,800.00; -$7,150.00; $7,500.00; -$7,850.00; -$5,200.00.
EUAC = $10,303.69
(b) Keep existing HVAC unit and buy additional unit
(c) CF for years 0 to 10 for existing plus buy additional: -$25,000.00; $5,050.00; -$5,400.00; -$5,750.00; -$6,100.00; -$6,450.00; -$6,800.00; $7,150.00; -$7,500.00; -$7,850.00; -$5,200.00.
EUAC = $11,973.35
(d) Keep existing HVAC unit and buy additional unit
(a) Replace with new painting machine at EUAC=$167,051.17
(b) Replace with new painting machine at EUAC=$171,602.20
(c) Replace with new painting machine at EUAC=$164,522.83
(a) Keep existing shredder at EUAC=$58,687.99
(b) Keep existing shredder since EUAC of no shredder is $72,966.89
(a) Keep existing crane at EUAC = $21,000.00
(b) Keep existing crane at EUAC = $28,133.39
(c) Keep existing crane; EUAC of new = $17,776.95
(a) ATCF of Keep and Buy S for years 0-5: -$210,000.00; -$39,712.00; $39,698.00;
-$45,956.00; -$52,200.00; $11,578.68
EUAC = $93,325.82
(b) Keep existing multi-axis machine and buy machine S
(c) Keep existing multi-axis machine and buy machine S at EUAC = $93,325.82
(a) ATCF of Trade in Existing Auger and Buy Treated Auger for years 0-7: $51,000.00; $1,896.00; $6,264.00; $3,038.40; $1,103.04; $1,103.04; -$348.48;
$9,000.00
EUAC = $7,039.25
(b) Trade in existing auger and buy treated auger
8 years at EUAC = $8,229.90
17 years at EUAC = $30,454.67
7 years at EUAC = $4,882.01
16 years at EUAC = $17,913.30

Chapter 12
FE2. c
FE4. d
FE6. c
FE8. d
FE10. d
2.
Gasoline, copper, mechanic labor, tuition
4.
Homes and land
6.
CPI measures price changes from the perspective of the purchaser, while
8.
Not irrelevant. CPI does not describe any individuals purchasing habits. Also,
the economy is very connected.
10.
(a) 101.6; 104.0; 106.0; 109.5; 113.2
(b) 2.51744%

Answers-26
12.
14.
16.
18.
20.
22.
24.

26.
28.
30.

(a) 141.3; 160.7; 176.9; 210.3; 249.8

(b) 8.53190%
2.1155%
18.5396%
$262,268.73
(a) 3.18%
(b) $19,005.50
(c) $666.01
(a) $35,236.17
(b) $242,628.93
(a) $944,160.00; $1,273,483.01; $1,717,673.88; $2,316,798.53; $3,124,897.86
(b) $840,000.00; $1,008,000.00; $1,209,600.00; $1,451,520.00; $1,741,824.00
(c) $3,879,152.31
(d) $3,879,152.31
(a) $17,599,971.78
(b) $67,938.73
(a) Defer payments. It is worth $1,085,748.75.
(b) 5.24%
(c) Take it now and run.
(a) $111,292.23
(b) $111,292.23

32.
Paid(2)
(a) $13,600.0
0
(b $42,880.0
)
0
(c) $40,602.5
2
(d $0.00
)

Paid(5)
$173,600.0
0
$34,720.00

PW(then current) PW(constant $)

$156,888.28
$156,888.28
$158,026.05

$158,026.05

$40,602.52

$157,929.64

$157,929.64

$240,585.0
7

$156,363.79

$156,363.79

Paid(2)
(a) $50,000.00

Paid(4)
$550,000.0
0
$137,500.0
0
$157,735.4
0
$732,050.0
0

PW(then current) PW(constant $)

$403,986.77
$403,986.77

34.

36.
38.

(b $162,500.0
$435,313,57
$435,313.57
)
0
(c) $157,735.4
$432,705.28
$432,705.28
0
(d $0.00
$390,658.52
$390,658.52
)
$1,316.60
(a) -$9,000,000.00; $4,292,307.69; $4,065,088.76; $3,014,474.28; $2,154,504.39;
$1,540,869.61; $1,183,879.62
(b) $1,615,078.51
(c) $461,767.31

Answers-27

40.

42.

44.

46.

48.

(d) $4,359,991.90
(e) 26.68%
(f) 21.29%
(g) 31.74%
(h) 26.14%
(a) -$190,000.00; $37,452.74; $44,241.35; $38,851.05; $35,145.43; $32,605.15;
$32,388.71; $32,192.26; $29,495.88; $27,000.00; $27,000.00; $27,000.00;
$30,000.00
(b) $43,495.36
(c) $6,383.52
(d) $136,507.08
(e) 14.92%
(f) 11.91%
(g) 19.40%
(h) 16.27%
(a) -$1,400,000.00; $347,485.60; $405,045.07; $335,035.55; $294,722.97;
$292,517.24; $265,200.21; $240,000.00; $360,000.00
(b) $326,090.32
(c) $61,123.68
(d) $699,003.57
(e) 16.49%
(f) 12.92%
(g) 21.38%
(h) 17.66%
(a) -$9,000,000.00; $4,320,000.00; $4,152,000.00; $3,091,200.00; $2,214,720.00;
$1,614,720.00; $1,227,360.00
(b) $865,610.93
(c) $278,075.46
(d) $2,956,751.41
(e) 27.73%
(f) 24.61%
(g) 22.82%
(h) 19.82%
(a) -$190,000.00; $37,860.40; $45,612.40; $40,292.40; $36,492.40; $33,786.80;
$33,779.20; $33,786.80; $30,389.60; $27,000.00; $27,000.00; $27,000.00;
$30,000.00
(b) $7,483.92
(c) $1,358.31
(d)$38,481.69
(e) 15.61%
(f) 14.99%
(g) 10.95%
(h) 10.35%
(a) -$5,000,000.00; $4,015,384.62; $3,798,816.57; $2,758,443.33; $1,908,320.79;
$1,304,154.60; -$2,204,989.07
(b) $3,547,544.14

Answers-28

50.

52.

(c) $1,014,278.80
(d) $9,576,787.51
(e) 59.09%
(f) 29.03%
(g) 65.45%
(h) 34.19%
(a) -$90,000.00; $29,945.52; $37,015.92; $31,896.84; $28,452.25; $26,163.21; -;
53,300.36; $32,192.26; $29,495.88; $27,000.00; $27,000.00; $27,000.00;
$30,000.00
(b) $68,533.67
(c) $10,058.23
(d) $215,088.00
(e) 26.13%
(f) 14.77%
(g) 31.05%
(h) 19.25%
(a)
(b
)
(c)
(d
)

ATCF(2)
$4,108,800.00
$3,490,133.33

ATCF(6)
-$2,790,014.60
$783,318.73

PW
$3,547,544.14
$2,929,877.79

FW
$12,117,691.37
$10,007,868.38

$3,592,237.79
$4,396,800.00

$566,778.36
-$4,839,189.05

$3,021,558.55
$3,759,823.63

$10,321,031.27
$12,842,795.08

AW
(a) $1,139,640.14
(b $941,216.29
)
(c) $970,668.52
(d $1,207,834.43
)
(e) Method 4

IRRc
65.45%
52.96%

ERRc
34.19%
32.53%

IRRr
59.09%
47.08%

ERRr
29.03%
27.43%

54.95%
71.45%

32.78%
34.74%

48.99%
64.86%

27.67%
29.56%

Chapter 13
FE2. a
FE4. c
FE6. b
FE8. c
FE10. b
2.
(a) (3); (b) (1), (c) (2)
4.
(a) false; (b) true; (c) false
6.
(a) 6,137 (rounded); (b) Plan I
8.
(a) $67,584 profit; (b) 307,692 (rounded) units; (c) $132,480 profit
10.
(a) 0.1636 inches; (b) steel
12.
$5,170.21/yr

Answers-29
14.
16.
18.
20.
22.
24.
26.
28.

30.
32.

34.
36.
38.
40.
42.
44.
46.
48.

426 (rounded) holes/day

(a) $500,000 loss; (b) 58.33%
(a) $25,000 loss; (b) 220,000 units; (c) $125,000 profit; (d) 132,000 units
(a) $7,120; (b) -$3,280, -$680, $1,920, $4,520, $9,720, $12,320; (c) -54.8%
graph required
graph required; most sensitive is annual revenues, least sensitive is salvage value
graph required; favorable/unfavorable line is y=9.2 60.5x
(a) PW(pessimistic)=-$5.12M, not attractive
(b) PW(most likely)=$2.00, attractive
(c) PW(optimistic)=$9.66M, attractive
(d) PW(expected)=$2.09M, attractive
(a) E[PW]=$91,565, SD[PW]=$10,067;
(b) E[PW]=$91,565, SD[PW]=$30,723
(a) E[PW]=-$1,031,532, SD[PW]=$835,870;
(b) P[PW>0]=0.109;
(c) E[PW]=-$1,031,539, SD[PW]=$828,138; P[PW>0]=0.107;
(d) E[PW]=-$1,032,209, SD[PW]=$827,269; P[PW>0]=0.107
(a) P[PW(A)-PW(B)>0]=0.229; (b) 0.234; (c) 0.232
(a) P[PW<0]=0.437; (b) 0.440, (c) 0.437
(a) E[PW]=$825,709, SD[PW]=$649.192; (b) P[PW<0]=0.102;
(c) P[PW>1,000,000]=0.394; (d) 0.101; (e) 0.104
(a) P[PW<0]=0.289; (b) P[PW>10000]=0.142; (c) 0.284, 0.141; (d) 0.288, 0.141
(a) E[PW]=-$1,209; (b) PW=-$1,274, P[PW<0]=0.560;
(c) E[PW]=-$1,209, P[PW<0]=0.631; (d) =-$1,304, P[PW<0]=0.640;
(e) E[PW]=-$1,211, P[PW<0]=0.632;
(a) decision tree required; (b) purchase new compressor
(a) decision tree required; (b) purchase automatic
(a) decision tree required; (b) select option A

Chapter 14
FE2. c
FE4. d
FE6. c
FE8. d
FE10. b
2.
Visited The World Bank about International Development Association (IDA)
4.
(d) Benefit Kids of all ages go for fun. Disbenefit Requires upkeep and
maintenance.
6.
(a) #3
(b) #3 at $540.00
8.
Yes, support at 1.43
10.
(a) Do not approve at -$57,712.56
(b) $3.94
12.
(a) 1.09
(b) $2800.00
14.
Construct B

Answers-30
16.
18.
20.

22.
24.
26.
28.
30.

32.
34.
36.
38.

40.

42.

(a) SA
(b) SA at -$9,258,747.13
(c) SB at -$12,860,000.00
$2, 082,210.98
(a)Steel bridge it is a sunk cost; also, there is no TVM in the analysis, plus more
Concrete bridge the bridge is being prorated over 60 years, well beyond the
planning horizon; only one resurfacing is planned during the horizon, plus more
(b) AW of steel bridge is $27,126.51
(a) B or C
(b) A
(c) A
(a) 7%
(b) $5,677,027.20
(a) Project 3 at $395,341.57
(b) Project 1 at $245,918.42
(a) Acceptable at 1.16
(b) Not acceptable at 0.53
(a) -$139,076.30
(b) -$139,076.30
(c) -$289,076.30
(d) -$364,076.30
(a) There is the assumption that the number of visitors will not be impacted.
(b) B/C=0.28
(a) $7.00
(b) $0.00
(c) No feasible solution
(a) No, at PW net cost of $12,030,872.91
(b) 4.22
(c) $38,762,555.32
(a) $5,600,000
(b) $12,686,300
(c) $37,713,700
(d) $13,500,000
(e) $78,500,000
(a) $7,000,000
(b) $8,000,000
(c) $10,570,000
(d) $22,000,000
(e) $10,820,000
(f) $53,320,000
(a) $4,280,000.00
(b) $1,712,000.00
(c) $2,568,000.00
(d) $28,000,000.00
(e) 9.17%
(f) $11,300,000.00

Answers-31
44.

46.

(g) $6,368,000.00
(a) $90,000
(b) 20 years
(c) 6.00%
(d) $31,965
Year 1: $329,394.00; Year 3: $356,343.00

Chapter 15
FE2. a
FE4. c
FE6. d
FE8. c
FE10. c
2.
(a) 2, 4, 5
(b) $43,617.79
(c) 16.94%
(d) 2, 4, 5
(e) $43,617.79
(f) 16.94%
(g)
(1)
2, 4, 5
(2)
2, 3, 4, 5
(3)
2, 3, 4
(h)
(1)
2, 4, 5
(2)
2, 4, 5
(3)
2, 4, 5
4.
(a) 1, 2, 3, 4
(b) $113,550.45
(c) 24.60%
(d) 1, 2, 4, 5
(e) $111,387.62
(f) 25.43%
(g)
(1)
1, 2, 3, 4
(2)
2, 3, 4, 5
(3)
2, 3, 5
(h)
(1)
1, 2, 3, 4
(2)
1, 2, 3, 5
(3)
1, 2, 3, 4
6.
(a) 1, 3, 4
(b) $90,978.88
(c) 12.00%
(d) 1, 2, 3
(e) $79,606.52
(f) 12.33%
(g)
(1)
1, 3, 4
(2)
1, 2, 3, 4
(3)
1, 2, 3

$43,617.79
$49,000.00
$33,507.05
$43,617.79
$21,150.07
$68,860.59

$113,550.45
$130,492.90
$94,445.14
$113,550.45
$86,844.50
$143,619.14

$90,978.88
$113,723.60
$79,606.52

Answers-32
(h)
8.

10.

12.
14.
16.

18.
20.

22.

(1)
(2)
(3)

1, 3, 4
1, 3
1, 3, 4

$90,978.88
$10,814.33
$191,650.08

(a) 2, 4
(b) $530,720.51
(c) 21.99%
(d) 2, 5
(e) $522,889.02
(f) 20.75%
(g)
(1)
2, 4
$530,720.51;
(2)
1, 2, 4 $741,563.04
(3)
1, 4
$507,829.17
(1)
2, 4
$530,720.51
(2)
2, 4
$411,546.84
(3)
2, 5
$668,318.72
(a) 2, 4, 5, 6
(b) $9,950.82
(c) 11.42%
(d) 1, 2, 3, 4, 6
$7,676.34
(e) 2, 4, 5, 6
$9,950.82
(f) 2, 4, 5, 6
$9,950.82
(g) 1, 2, 4, 6
$7,486.80
(a) 4 13.55%
(b) 4 $3,722.84
13.55%
(a) 6 11.70%
(b) 6 $3,222.17
11.70%
(a) H11
(b) B9:G9
(c) B9:G9 binary
H10<=H12
(d) Set up any cell for x4+x5. Then, constrain it to be <=1
(e) Set a constraint to have x6<=x5
(f) Set up any cell to be the sum of the xs. Then, constrain this cell to be equal to
3.
True
(a)
3, 5, 2, 4(60%)
(b)
(1)
3, 5, 2, 4(60%)
$626,331.89
(2)
3, 5, 2, 4, 1(14.29%) $729,864.52
(3)
3, 5, 2, 4(10%)
$522,258.61
(c)
(1)
3, 5, 2, 4(60%)
$626,331.89
(2)
3, 5, 2, 4(60%)
$447,693.13
(3)
3, 5, 2, 4(60%)
$834,615.69
(d)
3, 5, 2, 4(60%)
$626,331.89
(a)
2, 1, 4(43.75%)
(b)
(1)
2, 1, 4(43.75%)
$68,171.11
(2)
2, 1, 4(87.5%)
$79,751.65
(3)
2, 1
$56,590.68

Answers-33
(c)

24.

(d)
(a)
(b)
(c)

26.

(d)
(a)
(b)
(c)

28.

(d)
(e)
(f)
(a)
(b)
(c)
(d)

(1)
2, 1, 4(43.75%)
$68,171.11
(2)
2, 1, 4(43.75%)
$27,695.48
(3)
2, 1, 4(43.75%)
$115,128.65
2, 4, 1(40%) $66,630.85
5, 4, 2, 3(17.65%)
(1)
5, 4, 2, 3(17.65%)
$20,883.82
(2)
5, 4, 2, 3(76.47%)
$21,816.13
(3)
5, 4, 2(41.67%)
$18,775.04
(1)
5, 4, 2, 3(17.65%)
$20,883.82
(2)
5
$6,074.70
(3)
5, 4, 2, 3(17.65%)
$31,588.24
5, 4, 2, 3(17.65%)
$20,883.82
6, 1, 7, 9, 4, 5, 10(50%)
(1)
6, 1, 7, 9, 4, 5, 10(50%)
$1,058,608.60
(2)
6, 1, 7, 9, 4, 5, 10, 3(88.89%) $1,210,595.46
(3)
6, 1, 7, 9, 4, 5(42.86%)
$884,659.61
(1)
6, 1, 7, 9, 4, 5, 10(50%)
$1,058,608.60
(2)
6, 1, 7, 9, 4, 5, 10(50%)
$761,080.10
(3)
6, 1, 7, 9, 4, 5, 10(50%)
$1,400,672.13
6, 1, 7, 9, 4, 10, 5(14.29%)
$1,043,918.42
6, 1, 7, 9, 4, 5, 10(50%)
$1,058,608.60
6, 1, 7, 9, 4, 2, 10(75%)
$1,028,578.56
4, 1, 2, 3(75%)
(1)
4, 1, 2, 3(37.5%)
$623,633.06
(2)
4, 1, 2, 3(87.5%)
$714,431.01
(3)
1, 2, 4(90%)
$531,518.25
(1)
4, 1, 2, 3(37.5%)
$623,633.06
(2)
4, 1, 2, 3(37.5%)
$511,830.60
(3)
4, 1, 2, 3(37.5%)
$752,584.83
2, 4, 1(50%),3(50%) $581,080.90

Chapter 16
FE2. c
FE4. d
FE6. c
FE8. b
FE10. a
2.
(a) 2, (b) 3, (c) 11, (d) 13, (e) 6, (f) 12, (g) 4, (h) 7, (i) 9, (j) 10, (k) 8, (l) 1, (m) 5
4.
for X <= 7.5, prefer Method II; otherwise, prefer Method I
6.
(a) 100 units; (b) $30,000; (c) $50,000
8.
(a) -$500,000 (loss); (b) approximately 583,333 tools; (c) $15/tool
10.
(a) graph required; for Order <= 50, use M1, 50 < order <= 125, use M3, order >
125 use M2; (b) use M3 for $875; (c) M2 is preferred, penalty for using M3 is
$70, penalty for using M1 is $510
12.
(a) $180,000; (b) $600/ton
14.
(a) 63.63; (b) 0.279; (c) weight; (d) cost; (e) $231.03;

Answers-34
16.

18.

20.
22.
24.
26.

28.
30.
32.
34.
36.
38.

40.
42.

(f) 98.24% of the changes in cost can be explained by changes in weight

(a) graphs required, regression results for labor hours y=5.96x + 9466.9,
r2=0.0059; for boards completed y=13.95x + 21811.0, r2=0.222; for average cycle
time y=330.5x + 6572.8, r2=85.41
(b) average cycle time; (c) 85.41%
(a) Assets: cash, accounts receivable, raw materials inventory, work-in-process
inventory, finished goods inventory, land, net buildings, net equipment;
Liabilities: notes payable, accounts payable, declared dividends payable; Net
Worth: common stock, retained earnings
(b) $318,000
Net Income = $85,000
Balance Sheet balancing total = $74,700; Net Income = $1,500
(a) $2.43B; (b) $60.75B; (c) $12.79; (d) 69.43B
(a) many sites provide valuable information, among them are
www.investopedia.com, www.fool.com, www.business.com
(b) investopedia.com
(c) investopedia.com has a well organized and easy to navigate tutorial on
financial ratios,
(d) there are many including cash conversion cycle, return on capital employed,
interest coverage ratio, cash flow to debt ratio, fixed asset turnover, price to sales
ratio.
$4,062.50
(a) made; (b) units should be made unless overhead rate exceeds $10.8333 per
hour
(a) $189,374; (b) $7,430.40
Net Income = $160,000
(a) 42.86%; (b) 33.80%; (c) $1.7143/hr; (d) $214
(a) many sites provide valuable information, among them are
www.investopedia.com, www.valuebasedmanagement.net,
www.valuationresources.com,
(b) investopedia.com
(c) investopedia.com has a well organized and easy to navigate tutorial on
economic value added
(a) Lower=$201.04/unit, Upper=$367.92/unit
(b) Lower=$166.08/unit, Upper=$437.85/unit
(a) PS=$300/unit, VI=$325/unit
(b) PS=$217/unit, VI=$450/unit