Janice V. bought a 5% $1000 twenty-year bond for $925. She received a semiannual dividend for 8 years, then sold it immediately after the 16th dividend for $800. What rate of return did she make (a) per semiannual period, and b) per year (nominal)?
> Determine the WACC for Delta Corporation, which manufactures miniature triaxial accelerometers for space-restricted applications. The financing profile, with interest rates, is as follows: $3 million in stock sales at 8% per year, $4 million in bonds at
> Two public corporations, First Engineering and Midwest Development, each show capitalization of $175 million in their annual reports. The balance sheet for First indicates total debt of $87 million, and that of Midwest indicates net worth of $62 million.
> Alpha Engineering invested $30 million using a D-E mix of 65%–35% for the development, marketing, and delivery of a web-based training program for project management. Determine the return on the company’s equity if the net income from the sale of the pro
> A public corporation in which you own common stock reported a WACC of 10.7% for the year in its annual report to stockholders. The common stock that you own has averaged a total return of 6% per year over the last 3 years. The annual report also mentions
> Seven different financing plans with their D-E mixes and costs of debt and equity capital for a new innovations project are summarized below. Use the data to determine what mix of debt and equity capital will result in the lowest WACC.
> Tiffany Baking Co. wants to arrange for $37.5 million in capital for manufacturing a new baked potato chip product line. The current financing plan is 60% equity and 40% debt capital. Calculate the expected WACC for the following financing scenario: Equi
> Nano-Technologies bought out RT-Micro using financing as follows: $16 million from mortgages, $4 million from retained earnings, $12 million from cash on hand, and $30 million from bonds. Determine the debt-to-equity mix.
> Nucor Corp. manufactures generator coolers for nuclear and gas turbine power plants. The company completed a plant expansion through financing that had a debt/equity mix of 40%–60%. If $15 million came from mortgages and bond sales, what was the total am
> Identify the two primary sources of capital and state what is meant by each.
> Where is the salvage value placed in a conventional B/C ratio? Why? How is it handled mathematically?
> Alternative R has a first cost of $100,000, annual M&O costs of $50,000, and a $20,000 salvage value after 5 years. Alternative S has a first cost of $175,000 and a $40,000 salvage value after 5 years, but its annual M&O costs are not known. Determine th
> List two advantages of a public-private partnership (PPP).
> Identify the following as primarily private or public sector characteristics: (a) Large investment (b) No profits (c) Funding from fees (d) MARR-based selection criteria (e) Low interest rate (f) Short project life estimate (g) Disbenefits
> Since transportation via automobile was introduced, drivers throughout the country of Yalturia in Eastern Europe have driven on the left side of the road. Recently, the Yalturian National Congress passed a law that within 3 years, a righthand driving con
> During the design and development stages of a remote meter reading system for residential electricity use, the two engineers working on the project for the City of Forest Ridge noted something different than they expected. The first, an electrical/ softw
> You have been requested to compare four mutually exclusive alternatives using the B/C method and the results shown. Which alternative, if any, do you recommend?
> Four mutually exclusive, direct benefit alternatives are compared using the B/C method. Which alternative, if any, should be selected?
> Three alternatives identified as X, Y, and Z were evaluated by the B/C method. The analyst calculated project B/C values of 0.92, 1.34, and 1.29. The alternatives are listed in the order of increasing equivalent total costs. The analyst is not sure wheth
> Solar and conventional power alternatives are available to provide energy for monitoring equipment at a remote irrigation canal site. The estimates associated with each alternative have been developed. Use the B/C method to select one at an interest rate
> Locations under consideration for a border patrol station have their costs estimated by the federal government. Use the B/C ratio method at an interest rate of 6% per year to determine which location to select, if any.
> A state agency is considering two mutually exclusive alternatives for upgrading the skills of its technical staff. Alternative 1 involves purchasing software that will reduce the time required to collect background information on each client. The total c
> A process control manager is considering two robots to improve materials handling capacity in the production of rigid shaft couplings that mate dissimilar drive components. Robot X has a first cost of $84,000, an annual M&O cost of $31,000, a $40,000 sal
> The city engineer and economic development directors are evaluating two sites for construction of a multipurpose sports arena. The sites are downtown (DT) and southwest (SW) of the metropolitan area. The city already owns enough land at the DT site; howe
> Two alternatives, identified as X and Y, are evaluated using the B/C method. Alternative Y has a higher total cost than X. If the B/C ratios are 1.2 and 1.0 for alternatives X and Y, respectively, which alternative should be selected? Why?
> When red light cameras are installed at high-risk intersections, rear-end collisions go up, but all other types of accidents go down, including those involving pedestrians. Analysis of traffic accidents in a northwestern city revealed that the total numb
> In United States airspace, the average number of commercial aircraft in the sky on an average morning is 4000. There are another 16,000 planes on the ground. Aerospace company Rockwell-Collins developed what it calls a “digital parachute,” a panic-button
> Calculate the B/C ratio for the following cash flow estimates at a discount rate of 10% per year. Is the project justified? Item……………………………… Estimate PW of benefits, $...................... 3,800,000 AW of disbenefits, $/year…………. 45,000 First cost, $...
> The B/C ratio for a mosquito control program proposed by the Harris County Department of Health is reported to be 2.1. The person who prepared the report stated that the annual health benefits were estimated to be $400,000, and that disbenefits of $25,00
> A consultant, after 3 months of work, reported that the modified B/C ratio for a city-owned hospital heliport project is 1.7. If the initial cost is $1 million and the annual benefits are $150,000, what is the amount of the annual M&O costs used in the c
> An Army Corps of Engineers project for improving navigation on the Ohio River will have an initial cost of $6,500,000 and annual maintenance of $130,000. Benefits for barges and paddle wheel touring boats are estimated at $820,000 per year. The project i
> A rural, agriculture-based city that has 17,000 households is required to install treatment systems for the removal of arsenic and other harmful chemicals from its drinking water. The annual cost is projected to be $150 per household per year. Assume tha
> The State Highway Department is considering a bypass loop that is expected to save motorists $820,000 per year in gasoline and other automobile each year. The cost of the loop will be $9,000,000. (a) Calculate the conventional B/C ratio using an interest
> The annual revenues (in $1000 units) associated with several large apartment complexes are $0, $350, $290, $460, $150, and $320 for years 0, 1, 2, 3, 4, and 5, respectively. Determine (1) whether each cash flow series is conventional or nonconventional,
> The State Legislative Budget Board approved adding 4000 surveillance cameras along the 800-mile Texas-Mexico border from El Paso to Brownsville at a cost of $300 per camera. In addition to the cost of the cameras, manpower and other resources are expecte
> The B/C ratio for a flood control project along the Swanee River was calculated to be 1.3. If the benefits were $500,000 per year and the maintenance costs were $200,000 per year, determine the initial cost of the project at an interest rate of 7% per ye
> As part of the rehabilitation of the downtown area of a southern U.S. city, the Parks and Recreation Department expects to develop the space below several overpasses into basketball, handball, miniature golf, and tennis courts. The estimates are: initial
> The National Environmental Protection Agency has established that 2.5% of the median household income is a reasonable amount to pay for safe drinking water. For a median household income of $45,000 per year, what would the health benefits have to be (in
> Officials from the City of Galveston and State of Texas gathered to celebrate the start of a beach restoration project that involves dumping sand and adding antierosion structures. The first cost of the project is $30 million with annual maintenance esti
> The estimated annual cash flows for a proposed municipal government project are costs of $750,000 per year, benefits of $900,000 per year, and disbenefits of $225,000 per year. Calculate the conventional B/C ratio at an interest rate of 6% per year and d
> What is the primary purpose of a public sector project?
> If alternative A has i * A = 10% and alternative B has i * B = 18% per year, what is known about the rate of return on the increment between A and B if the investment required in B is (a) larger than that required for A, and (b) smaller than that require
> A food processing company is considering two types of moisture analyzers. Only one can be selected. The company expects an infrared model to yield a rate of return of 27% per year. A more expensive microwave model will yield a rate of return of 19% per y
> If the sum of the incremental cash flows is negative, what is known about the rate of return on the incremental investment?
> Konica Minolta plans to sell a copier that prints documents on both sides simultaneously, cutting in half the time it takes to complete big commercial jobs. The faster copier is expected to increase profit by $2,500,000 per year, regardless of which of t
> Ten years ago, DEWA, an electricity and water authority, issued $20 million worth of municipal bonds that carried a coupon rate of 6% per year, payable semiannually. The bonds had a maturity date of 25 years. Due to a worldwide recession, interest rates
> A savvy investor paid $6000 for a 20-year $10,000 mortgage bond that had a bond interest rate of 8% per year, payable quarterly. Three years after he purchased the bond, market interest rates went down, so the bond increased in value. If the investor sol
> A $10,000 mortgage bond with a bond interest rate of 8% per year, payable quarterly, was purchased for $9200. The bond was kept until it was due, a total of 7 years. What rate of return was made by the purchaser per 3 months and per year (nominal)?
> During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond t
> Four years ago, Valero issued $5 million worth of debenture bonds having a bond interest rate of 10% per year, payable semiannually. Market interest rates dropped and the company called the bonds (i.e., paid them off in advance) at a 10% premium on the f
> An engineer planning for his child’s college education purchased a zero-coupon corporate bond (i.e., a bond that has no dividend payments) for $9250. The bond has a face value of $50,000 and is due in 18 years. If the bond is held to maturity, determine
> A mortgage bond issued by Automation Engineering is for sale for $8200. The bond has a face value of $10,000 with a coupon rate of 8% per year, payable annually. What rate of return will be realized if the purchaser holds the bond to maturity 5 years fro
> If you receive a $5000 bond as a graduation present and the bond will pay you $75 interest every 3 months for 20 years, what is the bond coupon rate?
> What is the amount and frequency of dividend payments on a bond that has a face value of$10,000 and a coupon rate of 8% per year, payable semiannually?
> A solid-waste recycling plant is considering two types of storage bins using an MARR of 10% per year. (a) Use ROR evaluation to determine which should be selected. (b) Confirm the selection using the regular AW method at MARR = 10% per year.
> One of Suzanne’s project engineers e-mailed her the screen-shot (below) of his spreadsheet analysis of the annual costs and savings for two equivalent systems considered for installation as a major upgrade of the fire and safety systems
> The Martian Corporation, a space vehicle development company, is starting a new division that will develop the next generation launch missile engine configuration. Use a hand application of the MIRR method to determine the EROR for the estimated net cash
> Two roadway designs are under consideration for access to a permanent suspension bridge. Design 1A will cost $3 million to build and $100,000 per year to maintain. Design 1B will cost $3.5 million to build and $40,000 per year to maintain. Both designs a
> A company that manufactures amplified pressure transducers wishes to decide between the machines shown—variable speed (VS) and dual speed (DS). Compare them on the basis of rate of return and determine which should be selected if the MA
> Polytec Chemical, Inc. must decide between two additives to improve the dry-weather stability of its low-cost acrylic paint. Additive A will have an equipment and installation cost of $125,000 and an annual cost of $55,000. Additive B will have an instal
> EP Electric has identified two new methods to treat its cooling water. Alternative I (for inflow) would treat the raw water with a conventional reverse osmosis system so that the cycles of concentration could be increased from 5 to 20. This will result i
> Schneeberger, Inc. is considering two alternatives to increase the acceleration of its linear motor actuators. The initial investment required in alternative X is $200,000 and in Y is $150,000. The MARR = 20% per year; a total of $200,000 is available fo
> A consulting engineering firm’s CFO wants to purchase either Ford Explorers or Toyota 4Runners for company principals. The two models under consideration cost $30,900 for the Ford and $36,400 for the Toyota. When considering life-cycle costs, the AOC of
> Lesco Chemical is considering two processes for making a cationic polymer. Process A has a first cost of $100,000 and an AOC of $60,000 per year. Process B’s first cost is $165,000. If both process will be adequate for 4 years and the rate of return on t
> Certain parts for NASA’s reusable space exploration vehicle can either be anodized (A) or powder coated (P). Some of the costs for each process are shown in the table below. The incremental cash flow future worth equation associated wit
> The manager of a canned-food processing plant has two labeling machine options. On the basis of a rate of return analysis with a MARR of 20% per year, determine (a) which model is economically better, and (b) if the selection changes, provided both optio
> RKI Instruments manufactures a ventilation controller designed for monitoring and controlling carbon monoxide in parking garages, boiler rooms, tunnels, etc. The net cash flow associated with one plant for the first 3 years of operation is shown. (a) Wha
> For the two alternatives, demonstrate that the sum of the incremental cash flow series (Z − X) over the LCM is equal to the difference in the sums of the individual cash flow series for X and Z.
> For the cash flows shown, determine the incremental cash flow between machines B and A (a) in year 0, (b) in year 3, and (c) in year 6.
> Four mutually exclusive service alternatives are under consideration for automating a manufacturing operation. The alternatives were ranked in order of increasing initial investment and then compared by incremental rate of return analysis. The rate of re
> Self-tightening wedge grips are designed for tensile testing applications up to 1200 pounds. The cash flows associated with the product are available below. Determine the following from these values: net cash flow series, cumulative cash flow series, and
> According to Descartes’ rule of signs, determine the possible number of i* values for the net cash flow series with the following signs: (a) −−−+++−+− (b) −−−−−−+++++ (c) ++++−−−−−−+−+−−− (d) −−++++−
> Amigo Mobility, which manufactures battery powered mobility scooters, has $700,000 to invest. The company is considering three different battery projects that will yield the following rates of return: Deep cycle = 28% Wet/flooded = 42% Lithium ion = 19%
> Identify the net cash flows shown below as either conventional or nonconventional.
> Identify the following net cash flow series as conventional or nonconventional.
> What cash flows are associated with Descartes’ rule of signs and Norstrom’s criterion?
> Define the term reinvestment rate and describe how it differs for any cash flow series between (1) a PW value calculated at the MARR, and (2) the IROR value i*.
> Assume you have a total of $200,000 to invest in two corporate stocks identified as Z1 and Z2. The overall rate of return you require on the $200,000 is 26% per year. (a) If $40,000 is invested in Z2 with an estimated i * Z2 of 14% per year, what value m
> An Indium-Gallium-Arsenide-Nitrogen alloy developed at Sandia National Laboratory is said to have potential uses in electricity-generating solar cells. The new material is expected to have a longer life, and it is believed to have a 40% efficiency rate,
> Army Research Laboratory scientists developed a diffusion-enhanced adhesion process which is expected to significantly improve the performance of multifunction hybrid composites. NASA engineers estimate that composites made using the new process will res
> A plaintiff in a successful lawsuit was awarded a judgment of $4800 per month for 5 years. The plaintiff has the need of a fairly large sum of money immediately for an investment of his own, and has offered the defendant the opportunity to pay off the aw
> Aloma, a university graduate who started a successful business, wants to start an endowment in her name that will provide scholarships to IE students. She wants the scholarship to provide $10,000 per year and expects the first one to be awarded on the da
> The PW-based relation for the incremental cash flow series to find Δi* between the lower first-cost alternative X and alternative Y has been developed. 0 = − 40,000 + 9000(P∕A,Δi*,10) − 2000(P∕F,Δi*,10) Determine the highest MARR value for which Y is pre
> Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $130,000 with annual costs of $49,000 and revenues of $78,000 in year 1, increasing by $1000 per year. A salvage value of $23
> A broadband service company borrowed $2 million for new equipment and repaid the loan in amounts of $200,000 in years 1 and 2 plus a lumpsum amount of $2.2 million at the end of year 3. What was the interest rate on the loan?
> Swagelok Enterprises is a manufacturer of miniature fittings and valves. Over a 5-year period, the costs associated with one product line were as follows: first cost of $30,000 and annual costs of $18,000. Annual revenue was $27,000 and the used equipmen
> What rate of return per month will an entrepreneur make over a 2½-year project period if he invested $150,000 to produce portable 12-volt air compressors? His monthly costs are $27,000 and his revenues are $33,000.
> In order to finance a new project, a company borrowed $4,000,000 at 8% per year with the stipulation that the company would repay the loan plus all interest at the end of one year. Assume the company’s effective tax rate is 39%. What was the company’s co
> Over a 7-year period, the number of uninsured motorists in New Mexico dropped from 33% to 10% because an up-to-date computer database allowed the state to better police its requirements for car and truck liability insurance. Assuming the decrease occurre
> A total of $50,000 was allocated to a project to detect and reduce insider theft in the ZipCar auto parts store. Two alternatives identified as Y and Z are under consideration. The overall ROR on the $50,000 is expected to be 40%, with the rate of return
> Determine the rate of return for the following cash flow series.
> The Camino Real Landfill was required to install a plastic liner to prevent leachate from migrating into the groundwater. The fill area was 50,000 m2 and the installed liner cost was $8 per m2. In order to recover the investment, the owner charges to unl
> A small construction company has $100,000 set aside in a capital improvement fund to purchase new equipment. If $30,000 is invested at 30%, $20,000 at 25%, and the remaining $50,000 at 20% per year, what is the overall rate of return on the entire $100,0
> What is the overall rate of return on a $100,000 investment that returns 20% on the first $30,000 and 14% on the remaining $70,000?
> Why is an incremental analysis necessary when conducting a rate of return analysis for cost alternatives?
> Identify the viewpoint (e.g., budget, government unit, citizen, business owner), and categorize the following cash flows as a benefit, disbenefit, or cost: (a) $600,000 annual income to area businesses from tourism created by new freshwater reservoir/ re
> Incremental cash flow is calculated as (cash flowB− cash flowA), where B represents the alternative with the larger initial investment. If the two cash flows were switched wherein B represents the one with the smaller initial investment, which alternativ
> Spectra Scientific of Santa Clara, CA manufactures Q-switched solid state industrial lasers for LED substrate scribing and silicon wafer dicing. The company got a $60 million loan to be repaid over a 5-year period at 8% per year interest. Determine the a
> BASF will invest $14 million this year to upgrade its ethylene glycol processes. This chemical is used to produce polyester resins to manufacture products varying from construction materials to aircraft, and from luggage to home appliances. Equity capita
> Identify the following projects as primarily public or private sector. (a) Bridge across Ohio River (b) Coal mine expansion (c) Baja 1000 race team (d) Consulting engineering firm (e) New county courthouse building (f) Flood control project (g) Endangere
> In conducting a B/C analysis, (a) why is it usually necessary to take a specific viewpoint in categorizing cost, benefit, disbenefit estimates; and (b) what are two specific viewpoints that you can identify if the situation is a financial transaction bet
