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Hi There Welcome

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Submitted By ohheyitsanday
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CSUF – Fall 2015
EG-ME401 – 10/08/15

QUIZ 3

SOLUTION

Circle the correct answer for 10 points each. Quiz time: 20 min. max.
D-53 A firm offers to sell a zero-coupon bond (no semi-annual payments) to you today. When it matures in 5 years you will receive the par value of $10,000. If the firm pays interest at 15% compounded continuously on the bond how much would you pay for it today?
(a) $4724

(b) $4972

(c) $10,000

(d) $21,170

D-57 Winners of the Power State Lottery can take $30 million now or payments of $2.5 million per year for the next 15 years. These are equivalent at what annual interest rate? The answer is closest to what value? (a) 1%

(b) 2%

(c) 3%

(d) 5%

D-68 A project is being considered that has a first cost of $12,500, creates $5000 in annual cost savings, requires $3000 in annual operating costs, and has a salvage value of $2000 after a project life of 3 years.
If interest is 10% per year, which formula calculates the project’s present worth?
(a) PW = 12,500(P/F,10%,1) + ( − 5000+3000)(P/A,10%,3) − 2000(F/P,10%,3)
(b) PW = −12,500 + (5000 − 3000) (P/A, 10%,3) −2000(P/F,10%,3)
(c) PW = 12,500(F/P,10%,3) + (5000 − 3000)(F/A,10%,3) + 2000
(d) PW = −12,500 + 5000(P/A,10%,3) − 3000(P/A,10%,3) + 2000(P/F,10%,3)
D-74 Your company is considering two alternatives:

What is the annual dollar advantage of Alt. II over Alt. I at an interest rate of 15%?
(a) Alt. II has no annual advantage over Alt I.
(b) $3020
(c) $3500
(d) $7436

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