1) A new machine was purchased for $10,000 with a life of 4 years and an expected $1,500 salvage value. Its annual operating costs were as follows:

Year |
1 |
2 |
3 |
4 |

Cashflow |
$8,000 |
$8400 |
$8800 |
$9200 |

N |
ProjectA |
ProjectB |

0 |
–$1,200 |
–$2,000 |

1 |
$600 |
$1,150 |

2 |
$1,000 |
$1,350 |

ROR |
19.6% |
15.8% |

If the MARR is 10%, the ANNUAL equivalent cost of the machine is closest to:

a. $11,725

b. $10,659

c. $8,620

d. $11,384

2) The following table gives the net cash flows that each of the mutually exclusive projects (A and B)

generate over their useful life of 2 years. At MARR 10%, we have to select one alternative.

Which project is better?

a) Project A

b) Project B

c) Neither project is acceptable

d) Not enough information to make a decision

3) Using the rule of 72, how many years will it take to double your investment if the nominal interest rate is 12% compounded continuously?

a. 7.20 years

b. 5.65 years

c. 5.68 years

d. 6.00 years

4) Assume that you have the following annual cash flows for which the ROR=10%. Find the missing value for the third cash flow

N |
Cashflow |

0 |
–$1,200 |

1 |
$200 |

2 |
$1,000 |

3 |
X |

a) $218

b) $283

c) $267

d) $255