One of your friends purchased a zero coupon corporate bond (i.e., a bond that ha

Question

One of your friends purchased a zero coupon corporate bond (i.e., a bond that has no interest payments) for $7,800. The bond has a face value of $25,000 and is due in 15 years. If the bond is held to maturity, what rate of return will your friend make on the investment?

Question 22 options:

12.83%

8.07%

It cannot be determined with the information given.

220.00%

The AW values of three independent projects are $-1,000 for alternative A, +$12,600 for B, and +$5,000 for C. On the basis of these results, the decision is to:

Question 21 options:

Select alternative A only

Select alternative B only

Select alternative C only

Select alternatives B and C

The four alternatives described below are being evaluated. If the proposals are independent, which one(s) should be selected with MARR =18%?

Question 20 options:

Select alternatives A, B, C, and D

Select only alternative C

Select only alternative B

Select alternatives B and C

The four alternatives described below are being evaluated. If the alternatives are mutually exclusive, which one(s) should be selected with MARR=15%?

Question 19 options:

Select only alternative D

Select only alternative B

Select alternatives A, B, C, and D

Select only alternative C

Given the following time events and incremental cash flow, if the MARR is 12% per year, which alternative (Machine A or Machine B) should be selected on the basis of rate of return? Assume Machine B requires the extra $8,000 initial investment. (You can use Excel).

                                                                                                                        

Year

Incremental Year Cash Flow
$(Machine B-A)

0

-8,000

1 - 4

1,000

5 - 7

2,500

8

6,000

Question 18 options:

The "Incremental ROR" is more than MARR, so select machine B

The "Incremental ROR" is less than MARR, so select machine B

Select neither A nor B and go with DN

The "Incremental ROR" is less than MARR, so select machine A

A $10,000 mortgage bond with a bond interest rate of 18% per year, payable quarterly, was purchased for $8,800. The bond was kept until it was due, a total of 5 years.What is correct equation (PWr-PWd=0) to calculate the rate of return "i*" made by the purchaser of the bond?

Question 17 options:

-8,800 +900 (P/A, i*,10) +10,000 (P/F, i*,10)=0

-8,800 +1800 (P/A, i*,5) +10,000 (P/F, i*,5)=0

-10,000 +450 (P/A, i*,20) +10,000 (P/F, i*,20)=0

-8,800 +450 (P/A, i*,20) +10,000 (P/F, i*,20)=0

What ROR will an entrepreneur make over a 8 year project period if he invested $90,000 (time 0) to produce portable X-volt air compressors? His estimated costs are $20,000 per year with estimated revenue of $40,000 per year.

Question 16 options:

ROR= 14.9%

ROR=-100.0%

ROR= 78.0%

ROR= 18.0%

The State of Georgia decided to fund a program for restoring and maintaining local museums. The first cost is $250,000 now, and an additional cost of $80,000 every 8 years forever. The perpetual equivalent annual worth (in years 1 through infinity) of this program at an interest rate of 20% per year is equal to:

**The answers presented below were calculated using the appropriate factors from interest tables including all their decimal places**

Question 15 options:

-$54,849

-$31,996

-$130,000

-$70,001

"About 1.2 million additional advanced robots are expected to be deployed in the U.S. by 2025, Boston Consulting Group says. Four industries will lead the shift — computer and electronics products; electrical equipment and appliances; transportation; and machinery — largely because more of their tasks can be automated and they deliver the biggest cost savings." (Davidson, Paul. “More robots coming to U.S. factories” USA TODAY, February 9, 2015)

The systems (Robot X and Robot Y) shown below are under consideration for an improvement to an automated packaging process. Determine which should be selected on the basis of an Annual Worth Analysis using an interest rate of 10% per year.

Robot X

Robot Y

First cost, $

–250,000

–155,000

Annual cost, $/year

–4,000

–3,000

Salvage value, $

40,000

25,000

Life, years

3

2

**The answers presented below were calculated using the appropriate factors from interest tables including all their decimal places**

Question 14 options:

Select Robot Y with AWy= $-80,405

Select Robot X with AWx= $-92,443

Select Robot Y with AWy= $-84,443

Select Robot X with AWx= $-74,405

Given that i = 10% and the data below:

Alternative

Project A

First Cost($)

-80,000

Annual Cost ($/yr)

-10,000

Salvage value ($)

+25,000

Life, years

  12

The "Capital Recovery (CR)" for project A is equal to:

**The answers presented below were calculated using the appropriate factors from interest tables including all their decimal places**

Question 13 options:

CR=-$15,129

CR=-$20,572

CR=-$10,572

CR=-$12,910

When performing the "Incremental ROR analysis" of multiple mutually exclusive alternatives, the first step is to order all the alternatives from the largest to the smallest initial investment.

Question 11 options:

False

The IRR is the interest rate that makes the Present Worth "PW" of all the cash flows (inflows and outflows) equal to zero

Question 8 options:

12.83%

8.07%

It cannot be determined with the information given.

220.00%

The AW values of three independent projects are $-1,000 for alternative A, +$12,600 for B, and +$5,000 for C. On the basis of these results, the decision is to:

Question 21 options:

Select alternative A only

Select alternative B only

Select alternative C only

Select alternatives B and C

The four alternatives described below are being evaluated. If the proposals are independent, which one(s) should be selected with MARR =18%?

Question 20 options:

Select alternatives A, B, C, and D

Select only alternative C

Select only alternative B

Select alternatives B and C

The four alternatives described below are being evaluated. If the alternatives are mutually exclusive, which one(s) should be selected with MARR=15%?

Question 19 options:

Select only alternative D

Select only alternative B

Select alternatives A, B, C, and D

Select only alternative C

Given the following time events and incremental cash flow, if the MARR is 12% per year, which alternative (Machine A or Machine B) should be selected on the basis of rate of return? Assume Machine B requires the extra $8,000 initial investment. (You can use Excel).

                                                                                                                        

Year

Incremental Year Cash Flow
$(Machine B-A)

0

-8,000

1 - 4

1,000

5 - 7

2,500

8

6,000

Question 18 options:

The "Incremental ROR" is more than MARR, so select machine B

The "Incremental ROR" is less than MARR, so select machine B

Select neither A nor B and go with DN

The "Incremental ROR" is less than MARR, so select machine A

A $10,000 mortgage bond with a bond interest rate of 18% per year, payable quarterly, was purchased for $8,800. The bond was kept until it was due, a total of 5 years.What is correct equation (PWr-PWd=0) to calculate the rate of return "i*" made by the purchaser of the bond?

Question 17 options:

-8,800 +900 (P/A, i*,10) +10,000 (P/F, i*,10)=0

-8,800 +1800 (P/A, i*,5) +10,000 (P/F, i*,5)=0

-10,000 +450 (P/A, i*,20) +10,000 (P/F, i*,20)=0

-8,800 +450 (P/A, i*,20) +10,000 (P/F, i*,20)=0

What ROR will an entrepreneur make over a 8 year project period if he invested $90,000 (time 0) to produce portable X-volt air compressors? His estimated costs are $20,000 per year with estimated revenue of $40,000 per year.

Question 16 options:

ROR= 14.9%

ROR=-100.0%

ROR= 78.0%

ROR= 18.0%

The State of Georgia decided to fund a program for restoring and maintaining local museums. The first cost is $250,000 now, and an additional cost of $80,000 every 8 years forever. The perpetual equivalent annual worth (in years 1 through infinity) of this program at an interest rate of 20% per year is equal to:

**The answers presented below were calculated using the appropriate factors from interest tables including all their decimal places**

Question 15 options:

-$54,849

-$31,996

-$130,000

-$70,001

"About 1.2 million additional advanced robots are expected to be deployed in the U.S. by 2025, Boston Consulting Group says. Four industries will lead the shift — computer and electronics products; electrical equipment and appliances; transportation; and machinery — largely because more of their tasks can be automated and they deliver the biggest cost savings." (Davidson, Paul. “More robots coming to U.S. factories” USA TODAY, February 9, 2015)

The systems (Robot X and Robot Y) shown below are under consideration for an improvement to an automated packaging process. Determine which should be selected on the basis of an Annual Worth Analysis using an interest rate of 10% per year.

Robot X

Robot Y

First cost, $

–250,000

–155,000

Annual cost, $/year

–4,000

–3,000

Salvage value, $

40,000

25,000

Life, years

3

2

**The answers presented below were calculated using the appropriate factors from interest tables including all their decimal places**

Question 14 options:

Select Robot Y with AWy= $-80,405

Select Robot X with AWx= $-92,443

Select Robot Y with AWy= $-84,443

Select Robot X with AWx= $-74,405

Given that i = 10% and the data below:

Alternative

Project A

First Cost($)

-80,000

Annual Cost ($/yr)

-10,000

Salvage value ($)

+25,000

Life, years

  12

The "Capital Recovery (CR)" for project A is equal to:

**The answers presented below were calculated using the appropriate factors from interest tables including all their decimal places**

Question 13 options:

CR=-$15,129

CR=-$20,572

CR=-$10,572

CR=-$12,910

When performing the "Incremental ROR analysis" of multiple mutually exclusive alternatives, the first step is to order all the alternatives from the largest to the smallest initial investment.

Question 11 options:

True

False

The IRR is the interest rate that makes the Present Worth "PW" of all the cash flows (inflows and outflows) equal to zero

Question 8 options:

True False Overall Rate of Return Incremental Rate of Return (%) when compared with alternative Alternative Initial Investment ($)| (80,000.00) (110,000.00) (150,000.00) (230,000.00) i"(96) 11.7 25 20 15.8 42 25 17.8 10 13 12

Explanation / Answer

1) Given, the face value of bond=$25,000 (i.e. the holder will get $ 25,000 on maturity)

Initial purchase value=$ 7,800

Also, it is given that the bond is a zro coupon bond.

Applyting the compound interest formula,

A=P (1+r)^n, (where n=no. of years=15, A=Amount=$25000, P=$7800, r=rate of return)

25000=7800(1+r)^15

(1+r)=1.80744

=>r=1.80744-1=0.80744 or 8.07%=rate on return

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