INDE 301 Final, Fall 2014

o7/Tfils eT. Maddah 2 hours 20 mins - closed book ENMG 400 Final Exam Problem 1 (15 points) ao) Texeo, the toy manufacturing company, is considering introducing 4 NeW 9 oe esta the new gadget requires purchasing a new ™ 365.000. acnine could be utilized for five years, and has 4 at the end of the fi iti timated that tmenew € five years. If produced, it is esti MARR is 11% Per gadget will generate ; it eee ere: tore ss (a) Show that the gadget project has a single rate of return (ROR). (b) What is Toyco's ROR from the gadget project? (c) Should Toyco introduce the new gadget? Problem 2 (10 points) (To take or not) An engineering firm is considering undertaken a project. The net the present cash flows for this project are shown below. Also shown is the-plot is ; Ss value (PV) of the project as a function of the interest rate (i, which is not given a a percentage value; e.g., 0. 20%). The firm's MARR is 14% per year. pel ge e.g., 0.2 means ) i pti ad, (a) On the basis of PW criteria, should the firm select the project? (b) On the basis of ROR criteria, should the firm select the project? (c) Would you undertake this project? la 1822263 Solar : 4 Conventional ee Se) 3,000,000 4,500,000 desis benefits (3/year) 450,000 600,000 alvage value ($) 50,000 450,000 Life (years) 6 6 d be selected. The Use the B/C ratio method to determine which alternative shoul desired MARR is 10% per year. were estimated Problem 4 (7 points) (Inflation) The inflation rates in Lebanon for the last three years Unit to be as follows. by the Economist Intelligence E Year | 2009 2010 | 2011 _| f___ | 9.00% | 3.98% {3.10% | chasing power of $1 at the y is the end of 20117 n 2009 and 2010, n saving accounts, i ods? ual interest 0! by M Bank in these peri (b) If M bank gave a 6% ann rates offered what are the real interest Engineering (CWE) has year's projects that groundwater. The er year. Problem 5 (15 points) (CWE budgeting) The engineer at Clean Wate established a capital investment limit of $700,000 for next target improved recovery of highly brackish (contaminated) using an MARR of 10% following projects are under consideration, Initial Annual net cash Life Salvage Investment ($ flow (S/year) ears) | value ($) -150,000 50,000 4 45,000 90,000 5 40,000 6 100,000 -300,000 100,000 (a) Select the project(s) that maximize(s) CWE's wealth. lem as an integer linear program (ILP). (b) Formulate CWE probl s considering replacing a Car in its fleet Problem 6 (15 points) : (NY cabs) The New York Cab Company i of taxi cabs. The a has been operalonal on 9 Te ot You span of four yea can be replaced identical car How (end of year 4 of years 2, 3 or 4). The cab company’s ears from_now (end The market value (MV) and annual operating costs MARR is 7% per year. C) for the'car are as follows: Problem 7 (15 points) (FHA financing) It's 08/4/2012. Fly High Airlines (FHA, Lebanon's first private airline) has just opened for business, and is considering buying a used Boeing 747 for $4.6 million. Financing for the plane will be provided as follows: (i) $1 million font the owner's Savings account paying a 3% interest rate, (ii) $1.6 million from issuing common stock with an estimated beta of 1.5, in the Lebanese market where the market Portfolio pays 10% return and the risk-free rate of 3.5%, (ili) $1 million from issuing an 8% dividend preferred stock, and (iv) $1 million bank loan payable in one installment after 5 years at 7% interest. FHA’s tax rate is 30% and the loan interest is exempt from tax. Estimate FHA's cost of capital. What MARR should FHA use? Problem 8 (15 points) (Uncertain MARR) A company is considering an investment that requires an {initial cost of $200,000,and is expected to generate($55,000 per year for 5 years, The investment will bé termina ith no additional cash flows. The company is not sure what MARR to use for this investment. It estimates that the MARR will be 10% (per year) if the economy i up the next § years{(with probability 30%)) 12% if the economy stays the same (with probability 30%)) and 15% if the economy is down (with probability 40%). (a) What is the expected value of the company’s MARR? (b) Should the company engage in this investment? Bonus (3 points) (a) Who sings for Rita? (b) Give the date of a Thursday, after June 15, wher (b) What's the name of the