Exam
Name___________________________________
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
Answer the question.
1) Minuteman Manufacturing is considering upgrading a piece of equipment. If a certain
upgrade helps reduce operating costs by $80 per hour of use, and the upgraded
equipment will be used on average 7 hours per day, what is the expected annual savings
of upgrading the equipment over its remaining life of 8 years? What other factors do you
need to take into consideration to justify the decision to upgrade the equipment? Assume
360 working days in a year.
1)
Answer: $201,600
Examples of other factors to be taken under consideration include the cost of the
upgrade, the salvage value of the upgraded equipment, etc.
2) You are given $7700 as a graduation gift and you are looking into two high interest
investment options. The first option is a bond with a maturity date three years from now
that offers 12.25% per year interest, payable annually. The interest can be withdrawn only
at the end of year 3. Another option is a tax-free market savings account that offers 11.5%
per year interest, and the funds can be withdrawn any time after 2 years. Which is a better
alternative on the basis of total interest paid at the end of year 3? Discuss other factors, in
addition to interest rates, that should be taken into consideration to justify your
investment decision.
2)
Answer: 1 st option: Interest = $3190.55
2 nd option: Interest = $2973.71
The 1 st option is better on the basis of interest paid.
Other factors that should be taken under consideration include whether the fund is
left in the 2 nd option at the end of year 2, the tax rate, other investment
opportunities that the fund can be invested in after the end of year 2 that would
yield higher return, etc.
3) Linda is considering using solar power for her new house. The solar panel that she is
looking into contains four cells and can generate 80 milliwatts per square inch for 6 hours
on an average day. Assume that all appliances she wants to power with solar electricity
consume on average 900 watts per hour. The solar panel she is looking into costs around
$73 per square feet plus additional costs of $600 for accessories and installation and will
last for 6 years. Alternatively, she can purchase from the power grid at 44 cents per 100
watt-hours per day. Should Linda use the solar power system?
3)
Answer: The solar panel costs = $23,412.50
In the course of 6 years, the cost of electricity from the power grid = $208,137.60
Linda should use the solar power system.
1
4) Tahiti Manufacturing recently purchased a new machine. The maintenance contractor
Name___________________________________
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
Answer the question.
1) Minuteman Manufacturing is considering upgrading a piece of equipment. If a certain
upgrade helps reduce operating costs by $80 per hour of use, and the upgraded
equipment will be used on average 7 hours per day, what is the expected annual savings
of upgrading the equipment over its remaining life of 8 years? What other factors do you
need to take into consideration to justify the decision to upgrade the equipment? Assume
360 working days in a year.
1)
Answer: $201,600
Examples of other factors to be taken under consideration include the cost of the
upgrade, the salvage value of the upgraded equipment, etc.
2) You are given $7700 as a graduation gift and you are looking into two high interest
investment options. The first option is a bond with a maturity date three years from now
that offers 12.25% per year interest, payable annually. The interest can be withdrawn only
at the end of year 3. Another option is a tax-free market savings account that offers 11.5%
per year interest, and the funds can be withdrawn any time after 2 years. Which is a better
alternative on the basis of total interest paid at the end of year 3? Discuss other factors, in
addition to interest rates, that should be taken into consideration to justify your
investment decision.
2)
Answer: 1 st option: Interest = $3190.55
2 nd option: Interest = $2973.71
The 1 st option is better on the basis of interest paid.
Other factors that should be taken under consideration include whether the fund is
left in the 2 nd option at the end of year 2, the tax rate, other investment
opportunities that the fund can be invested in after the end of year 2 that would
yield higher return, etc.
3) Linda is considering using solar power for her new house. The solar panel that she is
looking into contains four cells and can generate 80 milliwatts per square inch for 6 hours
on an average day. Assume that all appliances she wants to power with solar electricity
consume on average 900 watts per hour. The solar panel she is looking into costs around
$73 per square feet plus additional costs of $600 for accessories and installation and will
last for 6 years. Alternatively, she can purchase from the power grid at 44 cents per 100
watt-hours per day. Should Linda use the solar power system?
3)
Answer: The solar panel costs = $23,412.50
In the course of 6 years, the cost of electricity from the power grid = $208,137.60
Linda should use the solar power system.
1
4) Tahiti Manufacturing recently purchased a new machine. The maintenance contractor