1. In the future value formula FV = X * (1 + i)^n, what does X represent?
(A) Interest rate
(B) Number of periods
(C) The Original investment
(D) The Regular cash flows
2. A loan of $10,000 is made today at an interest rate of 15%, and the first payment of $3000 is
made 4 years later. The amount that is still due on the loan after the first payment is most
nearly.
(A) $7000
(B) $8050
(C) $8500
(D) $14,500
Loan due = ($10k)(F/P,15%,4) – $3000
= ($10,000)(1 + 0.15) ^4 – $3000 = $14,490
($14,500) Therefore, (D) is correct.
3. Write an equation to find the Future Worth value (at year 5) of the following series of payments.
Interest is 5%.
(A) F = - 1,000 (F/P,5%,5) + 500 (F/A,5%,4) + 100 (P/G,5%,4) (F/P,5%,5). EOY CF ($)
(B) F = - 1,000 + 500 (F/A,5%,5) - 100 (F/G,5%,5). 0 -1,000
(C) F = - 1,000(F/P,5%,5) + 500 (F/A,5%,5). 1 500
2 600
(D) F = - 1,000 (F/P,5%,5) + 500 (F/A,5%,5) + 100 (P/G,5%,5) (F/P,5%,5).
3 700
4 800
4. The present worth value refers to … 5 900
(A) The discounted value of the future cash flows.
(B) The compounded value of the future cash flows.
(C) The operational cost (OPEX).
(D) The uniform value of the cash flow.
5. Which year is the recovery year of the investment? If the initial investment cost 15,000 in year
0 and the revenue cash flow is equal to 2500 per year for 3 years and 5000 for the rest of
years.
(A) Year 3
(B) Year 4
(C) Year 5
(D) Year 7
6. Suppose a software will cost $10,000 at the beginning of a project. And it offers a revenue as
$1000 at the end of third year, $2000 for fourth year, and $3000 for fifth year. What will be the
net present equivalent value of the given cash flow if (i = 15%).
(A) 3000
(B) – 6214
(C) - 6707
(D) 3292
P = G (P/G,15%,4) (P/F,15%,1) = 1000 (3.786 )(0.8696) = 3292
NPV = Future Cash Flow discounted to Present – Present value = 3292 -10,000 = -6707
7. What if a company will need a totally upgrade for all machines after 5 years by $500,000.
What shall we save annually so the company can afford the upgrading expenses? If (i= 10%)
(A) 81,900
(B) 107,750
(C) 100,000
(D) 30,525
A = F (A/F ,10%, 5) = 500,000 ( 0.1638) =81,900
8. A machine is purchased for $1000 and has a useful life of 12 years. At the end of 12 years,
the salvage value is $130. By straight-line depreciation, what is the book value of the machine
at the end of 8 years?
(A) $290
(B) $330
(C) $420
(D) $580
Depreciation per year = 1000 -130 /12 = 72.5
The depreciation till year 8 = 72.5 *8 = 580, the value of machine at year 8 = 1000-580 = 420
9. Which alternative you should choose to upgrade to. If the Cash flow of the machines A,B,C,
and D are presented below. If the ( i = 12%)
Machine A Machine B Machine C Machine D
Machine initial cost 2500 3500 6000 8000
Annual operational and 900 700 50 150
maintenance cost
Salvage value 200 350 100 500
Life / Years 5 5 5 5
(A) Machine A
(B) Machine B
(C) Machine C
(D) Machine D
PA = -2500-900(P/A,12%,5) + 200 (P/F,12%,5) = - 2500-900 (3.605) + 200 (0.5674) = -5631
Pb = -3500-700(P/A,12%,5) + 350 (P/F,12%,5) = - 3500-700 (3.605) + 350 (0.5674) = -5825
Pc = -6000-50(P/A,12%,5) + 100 (P/F,12%,5) = - 6000-50 (3.605) + 100 (0.5674) = -6066
PD = -8000-150(P/A,12%,5) + 500 (P/F,12%,5) = -8000-150 (3.605) + 500 (0.5674) = - 8257
The smallest number is the correct answer
10. If the company is planned to change it machine to another machine in which, the initial cost
of the new machine is $100,000, its estimated life is 25 years, and its salvage value will be
$25,000 at the end of the year 25. If you know that there are additional cost for machine equal
to $15,000 per year for the first 15 year, and $20,000 per year for the next 10 years.
The interest rate is 10%, and all cash flows are treated as end-of-year cash flows. Assume that
equivalent annual cost is the value of the constant annuity equal to the total cost of a project.
Then, the equivalent annual cost of the machine through the whole life of machine is nearly equal
to:
(A) $13,200
(B) $27,089
(C) $37,800
(D) $26,500
- Present value for all the machine cash flow is equal to:
P = -100,000 -15,000 (P/A,10%,15) – 20,000 (P/A,10%,10)(P/F,10%,15) + 25,000 (P/F,10%, 25)
= -100,000 – 15,000 (7.606) - 20,000 (6.145)(0.2394) + 25,000 (0.0923)
= -100,000 – 114,090 -29,422+ 2307.5 = -241,205
- Change the whole present value into annual value
A= P (A/P,10%,25) = -241,205 (0.1102) = -26,580 ( The Correct answer is D)
11. Calculate the depreciation amount of the machine in question 8 at year 3 by using the declined
balance method.
(A) 3000
(B) 6771
(C) 7360
(D) 3686
DR = (100 % /25 ) * 2 = 8% = 0.08
Depreciation of Years 1 = 100,000 * 0.08 = 8000
Year 2 = (100,000 – 8000) * 0.08 = 7360
Year 3 = (92,000 – 7360) * 0.08 = 6770 Answer B is the correct answer
