ISE 2040 Midterm 1 VERSION B B B B : ISE 2040 Midterm 1 VERSION B B B B B

Name: ______________________________________ Last.# ______________________________________________

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1. You have been looking at where you will put your money after graduation when
you see a bright $$ future. If Huntington bank pays 4% interest and compounds
monthly and PNC Bank pays 4% interest and compounds quarterly, where will you
put your money?

A. Huntington
B. PNC Bank




2. If interest accumulates at 20% per year, how long will it take for $50,000 (One
time payment) to accumulate to $160,000?

A. Between 3 - 4 Years
B. Between 4- 5 Years
C. Between 5 -6 Years
D. More than 6 Years





3. Your company is going to invest $800,000 in a new capital project. How much do
they need to make every year for the next 10 years @10% MARR to make it
worthwhile?


A. $89,432
B. $98,720
C. $130,400
D. $201,500









ISE 2040 Midterm 1 VERSION B B B B : ISE 2040 Midterm 1 VERSION B B B B B

Name: ______________________________________ Last.# ______________________________________________

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4-5. Costs associated with the production process where you work are $85,000 per
year. You determine that by spending $25,000 (one time) on controls and
programming, you can improve process efficiency and reduce the cost to $68,000 in
years 1 &2 and to $70,000 per year in years 3,4,5.

4. Using a 15% MARR, determine the annual worth equivalent of the one time cost to
improve the efficiency?

A. $6,745
B. $7,458
C. $8,500
D. $9,221





5. (From #1) Using a 15% MARR, determine the annual worth equivalent of the cost
savings in years 1-5.

A. $14,272
B. $15,260
C. $15,950
D. $16,200





6. What is the present worth of a 5 year commodity contract for grain that has a
year 1 cost of $18,000 that will go up by $1,800 in each of the following years if i=
15%?


A. $63,425
B. $70,734
C. $90,000
D. $108,000






ISE 2040 Midterm 1 VERSION B B B B : ISE 2040 Midterm 1 VERSION B B B B B

Name: ______________________________________ Last.# ______________________________________________

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7. (From #6) What is the present worth of a 5 year commodity contract for grain that
has a year 1 cost of $18,000 and will go up 8% per year in each of the following years
if i=15%?


A. $69,296
B. $72,400
C. $97,200
D. $105,600



8. The time value of money is a key concept of economic decision analysis.

In a nutshell, the fact that money has a time value means that equal dollar amounts
at different points in time (for example, $100 today and $100 a year from now have
different value as long as the interest rate that can be earned exceeds zero.

A. True
B False




9. If you are evaluating 3 capital project investments, one with a 3-year life, one with
a 4-year life, and one with a 6-year life, how many years must be analyzed to get an
equivalent PV analysis?

A. 4
B. 6
C. 12
D. 15


10. What is the effective annual interest rate, if the nominal annual rate is 8% and it
is compounded monthly?

A. 6.67%
B. 8.12%
C. 8.30%
D. 8.67%

ISE 2040 Midterm 1 VERSION B B B B : ISE 2040 Midterm 1 VERSION B B B B B

Name: ______________________________________ Last.# ______________________________________________

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11. A nominal interest rate of 4% is paid semi-annually (every 6 months). What is
the effective annual interest rate?

A. 4.04%
B. 4.40%
C. 6.06%
D. 8.00%






12. A company borrowed $50,000 at an interest rate of 5% per year for 3 years.
(They pay nothing along the way during the 3 years.) The company has to pay it off
in 1 total payment of principal and interest at the end of the period. How much do
they owe?

A. $57,881
B. $61,221
C. $63,423
D. $65,441







13. The owner of a company is evaluating three alternatives to help her company
expand its warehouse space: lease a nearby facility (contract is for 5 years),
purchase a nearby facility (building expected to be useful for 15 years), or build a
new facility (building expected to be useful for 30 years). When comparing mutually
exclusive alternatives with unequal lives, what assumptions are embedded in the
Least Common Multiple (LCM) Approach?

A. Salvage values for each alternative are assumed to be $0.
B. The alternatives can be repeated, identically, over each life cycle within the LCM.
C. Inflation should be assumed to occur in the future.



ISE 2040 Midterm 1 VERSION B B B B : ISE 2040 Midterm 1 VERSION B B B B B

Name: ______________________________________ Last.# ______________________________________________

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14. (True/False) One of the differences between mutually exclusive alternative
projects and independent projects is that the decision recommendation for mutually
exclusive projects should always have at least 2 projects.

A. True
B. False


15-16 Analyze the following projects for PW with a MARR of 15%.

15. Determine Present Worth of Project Newton using the LCM Method.


A. ($249,150)
B. ($180,100)
C. $180,100
D. $249,150






16. Determine Present Worth of Project Skeeter using the LCM Method.

A. ($269,500)
B. ($150,430)
C. $150,430
D. $269,500





17. When faced with choosing between two mutually exclusive alternatives, from an
economic standpoint, you should choose the alternative with:

A. Greatest yearly income
B. Lowest yearly costs
C. Greatest Present Worth
D. Longest total life



Newton Skeeter
Initial Capital $925,000 $850,000
Annual Benefit $335,000 $285,000
Salvage Value $15,000 $95,000
Project Life 3 years 6 years
ISE 2040 Midterm 1 VERSION B B B B : ISE 2040 Midterm 1 VERSION B B B B B

Name: ______________________________________ Last.# ______________________________________________

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18. A company has a new product that will generate no sales in years 1,2,3 and then
it will go up to $200,000 in year 4, then continue to increase by $25,000 per year
until the project ends in year 8. What is the present value of this cash flow at
i = 20%?

A. [(200,000* (P/A, 5 Yr, 20%)) +(25,000*(P/G, 5 Yr, 20%))]*(P/F 3 yr, 20%)
B. [(200,000*(P/A, 6 yr, 20%))+ (25,000*(P/G, 4 yr, 20%))]* (P/F, 4 yr, 20%)
C. [(200,000*(A/P, 5 yr, 20%)) +(25,000*(P/G, 4 yrs, 20%))]*(P/F, 3 yr, 20%)
D. [(225,000*(P/G, 4 yr, 20%)*(P/F, 2yr, 20%)]






19. Determine the Present Worth of the following project using a 3 - year Study
Period using a 15% MARR.






A. ($150,400)
B. ($67,344)
C. $4,355
D. $74,335




20. In 10 years, you want to have $12,000 to make a down payment on a house. If
you save $800 per year every year for the next 10 years and put it in an account that
earns 5% interest annually will you make your goal?

A. Yes
B. No






Initial Cost $250,000
Annual Benefit $80,000
Salvage Value $50,000
Project Life 6 Years