Question A,Ellen is planning her retirement and has an annuity with a present worth of $1,000,000. Actuarial tables show that people who live to be 65 (her age) will on the average live 30 additional years. If the annuity will earn 6% interest compounded annually, how long can she receive benefits if she takes out $120,000 annually. How long would it last in years if interest is compounded monthly and the payment is $10,000 monthly? Assume payouts occur at the end of each period. ,,Question B,Acme Gourmet Foods LLC is planning a new product with sales quantity forecasts, starting in 2011 as shown below,. If they use in-house production, the forecasted costs are shown below. If they outsource the production, costs will be a constant $5.00 per unit. What is the present worth of each alternative at the end of 2011? What alternative should be chosen based on the TVOM? Acme Gourmet Foods uses an interest rate of 10% in all proposal evaluations.,, 2011 2012 2013 2014 2015,Forecast Quantity sold 100,000 125,000 150,000 200,000 200,000 ,Cost each if produced internally $8.00 $7.00 $6.00 $5.00 $4.00 ,,,Question C,Super Colossal Lottery offered Joe three alternative payout schemes for a $1,000,000 prize. The first will pay Joe $5,146.63 a month for 50 years. The second is to receive $35,793.41 every six months for 30 years. The last is to receive $78,223.21 annually for 25 years. From a time value of money perspective only, which is the best offer. An interest rate is not needed as an input to this question.,,Question D,United Car Battery Company (UCBC) is planning to open Battery Exchange Centers throughout the U.S. In 2012, they plan to open 100 of these, and then each year thereafter open 25% more than the previous year, The cost of $150,000 each is a one year cost. That is, assume that they will break even in following years so there are no future profits or losses to consider.,In addition, they need operating cash in 2011 of $1,000,000. Assume that each unit breaks even in the years after they are opened so no future profits and losses need to be considered. They are seeking funding upfront (2011) for this proposal for 6 years. How much do they need assuming that any unused funds could be invested at 8%?,,Question F,Crazy Bob’s Furniture is advertising on TV that they offer two years to pay interest free with 24 equal payments and no down payment. Or they will offer a 10% discount if cash is paid up front. The bedroom set of your dreams (guaranteed to let you sleep well enough to dream) is offered for $4,800. What annual percentage rate is Crazy Bob’s using if the two offers are equivalent from a TVOM perspective? ,,Question G,,PinkMilk Investments is considering the purchase of two different bonds, both with a face value of $100,000. Determine the maximum purchase price of two 25 year bonds on July 1, 2011 assuming they have equal risks: a zero coupon bond with a maturity date of July 1 2025; or a coupon bond with an annual coupon rate of 5% paid quarterly and with a maturity date of July 1 2020. PinkMilk Investments uses a MARR of 15%. Explain the difference in price. Bonds can be bought or sold in the open market at anytime during their lifespan, assuming someone is willing to sell at the price offered.,,Question H,An investment advisor forecasts quarterly dividends for Underground Materials Corporation (UMC) stock as shown below. If the stock is forecasted to be selling for $150 at the end of 2011, what should one pay for this stock today to earn a 15% annual return. “Today” is the end of 2009,Year 2010 2010 2011 2011 2011 2011,Quarter 3 4 1 2 3 4,Dividends $2.00 $3.00 $3.50 $3.50 $4.00 $4.00 , ,,,The text book is Principles of Engineering Economic Analysis, 5th Edition,,
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