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Engineering Economics exam 2




Question;1.0;Name the three broad categories;of manufacturing costs: (3 pts);Cost 1;Cost 2;Cost 3;2.0;Which of the following is not a;non-manufacturing cost: (1 pt.);a General and administrative costs;b. Advertising costs;c. Janitor wages (Manufacturing Overhead);d. Human Resource administration;e. Depreciation;3.0;Classify the following costs ? fixed (F) or variable (V): (10 pts.);a. Wages paid to;temporary workers F or V;b. Property;taxes on factory building F or V;c. Property;taxes on the administration building F;or V;d. Sales;commission F;or V;e. Electricity;for machinery and equipment in the plant F;or V;f. Natural gas;and electricity for the administrative office F or V;g.;Salaries paid to design engineers F;or V;h.;Regular maintenance on machinery and equipment F;or V;i. Factory property and casualty insurance F or V;h.;Shipping attributable to delivery of product F;or V;4.0 The cost of producing a;unit appears on financial;statements as soon as the final product is;manufactured. (1 pt) T or F;5.0 A steel fabricator;constructing an addition to the;manufacturing plant is viewed as direct labor. (1pt) T or F;6.0 The break-even point is;where total sales equals the total costs.;T;or F;(1pt);7.0 The cost-of-goods-sold;budget is equal to the production budget.;T or F;(1pt);8.0 The following graphs;represent what types of cost behaviors: (2 pts.);Cost;Quantity or Volume;Cost;a.;b.;Quantity or Volume;9.0 Name the three types of Cash Flow element categories: (3 pts);a.;b.;c.;10.0;Complete the following formula;(2 pts);Cash Flow from Operations = ___________ +;11.0;Complete the simple Income and;Cash Flow Statements categories: (5 pts);INCOME STATEMENT;Revenues;Expenses;O&M;a.;Taxable Income;Income Taxes;b.;CASH FLOW STATEMENT;Operating Activities;Net Income;c.;Investment Activities;Investment;d.;Gains Tax;Financing Activities;Borrowed funds;Repayment of principle;e.;12.0;(55 pts);A Firm is considering purchasing a machine that costs $65,000. It;will be used for 6 years and the salvage value is expected to be zero at the;end of that time. The machine will save $35,000 per year in labor, but it will;cost $12,000 in operating and maintenance (O&M) costs each year. The;machine will depreciate according to the five year MACRS. The firm?s tax rate;is 40%. Complete the following financial statements for this project;Income Statement;0;1;2;3;4;5;6;Revenues;Expenses;O&M;Depreciation;Taxable Income;Income Taxes;(40%);Net Income;Cash Flow Statement;Operating;Activities;Net Income;Depreciation;Investment;Activities;Investment;Salvage;Gains Tax;Net Cash Flow;Note: 5 Year MACRS is as follows;Year;Depreciation Percentage;(per IRS);1;2;3;4;5;6;7;13.0 (55 pts);Jim owns a lawn;care service. He would like to obtain a new heavy duty trailer to haul his;equipment and materials from job to job. He?s found one that will suit his;needs. The purchase price is $8,500. Jim is in a 28% tax bracket and sales;taxes are 5%. The cost of capital for Jim to purchase the trailer is 8%. The;trailer qualifies for 5 year MACRS depreciation method. Jim intends on using;the equipment for 60 months. The salvage value of the trailer at the end of the;use period is $4500. Jim has also found a dealer that is willing to lease the;trailer to him for 60 months for $150 per month. The lease payments would be;due at the beginning of the month. Determine if Jim should lease or buy this;trailer.;Lease Option: (show work);a);Total lease payment =;b);Net after-tax monthly lease;expense =;c);PW (8%/12)lease;=;PWlease;=;Buy Option: (show work);a);Complete this chart: (round to;the nearest dollar);End of Year;5 year MACRS;Depreciation;Tax Benefit;PW (8%);(P/F,i,N);1;20%;2;32%;3;19.2%;4;11.52%;5;5.76%;Total Sum;a);Up-front cash payment =;b);Book Value at the end of year 5;=;c);Taxable Gains =;d);Tax Depreciation Benefit = (from;table above);e);Net proceeds from sale = Net;salvage =;f);PW(8%) =;g);Decision: lease or buy;(circle one)_____.;14.0 What three;conditions must exist in order for an item to be depreciated? (3 pts);1.;2.;3.;15.0 Explain the difference between book depreciation and tax;depreciation. (3 pts);16.0 Name the four;components of information needed to calculate depreciation: (4pts);1.;2.;3.;4.;17.0;For the project described below, find the net income for the first year;of operation.;(10 pts);Project description;?;Purchased equipment costing;$56,000;?;Gross income: $100,000/yr;?;Cost of goods sold: $40,000/yr;?;Operating expenses: $12,000/yr;?;Depreciation method ? 7-year;MACRS (see table in Ch9);?;Income tax rate: 40%;?;Determine the net income;during the first year of operation;(see next page for table);17.0 (cont?d);Item;Amount;Gross Income (revenue);Expenses;Cost-of-goods-sold;Depreciation;Operating Expenses;Taxable Income;Taxes;Net Income;18.0 Define inflation: (5pts);19.0 Define Producer Price Index: (5(pts);20.0 Define Consumer Price Index: (5pts);21.0 List 5 major groups that would be considered;in the ?market basket? used to determine the Consumer Price Index: (5pts);1.;2.;3.;4.;5.;22.0 What two periods were the CPI indices;re-baselined (base years)? (5pts);1.__________ 2.;23.0 Given the costs over the years shown in the;following table, determine the yearly and the average inflation rate: (5pts);Year;Cost;0;$604,000;1;$638,000;2;$677,000;3;$729,500;Year 1;Year 2;Year 3;f =;24.0 The base price of a commodity is $100. The;inflation rate for this item in year one is 8% and the inflation rate in year;two is 12%. Calculate the actual inflated price at the end of year two and the;average inflation rate by solving the equivalence equation: (10 pts);$100 (1+f)2;= Price at end of year 2;25.0 Name the six phases of the Cone of;Uncertainty: (10pts);1.;2.;3.;4.;5.;6.;26.0 Which phase analyzes whether or not the;project realized the projected benefits? (1pt);27.0 Define Break-Even Analysis (5 pt);28.0 Reference problem 13.0. Jim;determined to purchase the trailer that he would like to finance the entire;purchase. Use the following information to fill in the Loan Repayment Schedule;(20pts).;Amount financed;$8500 (do not include taxes);Finance Rate: 8%;per year;Annual;Installment: A=;Round to the;nearest $xxxx.xx;End of Year;Beginning Balance;Interest Payment;Principle Payment;Ending Balance;1;2;3;4;5;Note: Rounding;issues may vary within $2.00 for the final Principle Payment entry.


Paper#55949 | Written in 18-Jul-2015

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