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Engineering Economics Quiz 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%);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 =;PW= 4333(P/F,8,5)=2949;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;$729,500Year 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#57394 | Written in 18-Jul-2015

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