EG

IE 150
Systems Evaluation
Exam 3 Practice Problems
Selections Among Alternatives /
After-Tax Economic Analysis
Edgardo G. Atanacio
Department of Industrial Engineering and
Operations Research, College of Engineering
University of the Philippines Diliman

EG

Practice Problem 3.1

Prepare the after-tax cash flow schedule for
equipment costing 1,250,000, will last for 5 years,
and will have a salvage value of 125,000 at the
end of that time. The asset will be depreciated
using the double declining balance method. The
use of the equipment will result in annual
revenues less expenses of 370,000.

EG

Practice Problem 3.2

Company Y is choosing among two machines.
Machine P costs 450,000, has a useful life of 6
years, and a salvage value of 50,000. Annual
revenues less expenses for this machine is
120,000. Machine Q costs 1,200,000, has a life
of 9 years, and a salvage value of 120,000.
Annual revenues less expenses for Machine Q is
225,000. If the MARR is 10%, which machine
should be chosen? Use the future worth method.

EG

Practice Problem 3.3

Company Z is thinking of buying a new machine
worth 2,500,000. The machine will be
depreciated using the sum-of-the-years-digits
method with a useful life of 6 years and a salvage
value of 250,000 at the end of that time. If this
machine can result in an increase in revenue of
970,000 per year with annual expenses of
325,000, should the company buy the machine if
the after-tax MARR is 10%?

EG

End of Exam 3
Practice Problems