IE 2311 Practice Exam 1

1. Calculate P for the following diagram.

300
250
200
150
0
1
P

i = 10%

2. A high tech company in the US can have one of the popular items made offshore at half the price of making
them in the US. However, about 80% of the items made offshore will be returned within the warranty period of
1 year for refurbishing. The following additional data is available.
Cost of making an item in the US
=$250
Cost of refurbishing in the US
=$50
Number Sold / Year
= 500,000
Compute the cost savings that the company makes per year by making the item offshore.
3. You have taken out a 5-year, $17,000 car loan with Caddy Shark Loan Corp. The nominal interest rate is
12% per year, compounded semiannually. If you wait until the end of the 5-years to pay back the entire loan
(plus interest), how much will you have to pay at that time?
4. You want to invest your $5,000 starting bonus for at least five years. Which one of the following financing
options would give you the greatest return on your investment over five years?
A.
B.
C.
D.
E.

7.98% per year compounded semiannually.

7.90% per year compounded quarterly.
7.80% per year compounded daily.
7.82% per year compounded weekly. (52 weeks per year).
7.86% per year compounded monthly.

5. A cabinet manufacturer wants to calculate the present worth of the costs associated with a machine it plans to
purchase today and to operate for five years. The following costs have been identified.
Initial (Purchase) Cost
Annual Operating Cost
Maintenance and Repair Costs

$500,000
$8,000
$700 in Year 1
$1000 in Year 2
$1300 in Year 3
And so on

Calculate the present worth of the costs, assuming an interest rate of 4% per year, compounded annually.

6. Given the following graph, determine which production level would yield the largest loss.

(a)
(b)
(c)
(d)
(e)

3000 units
6000 units
1000 units
4500 units
None of these production levels will yield a loss

7. One hundred compressors of 200 H.P. rating are being considered for purchase by the state highway
department. The cost of a 150 H.P. compressor bought five years ago was $2,200 per unit. The consumer price
index was 400 five years ago and is 520 today. Find the cost of 100 compressors of 200 H.P. rating today.