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FIN--5203-1D2-FA-2021 - Finance for

Engineers
Started on Sunday, December 12, 2021, 10:31 PM
State Finished
Completed on Sunday, December 12, 2021, 11:59 PM
Time taken 1 hour 27 mins
Grade 10.50 out of 25.00 (42%)
Question 1
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When conducting a sensitivity analysis using three estimates for each
parameter, all of the following are estimates that should be made, except

a.
optimistic.

b.
pessimistic.

c.
most likely.

d.
improbable.
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Your answer is correct.
The correct answer is:
improbable.

Question 2
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In conducting a sensitivity analysis of a proposed project, the present worth
values of $–10,000, $40,000, and $50,000 were believed to have chances of
25%, 40%, and 35%, respectively. The expected PW is closest to

a.
$26,000.

b.
$31,000.

c.
$28,500.

d.
$19,000.
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The correct answer is:
$31,000.

Question 3
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A decision tree includes all of the following except

a.
measure of worth as the selection criterion.
b.
probability estimates for each outcome.

c.
the MARR.

d.
expected results from a decision at each stage.
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Your answer is incorrect.
The correct answer is:
the MARR.

Question 4
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The decision tree branch shown below lists projected cash flows with the
corresponding probabilities for a proposed project. Assuming decision D3 is
already selected, what is the expected value that should be associated with D3?
(This decision branch is part of a larger tree.)
a.
2.9

b.
-10.2

c.
16

d.
5.8
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Your answer is incorrect.
The correct answer is:
16

Question 5
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 Question text
Referring to the diagram below, what is the project's estimated net present
worth?

a.
$175,000

b.
-$25,000

c.
$300,000

d.
$50,000
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Your answer is correct.
The correct answer is:
$175,000

Question 6
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Referring to the diagram below, the project's present worth is most sensitive to
which of the variables listed?

a.
units sold

b.
fixed costs
c.
sales price

d.
variable costs
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Your answer is correct.
The correct answer is:
sales price

Question 7
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Revenue into the general fund of the state of Texas for any biennium is highly
dependent on the price of oil. At a price average of $50 per barrel, general
revenue will be $95 billion. At $68 and $75 per barrel, the revenue will be $118
billion and $125 billion, respectively. If the chances are estimated at 10%, 35%,
and 55% for oil prices of $50, $68, and $75 per barrel for the next biennium,
respectively, the expected revenue (in $ billion) is closest to

a.
$119.55.

b.
$117.38.

c.
$118.92.

d.
$118.02.
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The correct answer is:
$119.55.

Question 8
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In evaluating the sensitivity of an alternative to its first cost, its AW was
calculated for changes in the estimated first cost by –10%, +5%, and +15%.
The resulting AW values were $+21,000, $–2410, and $–34,000, respectively. On
the basis of these values, one could conclude that

a.
the attractiveness of the alternative is not sensitive to its first cost.

b.
the attractiveness of the alternative is slightly sensitive to its first cost.

c.
the attractiveness of the alternative is highly sensitive to its first cost.

d.
can’t tell whether the attractiveness of the alternative is sensitive to its first cost
or not.
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The correct answer is:
the attractiveness of the alternative is highly sensitive to its first cost.

Question 9
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Consider the decision tree below. You are at the starting decision node D0
(shown in the orange color). Assume all paths and decisions occur within a 1-
year time horizon, so that no discounting is necessary. There are dollar
investments, as shown, required at decision nodes D1 and D2. Which of the
letters (shown in the red color) represents the optimal path maximizing the
expected outcome value?

a.
A
b.
B

c.
C

d.
D

e.
E

f.
F
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The correct answer is:
D

Question 10
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Four mutually exclusive alternatives are evaluated using three estimates or
strategies (pessimistic, most likely, and optimistic) for several parameters. The
resulting PW values over the LCM are determined as shown.

Which is the best alternative to select under the pessimistic strategy?

a.
alternative 1.

b.
alternative 2.

c.
alternative 3.

d.
alternative 4.
Feedback
Your answer is correct.
The correct answer is:
alternative 1.

Question 11
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GENERAL INSTRUCTIONS: ENTER YOUR ANSWER WITHOUT THE $ SIGN AND
COMMA, BUT FORMATTED IN DOLLARS ROUNDED TO THE NEAREST DOLLAR, for
instance if you compute $77,342.6478 then ENTER 77343 AS YOUR ANSWER.
DO NOT ROUND IN YOUR CALCULATION STEPS (use calculator memory
functions) TO AVOID ROUNDING ERRORS. There is a little bit of tolerance built
into accepting/rejecting your answer, but if you round in your intermediate
calculations you may be too far off.
Cash flows for a proposed project are given in the table below, given the three
possible future outcomes. Calculate the Expected Present Worth of the project’s
cash flows. Assume 8% MARR. (Note: If the present worth turns out to be
negative include the negative sign in front of your answer.)

Probability 10% Probability 60% Probability 30%

Year Cash Flow Cash Flow Cash Flow
0 -71,000 -71,000 -71,000
1 8,000 11,000 24,000
2 8,000 16,000 22,000
3 8,000 12,000 24,000
4 3,000 13,000 28,000
 24675
Answer:
Feedback
There are two ways to compute the answer:
1) Compute the PW for each of the three possible outcomes and then calculate
the Expected PW.
2) Compute the expected cash flow for each year and then calculate the PW.
The calculations below illustrate the first approach.
PW1 = -71,000 + (8,000)(P/F, 8%, 1) + (8,000)(P/F, 8%, 2) + (8,000)(P/F, 8%, 3)
+ (3,000)(P/F, 8%, 4) = -48178.134543628
PW2 = -71,000 + (11,000)(P/F, 8%, 1) + (16,000)(P/F, 8%, 2) + (12,000)(P/F,
8%, 3) + (13,000)(P/F, 8%, 4) = -28016.01871139
PW3 = -71,000 + (24,000)(P/F, 8%, 1) + (22,000)(P/F, 8%, 2) + (24,000)(P/F,
8%, 3) + (28,000)(P/F, 8%, 4) = 9716.4859316462
Then, E(PW) = (0.10)(-48178.134543628) + (0.60)(-28016.01871139) + (0.30)
(9716.4859316462) = -18712.478901703
The correct answer is: -18712

Question 12
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GENERAL INSTRUCTIONS: ENTER YOUR ANSWER WITHOUT THE $ SIGN AND
COMMA, BUT FORMATTED IN DOLLARS WITH TWO DECIMAL PLACES, for instance
if you compute $77,342.6478 then ENTER 77342.65 AS YOUR ANSWER. DO NOT
ROUND IN YOUR CALCULATION STEPS (use calculator memory functions) TO
AVOID ROUNDING ERRORS. There is a little bit of tolerance built into
accepting/rejecting your answer, but if you round in your intermediate
calculations you may be too far off.
PureAqua Inc. is a producer of pure bottled water. The management is
considering a proposal to expand its product offerings and start producing
bottles of flavored water as well. The proposal calls for a construction of a
second bottling plant, identical to the existing one.
One of the costs to be included in the economic analysis evaluation study of the
newly proposed project is the expected cost of plastic. It is believed the cost of
plastic per bottle should be identical to the cost currently experienced in the
existing facility. The cost is measured per a batch of bottles. Use the information
in the table below on the last 3 years of production to compute the expected
monthly cost of plastic per a batch of bottles, assuming the cost of plastic
is $1 per pound.

Number of Months (out of the 36 total months) Number of pounds of plastic used per batch
14 24
11 25
7 23
3 26
1 22

44
Answer:
Feedback
Need to calculate the expected monthly number of pounds per batch and
multiply by the cost of plastic per pound.
Expected number of pounds = (14/36)(24) + (11/36)(25) + (7/36)(23) + (3/36)
(26) + (1/36)(22) = 24.222222222222
Thus the expected monthly cost of plastic per batch is $1 x 24.222222222222 =
$24.222222222222
The correct answer is: 24.22
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