Since the cash flow diagrams do not include the time factor i. However, one can observe that investment A offers uniform cash inflows whereas B alternates between positive and negative cash flows for the first 10 months. Simple Interest Compound Interest Market equivalence does not apply as the cost of borrowing and lending is not the same.
Decisional equivalence holds since June is indifferent between the two options. Market equivalence also does not hold since the cost of borrowing and lending is not the same. The table below shows how much the initial deposit would have been worth at the end of each of the three years if you had been able to reinvest each year at the new rate.
Interest rate j can only be determined by having Marlee choose between X and Y to determine at which interest rate Marlee is indifferent between the choice. Interest rate k probably does not exist for Martlee, since it is unlikely that she can borrow and lend money at the same interest rate. Also, i could be either greater or less than j. In particular, they may be using a depreciation method required for tax purposes.
Money will always be lost over the year. If money could be gained, everybody would borrow as much money as possible to invest. Assembling the batteries will require 24 person-months, and the associated rental space. To maximize the interest you receive from your savings, and minimize the interest you pay on your line of credit, you should defer this expenditure till as late in the year as possible. So you leave your money in the bank till December 1, then purchase the necessary materials and rent the industrial space.
Assume that salaries will be paid at the end of the month. An additional motivation for JIT would become evident if you were to consider the cost of storing the finished batteries before delivery.
Be aware, however, that the JIT approach also carries risks. December is typically a time when labour, space, and credit are in high demand so there is a possibility that the resources you need will be unavailable or more expensive than expected, and there will then be no time to recover. We will look at methods for managing risk in Chapter This implies that it is not worth going to any trouble to make the waste repository safe for that length of time. This is a rather troubling conclusion, because the example is not imaginary; the U.
It is not clear how the engineers involved in the project can rationally plan how to allocate their funds, since the tool we usually use for that purpose—engineering economics—gives answers that seem irrational. Each life is unique and of inestimable value.
Attempting to treat lives on the same basis as dollars is both cold-blooded and ridiculous. Medical administrators, for example, do have a responsibility to save lives, and they have limited resources to meet this responsibility. If they are to apportion their resources rationally, they must be prepared to compare the results of different strategies. B the future value of money.
C the amount of money invested at the prime interest rate. D the annual equivalent value of money. E the difference between the amount of money lent and the amount of money later repaid. He decided to use the investment certificate to finance his return to the university that he left because of the financial problems at the time. What interest rate does the bank pay? B converting a given interest rate with a compounding period to an equivalent interest rate with a oneyear compounding period.
C dividing the interest rate per compounding period by the number of compounding periods per year. D multiplying the simple interest rate by the number of years. E multiplying the interest rate per compounding period by the number of compounding periods per year. What is the actual interest rate per year? A summary of benefits and costs of a project B summary of the timing and magnitude of payments and receipts as they occur over time C magnitude of cash flows at a given period of time D summary of present, future, and annual worths of a project E change in value of money at different interest rates at various compounding periods Answer: B Diff: 2 Type: MC Page Ref: Topic: 2.
Irving Ltd. The duration of the construction phase is one year. What cash flow diagram represents this project? A indifference on the part of a decision maker among available choices B the existence of a mathematical relationship between time and money C the ability to exchange one cash flow for another at minimum cost D the ability to exchange one cash flow for another at no cost E the ability to obtain a zero net cash flow Answer: A Diff: 2 Type: MC Page Ref: 32 Topic: 2.
How much should you deposit in your bank account now if the account pays you 0. What is the effective annual rate? E make zero economic profit.
What annual interest rate has the project been earning if interest is compounded monthly? B the present worth of a cost equals the future worth of a cost at any point in time. C the present worth of all costs and benefits equals the future worth of these costs and benefits at any point in time. D the project breaks even, meaning costs equal benefits at a certain point in time. E a decision-maker assesses two sets of cashflows as equally attractive. Which of the following statements about this cash flow diagram is correct?
A Year 1 ends at point A and year 2 begins at point B. B Year 1 ends at point 2 and year 2 begins at point B. C Year 1 ends at point 2 and year 2 begins at point 2. D A project has four periods. E First cost should be put at point 1. B a compounding period that is normally less than a year. C an exogenously given compounding period. D a one-year compounding period.
E no compounding periods. How much interest would Jennifer get at the end of four years? He deposited this money in his bank account that pays a 1. After one year he was approached by his friend who said that he could offer Peter an investment deal for a two-year period. B a percentage change in the time value of money. C the ratio of the amount of money lent to the amount of money repaid later. D the future worth of the money. E the rate of return on direct investment.
B the actual and usually stated interest rate. C the conventional method of stating the annual interest rate. D the key interest rate in an economy. E the overnight interest rate. What is the nominal annual interest rate in this case? Use Equation 2. How many years would you have to keep your money in the bank for Bank B to be a better choice than Bank A?
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