A.  A company with a MARR policy of 12% is trying to estimate the initial cost of a piece of machinery that they bought several years ago after some of the company’s documents      were flooded during a storm.  The machine is classified as a 10-year MACRS property     and has a book value of $126,000 at the end of its 7th year in service.  In general, the        industry estimates the salvage value of this property as $88,000 after its useful life.  What is the initial cost of the equipment using the MACRS depreciation method?

B.

i.         Dawgs Construction bought a front-end loader for $65,500.  The accountant of the

company decided to keep a record of yearly depreciation by developing a                    depreciation schedule of the equipment using the Straight Line, the Sum of Years       Digits, the Double Declining Balance (DDB) and the MACRS method of                    depreciation.  If the life of the equipment is classified as a 10-year equipment, with an original Salvage Value of $10,350, replicate the accountant’s tables.

ii.          Since they sell most of their used equipment to small companies, they have  developed a model that helps them determine the best sale price of their used equipment.  They use the model below:

(n − 6)(BVnm ) + (n − 5)(BVnSL ) + (n − 7)(BVnDDB ) + (n − 5)(BVnSOYD )

BVn   =

Where: BVn is the calculated Book value after n years of use (this is how much they sell their used equipment for after n years of use).

BVnm  is the Book Value after n years from the MACRS schedule

BVnSL  is the Book Value after n years from the Straight-Line schedule.

BVnDDB  is the Book Value after n years from the DDB schedule.

BVnSOYD  is the Book Value after n years from the SOYD schedule.

If Dawgs Construction sold this equipment after 8 years of use.  How much did they sell the equipment for?

QUESTION 2

A.  Delta Inc. is designing a new drone for aerial photography.  They project the following per unit cost to manufacture:

Material Cost: $63

Labor Cost: $24

Overhead Cost: $110.

Delta adds 30% margin to its manufacturing cost for corporate profit.  What will Delta’s  profit be on a batch of 10,000 drones if historical data show that 1% of the product will    be scrapped in manufacturing, 3% of finished products will be unsold, and 2% of the sold product will be returned for full refund.

B.  The table below is part of data that shows the amount of time in minutes a new TA at the college of engineering takes to grade her assignments.  The table is based on the Learning Curve model.  For every new set of assignments, the TA arranges the students’ work in a pile from top to bottom labeled 1 on top to 100 at the bottom.  There are 100 students in   the class.  It takes her 10.5 minutes to grade the first student’s work and 7.5 minutes to     grade that of the 5th student in the pile.  If it takes her 4.1 minutes to grade student X,

i.         What is the Learning Curve Rate of the TA (S%)?

ii.        Where is student X in the pile?

QUESTION 3

A.  Your firm is considering the following 4 mutually exclusive alternatives. All the alternatives have a 10-year life and your firm’s MARR is 10%.

i.      Calculate the Benefit Cost ratio of each project.

ii.      Which of the 4 alternatives should be selected using B/C ratio analysis (show your work)?