Multiple choice

1)  A new packaging machine is expected to cost $175,000, but is expected to increase productivity. Increase in annual revenues because of this equipment is estimated to be $50,000 in the 1st year, $85,000 in the 2nd year and $50,000 in subsequent years. The simple non-discounted payback period is (i=10% ):

a.  Less than 1 year

b.  Between 1 and 2 years 

c.   Between 2 and 3 years 

d.   Longer than 3 years

2)  A company wants to have $200,000 in a contingency fund 10 years from now.  They will make five equal deposits at the end of years 1 through 5. The amount of the deposit is closest to (interest rate = 10%):

a. $52,760

b. $22,375

c. $20,341

d. $24,325

3)  What is the Present Cost of  a 5 year service contract where you will pay $5000 initially, and this will decrease at a rate of $500/year starting in year one (i.e. your year 1 payment will be $4,500) and will end in year 5 (i.e. 6 total payments).  (i=10% annually compounded)?

a.-$17,204

b.-$19,954

c.-$18,628

d.-$19,523

4)  You are evaluating the purchase of either Machine A with a life of 9 years or Machine B with a life of 6 years. You will need the use of the same type of machine you select for 12 years. What ANALYSIS time frame should you use?

a.  9 years

b.  12 years 

c.   18 years

d.  Not enough information to determine