Question 1 (5 points)

Question 1 Unsaved

Rate of return (ROR) can be described as the rate earned on the ___________________ of an investment.

Question 2 (5 points)

Question 2 Unsaved

What does a rate of return of –100% mean?

Question 3 (5 points)

Question 3 Unsaved

A-1 Mortgage makes loans with the interest paid on the loan principal rather than on the unpaid balance. For a 4-year loan of $10,000 at 10% per year, what annual payment would be required to repay the loan in 4 years if interest is charged on (a) the principal and (b) the unrecovered balance?

Question 4 (5 points)

Question 4 Unsaved

What rate of return per month will an entrepreneur make over a 2½-year project period if he invested $150,000 to produce portable 12-volt air compressors? His estimated monthly costs are $27,000 with income of $33,000 per month.

Question 5 (5 points)

Question 5 Unsaved

PPG manufactures an epoxy amine that is used to protect the contents of polyethylene terephthalate (PET) containers from reacting with oxygen. The cash flow (in millions) associated with the process is shown below. Determine the rate of return.

Year Cost, $ Revenue, $
0 –10
1 –4 2
2 –4 3
3 –4 9
4 –3 9
5 –3 9
6 –3 9

Question 6 (5 points)

Question 6 Unsaved

What is the difference between a conventional and a nonconventional cash flow series?

Question 7 (5 points)

Question 7 Unsaved

Five years ago, a company made a $5 million investment in a new high-temperature material. The product was not well accepted after the first year on the market. However, when it was reintroduced 4 years later, it did sell well during the year. Major research funding to broaden the applications has cost $15 million in year 5. Determine the rate of return for these cash flows (shown below in $1000s).

Year Net Cash Flow, $
0 –5,000
1 4,000
2 0
3 0
4 20,000
5 –15,000

Question 8 (5 points)

Question 8 Unsaved

___________________ refers to the interest rate that is used for funds that are released from a project before the project is over.

Question 9 (5 points)

Question 9 Unsaved

What is the overall rate of return on a $100,000 investment that returns 20% on the first $30,000 and 14% on the remaining $70,000?

Question 10 (5 points)

Question 10 Unsaved

If all of the incremental cash flows are negative, what is known about the rate of return on the incremental investment?

Question 11 (5 points)

Question 11 Unsaved

A plastics company is considering two injection molding processes. Process X will have a first cost of $600,000, annual costs of $200,000, and a salvage value of $100,000 after 5 years. Process Y will have a first cost of $800,000, annual costs of $150,000, and a salvage value of $230,000 after 5 years.  Which process should the company select on the basis of a rate of return analysis, if the MARR is 20% per year?

Question 12 (5 points)

Question 12 Unsaved

The manager of a canned food processing plant is trying to decide between two labeling machines. Determine which machine should be selected on the basis of rate of return with a MARR of 20% per year.


  Machine A Machine B
First cost, $ –15,000 –25,000
Annual operating cost, $/year –1,600 –400
Salvage value, $ 3,000 4,000
Life, years 2 4

Question 13 (5 points)

Question 13 Unsaved

The incremental cash flows for alternatives M and N are shown below. Determine which should be selected, using an AW-based rate of return analysis. The MARR is 12% per year, and alternative N requires the larger initial investment.

Year Cash Flow, $(N 2 M)
0 –22,000
1–8 +4,000
9 +12,000

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