Define ror and mention what are ways to calculate it


Assignment

Answer the following Questions.

I. Define the following and provide an example of each.

o Inflation
o Risk
o Sensitivity Analysis
o IRR, RATE, Incremental Cash Flow
o Maximum, Maximax, Equal Likelihood Hurwitz
o Annual worth of a perpetual project
o The annual worth of an asset for one life cycle
o MARR, MIRR, ROIC

II. Define ROR and mention what are ways to calculate it?

III. What is breakeven analysis and why is it important to learn?

IV. Mention one thing in common between breakeven evaluation and payback period evaluation.

V. A typical example of a discrete random variable is?

VI. The probability values for a uniform distribution?

VII. What are Bonds?

Calculations

1) The construction cost of a permanent park is $600,000. Annual maintenance and operation costs are $120,000 per year. At an interest rate of 10% per year, the capitalized cost of the park is nearest to:

2) At an interest rate of 10% per year, the capitalized cost of an expenditure of $1,000 per year is nearest to:

3) Expenses for water treatment at a state park are expected to be $60,000 now, $25,000 in year one, and $10,000 per year thereafter forever. At an interest rate of 8% per year, the capitalized cost of the treatment is nearest to:

4) An expenditure for maintaining a bridge occurs in five-year cycles. If the cost is $100,000 now and $100,000 every five years forever, the capitalized cost of this expenditure at 10% per year is nearest to:

5) The annual payment on a $1,000 loan over a four-year period at 10% per year interest is $315.42. The unrecovered balance immediately after the first payment has been made is nearest to:

6) For the net cash flow sequence of -$10,000 in year zero, +$3,000 in year one, -$2,000 in year two, +$8,000 in year three, and +$6,000 in year four, the number of possible rate of return values is:

7) If a company invests $10,000 and receives $2,775 per year for five years, the rate of return on the investment is nearest to:

8) Alternative X has a first cost of $5 million and an annual maintenance cost of $200,000. Alternative Y has a first cost of $7 million, a maintenance cost of $40,000 and periodic expenditures of $100,000 every five years. If both alternatives have infinite lives, the equation that will yield the rate of return on the incremental investment is: (what is an equation?)

9) A manufacturing process has fixed costs of $20,000 per year with variable costs of $15 per unit. If the company sells each unit for $20, the number of units that must be sold each year in order to reach breakdown is nearest to:

10) A specified part can be obtained by either of two methods. Method A will have fixed costs of $40,000 per year and a variable cost of $20 per unit. Method B will have fixed costs of $60,000 per year and a variable cost of $15 per unit. The number of units that must be produced each year for the two methods to be equally attractive is closest to:

11) Fixed costs for manufacturing a certain product are $25,000 per year. Variable costs are $5 per unit. The product can be purchased from another manufacturer for a flat rate of $10 per unit. The number of units that must be used each year in order for the manufacture and purchase alternatives to breakeven is closest to:

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Financial Econometrics: Define ror and mention what are ways to calculate it
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