IE 451 final exam post file of exam and need answers

IE 451

Fall 2015

Exam #4

This exam is due by 12 noon on Thursday, December 10.  You must do your own work and show your work clearly.  Please submit via Canvas.  There are four problems and each is worth 25 percent.

 

  1. Ranade University sold bonds to finance the construction of a new Power Engineering Center.    The bonds you are looking at have a face value of $1000, pay 6% semiannually and are due in 4.5 years.  What is the purchase price if the yield is:
    1. 4%
    2. 8%
  2. Valles Global Industries is considering preventive maintenance on a machine. If they spend $5,000,000 now, they will avoid paying $15,000,000 in two years from now.  What rate of return did they earn?
  3. Park Equipment Leasing purchased a new milling machine for $1.8 million. They depreciate it using MACRS (5-year property).  They lease it to Valles Global Industries for $550,000 a year for eight years.  Under the Park-O-Matic leasing option, Valles Global owns the machine after the eight years.  Park Equipment leasing uses an After Tax MARR of 12% and pays 38% income tax.  Is this a profitable deal for Park Equipment leasing?
  4. Cooper Construction is looking at buying some equipment. They have six options where one is to do nothing at a cost of $0.00 but providing no additional benefits.
Alternative Cost in Millions Before Tax Annual Benefits
Cooper One 0 0
Valles Global 25 7.5
SohnCo 10 3
Beasley Worldwide 5 1.7
Park Equipment 15 5
Stevens Industrial Partners 30 8.7

 

Cooper Construction pays 40% tax and expects an ATMARR of 10% for new investments.  Which option should be selected?  (you can only select one.)