SlideShare a Scribd company logo
Engineering Economics
                               j.zambujal.oliveira@ist.utl.pt
                                              19.01.2001

                            Duration: 60 minutes (Partial Test – 2 groups)
                                 120 minutes (Global Test – 4 groups)
                         This exam is to be executed without any consultation.




                                                 I.


Consider an annual payment of €3741 associated to a loan with a maturity of 5
years and a nominal interest rate of 6% by year.
       (1). (30%) Determine the value of the principal, and the value of interest
paid at the end of the second year.
       (2). (20%) What is the value of principal paid until the end of third year?
       (3). (30%) If the payment periodicity of the last two years were by month,
what would be the payment?
       (4). (20%) What will be the monthly payment if you consider a nominal
       interest rate compounded monthly?


                                               II.


A company is faced with making a decision on a large capital investment proposal.
The capital investment amount is €640000. Estimated annual revenue at the end
of each year in the eight-year study period is €200000. The estimated annual year-
end expenses are €42000 starting in year one. These expenses begin decreasing by
9.5% per year at the end of year four and continue decreasing through the end of
year eight. Suppose the government offers the company an 8-year, non-amortizing
€320000 loan to help the company to undertake the project (the residual is financed
by equity). The government offers an attractive rate of 10% when shares of similar
risk yield an expected return of 15%. The tax rate is 25%. Assuming a €20000
market value at the end of year eight and straight line depreciation, answer the
following questions:
       (1). (30%) What is the weighted average cost of capital?
       (2). (40%) Using the NPV and the MIRR (reinvestment rate eq. to wacc),
what is your conclusion about the acceptability of this proposal?
       (3). (30%) How can you compare this investment with another that
       generates €2 by each unit of investment?
Engineering Economics
                             j.zambujal.oliveira@ist.utl.pt
                                        19.01.2001

                                        III.
A new highway will provide the following benefits: (b1) Extra commerce (€50
million each year); (b2) Economic growth over a 10-year period (increase of €5
million in the 2nd. year and increase of 5% in the subsequent years); and (b3)
Decrease in accidents (savings of €0.8 million each year). The disadvantages are:
(d1) Destruction of farmland (€1.3 million each year); (d2) Decrease in commercial
activity (€0.7 million each year). Consider a time horizon of 15 years and assume
an annual interest rate of 7%.
       (1). (60%) Calculate the yearly net benefit of building the superhighway.
The highway yield €0.05 per ton-km (600 million annual ton-km) in fees. The tax
revenues of the first year represent €2 million and will grow annually at an annual
rate of 3%. The annual maintenance costs of the highway correspond to €1.5
million.
       (2). (40%) Assess the desirability of the proposed superhighway, based on a
       construction cost of €280 million.
                                        IV.
A Russian company owns a land in Siberian on which five palladium mines could
be constructed. Each mine costs 1 million Russian rubles (R). The yield of each
mine will be either 1,000 or 2,000 ounces (oz) of palladium with equal probability.
All the palladium will be extracted from the mine in the first year of operation,
after which the mines will be worthless (there are no exit costs). Palladium sells at
spot and one-year forward prices of R1500/oz. Variable production costs are
R500/oz. The appropriate discount rate is 10% per year. The government has
agreed to a 25% tax rate. Rather than investing in all five mines today, the Russian
could invest in one mine on an exploratory basis and then base subsequent
investment on the outcome of the first mine. Once the exploratory mine is in
operation, the output of the four additional mines will be known with certainty.
Palladium’s two-year forward price is R1500/oz and variable cost is R500/oz.
       (1). (30%) Calculate the NPV of investing in all 5 mines as a “now-or-never”
       alternative.
       (2). (30%) Calculate the NPV (as of t = 0) of investing in a single mine and
       then waiting one year before considering investment in the other 4 mines.
       (3). (40%) What is the opportunity cost of immediate investment in all five
       mines today?

More Related Content

Similar to Exam.ee@tagus.190111(i)w

EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011
EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011
EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011
Environmental Protection Agency, Ireland
 
Corrado Santini - Infrastructures in Southern Italy
Corrado Santini - Infrastructures in Southern ItalyCorrado Santini - Infrastructures in Southern Italy
Corrado Santini - Infrastructures in Southern Italy
Corrado Santini
 
Roadmap for moving to a low carbon economy in 2050
Roadmap for moving to a low carbon economy in 2050Roadmap for moving to a low carbon economy in 2050
Roadmap for moving to a low carbon economy in 2050
UNDP Eurasia
 
Press Release Annual results 2010
Press Release Annual results 2010Press Release Annual results 2010
Press Release Annual results 2010
BOURBON
 
Ignalina NPP presentation in Stokholm
Ignalina NPP presentation in StokholmIgnalina NPP presentation in Stokholm
Ignalina NPP presentation in Stokholm
Osvaldas Ciuksys
 
2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...
2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...
2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...
Ronald de Vries
 
Current economic situation in Kazakhstan, Jan'21, 2011
Current economic situation in Kazakhstan, Jan'21, 2011Current economic situation in Kazakhstan, Jan'21, 2011
Current economic situation in Kazakhstan, Jan'21, 2011
BMF Group LLP (McGuireWoods CA LLP till 2010)
 
Carlo Michelini - F2i Presentation, Yielco, March 2014
Carlo Michelini - F2i Presentation, Yielco, March 2014Carlo Michelini - F2i Presentation, Yielco, March 2014
Carlo Michelini - F2i Presentation, Yielco, March 2014
Carlo Michelini
 
DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...
DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...
DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...
DecarboN8
 
955504
955504955504
955504
siya61
 
Case studies for ias 1and 8 and 7.
Case studies for ias 1and 8 and 7.Case studies for ias 1and 8 and 7.
Case studies for ias 1and 8 and 7.
Peculiar Labstery
 
Aichi financial standing
Aichi financial standingAichi financial standing
Aichi financial standing
Herry Prananto
 
Appa Presentation Macrostudy
Appa   Presentation MacrostudyAppa   Presentation Macrostudy
Appa Presentation Macrostudy
pietholtrop
 
Let 2018 annual_report
Let 2018 annual_reportLet 2018 annual_report
Let 2018 annual_report
AS_LET
 
Wac11 2016 may_as_qp
Wac11 2016 may_as_qpWac11 2016 may_as_qp
Wac11 2016 may_as_qp
MAHEN JAYASINGHE
 
Lecture_1_chap01_02.ppt
Lecture_1_chap01_02.pptLecture_1_chap01_02.ppt
Lecture_1_chap01_02.ppt
Haider Ali
 
China solid waste treatment industry report, 2011
China solid waste treatment industry report, 2011China solid waste treatment industry report, 2011
China solid waste treatment industry report, 2011
ResearchInChina
 
ACCIONA Results Report H1 2014
ACCIONA Results Report H1 2014ACCIONA Results Report H1 2014
ACCIONA Results Report H1 2014
acciona
 
Creating an affordable low carbon energy system for the UK - Mike Colechin, E...
Creating an affordable low carbon energy system for the UK - Mike Colechin, E...Creating an affordable low carbon energy system for the UK - Mike Colechin, E...
Creating an affordable low carbon energy system for the UK - Mike Colechin, E...
UK Carbon Capture and Storage Research Centre
 
Lecture_1_chap01_02.ppt
Lecture_1_chap01_02.pptLecture_1_chap01_02.ppt
Lecture_1_chap01_02.ppt
TanvirIslam461642
 

Similar to Exam.ee@tagus.190111(i)w (20)

EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011
EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011
EPA Projections - Dr. Eimear Cotter - EPA/SEAI Future Energy Workshop June 2011
 
Corrado Santini - Infrastructures in Southern Italy
Corrado Santini - Infrastructures in Southern ItalyCorrado Santini - Infrastructures in Southern Italy
Corrado Santini - Infrastructures in Southern Italy
 
Roadmap for moving to a low carbon economy in 2050
Roadmap for moving to a low carbon economy in 2050Roadmap for moving to a low carbon economy in 2050
Roadmap for moving to a low carbon economy in 2050
 
Press Release Annual results 2010
Press Release Annual results 2010Press Release Annual results 2010
Press Release Annual results 2010
 
Ignalina NPP presentation in Stokholm
Ignalina NPP presentation in StokholmIgnalina NPP presentation in Stokholm
Ignalina NPP presentation in Stokholm
 
2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...
2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...
2013-08-06 Ronald de Vries - Paper - The transition of waste management towar...
 
Current economic situation in Kazakhstan, Jan'21, 2011
Current economic situation in Kazakhstan, Jan'21, 2011Current economic situation in Kazakhstan, Jan'21, 2011
Current economic situation in Kazakhstan, Jan'21, 2011
 
Carlo Michelini - F2i Presentation, Yielco, March 2014
Carlo Michelini - F2i Presentation, Yielco, March 2014Carlo Michelini - F2i Presentation, Yielco, March 2014
Carlo Michelini - F2i Presentation, Yielco, March 2014
 
DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...
DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...
DecarboN8 Carbon Pathways Workshop: Kevin Anderson - Aligning UK Car CO2 with...
 
955504
955504955504
955504
 
Case studies for ias 1and 8 and 7.
Case studies for ias 1and 8 and 7.Case studies for ias 1and 8 and 7.
Case studies for ias 1and 8 and 7.
 
Aichi financial standing
Aichi financial standingAichi financial standing
Aichi financial standing
 
Appa Presentation Macrostudy
Appa   Presentation MacrostudyAppa   Presentation Macrostudy
Appa Presentation Macrostudy
 
Let 2018 annual_report
Let 2018 annual_reportLet 2018 annual_report
Let 2018 annual_report
 
Wac11 2016 may_as_qp
Wac11 2016 may_as_qpWac11 2016 may_as_qp
Wac11 2016 may_as_qp
 
Lecture_1_chap01_02.ppt
Lecture_1_chap01_02.pptLecture_1_chap01_02.ppt
Lecture_1_chap01_02.ppt
 
China solid waste treatment industry report, 2011
China solid waste treatment industry report, 2011China solid waste treatment industry report, 2011
China solid waste treatment industry report, 2011
 
ACCIONA Results Report H1 2014
ACCIONA Results Report H1 2014ACCIONA Results Report H1 2014
ACCIONA Results Report H1 2014
 
Creating an affordable low carbon energy system for the UK - Mike Colechin, E...
Creating an affordable low carbon energy system for the UK - Mike Colechin, E...Creating an affordable low carbon energy system for the UK - Mike Colechin, E...
Creating an affordable low carbon energy system for the UK - Mike Colechin, E...
 
Lecture_1_chap01_02.ppt
Lecture_1_chap01_02.pptLecture_1_chap01_02.ppt
Lecture_1_chap01_02.ppt
 

Recently uploaded

Using Online job postings and survey data to understand labour market trends
Using Online job postings and survey data to understand labour market trendsUsing Online job postings and survey data to understand labour market trends
Using Online job postings and survey data to understand labour market trends
Labour Market Information Council | Conseil de l’information sur le marché du travail
 
Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...
Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...
Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...
nimaruinazawa258
 
Does teamwork really matter? Looking beyond the job posting to understand lab...
Does teamwork really matter? Looking beyond the job posting to understand lab...Does teamwork really matter? Looking beyond the job posting to understand lab...
Does teamwork really matter? Looking beyond the job posting to understand lab...
Labour Market Information Council | Conseil de l’information sur le marché du travail
 
一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查
一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查
一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查
taqyea
 
Dr. Alyce Su Cover Story - China's Investment Leader
Dr. Alyce Su Cover Story - China's Investment LeaderDr. Alyce Su Cover Story - China's Investment Leader
Dr. Alyce Su Cover Story - China's Investment Leader
msthrill
 
University of North Carolina at Charlotte degree offer diploma Transcript
University of North Carolina at Charlotte degree offer diploma TranscriptUniversity of North Carolina at Charlotte degree offer diploma Transcript
University of North Carolina at Charlotte degree offer diploma Transcript
tscdzuip
 
How to Use Payment Vouchers in Odoo 18.
How to Use Payment Vouchers in  Odoo 18.How to Use Payment Vouchers in  Odoo 18.
How to Use Payment Vouchers in Odoo 18.
FinShe
 
Power point analisis laporan keuangan chapter 7 subramanyam
Power point analisis laporan keuangan chapter 7 subramanyamPower point analisis laporan keuangan chapter 7 subramanyam
Power point analisis laporan keuangan chapter 7 subramanyam
FarhanRafifSidqi
 
快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样
快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样
快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样
yeuwffu
 
Accounting Information Systems (AIS).pptx
Accounting Information Systems (AIS).pptxAccounting Information Systems (AIS).pptx
Accounting Information Systems (AIS).pptx
TIZITAWMASRESHA
 
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...
Donc Test
 
How to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete GuideHow to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete Guide
Daniel
 
Principal of Economics by Gmanwik .pptx
Principal of Economics by Gmanwik  .pptxPrincipal of Economics by Gmanwik  .pptx
Principal of Economics by Gmanwik .pptx
PrashantBhargava14
 
Bridging the gap: Online job postings, survey data and the assessment of job ...
Bridging the gap: Online job postings, survey data and the assessment of job ...Bridging the gap: Online job postings, survey data and the assessment of job ...
Bridging the gap: Online job postings, survey data and the assessment of job ...
Labour Market Information Council | Conseil de l’information sur le marché du travail
 
一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理
一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理
一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理
vpqasyb
 
Seven Camp April 2024 Cohort Booklet.pdf
Seven Camp April 2024 Cohort Booklet.pdfSeven Camp April 2024 Cohort Booklet.pdf
Seven Camp April 2024 Cohort Booklet.pdf
FinTech Belgium
 
FCCS Basic Accounts Outline and Hierarchy.pptx
FCCS Basic Accounts Outline and Hierarchy.pptxFCCS Basic Accounts Outline and Hierarchy.pptx
FCCS Basic Accounts Outline and Hierarchy.pptx
nalamynandan
 
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdfMacroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
olaola5673
 
1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样
1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样
1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样
28xo7hf
 
欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】
欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】
欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】
brunasordi905
 

Recently uploaded (20)

Using Online job postings and survey data to understand labour market trends
Using Online job postings and survey data to understand labour market trendsUsing Online job postings and survey data to understand labour market trends
Using Online job postings and survey data to understand labour market trends
 
Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...
Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...
Tdasx: Interpreting the 2024 Cryptocurrency Market Funding Trends and Technol...
 
Does teamwork really matter? Looking beyond the job posting to understand lab...
Does teamwork really matter? Looking beyond the job posting to understand lab...Does teamwork really matter? Looking beyond the job posting to understand lab...
Does teamwork really matter? Looking beyond the job posting to understand lab...
 
一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查
一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查
一比一原版美国新罕布什尔大学(unh)毕业证学历认证真实可查
 
Dr. Alyce Su Cover Story - China's Investment Leader
Dr. Alyce Su Cover Story - China's Investment LeaderDr. Alyce Su Cover Story - China's Investment Leader
Dr. Alyce Su Cover Story - China's Investment Leader
 
University of North Carolina at Charlotte degree offer diploma Transcript
University of North Carolina at Charlotte degree offer diploma TranscriptUniversity of North Carolina at Charlotte degree offer diploma Transcript
University of North Carolina at Charlotte degree offer diploma Transcript
 
How to Use Payment Vouchers in Odoo 18.
How to Use Payment Vouchers in  Odoo 18.How to Use Payment Vouchers in  Odoo 18.
How to Use Payment Vouchers in Odoo 18.
 
Power point analisis laporan keuangan chapter 7 subramanyam
Power point analisis laporan keuangan chapter 7 subramanyamPower point analisis laporan keuangan chapter 7 subramanyam
Power point analisis laporan keuangan chapter 7 subramanyam
 
快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样
快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样
快速办理(RWTH毕业证书)德国亚琛工业大学毕业证录取通知书一模一样
 
Accounting Information Systems (AIS).pptx
Accounting Information Systems (AIS).pptxAccounting Information Systems (AIS).pptx
Accounting Information Systems (AIS).pptx
 
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...
 
How to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete GuideHow to Invest in Cryptocurrency for Beginners: A Complete Guide
How to Invest in Cryptocurrency for Beginners: A Complete Guide
 
Principal of Economics by Gmanwik .pptx
Principal of Economics by Gmanwik  .pptxPrincipal of Economics by Gmanwik  .pptx
Principal of Economics by Gmanwik .pptx
 
Bridging the gap: Online job postings, survey data and the assessment of job ...
Bridging the gap: Online job postings, survey data and the assessment of job ...Bridging the gap: Online job postings, survey data and the assessment of job ...
Bridging the gap: Online job postings, survey data and the assessment of job ...
 
一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理
一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理
一比一原版宾夕法尼亚大学毕业证(UPenn毕业证书)学历如何办理
 
Seven Camp April 2024 Cohort Booklet.pdf
Seven Camp April 2024 Cohort Booklet.pdfSeven Camp April 2024 Cohort Booklet.pdf
Seven Camp April 2024 Cohort Booklet.pdf
 
FCCS Basic Accounts Outline and Hierarchy.pptx
FCCS Basic Accounts Outline and Hierarchy.pptxFCCS Basic Accounts Outline and Hierarchy.pptx
FCCS Basic Accounts Outline and Hierarchy.pptx
 
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdfMacroeconomic-digest-of-Ukraine-0624-Eng.pdf
Macroeconomic-digest-of-Ukraine-0624-Eng.pdf
 
1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样
1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样
1比1复刻(ksu毕业证书)美国堪萨斯州立大学毕业证本科文凭证书原版一模一样
 
欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】
欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】
欧洲杯投注-欧洲杯投注买球-欧洲杯投注买球网|【​网址​🎉ac22.net🎉​】
 

Exam.ee@tagus.190111(i)w

  • 1. Engineering Economics j.zambujal.oliveira@ist.utl.pt 19.01.2001 Duration: 60 minutes (Partial Test – 2 groups) 120 minutes (Global Test – 4 groups) This exam is to be executed without any consultation. I. Consider an annual payment of €3741 associated to a loan with a maturity of 5 years and a nominal interest rate of 6% by year. (1). (30%) Determine the value of the principal, and the value of interest paid at the end of the second year. (2). (20%) What is the value of principal paid until the end of third year? (3). (30%) If the payment periodicity of the last two years were by month, what would be the payment? (4). (20%) What will be the monthly payment if you consider a nominal interest rate compounded monthly? II. A company is faced with making a decision on a large capital investment proposal. The capital investment amount is €640000. Estimated annual revenue at the end of each year in the eight-year study period is €200000. The estimated annual year- end expenses are €42000 starting in year one. These expenses begin decreasing by 9.5% per year at the end of year four and continue decreasing through the end of year eight. Suppose the government offers the company an 8-year, non-amortizing €320000 loan to help the company to undertake the project (the residual is financed by equity). The government offers an attractive rate of 10% when shares of similar risk yield an expected return of 15%. The tax rate is 25%. Assuming a €20000 market value at the end of year eight and straight line depreciation, answer the following questions: (1). (30%) What is the weighted average cost of capital? (2). (40%) Using the NPV and the MIRR (reinvestment rate eq. to wacc), what is your conclusion about the acceptability of this proposal? (3). (30%) How can you compare this investment with another that generates €2 by each unit of investment?
  • 2. Engineering Economics j.zambujal.oliveira@ist.utl.pt 19.01.2001 III. A new highway will provide the following benefits: (b1) Extra commerce (€50 million each year); (b2) Economic growth over a 10-year period (increase of €5 million in the 2nd. year and increase of 5% in the subsequent years); and (b3) Decrease in accidents (savings of €0.8 million each year). The disadvantages are: (d1) Destruction of farmland (€1.3 million each year); (d2) Decrease in commercial activity (€0.7 million each year). Consider a time horizon of 15 years and assume an annual interest rate of 7%. (1). (60%) Calculate the yearly net benefit of building the superhighway. The highway yield €0.05 per ton-km (600 million annual ton-km) in fees. The tax revenues of the first year represent €2 million and will grow annually at an annual rate of 3%. The annual maintenance costs of the highway correspond to €1.5 million. (2). (40%) Assess the desirability of the proposed superhighway, based on a construction cost of €280 million. IV. A Russian company owns a land in Siberian on which five palladium mines could be constructed. Each mine costs 1 million Russian rubles (R). The yield of each mine will be either 1,000 or 2,000 ounces (oz) of palladium with equal probability. All the palladium will be extracted from the mine in the first year of operation, after which the mines will be worthless (there are no exit costs). Palladium sells at spot and one-year forward prices of R1500/oz. Variable production costs are R500/oz. The appropriate discount rate is 10% per year. The government has agreed to a 25% tax rate. Rather than investing in all five mines today, the Russian could invest in one mine on an exploratory basis and then base subsequent investment on the outcome of the first mine. Once the exploratory mine is in operation, the output of the four additional mines will be known with certainty. Palladium’s two-year forward price is R1500/oz and variable cost is R500/oz. (1). (30%) Calculate the NPV of investing in all 5 mines as a “now-or-never” alternative. (2). (30%) Calculate the NPV (as of t = 0) of investing in a single mine and then waiting one year before considering investment in the other 4 mines. (3). (40%) What is the opportunity cost of immediate investment in all five mines today?