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Final SP21

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13 views

Final SP21

Uploaded by

haydog322
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Final Exam

MEEG 4132 - PEP


Spring 2021

4 May 2021

Student: ___________________

Instructor: Prof. James H. Leylek


Problem I (10 Points)

Rental car companies ask their customers to pick one of the standard “return options”
every time they rent a car. Car-X, like all their competitors, provides rental cars with full
tank of gas at the start of the rental process. Customers pick the type of vehicles and the
duration of rental for an agreed upon price. The specific “return options” Car-X offers
include the following: (1) Return the car with a full tank of gas (customers fill up the gas
tank right before returning the car); (2) Return it “as is” and let Car-X fill it and charge
you for $5.00 per gallon; and (3) “Pre Pay” for the gas at a fixed price of $75 (which
allows customers to return their cars with almost empty tanks for no extra charge!).
Considering the local price of gas is $3/gallon, and a vehicle with a 20-gallon capacity
gas tank, that gets 25 miles per gallon. Which of the above three options should the
customer pick if they expect to drive, during the entire rental period, a total of:

a) 150 miles?
b) 300 miles?
c) 450 miles?
d) 600 miles?
e) 900 miles?
Problem II (10 Points)

A manufacturing company makes a major investment in the purchase of a brand new


machine in an effort to modernize its operations. This machine, which is expected to run
continuously, comes with 250 free service hours over the first year. Any additional
service time costs $200 per hour. What are the average and marginal costs per hour for
the following hours of actual service usage time?

a) 150 hours;
b) 200 hours;
c) 250 hours;
d) 300 hours;
e) 500 hours;
f) 750 hours.
Problem III (10 Points)

ZYX Corporation is interested in creating a one-week long, highly specialized training


program for advanced aerospace engineering experts. They plan on employing world
renowned instructors, outstanding venue, hands-on sessions, and top-notch handouts in
an effort to attract a lot attention to this program. The fixed cost, involving instructor
pay, venue and hands-on training infrastructure, is anticipated to be $200,000. Variable
cost, involving handouts and meals, is estimated to be $300/student per week. The
specific venue chosen for this program has a capacity to accommodate a maximum of
300 trainees. Based on the market survey data obtained from a recently conducted
national survey, the program representatives believe they will be able to attract many
engineers if they charge $1,000 per week per trainee.

A. Establish a mathematical relationship for total cost and total revenue;


B. Conduct the necessary analysis in order to establish the number of students
needed for this program to break even;
C. What exactly is the profit/loss situation if the program operates at 80% capacity?
Problem IV (10 Points)

A group of very conservative investors pool their resources and look for a secure
opportunity to double their $1,000,000 investment. The following two options are the
best secure ones currently available in the market place:

i. Simple interest rate at 6.7% per year;

ii. Compound interest rate at 6.2% per year.

How many years will it take for this group to achieve the desired objective in (i) and (ii)?
Problem V (10 Points)

An experienced engineering manager decides to borrow $1,000,000 at 3.5% per year to


cover all the expenses for a full-time, two-year, MBA program that is Ranked #1 in the
U.S. The manager decides to pay the principle and interest as one lump sum after 5 years
(2 years of MBA program, followed by 3 years of actual practice as a high-level
executive). Exactly how much will be the total payment?
Problem VI (10 Points)

A company executive plans on making a major investment in a machine system in 5


years. She estimates that it will cost $500,000 to purchase the type of system her
company will need. She finds a very attractive investment opportunity that will generate
6.75% per year of interest payments. How much money should she invest in this
opportunity now in order to have $500,000 in 5 years?
Problem VII (20 Points)

Recognizing that you are a true car enthusiast, a wealth management firm approaches you
with a proposition to invest in a very low volume car that is sure-to-become a collectors’
car. This car costs $150,000 to purchase at present. It is projected to be worth at least
$1,000,000 (minimum price) in 2061. The investment firm provides a written guarantee
that they will actually buy this car from you at the minimum price if it does not
appreciate as well as they predict. What minimum interest rate does this investment
represent?
Problem VIII (20 Points)

One of the investment programs, upon maturity, provides the investor with the payment
option which involves $1,000 per month for 20 years. The prevailing interest rate, which
is projected to remain constant, is 5.5% per year. Calculate the following two items:

a) Present worth of all these payments;

b) Future worth at the end of 20 years.

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