Multiple Choice Questions 1. All of the following are fundamental assumptions for the annual worth method of

Question:

Multiple Choice Questions
1. All of the following are fundamental assumptions for the annual worth method of analysis except:
(a) The alternatives will be needed for only one life cycle.
(b) The services provided are needed for at least the LCM of the lives of the alternatives.
(c) The selected alternative will be repeated for the succeeding life cycles in exactly the same manner as for the first life cycle.
(d) All cash flows will have the same estimated values in every life cycle.
2. When comparing five alternatives that have different lives by the AW method, you must:
(a) Find the AW of each over the life of the longest-lived alternative.
(b) Find the AW of each over the life of the shortest-lived alternative.
(c) Find the AW of each over the LCM of all of the alternatives.
(d) Find the AW of each alternative over its life without considering the life of the other alternatives.
3. The annual worth of an alternative can be calculated from the alternatives:
(a) Present worth by multiplying by (A/P, i, n)
(b) Future worth by multiplying by (F/A, i, n)
(c) Either (a) or (b)
(d) Neither (a) nor (b)
4. The alternatives shown are to be compared on the basis of annual worth. At an interest rate of 10% per year, the values of n that you could use in the (A/P,i,n ) factors to make a correct comparison by the annual worth method are:

(a) n =3 years for A and 3 years for B
(b) n = 3 years for A and 6 years for B
(c) Either (a) or (b)
(d) Neither (a) nor (b)
5. The alternatives shown are to be compared on the basis of a perpetual (i.e., forever) equivalent annual worth. At an interest rate of 10% per year, the equation that represents the perpetual AW of X1 is:

(a) AW X1 = €“ 50,000(0.10) €“ 10,000 + 13,000 (0.10)
(b) AW X1 = €“ 50,000(0.10) €“ 10,000 + 13,000 (A/F, 10%, 3)
(c) AW X1 = €“ 50,000(0.10) €“ 10,000 + 37,000 (P/F, 10%, 3) (0.10) + 13,000(0.10)
(d) AW X1 = €“ 50,000(A/P, 10%, 3) €“ 10,000 + 13,000(A/F, 10%, 3)
6. To get the AW of a cash flow of $10,000 that occurs every 10 years forever, with the first one occurring 10 years from now, you should:
(a) Multiply $10,000 by (A/P,i, 10).
(b) Multiply $10,000 by (A/F,i, 10).
(c) Multiply $10,000 by i.
(d) Multiply $10,000 by (A/F,i, n) and then multiply byi.