Exam 2

Question 1

annuity

Answer 1

all receipts and disbursements of a period summed up, calculated for the end of year period, uniform cashflow

Question 2

What is uniform series compound amount factor used for

Answer 2

used to determine future amount equivalent to a cash flow

Question 3

What is a uniform series sinking fund factor

Answer 3

a separate account into which someone deposits an annuity in order to have a specified amount of money available in the future, for example, saving for college

Question 4

Define uniform series capitol recovery factor

Answer 4

how large the annual return (A) msut be to recover an investment P at t=0

Question 5

Define uniform series present worth factor

Answer 5

determines the present value of n future annuity payments at a given interest rate i

Question 6

assumptions for present worth analysis

Answer 6

end of year convention, sunk costs disregarded, money is obtained from a bank at interest rate i, inflation, deflation, taxes are disregarded

Question 7

endowment time period?

Answer 7

Infinity

Question 8

What equation do you use for investments in a cash flow

Answer 8

Capitol recovery factor

Question 9

What equation do you use for salvage in a cash flow?

Answer 9

Sinking fund factor

Question 10

Equivalent Uniform Annual Worth (EUAW)

Answer 10

EUABenefits - EUACost

Question 11

Equation for cash flow given I, R, E, S, n, i

Answer 11

A= -AI + As + (R-E)

Question 12

Define Internal rate of return (IRR)

Answer 12

the interest rate at which the present worth and the equivalent annual worth equal to zero

Question 13

IRR application

Answer 13

used to determine the yield of an investment

Question 14

IRR equation

Answer 14

sum Fx/(1+i)^n

Question 15

IRR getting closer to zero

Answer 15

increase percentage

Question 16

endowment equation

Answer 16

A= endowment times interest rate

Question 17

The present worth of a cash flow over ten years has a value of $0 at an interest rate of 5%. How do you interpret the result?

Answer 17

The cash flow earns exactly 5%.

Question 18

Define the net present worth (NPW).

Answer 18

NPW = PW of benefits - PW of cost

Question 19

What are the three biggest problems in present worth analysis looking at buildings?

Answer 19

Determining the (future) cash flow, the (future) interest rate, and the useful life of the building.

Question 20

What is the goal of an annual cash flow analysis?

Answer 20

To convert money into an equivalent uniform annual cost (EUAC) or benefit (EUAB).

Question 21

What do you do when using a sinking fund factor?

Answer 21

Find the equivalent uniform annual cash flow for a future monetary value.

Question 22

What do you do when using a capitol recovery factor?

Answer 22

Find the equivalent uniform annual cash flow for a present monetary value.

Question 23

What information do you get from a present worth analysis

Answer 23

The monetary value of a cash flow given an interest rate.

Question 24

What information do you get from an EUAW analysis

Answer 24

the monetary value of annual cash flows.

Question 25

What information do you get from an IRR analysis

Answer 25

The profitability (yield) of a cash flow in percent.