Written midterm - 2012

Questions in the midterm will be related to these topics:

1. Understand various definitions of “interest” and how each is calculated and used: simple, compound, nominal, and effective
2. Know how to calculate cash flows and exchange them for equivalent values at different times.
3. How do taxes affect the above?
4. What if all cash flows are negative? (e.g., a public works project)
5. Calculate values at any time period from the cash flow data if the interest rate is different for different periods.
6. Be able to work forwards, i.e. escalate values to a future time point, or backwards, i.e. deflate all values to their present value
7. Compare various methods of profitability mentioned in class
   • What are the advantages and disadvantages of each method
   • What similarities do the measurements have?
   • At what point in the planning of a project would each measure be appropriate?
   • What are the measurements trying to represent?
   • What are some simple measures of profitability that one could quickly do to see if a project makes any sense?

8. The calculation of DCFRR requires a trial and error solution. What is the most efficient way to accomplish this?
9. What are typical critical values for Payback Time (PT), Return on Investment (ROI), Discounted Cash Flow (DCF), and Minimal Acceptable Rate of Return (MARR)?
10. Find one more common measure of profitability (Ex. Equivalent Annual Worth or Annuity). How is it calculated and how does it compare to other measurements?
11. Discuss how the “value of money” is determined.
12. What factors affect cash flow? How are these factors calculated? e.g. inflation, depreciation, taxes
13. Set up a cash flow problem and calculate measures of profitability.