The Net Present Value (NPV) method examines an investment’s costs and benefits. The present value of all the money coming in (inflows) is subtracted from the present value of all the money going out (outflows) over the project’s life. When the time value of money is considered, a positive NPV means that the project is likely to make money because the future earnings are more significant than the initial costs.

What makes the general inflation rate different from the average inflation rate for certain goods?

Outline the basic steps you need to take to use the net present value criterion for a typical investment project and to compare different projects:

The internal rate of return is the interest rate applied to an investment’s unrecovered project balance, ensuring that the unrecovered balance equals zero upon project termination.

A factory uses four solar steam boilers to supply steam for space heating, domestic hot water, and factory hygiene. One boiler is operated at times of low load and on weekends, two are operated during the week, and the fourth boiler is usually offline. The design efficiency on a steady load is generally about 87%. The boilers at the factory were being run at between 80% and 93% efficiency due to inadequate instrumentation and controls. Engineers have proposed that the boiler controls be upgraded. The upgrade would consist of installing variable speed drives for the boiler fans and using the fans in conjunction with oxygen trim equipment for combustion control.         • The cost of implementing the project is $239,000. The boilers have a remaining service life of 15 years. Any upgrade will have no salvage value at the end of 15 years.         • The annual electricity use in the boiler house is expected to be reduced from 800,000 kWh to 50,000 kWh as a result of variable speed control of the boiler fan (because with the variable speed drives, the fan motors draw only the power required to supply air to the boilers). This is equivalent to $35,000 per year. These savings are expected to increase at an annual rate of 8% as the cost of electricity increases over time.         • Solar use will be 5% lower due to the projected improvement in boiler efficiency. This corresponds to a cost reduction of $60,950 per year. These savings are projected to increase as the solar price increases at an annual rate of 1%. (a) If the hospital uses a 13% interest rate for any project justification, what would be the annual equivalent (AE) energy savings due to the improvement? [3 points]  (b) What would the net present value (NPV) be? [3 points]  (c) What would the net future value (NFV) be? [2 points]  (d) Find the sensitivity analysis diagram. [2 points] 

There are two ways to figure out the payback period. The easier way to do it needs to think about how inflation or deflation changes the value of money over time. One of the more complicated methods takes this into account.

What is the representation of the following figure? 

The average starting salaries for industrial engineers were $87,440 in year 2010 and 105,985 in year 2023 respectively. Can we say that the engineers’ salaries kept pace with the general inflation over the last 13 years? The CPIs for the two specific years are 155.20 and 235.04 respectively.        (a) What is the general inflation rate? [2 points]        (b) What are the equivalent actual dollars in 2013? [1 point]        (c) What are the equivalent actual dollars in 2025? [1 point]        (d) What are the equivalent actual dollars in 2030? [1 point]  

A student believes that the average grade on the final examination in statistics is at least 85. She plans on taking a sample to test her belief. The correct set of hypotheses is ____________________________.

Exhibit 2-4A survey of 400 college seniors resulted in the following crosstabulation regarding their undergraduate major and whether or not they plan to go to graduate school.     Undergraduate Major     Graduate School Business Engineering Others Total   Yes   35   42   63 140   No   91 104   65 260   Total 126 146 128 400 Refer to Exhibit 2-4. What percentage of the students plan to go to graduate school?