School of PE Econ Notes Solutions 1

Solutions
Revised Date: 2018-09-25
This copy is given to the following student as part of School of PE course. Not allowed to distribute to others.
ivan anderson ([email protected])


Project Management Review Workshop Solutions

PROBLEM 1-1
A loan of $10,000 is made today at an interest rate of 15%, and the first payment of
$3000 is made 4 years later. The amount that is still due on the loan after the first
payment is most nearly

(A) $ 7,000
(B) $ 8,050
(C) $ 8,500
(D) $14,500

SOLUTION 1-1

Amount due = ($10k)(F/P,15%,4) – $3000
= ($10k)(1.7490) – $3000
= $14,490

Answer is D.

1

PROBLEM 1-2

You have decided to buy a laser-guided, robotic arm to boost production. The salesman
offers to finance the $200,000 purchase price with a 5% simple interest loan. Under the
salesman’s terms you would make a series of ten, uniform, year-end payments of
principal and interest.
You decide to purchase the arm, but make a counter offer of financing terms that you
consider more favorable. You offer to pay off the principal in 10 equal year-end
payments, plus the interest on the amount owed each year. The amount you stand to
save using your terms is most nearly:
(A) $4,000 (B) $5,000 (C) $6,000 (D) $7,000

SOLUTION 1-2

Salesman’s Terms:
Total amount paid per year: A = P(A/P, 5%, 10) = 200,000(.12950) = $25,900
Total amount paid over 10 years: 10 x $25,900 = $259,000
Total interest paid over 10 years: $259,000 - $200,000 = $59,000
Your Terms:
Year Principal Owed at Principal Paid Simple Interest of 5%
Beginning of Year Each Year on Principal Owed
1 $200,000 $20,000 $10,000
2 $180,000 $20,000 $9,000
3 $160,000 $20,000 $8,000
4 $140,000 $20,000 $7,000
5 $120,000 $20,000 $6,000
6 $100,000 $20,000 $5,000
7 $80,000 $20,000 $4,000
8 $60,000 $20,000 $3,000
9 $40,000 $20,000 $2,000
10 $20,000 $20,000 $1,000
Totals: $200,000 $55,000
Total amount paid over 10 years: $200,000 + $55,000 = $255,000

Total interest paid over 10 years: $255,000- $200,000 = $55,000
The difference in interest payments: $59,000 - $55,000 = $4,000
Answer is A.

2

PROBLEM 1-3
Your car is getting older and is requiring more and more maintenance. A year ago you
paid $500 for parts and repairs. This year you paid $750 for more parts and repairs.
Assuming your maintenance costs continue to increase at this rate for the next three
years, and that the effective rate of interest is 5%, what is the present worth of your
next three years of automotive maintenance costs?
(A) $3,378
(B) $3,382
(C) $3,383
(D) $3,384
SOLUTION 1-3
Draw the cash flow diagram. Pay very careful to when you pay for maintenance.
As shown in the cash flow diagram, “a year ago” is before Year 0. “This year” is Year
0. The Problem asks about, “the next three years.” They are Years 1, 2, and 3. The
cash flow must be broken down into two parts. (Notice that the three-year gradient
factor is used even though there are only two non-zero gradient cash flows ($250 and
$500).
P = A(P/A, 5%, 3) + G(P/G, 5%, 3)
= ($1000)(2.7232) + ($250)(2.6347)
= $2,723.2 + $658.68 = $3,381.8

Answer is C

3

PROBLEM 1-4
Local property taxes of $900 will be assessed starting at t = 12. They will continue
until t = 22. There are no tax payments before t = 12. Using an interest rate of 6%,
determine the present worth of this stream of tax payments.
(A) $3,478
(B) $3,500
(C) $3,535
(D) $3,750
SOLUTION 1-4
Draw the cash flow diagram.
First, determine a cash flow at the end of Year 11 (t = 11) that is equivalent to the
uniform series of future tax payments.
P’ = $900(P/A, 6%, 11) = $900(7.8869) = $7,098.21
At t = 0, P’ is the future present worth of the series of 11 tax payments.
Therefore we can think of P’ = F (relative to t = 0). Notice that P’ occurs at t = 11.
P = P’(P/F, 6%, 11) = $7,098.21(P/F, 6%, 11) = $7,098.21(0.5268) = $3,739.34

Answer is D.

4

PROBLEM 1-5
A three-unit rental property is purchased for $80,000 and returns $24,000 per year for
the first five years, and $30,000 per year for the next five years. Assuming an interest
rate of 7%, calculate the present worth of this property’s cash flow.
(A) $100,000
(B) $105,000
(C) $107,500
(D) $109,000
SOLUTION 1-5
The revenue cash flow can be thought of as $30,000 each year from t = 1 to t = 10,
with a negative revenue of -$6,000 from t = 1 to t = 5. Superimposed these two cash
flows make up the actual cash flow of the property.
P = -$80,000 + ($30,000)(P/A, 7%, 10) – ($6,000)(P/A, 7%,5)
= -$80,000 + ($30,000)(7.0236) – ($6,000)(4.1002)
= -$80,000 + $210,708 – $24,601.20 = $106,106.80

Answer is B.

5

PROBLEM 1-6
What is the value of an asset over its entire estimated life given the following:

initial cost $80,000
estimated life 20 years
salvage value $20,000
other costs $18,000 per year
interest rate 10%

(A) $548,000 (B) $676,000 (C) $880,000 (D) $1,550,000

SOLUTION 1-6

F = $80,000(F/P,10%,20) + $18,000(F/A,10%,20) - $20,000

= $80,000(6.7275) + $18,000(57.275) - $20,000
= $1,549,150 ( or $1,550,000)

Answer is D.

6


PROBLEM 1-7

With an interest rate of 8% compounded semiannually, the value of a $1000
investment after 5 years is most nearly
(A) $1220
(B) $1370
(C) $1480
(D) $1700

SOLUTION 1-7

ie = (1 + r/m)m – 1= (1 + 0.08/2)2 – 1 = 0.0816
F = ($1000)(F/P,8.16%,5) = ($1000)(1 + 0.0816)5
= ($1000)(1.480) = $1480

Answer is C.

7

BLANK PAGE

8

PROBLEM 2-1
Use the project precedence table and blank nodes (below) to complete the network.
Note that this project starts on day 0. Based on end-of-day calculations for starts and
finishes, perform a critical path analysis to determine the following:

2-1a) The project duration (days) is most nearly: Activity Predecessor Duration
(A) 36 (days)
(B) 48 Start -
(C) 41 A Start 9
(D) 32 B A 8
C B 2
2-1b) The Critical Path is most nearly: D A, C 6
(A) A-B-C-D-F-G E D 7
F C, D 9
(B) A-B-C-D-E-F-G
G E, F 7
(C) A-D-E-G, Finish G
(D) A-B-C-E-G
2-1c) Float for E:

(A) 0 days
(B) 1 day
(C) 2 days
(D) 7 days

SOLUTION 2-1
Based on the relationships indicated in the above Precedence Table, identify the blank
nodes below, fill-in the durations, and connect them with arrows. Then, using these
nodes, do a forward pass and a backward pass.

9

SOLUTION 2-1
Your completed network should look something like this.
2-1a) Critical Path Duration = Longest duration path total number of days from Start to
Finish = 41. Answer is C.
2-1b) The critical path is as follows: START, A, B, C, D, F, G, FINISH. Answer is A.
2-1c) Float = LS – ES = 27 – 25 = 2 days. Answer is C.

10

PROBLEM 2-2
A Kitchen Remodeling Project starts on Day 1. Fill-in the blanks in the following
nodes to answer questions below.
2-2a) The total duration of this project is most nearly?

(A) 20 (B) 21 (C) 22 (D) 23
2-2b) The Total Float (TF) of Activity “Buy Materials” is most nearly?
(A) 2 (B) 3 (C) 4 (D) 5
2-2c) The Late Finish (LF) of Activity “Hang Wallpaper is most nearly?
(A) 8 (B) 10 (C) 12 (D) 14
2-2d) The lag between the Early Start of Activity “Install New Cabinets” and the
Early Finish of Activity “Hang Wallpaper” is most nearly?
(A) 2 (B) 3 (C) 5 (D) 6
2-2e) Which of the following activities is not on the critical path?

(A) Remove Old Cabinets
(B) Install New Flooring
(C) Install New Cabinets
(D) Hang Wallpaper

11

SOLUTION 2-2
Note that this problem starts on Day 1.
2-2a) See the full network above. The total duration of this project is 20.
Answer is A.
2-2b) The Total Float (TF) of Activity “Buy Materials”: TF = LF – EF = 10 – 7 = 3
Answer is B.
2-2c) The Latest Finish (LF) of Activity “Hang Wallpaper” is 14.

Answer is D.
2-2d) The lag between the Earliest Start of Activity “Install New Cabinets” and the
Earliest Finish of Activity “Hang Wallpaper” is 16 – 11 = 5.
Answer is C.
2-2e) “Hang Wallpaper” is not on the critical path.

Answer is D.

12

PROBLEM 2-3 Activity Predecessor Successor Duration

(weeks)
Draw the Network. Use the table of Start - A 0
predecessor / successor relationships to A Start B, C, D 7
identify the critical path and answer the B A G 2
following questions. The project start is C A E, F 6
at week 0. Draw the network by D A G 5
E C H 4
connecting and filling-in the blank
F C H, I 18
nodes on the following sheet.
G D, B I 13
2-3a) What is the critical path? H E, F Finish 7
(A) Start-A-C-F-H-Finish I F, G Finish 5
(B) Start-A-C-F-I-Finish Finish H, I - 0
(C) Start-A-C-E-H-I-Finish
(D) Start-A-D-H-G-I-Finish
2-3b) What is the Earliest Finish of activity C in weeks?

(A) 9 (B) 10 (C) 13 (D) 12
2-3c) What is the Latest Finish of activity D in weeks?

(A) 15 (B) 16 (C) 17 (D) 20
2-3d) What is the Latest Finish of Activity E in weeks??

(A) 9 (B) 31 (C) 11 (D) 12
2-3e) What is the Earliest Finish of activity F?

(A) 24 (B) 31 (C) 26 (D) 27
2-3f) What is the Earliest Finish of activity H in weeks??

(A) 38 (B) 26 (C) 27 (D) 28

13

PROBLEM 2-3

14

SOLUTION 2-3
2-3a). The critical path is Start-A-C-F-H-Finish.

Answer is A.
2-3b) The Earliest Finish of activity C is 13 weeks.

Answer is C.
2-3c) The Latest Finish of activity D is 20 weeks.

Answer is D.
2-3d) The Latest Finish of Activity E is 31 weeks.

Answer is B.
2-3e) The Earliest Finish of Activity F is 31 weeks.

Answer is B.
2-3f) The Earliest Finish of activity H is 38 weeks?

Answer is A.

15

PROBLEM 2-4
Resource Loading. An activity-

on-node network for a project is
shown. The quantity of a needed
crew resource is shown on the
activities that require that
resource. If the activities cannot
be split or interrupted, which
histogram represents a resource-
leveled schedule for this project?
SOLUTION 2-4
Activity PERIOD
By studying the network diagram 1 2 3 4 5 6 7 8
provided, determine the duration of the
J 4
project: 8 days. Create the Resources
K 5
Table at right with rows J thru P and
L 4 4 4 4 4 4
Columns 1 thru 8, one for column for each
M 3 3
day. Based on the durations and
N 6 6
precedence shown in the diagram, fill-in
O 7 7 7
the resources table at right.
P 3
Notice that the total resources per day in TOTAL 4 12 13 10 11 11 11 3
the bottom row of the table matches one
of the resources diagrams. Answer is A.

16

PROBLEM 2-5
A project’s activities, durations, and precedence

relationships are provided in the table. The activity
diagram that matches the project logic is:
(A) Network A
(B) Network B
(C) Network C
(D) Network D

17

Note that Network:
“A” is missing a link between Activities 2 and 5.
“B” has graphically incorrect usage of a Dummy activity.
“C” has a link between Activities 2 and 3 that is not supported by the precedence table.
“D” is the only network that actually matches the precedence table.
Answer is D.

18

PROBLEM 2-6
For the project network shown, based on end-of-day calculations for starts and
finishes, the early start time (day) for activities “Q” and “V” is most nearly:
(A) 10, 18
(B) 11, 19
(C) 10, 19
(D) 11, 18

SOLUTION 2-6
List all paths leading to “Q” and calculate the duration of each.
L + M + Dummy = 4 + 7 = 11 days
L +N+P = 4 + 3 + 3 = 10 days
Q’s Early Start time is 11 days
List all the paths leading to “V” and calculate the duration of each.
L + M + DUMMY + Q + DUMMY = 4 + 7 + 8 = 19 days
L+M+O+R+T = 4 + 7 + 8 = 18 days
L + N + P + Q + DUMMY = 4 + 3 + 3 + 8 + 0 = 18 days
L + N + O + S + DUMMY = 4 + 7 + 4 + 3 + 0 = 18 days
V’s Early Start time is 19 days.
Answer is B.

19

PROBLEM 2-7
A precedence table is provided for the network. The workday(s) when the maximum
number of workers are present is:
(A) 1
(B) 4, 5
(C) 6, 7, 8
(D) 11, 8

Duration Workers
Activity Successor(s)
(Days) per Day
S A, B 0 0

A C 1 6
B F 2 4
C F, E, D 2 6
D G 3 4
E G 2 4
F H 2 6
G X 1 8
H X 3 4
X Finish 0 0

20


SOLUTION 2-7
Determine the number of paths and the critical path duration.
SBFHX = 0 + 2 + 2 + 3 + 0 = 7
SACFHX = 0 + 1 + 2 + 2 + 3 + 0 = 8 CRITICAL PATH
SACEGX = 0 + 1 + 2 + 2 + 1 + 0= 6
SACDGX = 0 + 1 + 2 + 3 + 1 + 0 = 7
Finding the critical path duration is necessary to know how many columns are needed
in the Resources Required per Workday Table.
Complete the table to determine the number of workers needed per day. By
inspection, the project schedule uses the end-of-day time convention. Worker usage
can be assembled and presented in the table format below. Identify the critical path.
Resources Required per Workday Table.

1 2 3 4 5 6 7 8 Critical
A 6
B 4 4 Critical
C 6 6
D 4 4 4
E 4 4
F 6 6 Critical
G 8
H 4 4 4 Critical
TOTAL 10 10 6 14 14 8 12 4
Answer is B.

21

PROBLEM 2-8
In the network below activities are identified by letters (L thru S) and their durations
are listed as shown. The project duration is most nearly:
(A) 1-2-4-5-7-8
(B) 1-2-3-6-7-8
(C) 1-2-3-5-7-8
(D) 1-2-4-5-3-6-7-8
Answer is C. Sum of durations (4+7+6+7) =24 for critical path:
PROBLEM 2-9
In the network below activities are identified by letters (L thru S) and their durations
are listed as shown. The project duration is most nearly:
(A) 40
(B) 41
(C) 45
(D) 47
Answer is D. Sum of durations (8+14+6+12+7) =47 for critical path: 1-2-3-5-7-8.

22

PROBLEM 2-10
The network shown depicts which of the following conditions:
(A) Activity C can be started only after the completion of Activities A and B.
(B) Activity D can be started only after Activity B is completed.
(C) Activity E can be started only when Activities A, B, C, and D have been
completed.
(D) All of the above.
SOLUTION 2-10
Answer is D.
PROBLEM 2-11
The dissimilarity between Total Float and Free Float in a critical path network is most
nearly:
(A) Free Float is always equivalent to Total Float of an activity not on the critical
path.
(B) Free Float computes the duration in the delay of the successor activity early
start date
(C) Free Float computes the duration in the delay of the start of the predecessor
activity early start date
(D) Total float computes the duration in the delay of activities of the successors
late start date
SOLUTION 2-11
Free Float — The number of days that an activity can be delayed beyond its early
finish time without causing any activity that follows it to be delayed beyond its early
start time is called free float. The free float for many activities will be zero, because it
only exists when an activity does not control the early start time of any of the activities
that follow it.
Answer is B.

23

PROBLEM 2-12
What is the critical path of the network diagram shown?
(A) 1-4-5-7-8
(B) 1-2-6-7-8
(C) 1-2-6-7-8
(D) 1-2-3-4-5-7-8
PROBLEM 2-13
For the network diagram shown, what is the total float for activity (2)-(4)?
Note that Activity (1) - (2) starts on Day 1.
(A) 12 days
(B) 10 days
(C) 3 days
(D) 0 days

ES EF LS LF TF
Activity
(day) (day) (day) (day) (day)
1-2 1 5 1 5 0
2-3 5 13 5 13 0
2-4

3-4
4-5

3-6

5-6
5-7
6-7 31 38 31 38 0

24

SOLUTION 2-12
The correct answer is D:
1-2-3-4-5-7-8
SOLUTION 2-13
The Total Float (TF) = LS – ES = LF – EF.
To find the total float of each activity, first determine the Earliest Start (ES),
Earliest Finish (EF), Latest Start (LS), and Latest Finish (LF) of each activity.
Tabulate these values as shown.
Activity ES EF LS LF TF
(day) (day) (day) (day) (day)

1‐2 1 5 1 5 0

2‐3 5 13 5 13 0

2‐4 5 8 15 18 10
3‐4 13 18 13 18 0
4‐5 18 22 18 22 0

3‐6 13 19 25 31 12
5‐6 22 31 22 31 0
5‐7 22 28 32 38 10

6‐7 31 38 31 38 0

TF = LS – ES = LF – EF = 10 days
Answer is B.

25


PROBLEM 2-14

A global manufacturer of consumer electronic products uses a just-in-time
assembly process. Components are sub-assembled and shipped from various
geographic regions to their centrally located assembly plant. The current project
assembly procedure is shown in the

Task Activity Predecessor Duration (Days)
A Sub Assemble –JA Start 4
B Sub Assemble -KB A 6
C Transport - JA A 8
D Transport - KB B 6
E Assemble and Test Product C and D 4

Due to a shipping delay, Transport - JA, the component will take 3 days longer to
transport. The new duration for Task C is 11 days instead of 8 days. The schedule
impact of this action will delay the total completion of the project by
most nearly (day(s)):

(A) 2 days (B) 3 days (C) 4 days (D) No Impact

NOTE: Sketch the project using the Activity-on-Link project schedule method (Activity-on-
Node method also would work, but takes longer) using the planned days.

SOLUTION 2-14

A(4) B(6) D(6)
0 4 10

C(8) E(4)
16 20

Critical Path is A-B-D-E

Float time available for Task C = 16-12 = 4 days

Therefore, 3 additional days for Task C will not have any impact on the project
schedule.
Answer is D.

26

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Solutions

Revised Date: 2018-09-25

(A) $4,000 (B) $5,000 (C) $6,000 (D) $7,000

Total amount paid over 10 years: $200,000 + $55,000 = $255,000

P = A(P/A, 5%, 3) + G(P/G, 5%, 3)

= $2,723.2 + $658.68 = $3,381.8

P’ = $900(P/A, 6%, 11) = $900(7.8869) = $7,098.21

At t = 0, P’ is the future present worth of the series of 11 tax payments.

Therefore we can think of P’ = F (relative to t = 0). Notice that P’ occurs at t = 11.

P = P’(P/F, 6%, 11) = $7,098.21(P/F, 6%, 11) = $7,098.21(0.5268) = $3,739.34

P = -$80,000 + ($30,000)(P/A, 7%, 10) – ($6,000)(P/A, 7%,5)

= -$80,000 + ($30,000)(7.0236) – ($6,000)(4.1002)

= -$80,000 + $210,708 – $24,601.20 = $106,106.80

Draw the cash flow diagram.

F = $80,000(F/P,10%,20) + $18,000(F/A,10%,20) - $20,000

F = ($1000)(F/P,8.16%,5) = ($1000)(1 + 0.0816)5

2-1c) Float for E:

2-1b) The critical path is as follows: START, A, B, C, D, F, G, FINISH. Answer is A.

2-1c) Float = LS – ES = 27 – 25 = 2 days. Answer is C.

2-2a) The total duration of this project is most nearly?

2-2e) Which of the following activities is not on the critical path?

Note that this problem starts on Day 1.

2-2b) The Total Float (TF) of Activity “Buy Materials”: TF = LF – EF = 10 – 7 = 3

2-2c) The Latest Finish (LF) of Activity “Hang Wallpaper” is 14.

2-2e) “Hang Wallpaper” is not on the critical path.

PROBLEM 2-3 Activity Predecessor Successor Duration

2-3b) What is the Earliest Finish of activity C in weeks?

2-3c) What is the Latest Finish of activity D in weeks?

2-3d) What is the Latest Finish of Activity E in weeks??

2-3e) What is the Earliest Finish of activity F?

2-3f) What is the Earliest Finish of activity H in weeks??

2-3a). The critical path is Start-A-C-F-H-Finish.

2-3b) The Earliest Finish of activity C is 13 weeks.

2-3c) The Latest Finish of activity D is 20 weeks.

2-3d) The Latest Finish of Activity E is 31 weeks.

2-3e) The Earliest Finish of Activity F is 31 weeks.

2-3f) The Earliest Finish of activity H is 38 weeks?

Resource Loading. An activity-

A project’s activities, durations, and precedence

Note that Network:

“A” is missing a link between Activities 2 and 5.

“B” has graphically incorrect usage of a Dummy activity.

Q’s Early Start time is 11 days

L + M + DUMMY + Q + DUMMY = 4 + 7 + 8 = 19 days

V’s Early Start time is 19 days.

Determine the number of paths and the critical path duration.

Resources Required per Workday Table.

Answer is C. Sum of durations (4+7+6+7) =24 for critical path:

Answer is D. Sum of durations (8+14+6+12+7) =47 for critical path: 1-2-3-5-7-8.

The network shown depicts which of the following conditions:

The Total Float (TF) = LS – ES = LF – EF.

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