Assignment #2 (Engineering Economy)

1.

Electrical turbine system is presently powering the 1st phase of a newly built plant. As an
alternative, their sister company is developing a solar power system that can be an alternative
to power up the plant, but it will be a few years before the solar system is available for use. It
is estimated that by switching to the solar power system, it will save $22,000 per year,
starting 3 years from now. At an interest rate of 8% per year, determine the present worth in
year 0 of the projected savings that occur in years 3 through 10
[4 Marks]

2.

Innocom LTD, a small manufacturer of quartz products, borrowed $2 million to renovate one
of its testing lab. In an effort to pay off the loan quickly, the company made four payments in
years 1 through 4, with each payment being twice as large as the preceding one. At an interest
rate of 10% per year, what was the size of the first payment?
[6 Marks]

3.

Income from the sale of oleic acid was $300,000 in years 1 through 4 and $465,000 in years 5
through 9. Determine the equivalent annual revenue in years 1 through 9 at an interest rate of
10% per year.
[5 Marks]

4.

ActiveTech LLC manufactures high quality o-ring designed for robust oil and gas operations.
The company borrowed $10,000,000 with the understanding that it would make a $2,000,000
payment at the end of year 1 and then make equal annual payments in years 2 through 5 to
pay off the loan. If the interest rate on the loan was 9% per year, how much was each payment
in years 2 through 5?
[6 Marks]

5.

You just graduated and plan to start an annuity plan by making your first deposit now. If you
make annual deposits of a uniform amount A into the account that earns interest at a rate of
7% per year, how many years from now will it be until the value of the account is equal to 10
times the value of the single deposit?
[5 Marks]

6.

Afif's uncle company that manufactures air operated gun assemblies budgeted $74,000 per
year to pay for metal components over a 5-year period. If the company spent only $42,000 in
year 1, what uniform annual amount should the company expect to spend in each of the next 4
years to expend the entire budget? Use 10% per year interest.
[8 Marks]

7.

What is the F in year 10 of $50,000 in year 0 and amounts increasing by 15% per year
through year 10 at an interest rate of 10% per year.
[7 Marks]

Copyright 2015 Engineering Economics and Project Management SKKK4173

8.

An EPC consultancy firm purchased a smaller company operating design software products
and assumed the company 's debt as part of the transaction. The deal was structured such that
the consultancy firm received $3,000,000 immediately after the deal was closed (in year 0)
through the sale of some assets. This year (year 1) income was 3.36 million, and it is
projected to increase by 12% each year through expansion of customer base. What was the
present worth in the year of purchase of the income stream over a 10-year period? The firm
expected rate of return for any purchase is 15% per year.
[7 Marks]

9.

What will be the future worth in year 10 of a cash flow series that starts in year 0 at $100,000
and decreases by 12% per year. Use an interest rate of 12% per year.
[7 Marks]

10.

The gross earnings from the mining of mineral deposits usually decreases as the resources
becomes more difficult to extract. Determine the future worth in year 10 of a mineral lease
that yielded income of $14,000 in years 1 through 4 and then amounts that decreased by 5%
per year through year 10. Use an interest rate of 18% per year. Show (a) hand (b) spreadsheet
solutions.
[10 Marks]

Assignment 1 must be submitted before or on 12th October.

Copyright 2015 Engineering Economics and Project Management SKKK4173