CE 22 Engineering Economy

Problems in Inflation and Dealing with Uncertainty

Solution to HW #4

1) Given the after tax cash flows of a selected proposal in the table below, determine the actual ATCF using the approach using actual & effective f.
Base year is 2015.

2) From problem #1, calculate the present worths of the actual and real ATCF’s. The real MARR is 10%.

b= 0 using actual f using fbar

using effective f using annual f and i
Real Actual Actual PW PW
ATCF f ATCF iC 1+f ATCF Actual Real
2015 0 -5,000,000.00 -5,000,000.00 -5,000,000.00 -5,000,000.00 -5,000,000.00 -5,000,000.00
2016 1 3,800,000.00 0.08 4,104,000.00 18.800% 1.08 4,062,738.29 3,454,545.45 3,454,545.45 3,454,545.45
2017 2 3,900,000.00 0.075 4,527,900.00 18.250% 1.075 4,457,949.14 3,223,140.50 3,223,140.50 3,223,140.50
2018 3 4,200,000.00 0.07 5,217,534.00 17.700% 1.07 5,132,808.28 3,155,522.16 3,155,522.16 3,155,522.16
2019 4 4,400,000.00 0.07 5,848,607.16 17.700% 1.07 5,749,018.16 3,005,259.20 3,005,259.20 3,005,259.20
2020 5 4,400,000.00 0.06 6,199,523.59 16.600% 1.06 6,146,514.79 2,732,053.82 2,732,053.82 2,732,053.82
2021 6 4,400,000.00 0.06 6,571,495.00 16.600% 1.06 6,571,495.00 2,483,685.29 2,483,685.29 2,483,685.29
13,054,206.43 13,054,206.43 13,054,206.43

fbar = 6.914% 1.0691

ic = 17.606% <--from fbar

ir = 10.000% 110.0% 0.909091 1+ic
1.18800 0.84175
1.18250 0.84567
0.076 1.076 1.17700 0.84962
0.105424 1.17700 0.84962
1.16600 0.85763
1.16600 0.85763
0.176056