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Practice Exercise For Economics

The document contains 16 engineering economics practice problems related to calculating present and future values of cash flows with compound interest. The problems cover topics like determining account balances given regular deposits and interest rates, calculating interest rates using the rule of 72, finding present values of bonus packages, estimating maintenance costs, and calculating equivalent uniform annual costs of equipment.

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64 views2 pages

Practice Exercise For Economics

The document contains 16 engineering economics practice problems related to calculating present and future values of cash flows with compound interest. The problems cover topics like determining account balances given regular deposits and interest rates, calculating interest rates using the rule of 72, finding present values of bonus packages, estimating maintenance costs, and calculating equivalent uniform annual costs of equipment.

Uploaded by

claire
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ECON 310—ENGINEERING ECONOMICS EXERCISE 1

1. Suppose that $650 is deposited at the end of every year into an account paying interest of 7% per
year. At the end of twelve years the account will be worth approximately $_______.

2. The “Rule of 72” says that, at 9% interest, money will double in _______ years.

3. Suppose that $1,300 is deposited into an account paying simple interest of 6% annually. At the end of
five years, the account will be worth $___________.

4. If the interest paid on an account is 12% compounded annually, $________ now is basically
equivalent to $10,000 five years from now.

5. At an interest rate of 9%, you can have approximately $15,000 ten years from now by depositing
$______ every year for the next ten years assuming the deposits take place at the end of each year.

6. At the end of every year you deposit $3,600 into an account that earns 9% interest per year. What
will be the balance in your account immediately after the 24th deposit?

7. A bonus package pays an employee $900 at the end of the first year, $1,600 at the end of the
second year, $2,300 at the end of the third year, and so on, continuing to increase by $700 every year
for the first nine years of employment. What is the present value today of the bonus package at 5%
interest?

8. If the interest rate is 10% compounded annually, approximately how many years will it take the
current balance in an account to triple in value?

9. A parent borrows $12,000 today at 8% interest compounded annually to buy a


used car for their 16 year old. Two years later the student receives a graduation gift of $2,000 and
pays this gift toward the loan balance. Approximately how much money will the parents still owe
after that $2,000 payment?

10. Suppose that the installation of Low-Loss thermal windows is expected to save $450 per year on
your home heating bills. If you expect to occupy your home for 40 years and could earn 6% per year
on other investments, how much can you afford to pay now to have the new windows installed?

11. Upgrading the air conditioning in a particular building on campus would result in cost of
maintenance savings of $250 per year for the first three years and $500 per year for the next six
years. If maintenance costs are the only consideration, the maximum amount to spend now on the
project at 4% interest is _________.

12. An engineer has recently purchased a new piece of equipment to use in analyzing geological
formations. The equipment has no maintenance costs the first year due to a one year’s free
maintenance warranty. In the second year, it is expected to cost $125 to maintain the equipment
and in subsequent years the cost of maintenance will increase by $35 per year. Approximately what
amount must be set aside now at 6% interest to pay the cost of maintaining the equipment over the
first ten years of ownership?

13. You invested money in a savings account paying 2% interest eight years ago. The account now is
worth $5,000. How much did you invest?
14. You expect the following future cash flows: $8,000 at the end of year 1, $9,100 at the end of
year 2, nothing at the end of year 3 and $14,641 at the end of year 4. What is the present value of
this series of payments at 7% interest?

15. Suppose you buy a share of stock today for $3000 and sell it for $6000 at the end of five years.
What interest rate will you have earned on your investment?

16. A manufacturer purchased $12,000 worth of equipment with a useful life of ten years. Assuming
9% interest, the equivalent uniform annual cost of the equipment is _______.

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