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This document contains 3 engineering economy problems. The first problem calculates the maximum price an investor could pay for a machine with a 10-year life and $40,000 salvage value given a similar machine with a 6-year life and $30,000 salvage value that cost $150,000. The second problem finds the capitalized cost of a machine that costs $300,000, has a 15-year life and $50,000 salvage value with $5,000 annual maintenance. The third problem calculates the discounted payback period in years of a $25,000 investment in a machine that generates $15,000 in annual savings with an 18% interest rate.

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Karl Angelo Cuellar
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2K views2 pages

Wesley

This document contains 3 engineering economy problems. The first problem calculates the maximum price an investor could pay for a machine with a 10-year life and $40,000 salvage value given a similar machine with a 6-year life and $30,000 salvage value that cost $150,000. The second problem finds the capitalized cost of a machine that costs $300,000, has a 15-year life and $50,000 salvage value with $5,000 annual maintenance. The third problem calculates the discounted payback period in years of a $25,000 investment in a machine that generates $15,000 in annual savings with an 18% interest rate.

Uploaded by

Karl Angelo Cuellar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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ENGINEERING ECONOMY

1.) A certain equipment costs P150,000.00, lasts for 6 years, and has a salvage
value of P30,000. How much could an investor afford to pay for another
machine for the same purpose, whose life is 10 years and salvage value is
P40,000, if money is worth 5%?
For the first machine:
OM RC−SV
K = FC + i + n
(1+ i) −1
150,000−30,000
K = 150,000 +
( 1+ 0.05 )6−1

K = P 502,841.92
For the other machine:
FC −40,000
K = FC + = 502, 841.92
( 1+ 0.05 )10−1

FC = 218,696.41

2.) A machine costs P300,000.00 new, and must be replaced at the end of each
15 years. If the annual maintenance required is P5,000.00, find the capitalized
cost, if money is worth 5% and the final salvage value is P50,000.
OM RC −SV
K = FC + i +
(1+ i)n−1
5,000 300,000−50,000
K = 300,000 + 0.05 +
( 1+ 0.05 )15−1

K = P631,711.44

3.) A machine is under consideration for investment. The cost of the machine is
P25,000. It years it operates, the machine will generate a savings of P15,000.
Given an effective annual interest of 18%, what is the discounted payback period,
in years, on the investment in the machine?
The discounted payback period where the present worth of all income equals the
investment
P = 25,000.00 (investment) i = 18% = 0.18

A = 15,000 (income per year)

A [ ( 1+ i )n −1] 15000[ ( 1+0.18 )n −1]


P= n
; 25000= n
( 1+i ) i ( 1+0.18 ) (0.18)
5 1.18n−1
=
3 1.18 n 0.18

1.18n−1=0.3 ( 1.18 )n log (1.18 )n=log 1.4286

0.7 (1.18)n = 1 n log 1.18 = log 1.4286


1.18n = 1.4286 n = 2.155 years

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