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Engineering Economy: Solutions For Each Number Are Found After This Page

The document provides 10 sample problems related to time value of money concepts. For each problem, it instructs the reader to (a) draw the cash flow diagram, (b) show the manual solution, and (c) highlight the final answer in a box. The problems cover a range of time value of money calculations including present worth, future worth, equivalent worth, and rate of return. The solutions to each problem are provided on subsequent pages.

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Franchezca Westermann
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265 views8 pages

Engineering Economy: Solutions For Each Number Are Found After This Page

The document provides 10 sample problems related to time value of money concepts. For each problem, it instructs the reader to (a) draw the cash flow diagram, (b) show the manual solution, and (c) highlight the final answer in a box. The problems cover a range of time value of money calculations including present worth, future worth, equivalent worth, and rate of return. The solutions to each problem are provided on subsequent pages.

Uploaded by

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

WORKSHEET #2: TIME VALUE OF MONEY 1: INTRODUCING THE FACTORS

Name: King, Ginger Ashley M.

For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the
problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box.

1. The Department of Traffic Security of a city is considering the purchase of a new drone for aerial surveillance of traffic on
its most congested streets. A similar purchase 5 years ago cost $1,500,000. At an interest rate of 15% per year, what is
the equivalent value today?
2. How much money should a bank be willing to loan a real estate developer who will repay the loan by selling seven
lakefront lots at $100,000 each 3 years from now? Assume the bank’s interest rate is 5% per year.
3. How much could BTU Oil and Gas Fracking afford to spend on new equipment each year for the next 5 years if it expects
a profit of $60 million 5 years from now? Assume the company’s MARR is 18% per year.
4. Atlas Long-Haul Transportation is considering installing Valutemp temperature loggers in all of its refrigerated trucks for
monitoring temperatures during transit. If the systems will reduce insurance claims by $100,000 in each of the next 4
years, how much should the company be willing to spend now if it uses an interest rate of 10% per year?
5. A cash flow sequence starts in year 1 at $6,000 and decreases by $100 each year through year 9. Determine the present
worth of the sequence. Use an interest rate of 10%.
6. The future worth in year 8 of an arithmetic gradient cash flow series for years 1 through 8 is $500,000. If the gradient
increase each year is $3,000, determine the cash flow in year 1 at an interest rate of 9% per year.
7. Calculate the present worth of a geometric gradient series with a cash flow of $40,000 in year 1 and increases of 6% each
year through year 6. The interest rate is 9% per year.
8. A northern California consulting firm wants to start saving money for replacement of network servers. If the company
invests $10,000 at the end of year 1 but decreases the amount invested by 5% each year, how much will be available 4
years from now at an earning rate of 8% per year?
9. A start-up company that make robotic hardware for CIM (computer integrated manufacturing) systems borrowed $1
million to expand its packaging and shipping facility. The contract required the company to repay the lender through an
innovative mechanism called “faux dividends”, a series of uniform annual payments over a fixed period of time. If the
company paid $300,000 per year for 5 years, what was the interest rate on the loan?
10. RKE & Associates is considering the purchase of a building it currently leases for $30,000 per year. The owner of the
building put it up for sale at a price of $170,000, but because the firm has been a good tenant, the owner offered to sell
it to RKE for a cash price of $160,000 now. If purchased now, how long will it be before the company recovers its
investment at an interest rate of 12% per year?

Solutions for each number are found after this page.

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