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Engg 100: Engineering Economics Homework #8 Due November 5, 2020

This document contains 6 homework problems for an engineering economics course. The problems cover a range of concepts including future value, present value, rate of return, breakeven analysis, and replacement analysis. They require calculating investment amounts over time, comparing project alternatives, and determining minimum requirements for alternatives to be desirable under given interest rates.

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Rico Biggart
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42 views2 pages

Engg 100: Engineering Economics Homework #8 Due November 5, 2020

This document contains 6 homework problems for an engineering economics course. The problems cover a range of concepts including future value, present value, rate of return, breakeven analysis, and replacement analysis. They require calculating investment amounts over time, comparing project alternatives, and determining minimum requirements for alternatives to be desirable under given interest rates.

Uploaded by

Rico Biggart
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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Engg 100: Engineering Economics

Homework #8
Due November 5, 2020

1. A twenty year old student decided to set aside $100 on his 21st birthday for
investment. Each subsequent year through his 55th birthday, he plans to increase the sum
for investment on a $100 arithmetic gradient. He will not set aside additional money
after his 55th birthday. If he can achieve a 12% rate of return on his investment, how
much will he have accrued on his 65th birthday?

2. Consider three alternatives:


A B C
First cost $50 $150 $110
Uniform Annual Benefit 28.8 39.6 39.6
Useful life, in years 2 6 4
Computed rate of return 10% 15% 16.4%

All of the alternatives have no salvage value. If the MARR is 12%, which alternative
should be selected?

a. Solve the problem by future worth analysis.

b. Solve the problem by benefit-cost ratio analysis.

c. Solve the problem by payback period.

d. If the answers in parts a, b, and c differ, explain why.

3. A newspaper is considering purchasing locked vending machines to replace open


newspaper racks for the sale of its newspapers in the downtown area. The newspaper
vending machines cost $45 each. It is expected that the annual revenue from selling the
same quantity of newspapers will increase $12 per vending machine. The useful life of
the vending machine is unknown.

a. To determine the sensitivity of rate of return to useful life, prepare a graph for
rate of return vs. useful life for lives up to eight years.

b. If the newspaper requires a 12% rate of return, what minimum useful life must
it obtain from the vending machines?

c. What would be the rate of return if the vending machines were to last
indefinitely?
4. Given the following:
A B
First cost $800 $1000
Uniform Annual Benefit 230 230
Useful life, in years 5 X

If the MARR = 12%, compute the value of X that makes the two alternatives equally
desirable.

5. Plan A requires an investment of $30,000 now. Plan B requires an investment of


28,700 now and an additional investment of $10,000 at a later time. Given an interest
rate of 12%, compute the breakeven point for the timing of the $10,000 investment for
Plan B.

6. A low-carbon-steel machine part, operating in a corrosive environment, lasts 6 years,


and has a cost of $350. If the part is treated for corrosion resistance, it will cost $500.
How long must the treated part last to be the preferred alternative, assuming a 10%
interest rate?

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