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GDB3023 Engineering Economics & Entrepreneurship JANUARY 2021 Assignment #6 (Clo2)

The document contains 5 engineering economics and entrepreneurship assignment questions from January 2021. Question 5-9 asks about the extra amount a motorist can pay for a more fuel efficient 6-speed transmission over a 4-speed transmission, given fuel economy improvements and costs over 10 years of driving 120,000 miles. Question 5-19 asks to calculate the future worth of an investment in rental property given increasing revenues and expenses each year. Question 5-34 asks to calculate the internal rate of return and determine if a power plant project should be undertaken given annual savings from using waste as fuel instead of coal.

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215 views3 pages

GDB3023 Engineering Economics & Entrepreneurship JANUARY 2021 Assignment #6 (Clo2)

The document contains 5 engineering economics and entrepreneurship assignment questions from January 2021. Question 5-9 asks about the extra amount a motorist can pay for a more fuel efficient 6-speed transmission over a 4-speed transmission, given fuel economy improvements and costs over 10 years of driving 120,000 miles. Question 5-19 asks to calculate the future worth of an investment in rental property given increasing revenues and expenses each year. Question 5-34 asks to calculate the internal rate of return and determine if a power plant project should be undertaken given annual savings from using waste as fuel instead of coal.

Uploaded by

우마이라Umairah
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 PDF, TXT or read online on Scribd
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GDB3023

ENGINEERING ECONOMICS & ENTREPRENEURSHIP


JANUARY 2021
ASSIGNMENT #6 [CLO2]

5-9 A new six-speed automatic transmission for automobiles offers an


estimated 4% improvement in fuel economy compared to traditional four
speed transmissions in front-wheel drive cars. If a four-speed
transmission car averages 30 miles per gallon and gasoline costs $4.00 per
gallon, how much extra can a motorist pay for a fuel-efficient six-speed
transmission? Assume that the car will be driven for 120,000 miles over
its lifetime of 10 years. The motorist can earn 6% per year on investments.
[10 marks]

5-19 Vidhi is investing in some rental property in Collegeville and is investigating


her income from the investment. She knows the rental revenue will
increase each year, but so will the maintenance expenses. She has been
able to generate the data that follows regarding this investment
opportunity. Assume that all cash flows occur at the end of each year and
that the purchase and sale of this property are not relevant to the study.
If Vidhi’s MARR = 6% per year, what is the FW of Vidhi’s projected net
income?

[10 marks]
5-34 The world’s largest carpet maker has just completed a feasibility study of
what to do with the 16,000 tons of overruns, rejects, and remnants it
produces every year. The company’s CEO launched the feasibility study by
asking, why pay someone to dig coal out of the ground and then pay someone
else to put our waste into a landfill? Why not just burn our own waste?
The company is proposing to build a $10-million power plant to burn its
waste as fuel, thereby saving $2.8 million a year in coal purchases. Company
engineers have determined that the waste burning plant will be
environmentally sound, and after its four-year study period the plant can
be sold to a local electric utility for $5 million.
[10 marks]

(a) What is the IRR of this proposed power plant?

(b) If the firm’s MARR is 15% per year, should this project be
undertaken?

5-47 A company has the opportunity to take over a redevelopment project in an


industrial area of a city. No immediate investment is required, but it must
raze the existing buildings over a four-year period and, at the end of the
fourth year, invest $2,400,000 for new construction. It will collect all
revenues and pay all costs for a period of 10 years, at which time the entire
project, and properties thereon, will revert to the city. The net cash flows
are estimated to be as follows:

Tabulate the PW versus the interest rate and determine whether multiple
IRRs exist. If so, use the ERR method when ∈= 8% per year to determine
a rate of return.
[10 marks]
5-51 A computer call center is going to replace all of its incandescent lamps with
more energy efficient fluorescent lighting fixtures. The total energy
savings are estimated to be $1,875 per year, and the cost of purchasing
and installing the fluorescent fixtures is $4,900. The study period is five
years, and terminal market values for the fixtures are negligible.
[10 marks]

(a) What is the IRR of this investment?

(b) What is the simple payback period of the investment?

(c) Is there a conflict in the answers to Parts (a) and (b)? List your
assumptions.

(d) The simple payback “rate of return” is 1/θ. How close does this
metric come to matching your answer in Part (a)?

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