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Chester John T. Jayona Bsce-3A: Engineering Economy

This document contains 10 engineering economy problems involving calculations related to interest, present and future value, loans, and cash flows. The problems provide solutions to questions about accumulating savings over time at a given interest rate, determining present value of future cash flows, calculating payoff periods for loans, and setting equivalent uniform amounts.

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Jonathan Esternon
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337 views6 pages

Chester John T. Jayona Bsce-3A: Engineering Economy

This document contains 10 engineering economy problems involving calculations related to interest, present and future value, loans, and cash flows. The problems provide solutions to questions about accumulating savings over time at a given interest rate, determining present value of future cash flows, calculating payoff periods for loans, and setting equivalent uniform amounts.

Uploaded by

Jonathan Esternon
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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Chester John T.

Jayona
BSCE-3A

ENGINEERING ECONOMY

1. Your spendthrift cousin wants to buy a fancy watch for $425. Instead, you suggest that she buy
an inexpensive watch for $25 and save the difference of $400. Your cousin agrees with your idea
and invests $400 for 40 years in an account earning 9% interest per year. How much will she
accumulate in this account after 40 years have passed?

SOLUTION:

2. A 12-cylinder heavy-duty diesel engine will have a guaranteed residual value of $1,000 in 5
years. Today (year 0) the equivalent worth of this engine is how much if the interest rate is 9%
per year?

SOLUTION:
3. A certain college graduate, Sallie Evans, has $24,000 in student-loan debt at the end of her
college career. The interest rate on this debt is 0.75% per month. If monthly payments on this
loan are $432.61, how many months will it take for Sallie to repay the entire loan?

SOLUTION:

4. A lump-sum loan of $5,000 is needed by Chandra to pay for college expenses. She has obtained
small consumer loans with 12% interest per year in the past to help pay for college. But her
father has advised Chandra to apply for a PLUS student loan charging only 8.5% interest per
year. If the loan will be repaid in full in five years, what is the difference in total interest
accumulated by these two types of student loans?

SOLUTION:
5. A 45-year-old person wants to accumulate $750,000 by age 70. How much will she need to save
each month, starting one month from now, if the interest rate is 0.5% per month?

SOLUTION:

6. A geometric gradient has a positive cash flow of $1,000 at EOY zero (now), and it increases 5%
per year for the following 5 years. Another geometric gradient has a positive value of $2,000 at
the EOY 1, and it decreases 6% per year for years two through five. If the annual interest rate is
10%, which geometric gradient would you prefer?

SOLUTION:
7. In the accompanying diagram below, what is the value of K on the left-hand cash-flow diagram
that is equivalent to the right-hand cash-flow diagram? Let i = 12% per year.

SOLUTION:

8. Calculate the future equivalent at the end of 2012, at 8% per year, of the following series of cash
flows in the figure below: [Use a uniform gradient amount (G) in your solution.]

SOLUTION:
9. You owe your best friend $2,000. Because you are short on cash, you offer to repay the loan
over 12 months under the following condition. The first payment will be $100 at the end of
month one. The second payment will be $100+G at the end of month two. At the end of month
three, you’ll repay $100 + 2G. This pattern of increasing G amounts will continue for all
remaining months.
a) What is the value of G if the interest rate is 0.5% per month?
b) What is the equivalent uniform monthly payment?
c) Repeat Part (a) when the first payment is $150 (i.e., determine G).

SOLUTION:
10. A father wants to set up a bank account that will pay his daughter $18,000 at the end-ofquarter
(EOQ) 4 and $32,000 at EOQ 8. He will fund this account by making quarterly payments of $X
from the present (time zero) through EOQ 7.
a) Draw a cash-flow diagram from the father’s viewpoint.
b) If the quarterly percentage rate is 2%, what is the value $X that must be deposited into the
account?

SOLUTION:

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