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GEN292 2 Prod Assignment 2 2023

This document contains 14 questions related to time value of money concepts. The questions cover a range of topics including: calculating interest rates, comparing simple vs compound interest, determining number of years to double an investment amount, present and future value calculations, equivalent uniform annual worth, and present value of cash flows. The document appears to be an assignment from a Mechanical Engineering department focusing on engineering economics and time value of money principles.

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Mohamed Gamal
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43 views2 pages

GEN292 2 Prod Assignment 2 2023

This document contains 14 questions related to time value of money concepts. The questions cover a range of topics including: calculating interest rates, comparing simple vs compound interest, determining number of years to double an investment amount, present and future value calculations, equivalent uniform annual worth, and present value of cash flows. The document appears to be an assignment from a Mechanical Engineering department focusing on engineering economics and time value of money principles.

Uploaded by

Mohamed Gamal
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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Benha University Engineering Economics

Faculty of Engineering at Shoubra 2nd Term 2022/2023


Mechanical Engg. Dept.(2nd Prod.) Assignment No. 2
Subject: The Time-Value of Money
[1] Selt Welding has extra funds to invest for future capital expansion. If the selected
investment pays simple interest, what interest rate would be required for the amount to
grow from $60,000 to $90,000 in 5 years?

[2] You are considering investing $3,000 at an interest rate of 8% compounded


annually for five years or investing the $3,000 at 9% per year simple interest for
five years. Which option is better?

[3] You deposit $5,000 in a savings account that earns 8% simple interest per year.
What is the minimum number of years you must wait to double your balance? Suppose
instead that you deposit the $5,000 in another savings account that earns 7% interest
compounded yearly. How many years will it take now to double your balance?

[4] A plant manager is trying to decide whether to buy a new machine now or
wait and purchase a similar one 3 years from now. The machine at the present
time would cost $25,000, but 3 years from now it is expected to cost $39,000. If the
interest rate the company uses is 20% per year, should the plant manager buy
now or should she buy 3 years from now?

[5] It is estimated that a certain piece of equipment can save $22,000 per year in labor
and materials costs. The equipment has an expected life of five years and no market
value. If the company must earn a 15% annual return on such investments, how much
could be justified now for the purchase of this piece of equipment?

[6] An investment has the following cash flow series where interest is 8 percent:
End of year 0 1 2 3 4 5 6 7 8
Cash Flow, $ 150 300 450 0 -500 0 600 700 800
a) Determine the present worth of the series.
b) Determine the future worth of the series at the end of year 8.
c) Find the worth of the series at the end of year 6.

[7] A company buys a machine for $12,000, which it agrees to pay for in five
equal annual payments, beginning one year after the date of purchase, at an
interest rate of 4% per annum. Immediately after the second payment, the terms
of the agreement are changed to allow the balance due to be paid off in a single
payment the next year. What is the final single payment?

Dr. Sayed Ali Zayan 2022/2023 1


[8] A large manufacturing company purchased a semiautomatic machine for
$13,000. Its annual maintenance and operation cost was $1700. After 5 years from
the initial purchase, the company decided to purchase an additional unit for the
machine which would make it fully automatic. The additional unit had a first cost
of $7100. The cost for operating the machine in the fully automatic condition was
$900 per year. If the company used the machine for a total of 16 years and then
sold the automatic addition for $1800, what was the equivalent uniform annual
worth of the machine at an interest rate of 12% per year?

[9] A small company wishes to setup a fund that can be used for technology
purchases over the next 6 years. Their forecast is for $12,000 to be needed at the
end of year 1, decreasing by $2,000 each year thereafter. The fund earns 8 percent
per year. How much money must be deposited to the fund at the end of year 0 to
just deplete the fund after the last withdrawal?

[10] Maintenance costs on a certain piece of equipment are estimated to be $500,


$600, $700, $800, and $900 at the end of years 1, 2, 3, 4, and 5, respectively. The
time value of money rate is 8 percent compounded annually.
a) What is the present value of the maintenance costs?
b) What is the uniform annual equivalent maintenance cost?

[11] A series of 10 end-of-year deposits is made that begins with $7,000 at the end of
year 1 and decreases at the rate of $300 per year with 10 percent interest.
a) What amount could be withdrawn at t = 10?
b) What uniform annual series of deposits (n = 10) would result in the same
accumulated balance at the end of year 10?

[12] Suppose you make 30 annual investments in a fund that pays 5 percent
compounded annually. If your first deposit is $7,500 and each successive deposit is 5
percent greater than the preceding deposit, how much will be in the fund immediately
after the thirtieth deposit?

[13] A $90,000 investment is made. Over a 5-year period, a return of $30,000


occurs at the end of the first year. Each successive year yields a return that is 10
percent less than the previous year’s return. If money is worth 5 percent, what is
the equivalent present worth for the investment?

[14] You are preparing the business plan for a new company. A net revenue analysis
covering the first 6 years is required for obtaining financing. Net revenue in year 1 is
expected to be $50,000 and increase by 15 percent each year thereafter. If i=12 percent
and the net revenue is assumed to be an end-of-year cash flow, what is the present
value of the cash flow series over the 6 years?

Dr. Sayed Ali Zayan 2022/2023 2

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