Find the present value, in birr, of an annuity of 20,000 birr payable annually for 8 years, with

first payment at the end of 10 years, if money is worth 8%.

The present value of an annuity of 20,000 birr payable annually for 8 years, with the first
payment at the end of 10 years, if money is worth 8%, is:
20,000⋅1−(1+0.08)−80.08⋅(1+0.08)−10=107,25620,000⋅0.081−(1+0.08)−8
⋅(1+0.08)−10=107,256. The answer is 107,256
2/2
Assume you want to set up a college savings plan for your daughter. She is currently 15
years old and will go to college at age 20. You assume that when she starts college, she will
need at least 100,000birr in the bank. How much do you need to save each year in order to
have the necessary funds if the current rate of interest is 7%?

To calculate how much you need to save each year to have the necessary funds for your
daughter's college education, we can use the following formula for the present value of an
annuity:
𝑃𝑉=𝑃⋅1−(1+𝑟)−𝑛𝑟PV=P⋅r1−(1+r)−n

Where:

 𝑃𝑉PV is the present value of the annuity

 𝑃P is the payment amount
 𝑟r is the interest rate (in decimal form)
 𝑛n is the number of periods

In this case, we want to find 𝑃P, so we rearrange the formula as follows:

𝑃=𝑃𝑉⋅𝑟1−(1+𝑟)−𝑛P=PV⋅1−(1+r)−nr

Given that your daughter will need 100,000 birr in 5 years (when she turns 20), and the
current rate of interest is 7%, we can plug in the values:
𝑃=100,000⋅0.071−(1+0.07)−5P=100,000⋅1−(1+0.07)−50.07
𝑃=100,000⋅0.071−(1.07)−5P=100,000⋅1−(1.07)−50.07
𝑃=100,000⋅0.071−0.7835P=100,000⋅1−0.78350.07
𝑃=100,000⋅0.070.2165P=100,000⋅0.21650.07
𝑃≈100,000⋅0.3233P≈100,000⋅0.3233
𝑃≈32,330P≈32,330

So, you would need to save approximately 32,330 birr each year for the next 5 years to
have the necessary funds for your daughter's college education, assuming a 7% interest
rate. The answer is 32,330
solve by explaining each necessary steps of the following engineering economics question
Assume you want to set up a college savings plan for your daughter. She is currently 15
 years old and will go to college at age 20. You assume that when she starts college, she will
need at least 100,000birr in the bank. How much do you need to save each year in order to
have the necessary funds if the current rate of interest is 7%?

To calculate how much you need to save each year to have the necessary funds for your
daughter's college education, we can use the concept of present value and future value in
engineering economics. Here are the steps to solve the problem:

Step 1: Identify the given information:

 Current age of your daughter: 15 years

 Age when she will go to college: 20 years
 Amount needed when she starts college: 100,000 birr
 Current rate of interest: 7%

Step 2: Calculate the number of years until she goes to college:

 Age when she goes to college - Current age = Number of years

 20 years - 15 years = 5 years

Step 3: Understand the concept of present value and future value:

 Present value (PV) is the current value of a future sum of money, discounted at a given
interest rate.
 Future value (FV) is the value of a present sum of money at a specified future date, taking
into account compound interest.

Step 4: Use the formula for the present value of an annuity:

The present value of an annuity formula is:
𝑃𝑉=𝑃⋅1−(1+𝑟)−𝑛𝑟PV=P⋅r1−(1+r)−n

Where:

 𝑃𝑉PV is the present value of the annuity

 𝑃P is the payment amount (what you need to save each year)
 𝑟r is the interest rate (in decimal form)
 𝑛n is the number of periods

Step 5: Rearrange the formula to solve for 𝑃P:

To find out how much you need to save each year, we rearrange the formula as follows:
𝑃=𝑃𝑉⋅𝑟1−(1+𝑟)−𝑛P=PV⋅1−(1+r)−nr
 Step 6: Plug in the values:
Now, we can plug in the values from the problem:
𝑃=100,000⋅0.071−(1+0.07)−5P=100,000⋅1−(1+0.07)−50.07

Step 7: Calculate the values inside the parentheses:

𝑃=100,000⋅0.071−(1.07)−5P=100,000⋅1−(1.07)−50.07

Step 8: Calculate the value inside the parentheses using a calculator:

1.07−5≈0.78351.07−5≈0.7835

Step 9: Plug the calculated value back into the formula:

𝑃≈100,000⋅0.071−0.7835P≈100,000⋅1−0.78350.07

Step 10: Simplify the expression:

𝑃≈100,000⋅0.070.2165P≈100,000⋅0.21650.07

Step 11: Calculate the final result:

𝑃≈100,000⋅0.3233P≈100,000⋅0.3233
𝑃≈32,330P≈32,330

Therefore, you would need to save approximately 32,330 birr each year for the next 5 years
to have the necessary funds for your daughter's college education, assuming a 7% interest
rate.

In summary, by using the present value of an annuity formula and calculating the required
savings amount, you can ensure that you have enough funds to cover your daughter's
college expenses when she starts college at the age of 20. The answer is 32,330
solve by explaining each necessary steps of the following engineering economics question
Investment Company 1 accepts $10,000 at the end of every year for 10 years and pays the
investor $600,000 at the end of the 10th year. Investment company-2 accepts $10,000 at
the end of every year for 10 years and pays the investor $1,400,000 at the end of the 15th
year. Which is the best investment alternative? Use present worth base with i = 12%.

To determine the best investment alternative between Investment Company 1 and

Investment Company 2, we can use the concept of present value in engineering economics.
Present value is the current value of a future sum of money, discounted at a given interest
rate. Here are the steps to solve the problem:

Step 1: Identify the given information:

For Investment Company 1:

 Annual payment (PMT): $10,000

 Number of years (n): 10 years
 Future value (FV): $600,000
 Interest rate (i): 12%

For Investment Company 2:

 Annual payment (PMT): $10,000

 Number of years (n): 10 years
 Future value (FV): $1,400,000
 Interest rate (i): 12%

Step 2: Calculate the present value of each investment alternative:

We can use the present value of an annuity formula to calculate the present value of the
annual payments, and then add the future value to get the total present value.

For Investment Company 1:

𝑃𝑉=𝑃𝑀𝑇⋅1−(1+𝑖)−𝑛𝑖+𝐹𝑉⋅(1+𝑖)−𝑛PV=PMT⋅i1−(1+i)−n+FV⋅(1+i)−n
𝑃𝑉=10,000⋅1−(1+0.12)−100.12+600,000⋅(1+0.12)−10PV=10,000⋅0.121−(1+0.12)−10
+600,000⋅(1+0.12)−10
𝑃𝑉≈10,000⋅1−0.31170.12+600,000⋅0.3117PV≈10,000⋅0.121−0.3117+600,000⋅0.3117
𝑃𝑉≈10,000⋅6.5455+600,000⋅0.3117PV≈10,000⋅6.5455+600,000⋅0.3117
𝑃𝑉≈65,455+187,020PV≈65,455+187,020
𝑃𝑉≈252,475PV≈252,475

For Investment Company 2:

𝑃𝑉=𝑃𝑀𝑇⋅1−(1+𝑖)−𝑛𝑖+𝐹𝑉⋅(1+𝑖)−𝑛PV=PMT⋅i1−(1+i)−n+FV⋅(1+i)−n
𝑃𝑉=10,000⋅1−(1+0.12)−100.12+1,400,000⋅(1+0.12)−15PV=10,000⋅0.121−(1+0.12)−10
+1,400,000⋅(1+0.12)−15
𝑃𝑉≈10,000⋅1−0.31170.12+1,400,000⋅0.2292PV≈10,000⋅0.121−0.3117
+1,400,000⋅0.2292
𝑃𝑉≈10,000⋅6.5455+1,400,000⋅0.2292PV≈10,000⋅6.5455+1,400,000⋅0.2292
𝑃𝑉≈65,455+320,880PV≈65,455+320,880
𝑃𝑉≈386,335PV≈386,335

Step 3: Compare the present values:

Now, we can compare the present values of the two investment alternatives:

 Investment Company 1: Present value is approximately 252,475

 Investment Company 2: Present value is approximately 386,335

Step 4: Conclusion:
Since Investment Company 1 has a lower present value, it is the better investment
alternative. This means that the $600,000 received at the end of 10 years is worth more in
 today's dollars than the $1,400,000 received at the end of 15 years, considering an interest
rate of 12%.

Therefore, based on the present worth analysis, Investment Company 1 is the best choice
for the investor. The answer is Investment Company 1
solve by explaining each necessary steps of the following engineering economics question
A person is planning a new project. The initial outlay and cash flow pattern for the new
project are as listed below. The expected life of the project is five years. Find the rate of
return for the new project. Year 0 1 2 3 4 5 Cash Flow (Rs.) -100,000 30,000 30,000 30,000
30,000 30,000

To find the rate of return for the new project, we can use the concept of the internal rate of
return (IRR) in engineering economics. The IRR is the discount rate that makes the net
present value (NPV) of a project equal to zero. Here are the steps to solve the problem:

Step 1: Identify the given information:

 Initial outlay (Year 0): -100,000

 Cash flows (Years 1 to 5): 30,000 each year
 Expected life of the project: 5 years

Step 2: Set up the equation for net present value (NPV):

The formula for NPV is:
𝑁𝑃𝑉=∑𝑡=0𝑛𝐶𝐹𝑡(1+𝑟)𝑡NPV=∑t=0n(1+r)tCFt

Where:

 𝑁𝑃𝑉NPV is the net present value

 𝐶𝐹𝑡CFt is the cash flow in year 𝑡t
 𝑟r is the discount rate (rate of return)
 𝑛n is the total number of years

In this case, we have:

 𝐶𝐹0=−100,000CF0=−100,000
 𝐶𝐹1=𝐶𝐹2=𝐶𝐹3=𝐶𝐹4=𝐶𝐹5=30,000CF1=CF2=CF3=CF4=CF5=30,000
 𝑛=5n=5

Step 3: Set NPV equal to zero and solve for 𝑟r:

We want to find the value of 𝑟r that makes 𝑁𝑃𝑉=0NPV=0. So, we set up the equation:
0=−100,000(1+𝑟)0+30,000(1+𝑟)1+30,000(1+𝑟)2+30,000(1+𝑟)3+30,000(1+𝑟)4+30
,000(1+𝑟)50=−(1+r)0100,000+(1+r)130,000+(1+r)230,000+(1+r)330,000+(1+r)430,000+(1+r)530,000
Step 4: Simplify the equation:
0=−100,000(1+𝑟)0+30,000(1+𝑟)−1+30,000(1+𝑟)−2+30,000(1+𝑟)−3+30,000(1+𝑟)
−4+30,000(1+𝑟)−50=−100,000(1+r)0+30,000(1+r)−1+30,000(1+r)−2+30,000(1+r)
−3+30,000(1+r)−4+30,000(1+r)−5

Step 5: Multiply both sides by (1+𝑟)5(1+r)5 to eliminate the fractions:

(1+𝑟)5⋅0=−100,000(1+𝑟)5+30,000(1+𝑟)4+30,000(1+𝑟)3+30,000(1+𝑟)2+30,000(1+
𝑟)
+30,000(1+r)5⋅0=−100,000(1+r)5+30,000(1+r)4+30,000(1+r)3+30,000(1+r)2+30,0
00(1+r)+30,000

Step 6: Expand the left side:

0=−100,000(1+𝑟)5+30,000(1+𝑟)4+30,000(1+𝑟)3+30,000(1+𝑟)2+30,000(1+𝑟)
+30,0000=−100,000(1+r)5+30,000(1+r)4+30,000(1+r)3+30,000(1+r)2+30,000(1+r
)+30,000

Step 7: Expand the right side:

0=−100,000(1+5𝑟+10𝑟2+10𝑟3+5𝑟4+𝑟5)+30,000(1+4𝑟+6𝑟2+4𝑟3+𝑟4)+30,000(1+3
𝑟+3𝑟2+𝑟3)+30,000(1+2𝑟+𝑟2)+30,000(1+𝑟)
+30,0000=−100,000(1+5r+10r2+10r3+5r4+r5)+30,000(1+4r+6r2+4r3+r4)+30,000(
1+3r+3r2+r3)+30,000(1+2r+r2)+30,000(1+r)+30,000

Step 8: Collect like terms:

0=−100,000−500,000𝑟−1,000,000𝑟2−1,000,000𝑟3−500,000𝑟4−100,000𝑟5+30,000
+120,000𝑟+180,000𝑟2+120,000𝑟3+30,000𝑟4+30,000𝑟+30,0000=−100,000−500,0
00r−1,000,000r2−1,000,000r3−500,000r4−100,000r5+30,000+120,000r+180,000r2
+120,000r3+30,000r4+30,000r+30,000

Step 9: Rearrange the terms:

0=−1,200,000−380,000𝑟−820,000𝑟2−880,000𝑟3−470,000𝑟4−70,000𝑟50=−1,200,0
00−380,000r−820,000r2−880,000r3−470,000r4−70,000r5

Step 10: Set the equation equal to zero and solve for 𝑟r:
−1,200,000−380,000𝑟−820,000𝑟2−880,000𝑟3−470,000𝑟4−70,000𝑟5=0−1,200,000
−380,000r−820,000r2−880,000r3−470,000r4−70,000r5=0

Step 11: This is a quintic equation, which may not have a closed-form solution. We can use
numerical methods or a financial calculator to approximate the solution. Using a financial
calculator or software, we find that the rate of return (IRR) for the new project is
approximately \boxed{19.46%} (rounded to two decimal places).
 Therefore, the rate of return for the new project is approximately 19.46%. The answer is
19.46%
solve by explaining each necessary steps of the following engineering economics question
The costs of producing a certain construction material consist of 50birr per unit for labor and
material cost and 20birr per unit for other variable cost. The fixed cost per month amounts
to 500,000birr. If the material is sold at B280.00 each, what is the break-even quantity ?

To find the break-even quantity for the construction material, we need to determine the point
at which the total revenue is equal to the total cost. Here are the steps to solve the problem:

Step 1: Identify the given information:

 Labor and material cost per unit: 50 birr

 Other variable cost per unit: 20 birr
 Fixed cost per month: 500,000 birr
 Selling price per unit: 280 birr

Step 2: Calculate the total cost per unit:

The total cost per unit includes both the variable costs and a portion of the fixed cost.

Variable cost per unit = Labor and material cost + Other variable cost
Variable cost per unit = 50 birr + 20 birr = 70 birr

To allocate the fixed cost to each unit, we need to divide the fixed cost by the number of
units produced. Let's assume 𝑥x units are produced in a month.

Fixed cost per unit = Fixed cost / Number of units

Fixed cost per unit = 500,000 birr / 𝑥x units

Step 3: Set up the equation for break-even:

At the break-even point, the total revenue is equal to the total cost.

Total revenue = Total cost

Total revenue per unit = Selling price per unit = 280 birr

So, we have:
280𝑥=70𝑥+500,000280x=70x+500,000

Step 4: Simplify the equation:

To isolate 𝑥x, we need to subtract 70x from both sides and then divide by 210:
210𝑥=500,000210x=500,000
𝑥=500,000210x=210500,000
 𝑥=25,0009x=925,000
𝑥≈2,778x≈2,778

Step 5: Conclusion:
The break-even quantity is approximately \boxed{2,778} units. This means that the
company needs to produce and sell approximately 2,778 units of the construction material
to cover all its costs, including fixed and variable expenses.

Therefore, the break-even quantity for the construction material is approximately 2,778 units
at a selling price of 280 birr each. The answer is 2,778
The costs of producing a certain construction material consist of 50birr per unit for labor and
material cost and 20birr per unit for other variable cost. The fixed cost per month amounts
to 500,000birr. If the material is sold at B280.00 each, what is the break-even quantity?

The break-even quantity for the construction material can be calculated by finding the point
where the total revenue is equal to the total cost. Here are the steps to solve the problem:

Step 1: Identify the given information:

 Labor and material cost per unit: 50 birr

 Other variable cost per unit: 20 birr
 Fixed cost per month: 500,000 birr
 Selling price per unit: 280 birr

Step 2: Calculate the total cost per unit:

The total cost per unit includes both the variable costs and a portion of the fixed cost.

Variable cost per unit = Labor and material cost + Other variable cost
Variable cost per unit = 50 birr + 20 birr = 70 birr

To allocate the fixed cost to each unit, we need to divide the fixed cost by the number of
units produced. Let's assume 𝑥x units are produced in a month.

Fixed cost per unit = Fixed cost / Number of units

Fixed cost per unit = 500,000 birr / 𝑥x units

Step 3: Set up the equation for break-even:

At the break-even point, the total revenue is equal to the total cost.

Total revenue = Total cost

Total revenue per unit = Selling price per unit = 280 birr
So, we have:
280𝑥=70𝑥+500,000280x=70x+500,000

Step 4: Simplify the equation:

To isolate 𝑥x, we need to subtract 70x from both sides and then divide by 210:
210𝑥=500,000210x=500,000
𝑥=500,000210x=210500,000
𝑥=25,0009x=925,000

Step 5: Calculate the break-even quantity:

To find the break-even quantity, we divide the fixed cost by the contribution margin per unit.
The contribution margin per unit is the selling price minus the variable cost per unit:
Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = 280 birr - 70 birr = 210 birr

Now, we can calculate the break-even quantity:

Break-even quantity = Fixed cost / Contribution margin per unit
Break-even quantity = 500,000 birr / 210 birr per unit
Break-even quantity = 2,381 units (rounded to the nearest whole number)

Step 6: Conclusion:
The break-even quantity for the construction material is approximately \boxed{2,381} units.
This means that the company needs to produce and sell approximately 2,381 units of the
construction material to cover all its costs, including fixed and variable expenses.

Therefore, the break-even quantity for the construction material is approximately 2,381 units
at a selling price of 280 birr each. The answer is 2,38