Scribd
Upload
40 views3 pages

Sheet 01

Uploaded by

May Fadl
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
40 views3 pages

Sheet 01

Uploaded by

May Fadl
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
You are on page 1/ 3

AIN SHAMS UNIVERSITY

FACULTY OF ENGINEERING
CREDIT HOURS ENGINEERING PROGRAMS
All ENGINEERING PROGRAMs

Sheet - 1

MDP231- Engineering Economy


Instructor Name: Dr. Ghada E. Shedid 1/3
Cash Flow Diagram, Combining Factors, and
Nominal and Effective interest Rates

1. Draw a cash flow diagram for the following cases:

1.1. An investor received L.E. 100 000 seven years ago from one of his employees to
invest this amount in his business. The investor promised his employee to give him
16% interest rate and to return the principle with its interest after ten years from
now.
1.2. Deposit L.E. 100 per year starting one year from now. Withdraw the entire
amount 15 years from now. The expected earning rate 10% per year.
1.3. A bank offers a new saving deposit in which you should deposit USD 10,000 on
opening the account and you will receive USD 450 each month, for one year. Draw
the cash flow in order to find the future worth if the interest rate is 0.85 % per
quarter.
1.4. An investing opportunity in which you should pay L.E. 130 000 at the beginning
and L.E. 4 000 every three years for 12 years. Starting from the beginning of year
4 you will get L.E. 20 000 every year till the end of year 11. Draw the cash flow of
this investment if the interest rate is 10% per year.
1.5. A car salesman offers to pay L.E. 70 000 now and L.E. 3 000 each quarter for five
years and L.E. 8000 at the end of each year. Draw the cash flow of this scheme if
the interest rate is 9%.
1.6. An employee gets L.E. 25000 each year, with annual increase L.E. 1000. If his
contract period is 10 years, the company wants to know the present worth of his
contract if the interest rate equals 20%.

Solve the following problems:

2. Find the value of x in the diagram below that would make the equivalent present
worth of the cash equals to $ 22,000, if the interest rate is 13% per year. ($35620)

3. A small manufacturing company is considering purchasing a maintenance contract for


its air conditioning systems. Since all of its systems are new, the company plans to
AIN SHAMS UNIVERSITY, FACULTY OF ENGINEERING
CREDIT HOURS ENGINEERING PROGRAMS, All ENGINEERING PROGRAM
Sheet - 1
Engineering Economy
Instructor Name: Dr. Ghada E. Shedid 2/3

begin the contract in year four and continue through year ten. The cost of the
contract is $3,200 per year and the company's minimum attractive rate of return is
12% per year.

3.1. Calculate the present worth of the contract. ($10,395)


3.2. If the company wishes to pre-pay the contract with uniform payments in years
one, two and three only. What will be the amount of each payment? ($4,327)
3.3. What will be the equivalent uniform annual amount of the contract in years one
through ten? ($1,840)

4. A start-up internet service provider expects to lose money in each of the first four
years. Losses are projected to be $50 million in year one, $40 million in year two,
$30 million in year three and $5 million in year four. An interest rate of 10% per year
is used. Calculate the following:

4.1. The present worth of the losses for the first three years. ($101.054 million)
4.2. The present worth of the losses for all four years. ($104.469 million)
4.3. The equivalent uniform annual worth of the losses through year four. ($32.957
million)
4.4. The company's equivalent uniform annual profit in years five through nine; in
order to recover the losses by the end of year nine. ($40.383 million)

5. Expenditures for maintenance of a certain machine are expected to be $900 in year


two, $1,400 in year five, and a uniform amount of $2,000 in years six through nine.
At an interest rate of 10% per year, calculate the present worth of the expenditures.
($5,549)
3
6. The costs of fuel for a smelting operation are expected to be $50,000 in year three,
$52,500 in year four and amounts increasing by 5% per year thereafter through year
ten. At an interest rate of 8% per year, what is the present worth of the fuel cost?
($288,305)
14
7. What are the equivalent uniform payments in years three through seven at an
interest rate of 10% per year for payments of $1,000 in year two and $4,000 in year
five? ($1056.57)
16
8. At an interest rate of 10% per year, expenditures of $1,000 in years zero, three and
six could be replaced by a single investment in year eight nearest to what? ($4,964)
18
9. How many years from now that an initial investment of $1,000,000 would be
recovered from uniform receipts of $131,000 per year beginning three years from
now at an interest rate of 10% per year? (29)

10. An interest rate of 12% per year, compounded monthly, is equivalent to what
nominal and effective interest rates per 6 months? (6%, 6.15%)
AIN SHAMS UNIVERSITY, FACULTY OF ENGINEERING
CREDIT HOURS ENGINEERING PROGRAMS, All ENGINEERING PROGRAM
Sheet - 1
Engineering Economy
Instructor Name: Dr. Ghada E. Shedid 3/3

11. What effective interest rate per year, compounded continuously, is equivalent to
a nominal rate of 13% per year? (13.88%)

12. For an interest rate of 12% per year compounded every 2 months, determine the
nominal interest rate per (a) 4 months, (b) 6 months, and (c) 2 years. (4%, 6%, 24%)

13. How long would it take for a lump-sum investment to double in value at an
interest rate of 1.5% per month, compounded continuously? (n = 46.2 months)

14. The owner of a small business borrowed $70,000 with an agreement to repay the
loan with quarterly payments over a five year time period. If the interest rate is 12%
per year compounded quarterly, what will be his loan payment each quarter? ($4,705)
10
15. A metal plating company wants to set aside money now to prepare for a lawsuit it
expects to face in four years. If the company wants to have $1,000,000 available at
that time, how much must it set aside now in one lump sum if the account will earn
1% per month? ($620,300)
1
16. If the nominal interest rate of 8% per year is compounded continuously,
determine the unknown quantity in each of the following situations:

16.1. What is the equivalent present value of L.E. 1000 per year for 12 years? (L.E.
7409)
16.2. What is the equivalent future at the end of year 6 of L.E. 243 payments made
every six months during the six years? The first payment occurs six months from
present and the last occurs at the end of the six year. (L.E. 3668)

17. A small manufacturing company expects to have to replace its aging production
line in five years with new equipment. The current equipment has operating costs
which are expected to be $5,000 at year one, $6,000 next year, with costs increasing
by $1,000 per year through year five. The equipment will have a salvage value of
$30,000 at the end of year five. The new equipment is expected to cost $150,000
and the company uses an interest rate of 16% per year compounded quarterly on its
investments.

17.1. What will be the operating cost in year four? ($8,000)


17.2. What is the equivalent present worth of all the required operating costs?
17.3. Calculate the present worth of only the purchase price of the new equipment.
($68,460)
17.4. If the $30,000 received from the salvage value of the old equipment will be
used to help purchase the new equipment, how much money must the company
set aside each quarter in order to have the total amount needed for the new
equipment in year five? ($4,030)

You might also like