Name Surname: IE 425 Engineering Economy Date: 13/01/2025 10:20

St. Nr: and Cost Analysis Duration: 60 Min.

Education: 1st / 2nd Final Exam

1- John has decided to invest $5,000 in a fixed deposit account today. The investment earns an interest rate of 6% per year,
compounded annually. John plans to withdraw the entire amount at the end of 15 years to fund a family trip.
Question:
How much money will John have in the account at the end of 15 years?

2- Anna, a civil engineer, invests $8,000 in a retirement fund today. The fund offers an 8% annual interest rate, compounded
annually. Additionally, Anna plans to deposit an extra $1,000 at the end of each year, starting from the 2nd year, and continue
doing so for the next 18 years.
Questions:
i. What will be the total amount available in Anna’s account at the end of 20 years?
ii. If Anna decides to withdraw an equal amount of money every year for the next 10 years (starting at the end of year 21),
how much can she withdraw each year without exhausting the fund?

3- A company plans to invest $50,000 in a new packaging machine in 2023. If the project is delayed and the machine is purchased
in 2026, the cost of money is 8% per year (compounded annually).
Questions:
i. What is the equivalent cost of the machine if purchased in 2026?
ii. What would have been the cost of the machine if purchased in 2020?

4- A pharmaceutical company plans to construct a new research lab, requiring an investment of $30 million in 2024. However,
due to uncertainty in funding, the project could either be delayed or advanced. The company expects the cost of money to vary as
follows: 10% per year for the years after 2024 (compound interest). 8% per year for the years before 2024 (compound interest).
Questions:
i. What is the equivalent cost if the lab is constructed in 2027?
ii. What is the equivalent cost if the lab had been constructed in 2021?
iii. If funding allows construction in 2023 instead of 2027, how much money can the company save compared to the delayed
construction?

5- A construction company invests $100 million in a new office building. The company projects annual revenues of $25 million
for 5 years.
Question: Considering the time value of money at 8% per year, will the company recover its initial investment over 5 years? If
yes, how much extra revenue will be generated in present worth terms?

6- A manufacturing company plans to invest $50 million in an advanced robotic production line. The company expects annual
revenues of $10 million for the first 3 years, followed by $15 million annually for the next 5 years.
i. Questions:
With a discount rate of 12% per year, will the company recover its initial investment over the 8-year period?
ii. If the expected revenues are insufficient, calculate the minimum additional annual revenue required from year 4 to
year 8 to recover the investment.
iii. If the company wants a 15% return instead of 12%, what would be the new required annual revenue from years 4 to 8?

7- Determine the A/P factor value for i = 6.25% and n = 15 years.

8- A company initiates a new equipment rental program. Estimated revenues are $50,000 for the first year with uniform increases
to a total of $120,000 by the end of year 6.
Questions:
i. Determine the annual gradient increase.
ii. Construct a cash flow diagram that identifies the base amount and the gradient series.

9- A municipality introduces a renewable energy initiative. Expected revenue is $100,000 in the first year, increasing uniformly
by $20,000 each year for a total of 10 years.
Questions:
i. Verify the annual gradient increase using the revenue projection.
ii. Construct a cash flow diagram showing the base amount and the gradient series.
iii. Determine the future worth of the revenue at the end of year 10 if the discount rate is 8% per year.
iv. If the city wants to achieve a future worth of $1,500,000 at the end of year 10, by how much should the initial revenue
increase in year 1?
10- New York counties have agreed to pool resources from their annual property tax revenues for park improvements.

I wish you success in all the exams of your life.

Assist. Prof. Dr. Yunus EROĞLU
 Name Surname: IE 425 Engineering Economy Date: 13/01/2025 10:20
St. Nr: and Cost Analysis Duration: 60 Min.
Education: 1st / 2nd Final Exam

At a recent meeting, county officials estimated that an initial deposit of $1,000,000 will be made at the end of the first year into an
account designated for urban park upgrades. They project that these deposits will increase by $150,000 annually for the next 7
years (total of 8 deposits, including the initial one), and then no further contributions will be made.

i. What is the equivalent present worth of these deposits if the public funds earn 6% per year?
ii. What is the equivalent uniform annual series of these deposits over the 8-year period?

11- A wind power plant has replaced one of its main turbines. The upgrade costs $12,000 and has a life of 8 years with a $500
salvage value. Maintenance costs are expected to start at $1,200 in the first year and will increase by 10% each year.

i. What is the equivalent present worth of the upgrade and maintenance costs, assuming an interest rate of 6% per year?
ii. If the plant wants to allocate a uniform annual budget over the turbine's 8-year life, what is the equivalent annual cost?

12- An industrial manufacturing plant installs a new filtration system at a cost of $15,000. The system is expected to last 10 years
and have a $1,000 salvage value at the end of its life. The annual maintenance cost starts at $3,000 and increases by 8% annually.

i. Determine the present worth of the installation and maintenance costs, assuming a discount rate of 7% per year.
ii. If the plant decides to replace the system after 5 years, what is the equivalent present worth of the remaining cost
obligations at the end of year 5?

13- A technology startup has purchased new project management software for $4,000 upfront. The company will also make
annual payments of $800 for 5 years, starting 2 years from now, to cover licensing and updates. What is the present worth of these
payments (including the initial cost) at year 0, if the annual interest rate is 6%?

14- A construction company invests $10,000 today in advanced design software. In addition, they will make yearly payments of
$1,000 for 7 years, starting 4 years from now, to maintain and upgrade the software.

i. What is the present worth of these payments at year 0, assuming an annual interest rate of 9%?
ii. If the company negotiates to reduce the annual payments to $800, how much would they save in terms of present worth?

15- A large oil company has decided to lease drilling rights for 80 hectares of land in Texas. The lease agreement specifies the
following payment structure: The company will pay $30,000 per year for 15 years, beginning 1 year from now. Additionally, a
lump sum of $50,000 is due at the end of year 5, and another $75,000 is due at the end of year 12. If the oil company wants to pay
off the lease immediately (at year 0) and the required return rate is 14% per year, how much should it pay?

16- A renewable energy corporation plans to lease wind farm rights for 100 hectares in California under the following conditions:
The company will pay $40,000 per year for 25 years, starting 2 years from now. A lump sum of $100,000 will be paid at the end
of year 8, and another $150,000 at the end of year 20. The company also agrees to a final lump sum payment of $200,000 at the
end of year 25.

i. If the corporation wants to make a single payment today to settle all future obligations, how much should it pay at 10%
per year?
ii. If the corporation instead decides to spread the payment equally over 25 years, starting immediately, what would be the
annual payment?

17- A manufacturing company has introduced a new process to improve the efficiency of its assembly line by 25%. The company
signed a 7-year contract to purchase a lubricant at $8,000 per year, starting 1 year from now. The cost of the lubricant is expected
to increase by 10% per year for the following 5 years after the contract ends. Additionally, the company invested $40,000 upfront
to modify the assembly line to use the new lubricant. Using an annual interest rate of 14%, calculate the total present worth of all
cash flows over the entire planning horizon.

18- TechWood Innovations is planning to allocate funds over a 10-year horizon for the research and development of new
sustainable wood products.
Plan Details:
Years 1 through 5: Invest $10,000 in year 1, decreasing by $2,000 per year through year 5.
Years 6 through 10: No additional investments or withdrawals will occur; the funds will remain invested for growth.
Years 11 through 15: Withdraw $30,000 in year 11, decreasing by 25% per year through year 15.
Using an annual interest rate of 10%, determine:

i. The total future worth of the investments at the end of year 10.
I wish you success in all the exams of your life.
Assist. Prof. Dr. Yunus EROĞLU
 Name Surname: IE 425 Engineering Economy Date: 13/01/2025 10:20
St. Nr: and Cost Analysis Duration: 60 Min.
Education: 1st / 2nd Final Exam

ii. The total present worth of all cash flows at year 0.

iii. The equivalent uniform annual series of withdrawals over years 11 through 15.

19- Anderson Robotics has developed a fund to support advancements in autonomous robot technology over the next 15 years.
The financial plan is structured as follows:

Years 1 through 5: Invest $10,000 in year 1, decreasing by $2,000 per year until year 5.
Years 6 through 10: No investments or withdrawals during this period, allowing the fund to grow with interest.
Years 11 through 15: Withdraw $25,000 in year 11, decreasing by 15% annually until year 15.

Using an annual interest rate of 10%, calculate:

i. Total Present Worth (PW) of all cash flows at year 0.

ii. Future Worth (FW) of all cash flows at the end of year 15.
iii. Equivalent Annual Series (A) for years 1 through 15.

20- EcoEnergy Solutions is implementing a new solar farm project. The company plans to:

Invest $5,000 per year for the first 6 years, starting at the end of year 1.
Allow the funds to grow (no new investments or withdrawals) for 5 additional years (years 7-11).
Withdraw $10,000 in year 12, then reduce the withdrawal amount by 15% per year for the next 4 years (years 13-16).
The annual interest rate is 9%.

i. What is the future worth of the investment at the end of year 11?
ii. Can the investment and appreciation fully cover the planned withdrawals?
iii. If there is a surplus or deficit, what will be the exact available funds in year 12?

21- Michael, a data analyst at a technology firm, purchased stock in TechGrowth Inc. for $15.50 per share and sold it exactly 2
years later for $28.90 per share. Michael is curious about his investment performance. Help him understand his earnings in terms
of:

i. Effective annual rate (EAR) for the 2-year investment period.

ii. Effective rate for quarterly compounding.
iii. Effective rate for monthly compounding.

Assumptions:
Neglect any commission fees for purchase and selling of stock.
Assume no dividends were paid during the investment period.

22- Lucid Motors is evaluating financing options for their new automated vehicle assembly line. Three banks have provided
offers, each with different interest rate structures. To make an informed decision, Lucid's finance team has been tasked with
calculating the effective semiannual and effective annual interest rates for each option.

The offers are as follows:

a. Bank A: 10% per year, compounded quarterly.

b. Bank B: 2.5% per quarter, compounded quarterly.
c. Bank C: 9.5% per year, compounded monthly.

i. What are the effective semiannual interest rates for each bank?
ii. What are the effective annual interest rates for each bank?
iii. Which bank provides the lowest effective annual interest rate?

23- A regional healthcare organization has installed a fully automated surgical equipment sterilization system. Details:

The system installation costs $4 million upfront.

Annual costs for maintenance, operating personnel, and materials are estimated to be $250,000 per year.
The expected useful life of the system is 12 years.

I wish you success in all the exams of your life.

Assist. Prof. Dr. Yunus EROĞLU
 Name Surname: IE 425 Engineering Economy Date: 13/01/2025 10:20
St. Nr: and Cost Analysis Duration: 60 Min.
Education: 1st / 2nd Final Exam

If the healthcare organization evaluates capital funds at 10% per year, determine the semiannual payment (A) necessary to recover
the investment and cover all costs, under the following compounding assumptions:

i. 10% per year, compounded semiannually.

ii. 10% per year, compounded quarterly.

24- GreenTech Investments agreed to fund a project for EcoSolutions Inc., a company specializing in renewable energy
technologies. The project involves a new solar panel recycling process, and the following cash flow diagram is generated by the
GreenTech financial manager:

Cash Flow Details:

Outflows:
$180,000 at the start of the project (Month 0).
$50,000 at the end of Month 4.
$30,000 at the end of Month 10.

Inflows:
$70,000 at the end of Month 6.
$90,000 at the end of Month 8.
$60,000 at the end of Month 12.
The interest rate is 10% per year, compounded monthly, and GreenTech uses the no-interperiod-interest policy.

How much is GreenTech in the "red" (deficit) at the end of the 12-month period?

25- A university endowment fund manager invests $50,000 for 15 years at an annual nominal interest rate of 9%.

Scenario 1: The investment compounds quarterly.

Scenario 2: The investment compounds continuously.

i. Calculate the future worth of the investment in each scenario.

ii. By how much does the continuous compounding future worth exceed the quarterly compounding future worth?
iii. If the fund manager desires a future worth of $200,000, how much should be invested initially under continuous
compounding?
26- A leading pharmaceutical company is setting up a new manufacturing plant, which requires a continuous supply of ultrapure
water (UPW) for its production processes. After evaluating the available options, the company has shortlisted two technologies for
water purification: a Reverse Osmosis System (R) and an Ion Exchange System (I). The Reverse Osmosis System requires an
initial investment of $18 million and has an annual operating cost of $0.4 million per year. The salvage value at the end of its
useful life is estimated to be 6% of the initial cost, and the cost of producing UPW is $3 per 1000 gallons. The Ion Exchange
System, on the other hand, has a higher initial cost of $20 million but lower operating costs of $0.3 million per year. Its salvage
value is 8% of the initial cost, and the cost of producing UPW is $4 per 1000 gallons. The plant requires a continuous flow of
1200 gallons per minute (gpm) for 20 hours a day, operating 300 days per year. Both systems are expected to have a useful life of
10 years. The company’s finance team is tasked with evaluating which system offers the most cost-effective solution using a
Minimum Attractive Rate of Return (MARR) of 10% per year.

Based on the Present Worth Method, determine which system is more economical and recommend an option.

27- A tech company is in the process of constructing a large semiconductor manufacturing facility. The project requires a reliable
source of ultrapure water (UPW) to meet the stringent requirements of semiconductor fabrication. The company is considering
two supplier options for the UPW system: Supplier A (Seawater Source) and Supplier B (Groundwater Source). Supplier A offers
a system with an initial cost of $25 million and annual operating costs of $0.7 million per year. The system has a water cost of $5
per 1000 gallons and a salvage value estimated at 5% of the equipment cost. Supplier B proposes a system with a slightly higher
initial cost of $27 million, but lower annual operating costs of $0.5 million per year. The cost of water for this system is $6 per
1000 gallons, and the salvage value is 10% of the equipment cost. The semiconductor facility requires 2000 gallons per minute
(gpm) of UPW, operating 24 hours a day for 250 days per year. The expected useful life of the equipment is 15 years. The
company’s finance team has been asked to perform a detailed financial analysis to determine which supplier offers the most
economical solution using a MARR of 12% per year.

Using the Present Worth Method, calculate the total costs for each option and recommend the better choice for the company.

I wish you success in all the exams of your life.

Assist. Prof. Dr. Yunus EROĞLU
 Name Surname: IE 425 Engineering Economy Date: 13/01/2025 10:20
St. Nr: and Cost Analysis Duration: 60 Min.
Education: 1st / 2nd Final Exam

28- TechMotive, a large automotive parts supplier, is planning to purchase a new automated assembly line to increase efficiency
in its production process. The company has received proposals from two vendors, each offering different equipment with distinct
costs and benefits. Vendor A proposes a system with an initial cost of $25,000, an annual maintenance and operation (M&O) cost
of $4,000 per year, and a salvage value of $2,000 at the end of its 7-year useful life. Vendor B, on the other hand, offers a more
expensive system with an initial cost of $30,000. The annual M&O cost for this system is lower at $3,000 per year, and the
salvage value is estimated at $5,000 at the end of its 10-year useful life. The company's finance department has set a Minimum
Attractive Rate of Return (MARR) of 12% per year for evaluating investment options.

i. Determine which vendor's equipment should be selected based on a present worth comparison.
ii. If TechMotive plans to evaluate both systems over a 6-year study period (with unchanged salvage values), which option
is more economical?

29- WorkHub Inc., a leading provider of co-working spaces across the country, has decided to upgrade its printing and scanning
equipment to improve efficiency and meet the growing demand from its clients. After a comprehensive search, the company
received offers from two manufacturers, each presenting distinct costs and benefits. Manufacturer A has proposed equipment with
an initial cost of $20,000, an annual maintenance cost of $2,500, and a salvage value of $3,000 after a useful life of 8 years.
Manufacturer B offers a slightly more expensive option, with an initial cost of $22,000 but lower annual maintenance costs of
$2,000. The salvage value of this equipment is $4,000, and it has a useful life of 10 years. WorkHub uses a Minimum Attractive
Rate of Return (MARR) of 10% per year to evaluate investment decisions. Additionally, the company's finance team prefers to
standardize all equipment evaluations over a fixed study period of 5 years when comparing options with different useful lives.

i. Based on a present worth comparison, which equipment should WorkHub choose over its respective useful life?
ii. If a 5-year study period is used for evaluation, assuming salvage values remain unchanged, which manufacturer’s
equipment would be preferred?

30- BuildPro Contractors, a major player in the construction industry, is preparing for a large-scale infrastructure project that
requires the purchase of new heavy-duty excavation equipment. Two suppliers have submitted bids, each offering equipment with
different cost structures and features. Supplier X proposes equipment with an initial cost of $45,000, an annual maintenance and
operation (M&O) cost of $6,000 per year, and a salvage value of $7,000 at the end of its 8-year useful life. Supplier Y offers
equipment priced at $50,000, with lower annual M&O costs of $5,500 per year and a higher salvage value of $9,000 at the end of
its 10-year useful life. BuildPro’s financial team evaluates investments using a MARR of 15% per year. Additionally, for projects
with flexible timelines, BuildPro prefers to conduct evaluations over a fixed 7-year study period, regardless of the equipment's
actual useful life.

i. Calculate the present worth cost for each supplier’s equipment over their respective useful lives. Which option should
BuildPro choose?
ii. Using a 7-year study period for evaluation and assuming salvage values remain constant, which supplier’s equipment
would be the better choice?

I wish you success in all the exams of your life.

Assist. Prof. Dr. Yunus EROĞLU