Summary

This document contains questions related to engineering economic analysis, specifically focusing on cash flow and present worth calculations. The questions cover various topics such as uniform series of payments, cash flow diagrams, and interest rates.

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## ΜΙΕ 642 ## Engineering Economic Analysis ## Cash Flow **NAME:** **DATE** **Instructions** - Show your solutions. - Enclose your final answers in a box. - Round off answers in 2 decimal places only. - Use proper unit/notation. - Use only black or blue pen. **Solve.** 1. What is the present wor...

## ΜΙΕ 642 ## Engineering Economic Analysis ## Cash Flow **NAME:** **DATE** **Instructions** - Show your solutions. - Enclose your final answers in a box. - Round off answers in 2 decimal places only. - Use proper unit/notation. - Use only black or blue pen. **Solve.** 1. What is the present worth of a uniform series of 10 payments that begin one year from now in the amount of P6000 if the interest rate is 10% per year? 2. Construct a cash flow diagram for the following cash flows: $10,000 outflow at time zero, $3,000 per year inflow in years 1 through 5 at an interest rate of 10% per year, and an unknown future amount in year 5. 3. By filling carbon nanotubes with miniscule wires made of iron and iron carbide, incredible thin nanowires can be extruded by blasting the carbon nanotubes with an electron beam. If Gentech technologies spends $12.7 million now in developing the process, how much must be received in licensing fees each year for the next 8 years (starting 1 year from now) to recover its investment at a 20% per year rate of return? 4. Hewlett-Packard has completed a study indicating that $50,000 in reduced maintenance this year (i.e. year zero) on one of its processing lines resulted from improved wireless monitoring technology. - If Hewlett-Packard considers these types of savings worth 20% per year, find the equivalent value of this result after 5 years. - If the $50,000 maintenance savings occurs now, find its equivalent value 3 years earlier with the interest at 20% per year. 5. Bodine electric makes gear motors with a three-stage, selectively hardened gearing cluster that is permanently lubricated. If the company borrows $20 million for a new warehouse/distribution facility, what is the amount to repay the loan in six equal annual payments? The loan's interest rate is 10% per year. 6. Sansotech, Inc, a maker of microelectromechanical systems, believes it can reduce product recalls by 10% if it purchases new software for detecting faulty parts at a cost of $225,000. The minimum attractive rate of return is 15% per year. - How much does the company have to save each year for 4 years to recover its investment? - What was the cost of recalls per year before the software was purchased if the company exactly recovered its investments in 4 years from the 10% reduction? 7. Fomguard LLC of South Korea developed a high tech fiber-optic fencing mesh (FOM) that contains embedded sensors that can differentiate between human and animal contact. In an effort to curtail illegal entry into the United States, a FOM fence has been proposed for some sections of the U.S. border with Canada. The cost of erecting the fence in year 1 is expected to be $7 million, decreasing by $500,000 each year through year 5, what is the equivalent uniform annual cost of the fence for years 1 to 5? Interest rate 10%. 8. A father wants to deposit an unknown lump sum amount into an investment opportunity 2 years from now that is large enough to withdraw $4,000 per year for state tuition for 5 years starting 3 years from now. If the rate of return is estimated to be 15.5% per year, construct the cash flow diagram. 9. Identify the following as cash inflows or outflows to Anderson and Dyess Design-Build Engineers: - Office supplies - GPS surveying equipment - Auctioning of used earth moving equipment - Staff salaries - Fees for services rendered - Interest from bank deposits 10. Construct a cash flow diagram for the following cash flows: $10,000 outflow at time zero, $3,000 per year inflow in years 1 through 5 at an interest rate of 10% per year, and an unknown future amount in year 5. 11. Construct a cash flow diagram to find the present worth of a future outflow of $40,000 in year 5 at an interest of 15% per year. 12. Kennywood amusement park spends $75,000 each year in consulting services for ride inspection and maintenance recommendations. New actuator element technology enables engineers to stimulate complex computer-controlled movements in any direction. Construct a cash flow diagram for determining how much the park could afford to spend now on the new technology if the cost of annual consulting services will be reduced to $30,000 per year? Assume the park uses an interest rate of 15% per year and it wants to recover its investment in 5 years. 13. What is the present worth of P30,000 in year 8 at an interest rate of 10% per year? 14. If an engineer invested P15,000 on January 1, 1991, into a retirement account that earned 6% per year interest, how much money will be in the account on January 1, 2016? 15. How large of a repayment must an engineer make each year starting next year if she borrows P60,000 now to start up her new consulting office and she promises to make equal annual payments for 5 years. Assume the interest rate is 8% per year. 16. A small oil company wants to replace its Micro motion coriolis flow meters with Emerson F-series flow meters in Hastelloy construction. The replacement process will cost the company P50,000 three years from now. How much money must the company set aside each year beginning one year from now in order to have the total amount in three years? Assume the company will invest in funds at 20% per year. 17. GE Marine Systems is planning to supply a Japanese shipbuilder with aero-derivative gas turbines to power 11DD-class destroyers for the Japanese Self-Defense Force. The buyer can pay the total contract price of P2,100,000 two years from now, when the turbines will be needed, or an equivalent amount now. At an interest rate of 10% per year, what is the equivalent amount now? 18. PCM Thermal Products uses austenitic nickel-chromium alloys to manufacture resistance heating wire. The company is considering a new annealing-drawing process to reduce costs. It the new process will cost P3.25 million now, how much must be saved each year to recover the investment in 6 years at an interest rate of 15% per year? 19. How much money could Tesla-Sino Inc., a maker of superconducting magnetic energy storage systems, spend each year on the new equipment in lieu of spending P850,000 five years from now, if the company's rate of return is 18% per year? 20. Southwest Airlines hedged the cost of jet fuel by purchasing options that allowed the airline to purchase fuel at a fixed price for 5 years. If the market price of fuel was P0.50 per gallon higher than option price in year 1, P0.60 per gallon higher in year 2, and amounts increasing by P0.10 per gallon higher through year 5, what was the present worth? 21. The cost for manufacturing a component used in intelligent interface converters was P23,000 the first year. The company expects the cost to increase by 2% each year. Calculate the present worth of this cost over a five-year period at an interest rate of 10% per year. 22. A design-build-operate engineering company borrowed P6 million for 3 years so that it can purchase new equipment. The interest is compounded and the total amount owed will be paid in a single lump sum amount at the end of the 3-year period. The interest at the end of the first year will be P900,000. - What is the interest rate on the loan? - How much interest will be charged at the end of the second year? 23. The expansion plan of a business firm requires the purchase of a parcel of land on which to build a structure, which they will need 5 years hence. The current costs are: land, P1,000,000; building, P3,500,000. Since these are not needed immediately, the firm plans to defer the purchase of the land and the construction of the building until they are needed. If the value of the land and the cost of the building are expected to appreciate at the rates of 20% and 8% per annum, respectively, what will be the total cost of the land and structure 5 years hence? 24. An engineer who was in the business of customizing software for small construction companies repaid a loan that she got 3 years ago at 7% per year simple interest. If the amount she repaid was P35,000, what was the principal amount of the loan? 25. Companies frequently borrow money under an arrangement that requires them to make periodic payments of “interest only” and then pay the principal all at once. If Cisco International borrowed $500,000 (identified as loan A) at 10% per year simple interest and another $500,000 (identified as loan B) at 10% per year compound interest and paid only the interest at the end of each year for three years on both loans, (a) on which loan did the company pay more interest, and (b) what was the difference in interest paid between the two loans?

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