Engineering economy

Midterm exam #1
Model answer

Given: in = 12% compounded semiannually

Required: The amount that can be withdrawn after 10 years.

Solution:
-

Determination of the interest rate value (ieff):

12
= =
= 6% 6

2
= (1 + ) 1 = (1 + 0.06)2 1 = 0.1236 = 12.36 %

The amount that can be withdrawn after 10 years is:

10 = 1 (/, , 1 ) + 2 (/, , 2 ) + 3 (/, , 3 )
10 = 1000(/, 12.36%, 10) + 3000(/, 12.36%, 6) + 1500(/, 12.36%, 4)
10 = 1000(1 + 0.1236)10 + 3000(1 + 0.1236)6 + 1500(1 + 0.1236)4 = $ 11634.497

Final answer:
= $ .

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Engineering economy
Midterm exam #1
Model answer

Given: i = 8% per year

Required: The present worth of the payments.

Solution:
-

Determination of the interest rate value (ieff):

= = 8 %

The present worth of the payments is:

P2 = 500 (P/A, i, 6)
5555hjhk5yhgjh5hg5
000000000000 5576

= 0 + (/, , 1 )(/, , 2 )
= 5000 + 500(/, 8%, 6)(/, 8%, 2) = 5000 + 500 4.6229 0.8573 = $ 6981.606
-

Final answer:
= $ .

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Engineering economy
Midterm exam #1
Model answer

Given: MARR = 10 % per year

First cost, $
Annual operating cost (AOC), $
Salvage value, $
Life, years

Electric powered

Gas powered

Solar powered

-2500
-900
200
5

-3500
-700
350
5

-6000
-50
100
5

Required: Present worth analysis for the machines.

Solution:
-

Determination of the interest rate value (ieff):

= = 10 %

Performing present worth analysis:

Electric powered machine:

= 0 + (/, , ) (/, , ) = 2500 + 900(/, 10%, 5) 200(/, 10%, 5)

= 2500 + 900 3.7908 200 0.6209 = $ 5787.54
Gas powered machine:

= 0 + (/, , ) (/, , ) = 3500 + 700(/, 10%, 5) 350(/, 10%, 5)

= 3500 + 700 3.7908 350 0.6209 = $ 5936.245

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Engineering economy
Midterm exam #1
Model answer
Solar powered machine:

= 0 + (/, , ) (/, , ) = 6000 + 50(/, 10%, 5) 100(/, 10%, 5)

= 6000 + 50 3.7908 100 0.6209 = $ 6127.45
-

Final answer:
( )

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Engineering economy
Midterm exam #1
Model answer

Given: MARR = 15 % per year

First cost, $
Annual Lease cost, $
Deposit return, $
Lease term, years

Location A

Location B

-15000
-3500
1000
6

-18000
-3100
2000
9

Required: Selecting the best location using present worth comparison.

Solution:
-

Performing present worth analysis:

Location A

10

11

12

13

14

15

16

17

18

= 0 + (/, , 18) + 6 (/, , 6) + 12 (/, , 12) 18 (/, , 18)

= 15000 + 3500(/, 15%, 18) + 14000(/, 15%, 6) + 14000(/, 15%, 12) 1000(/, 15%, 18)
= 15000 + 3500 6.1280 + 14000 0.4323 + 14000 0.1869 1000 0.0808 = $ 45036

Location B

10

11

12

13

14

15

16

17

18

= 0 + (/, , 18) + 9 (/, , 9) 18 (/, , 18)

= 18000 + 3100(/, 15%, 18) + 16000(/, 15%, 9) 2000(/, 15%, 18)
= 18000 + 3100 6.1280 + 16000 0.2843 2000 0.0808 = $ 41384

Final answer:
( )
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Engineering economy
Midterm exam #1
Model answer

Given: MARR = 12 % per year

Equipment

First cost, $
40000
(AOC), $
25000
Life years
4
Salvage value, $
10000
Estimated value after 3 years
14000
Required: a) Determination of the best alternative using EUAC.

Y
75000
15000
6
7000
20000

b) Determination of the best alternative using EUAC with a 3-year study period.

Solution:
-

Determination of the best alternative using EUAC:

Equipment X

= 0 (/, , ) + (/, , )
= 40000(/, 12%, 4) + 25000 10000(/, 12%, 4)
= 40000 0.3292 + 25000 10000 0.2092 = $ 36076

Equipment Y

= 0 (/, , ) + (/, , )
= 75000(/, 12%, 6) + 15000 7000(/, 12%, 6)
= 75000 0.2432 + 15000 7000 0.1232 = $ 32377.6

Final answer:
( )
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Engineering economy
Midterm exam #1
Model answer
-

Determination of the best alternative using EUAC with 3-year study period:
Equipment X

= 0 (/, , ) + (/, , )
= 40000(/, 12%, 3) + 25000 14000(/, 12%, 3)
= 40000 0.4163 + 25000 14000 0.2963 = $ 37503.8

Equipment Y

= 0 (/, , ) + (/, , )
= 75000(/, 12%, 3) + 15000 20000(/, 12%, 3)
= 75000 0.4163 + 15000 20000 0.2963 = $ 40296.5

Final answer:
( )

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