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# MME 3113: Engineering Management

ASSIGNMENT #2
Application of Cash flow formulae and Depreciation

## Total Marks: 100

Problem #1 [8] What amount would you need to pay each January 1 into a savings account if at the end of 15 years (15 payments) you desire RM 30,000? Annual interest is 7%. (Note: The last payment will coincide with the time of RM RM 30,000 balance.)

Problem #2 [8] A future amount, F, is equivalent to \$1,500 now when six years separate the amounts and the annual interest rate is 12%. What is the value of F?

Problem #3 [8] A present obligation of \$20,000 is to be repaid in equal uniform annual amounts, each of which includes repayment of the debt (principal) and interest on the debt, over a period of five years. If the interest rate is 10% per year, what is the amount of the annual repayment?

Problem #4 [8+6=14] Suppose that the \$20,000 in problem 3 is to be repaid at a rate of \$4,000 plus the interest that is owed based on the beginning-of-year unpaid principal. (a) Compute the total amount of interest repaid in this situation and compare with that of problem 3. (b) Why are the two amounts different?

Problem #5 [6+8=14] It is estimated that a copper mine will produce 10,000 tons of ore during the coming year. Production is expected to increase by 5% per year thereafter in each of the following six years. Profit per ton will be \$14 for years one through seven. (a) Draw a cash flow diagram for this copper mine operation from companys point of view. (b) If the company can earn 10% per year on its capital, what is the future equivalent of the copper mines cash flows at the end of year seven?

Problem #6 [3+3+4+4=14]

Americom just purchased a MRI system for \$325,000 with an additional \$25,000 charge for installation onto a truck for mobility. The expected life is 7 years with a salvage value of 10% of the purchase price. Use classical straight line depreciation to determine (a) the first cost, (b) salvage value, (c) annual depreciation amounts, and (b) book value after 5 years.

Problem #7 [6+8=14] Upjohn Company has purchased new packaging equipment with an estimated useful life of five years. The cost of the equipment was \$55,000, and the salvage value was estimated to be \$5,000 at the end of year 5. Compute the annual depreciation expenses over the five year life of the equipment under each of the following methods of depreciation: (a) Straight line method (b) Double-declining balance method

Problem #8 [4+4+4+4+4=20] A special-purpose computer workstation has B = \$50,000 with a 4-year recovery period. (a) Tabulate and plot the values for SL depreciation, accumulated depreciation, and book value for each year if there is no salvage value (b) Tabulate and plot the values for SL depreciation, accumulated depreciation, and book value for each year if the salvage value, S=\$16,000. (c) Use a spreadsheet to solve this problem by using DDB method. (d) Plot the book value for SL and DDB depreciation on a single XY scatter chart. (e) Calculate the DDB annual depreciation rate for all years 1 through 4.

Note:

Date of Submission: 19/10/2011 (for Section 2) and 24/10/2011 (for section 1), Delay will cost @ 10% marks per day No need of submission after 5 days from the due date.

Tips for submission: o o o o Use a cover page, Write down your matric number, name, course title, assignment number etc. Put the Due date of Submission and the Date of Submission Try to solve the problems yourself for deeper understanding. (In case of dire need, u can seek help from your friends, but dont do it at the first time)