ACTIVITY A: Introduction to Engineering Economy

Name: Edolmo, Carlo L. Date: August 11, 2020

Section/Schedule: CE-201/ TTH 1:20 – 2:50 Instructor: Engr. Edwin Eco

Analyze the problem and solve the given questions.

A friend of yours bought a small apartment building for $100,000 in a college town. She spent
$10,000 of her own money for the building and obtained a mortgage from a local bank for the
remaining $90,000. The annual mortgage payment to the bank is $10,500. Your friend also
expects that annual maintenance on the building and grounds will be $15,000. There are four
apartments (two bedrooms each) in the building that can each be rented for $360 per month.

a. Does your friend have a problem? If so, what is it?

 her expense is higher compared to her revenue
b. What are her alternatives?
 Raise the rent
 Lower maintenance expenses
 Abandon the building
 Sell the apartment building
c. Estimate the economic consequences and other required data for the alternatives in Part
(b).
 Raise total monthly rent for the four apartments to cover monthly expenses of
but the question is it will be still marketable even you raise 50% of the rent
just to cover the expenses.
 This alternative is better but sometimes there are things that unexpected to
happen.
 The bank would likely assume possession through foreclosure and may try  to
collect fees from your friend. This option would also very bad for your friend’s
credit rating.
 Try to sell the apartment building so that the building will get fully paid but your
friend doesn’t have an investment if she do this.
d. Select a criterion for discriminating among alternatives, and use it to advise your friend
on which course of action to pursue.
 Criterion that your friend concern is to minimize her expenses so that she can
have a revenue.
e. Attempt to analyze and compare the alternatives in view of at least one criterion in
addition to cost.
 For me the option 1 is the best decision. We all know that the house/shelter is one
of human needs so it will marketable.
f. What should your friend do based on the information you and she have generated?
 She needs to lower her expense so that she can generate revenue and all those 4
alternatives should be monitored according changes in market.

SEA-General Engineering Department Engineering Economy Page 1