School of Mechanical and Manufacturing Engineering

NUST SMME ME-10 D

Date: 15-03-2021

Assignment-1

ENGINEERING ECONOMICS
ME-325

Question 1
Last month you lent a work colleague $5000 to cover some overdue bills. He agreed to pay you in
1 month with interest at 2% for the month, thus owing you $5100. Today, when the repayment is
due, he asked you to extend the loan for another month and he would pay you the $5100 next
month. In the meantime, you have had the offer to invest as much as you wish in an oil-well venture
that is expected to pay 25% per year and a hot new IT stock that is estimated to return 30% the
first year. If you let your colleague have another month, what is the opportunity cost of your
decision? (Note: Express your answer in dollar and percentage amounts.)
Question 2
The annual cash flows (in $1000 units) for Browning Brothers Glass Works are summarized.
a) Determine the total net cash flow over the 5 years. (showed your answers in tabular form)
b) Calculate the percentage of revenues represented by expenses for each year.
c) Draw cash flow diagram.
Year 1 2 3 4 5
Revenue, $ 521 685 650 804 929
Expenses, $ 610 623 599 815 789

Question 3
Emily and Madison both invest $1000 at 10% per year for 4 years. Emily receives simple interest
and Madison gets compound interest. Use a spreadsheet and cell reference formats to develop
relations that show a total of $64 more interest for Madison at the end of the 4 years. Assume no
withdrawals or further deposits are made during the 4 years.