ENIN 255: Engineering

Economy Spring 2021

Homework # 2
Chapter 4, 5, and 6

Homework Instructions.
 The cover page should include student name, ID, and Section No.
 Late homework will lose 10% of the homework marks
 Plagiarism and cheating on homework will be considered as a ZERO mark.

Q1 Convert the given interest rates in the left-hand column into the nominal rates listed in the
righthand column. (Assume 4 weeks/month.)

Q2 A structural engineering consulting company is examining its cash flow requirements for
the next 6 years. The company expects to replace office machines and computer equipment at
various times over the 6-year planning period. Specifically, the company expects to spend
$21,000 two years from now, $24,000 three years from now, and $10,000 five years from now.
What is the present worth of the planned expenditures at an interest rate of 10% per year,
compounded semiannually?

Q3 If you deposit $1000 per month into an investment account that pays interest at a rate of
6% per year, compounded quarterly, how much will be in the account at the end of 5
years?

Q4 U.S. Steel is planning a plant expansion that is expected to cost $13 million. How much
money must the company set aside now in a lump-sum investment to have the money in 2 years?
Capital funds earn interest at a rate of 12% per year, compounded continuously.

Q5 Find (a) the present worth P, and (b) the equivalent uniform annual worth A for the cash
flows shown below.
Q6 The manager of a canned food processing plant must decide between two different labeling
machines. Machine A will have a first cost of $42,000, an annual operating cost of $28,000, and
a service life of 4 years. Machine B will cost $51,000 to buy and will have an annual operating
cost of $17,000 during its 4-year life. At an interest rate of 10% per year, which should be
selected on the basis of a present worth analysis?

Q7 Machines that have the following costs are under consideration for a robotized welding
process. Using an interest rate of 10% per year, determine which alternative should be selected
on the basis of a present worth analysis.

Q8 An industrial engineer is considering two robots for purchase by a fiber-optic manufacturing

company. Robot X will have a first cost of $80,000, an annual maintenance and operation
(M&O) cost of $30,000, and a $40,000 salvage value. Robot Y will have a first cost of
$97,000, an annual M&O cost of $27,000, and a $50,000 salvage value. Which should be
selected on the basis of a future worth comparison at an interest rate of 15% per year? Use a 3-
year study period.

Q9 A wealthy businessman wants to start a permanent fund for supporting research directed
toward sustainability. The donor plans to give equal amounts of money for each of the next 5
years, plus one now (i.e., six donations) so that $100,000 per year can be withdrawn each year
forever, beginning in year 6. If the fund earns interest at a rate of 8% per year, how much money
must be donated each time?
 Q10 Compare the alternatives shown on the basis of their capitalized costs using an interest rate
of 10% per year.

Q11 Eight years ago, Ohio Valley Trucking purchased a large-capacity dump truck for
$115,000to provide short-haul earthmoving services. The company sold it today for $45,000.
Operating and maintenance costs averaged $10,500 per year. A complete overhaul at the end of
year 4 costan extra $3600. Calculate the annual cost of the truck at 8% per year interest.

Q12 Humana Hospital Corporation installed a new MRI machine at a cost of $750,000 this yearin
its medical professional clinic in Cedar Park. This state-ofthe- art system is expected to be used
for 5 years and then sold for $75,000. Humana uses a return requirement of 24% per year for all
of its medical diagnostic equipment. As a bioengineering student currently serving a coop
semester on the management staff of Humana Corporation in Louisville, Kentucky, you are asked
to determine the minimum revenue required each year to realize the expected recovery andreturn.

Q13 Polypropylene wall caps, used for covering exterior vents for kitchen cooktops, bathroom
fans, dryers, and other building air exhausts, can be made by two different methods. Method X
will have a first cost of $75,000, an operating cost of $32,000 per year, and a $9000 salvage
value after 4 years. Method Y will have a first cost of $140,000, an operating cost of $24,000
per year, and a $19,000 salvage value after its 4-year life. At an interest rate of 10% per year,
which method should be used on the basis of an annual worth analysis?