GENG 360 Engineering Economics, Fall 2021

Quiz 1 (Sep 06, 2021)

Your solution should contain:

1. A cash flow diagram (Full mark: 4)

2. Standard notation of economic factor, e.g. (P/F, i%, n) (Full mark: 2)
3. Clearly shows every steps (Full mark: 4)

Formula list: You can refer the textbook.

In case of cheating, you will get 0.

Q1. A company wants to borrow money. If the company offers to repay the loan with $50,000 in
year 1 and amounts increasing by $10,000 each year through year 8, how much can the company
borrow at an interest rate of 5% per year? (10 mark)

Q2. Determine the difference in the present worth values of the following two contracts at an
interest rate of 10% per year. (10 mark)

Contract 1 has a cost of $50,000 in year 1; cost will escalate at a rate of 4% per year for 5 years.

Contract 2 has the same cost in year 1, but costs will escalate at a rate of 5% per year for 4 years.