GEN200: Engineering Economy

(HW # 2)
Due date: Oct 9
Fall 2023
Online Submission (to link)
The HW should have a cover Page

1. Which of the following 1-year investments has the highest rate of return?
a ) $12,500 that yields $1125 in interest,
b) 56,000 that yields $6160 in interest, or
c) ) $95,000 that yields $7600 in interest

2. Construct a cash flow diagram for the following cash flows:

$25,000 outflow at time 0, $9000 per year inflow in years 1 through 5 at an
interest rate of 10% per year, and an unknown future amount in year 5

3 During a recession, the price of goods and services goes down because of low
demand. A company that makes Ethernet adapters is planning to expand its
production facility at a cost of $1,000,000 one year from now. However, a contractor
who needs work has offered to do the job for $790,000 if the company will do the
expansion now instead of 1 year from now. If the interest rate is 15% per year, how
much of a discount is the company getting?

4) University tuition and fees of $10,000 per year can be paid by using one of two
plans:
Early-bird: Pay total amount due 1 year in advance and get a 10% discount.
On-time: Pay total amount due when classes start. (a ) How much is paid in the early-
bird plan?
(b ) What is the equivalent amount of the savings compared to the on-time payment
at the time that the on-time payment is made?
8) A solid waste disposal company borrowed money at 10% per year interest to
purchase new haulers and other equipment needed at the company owned landfill
site. If the company got the loan 2 years ago and paid it off with a single payment of
$4,600,000, what was the principal amount P of the loan?

5) How much can a business afford to spend now on an energy management system if
the software will save the company $21,300 per year for the next 5 years? Use an
interest rate of 10% per year

6) A manufacturer of off-road vehicles is considering the purchase of dual-axis

inclinometers for installation in a new line of tractors. The distributor of the
inclinometers is temporarily overstocked and is offering them at a 40% discount from

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the regular cost of $142 (after 2 years). If the purchaser gets them now instead of 2
years from now, which is when they will be needed, what is the present worth of the
savings per unit? The company would pay the regular price, if purchased in 2 years.
Assume the interest rate is 10% per year.

7) A company that sells high-purity laboratory chemicals is considering investing

in new equipment that will reduce cardboard costs by better matching the size of the
products to be shipped to the size of the shipping container. If the new equipment
will cost $220,000 to purchase and install, how much must the company save each
year for 3 years in order to justify the investment, if the interest rate is 10% per year?

8) A manufacturer is planning to set aside $100,000 now and $150,000 one year from
now for possible replacement of the heating and cooling systems in three of its larger
manufacturing plants. If the replacement won’t be needed for 4 years, how much will
the company have in the account, if it earns interest at a rate of 8% per year?

9) You own a small engineering consulting company. If you invest $200,000 of the
company’s money in a natural gas well that is expected to provide income of $29,000
per year, how long must the well produce at that rate in order to get the money back
plus a rate of return of 10% per year?

10) The value of the factor (P/F, i, 10) can be found by getting the factor values for
(P/F, i, 4) and ( P/F, i, 6) and:
(a) Adding the values for ( P/F, i, 4) and (P/F, i, 6)
(b) Multiplying the values for (P/F, i, 4) and (P/F, i, 6)
(c)Dividing the value for (P/F, i, 6) by the value for (P/F, i, 4)
(d) None of the above
11) The number of years required for an account to accumulate $650,000 if Ralph
deposits $50,000 each year and the account earns interest at a rate of 6% per year is
closest to:
(a ) 13 years
(b ) 12 years
(c ) 11 years
(d- 10 years