Topics: Net present value, Rate of return, Money Pages: 3 (409 words) Published: December 3, 2013
Engineering Economics
HW2 – 23/10/2012
Q 3.3
Amalgamated Iron and Steel purchased a new machine for ram cambering large I-beams. The company expects to bend 80 beams at $2000 per beam in each of the first 3 years, after which the company expects to bend 100 beams per year at $2500 per beam through year 8. If the company's minimum attractive rate of return is 18% per year, what is the present worth of the expected income?

P = 80(2000)(P/A,18%,3) + 100(2500)(P/A,18%,5)(P/F,18%,3)
= 160,000(2.1743) + 250,000(3.1272)(0.6086)
= $823,691

Use the cash flow diagram below to calculate the amount of money in year 5 that is equivalent to all the cash flows shown, if the interest rate is 12% per year.

Amt, year 5 = 1000(F/A,12%,4)(F/P,12%,2) + 2000(P/A,12%,7)(P/F,12%,1) = 1000(4.7793)(1.2544) + 2000(4.5638)(0.8929)
= $14,145

Q 3.30
Find the value of x in the diagram below that will make the equivalent present worth of the cash flow equal to $15,000, if the interest rate is 15% per year.

15,000 = 2000 + 2000(P/A,15%,3) + 1000(P/A,15%,3)(P/F,15%,3) + x(P/F,15%,7) 15,000 = 2000 + 2000(2.2832) + 1000(2.2832)(0.6575) + x(0.3759) x = $18,442

Exxon-Mobil is planning to sell a number of producing oil wells. The wells are expected to produce 100,000 barrels of oil per year for 8 more years at a selling price of $28 per barrel for the next 2 years, increasing by $1 per banel through year 8. How much should an independent refiner be willing to pay for the wells now, if the interest rate is 12% per year?

P = [2,800,000(P/A,12%,7) + 100,000(P/G,12%,7) + 2,800,000](P/F,12%,1) = [2,800,000(4.5638) + 100,000(11.6443) + 2,800,000](0.8929) = $14,949,887

Q 3.40
A start-up company selling color-keyed carnuba car wax borrows $40,000 at an interest rate of 10% per year and wishes to repay the loan over a 5-year period with annual payments such that the third through fifth payments are $2000 greater than the...
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