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fundamentals engineering economics

Questions and Answers of Fundamentals Engineering Economics

Consider a project with the following cash flows:End of Year (n) Cash Flows
J&M Manufacturing plans on purchasing a new assembly machine for $32,000 to automate one of its current manufacturing operations. It will cost an additional $3,500 to have the new machine
You are given the following financial data about a new system to be implemented at a company:Investment cost at n = 0: $23,000Investment cost at n = 1: $18,000Useful life: 10 yearsSalvage value (at
Consider the following cash flows, for four different projects:(a) Calculate the conventional payback period for each project.(b) Determine whether it is meaningful to calculate a payback period
The Northern Investment Group is considering investing $2 million in a new shopping plaza in Atlanta. The company has estimated that the shopping plaza, once built, will generate $450,000 per year
Due to a high demand for corn as a source of ethanol fuel production, a farmer is considering planting more corn, which requires the purchase of a new, larger row crop planter. The planter will cost
You are considering producing a new golf ball for sale in China to meet a growing demand in the country. This golf ball is less expensive to manufacturecompared with a better known brand, but it
Consider the following set of investment projects, all of which have a three-year investment life:(a) Compute the net present worth of each project at i = 10%. Project Cash Flows A B D п -$1,200
You have been asked to evaluate the profitability of building a new distribution center under the following conditions:The proposal is for a distribution center costing $1,500,000. The facility has
You want to purchase a house for $85,000, and you have $17,000 cash available for a down payment. You are considering the following two financing options:Option 1: Get a new standard mortgage with
Today is your birthday and you decide to start saving for your retirement. You will retire on your 67th birthday and need $50,000 per year at the end of each of following 20 years. You will make a
A local dealer is advertising a 24‐month lease of a sport utility vehicle for $520 payable at the beginning of each month. The lease requires a $2,500 down payment plus a $500 refundable security
A couple is planning to finance its three‐year‐old son’s college education. The couple can deposit money at 6% compounded quarterly. What quarterly deposit must be made from the son’s 3rd
Sam Musso is planning to retire in 20 years. He can deposit money at 8% compounded quarterly. What deposit must he make at the end of each quarter until he retires so that he can make a withdrawal of
Suppose you borrowed $10,000 at an interest rate of 8% compounded monthly over 36 months. At the end of the first year (after 12 payments), you want to negotiate with the bank to pay off the
Tamara Massey received $1,000,000 from an insurance company after her husband’s death. She wants to deposit this amount in a savings account that earns interest at a rate of 6% compounded monthly.
Anita Hayes, who owns a travel agency, bought an old house to use as her business office. She found that the ceiling was poorly insulated and that the heat loss could be cut significantly if 6 in. of
You want to open a savings plan for your future retirement. You are considering the following two options:Option 1: You deposit $1,000 at the end of each quarter for the first 10 years. At the end of
Maria Anguiano’s current salary is $65,000 per year, and she is planning to retire 25 years from now. She anticipates that her annual salary will increase by $3,000 each year. (That is, in the
How many years will it take an investment to triple if the interest rate is 9% compounded(a) Quarterly?(b) Monthly?(c) Continuously?
A series of equal quarterly payments of $5,000 for 10 years is equivalent to what present amount at an interest rate of 9% compounded(a) Quarterly?(b) Monthly?(c) Continuously?
What is the future worth of an equal‐payment series of $3,000 per year for eight years if the interest rate is 7% compounded continuously?
Suppose that $1,500 is placed in a bank account at the end of each quarter over the next 20 years. What is the account’s future worth at the end of 20 years when the interest rate is 8%
If the interest rate is 8.5% compounded continuously, what is the required quarterly payment to repay a loan of $15,000 in four years?
What is the future worth of a series of equal monthly payments of $2,000 if the series extends over a period of six years at 9% interest compounded(a) Quarterly?(b) Monthly?(c) Continuously?
What is the required quarterly payment to repay a loan of $25,000 in five years if the interest rate is 6% compounded continuously?
A series of equal quarterly payments of $2,000 extends over a period of five years. What is the present worth of this quarterly‐payment series at 9.75% interest compounded continuously?
A series of equal quarterly payments of $3,000 for 10 years is equivalent to what future lump‐sum amount at the end of 15 years at an interest rate of 8% compounded continuously?
Your bank calculates the interest based on 12% APR on your credit card balance (monthly compounding). Suppose that your current outstanding balance is $2,000 and you skip payments for two months.
You have just received credit card applications from two banks, A and B. The interest terms on your unpaid balance are stated as follows:1. Bank A: 18% compounded
You received a credit card application from Sun Bank offering an introductory rate of 2.9% per year compounded monthly for the first six months, increasing thereafter to 17% compounded monthly. This
Jennifer Lee, an engineering major in her junior year, has received in the mail two guaranteed line€of€credit applications from two different banks. Each bank offers a different
Suppose you take out a car loan of $10,000 with an interest rate of 12% compounded monthly. You will pay off the loan over 48 months with equal monthly payments.(a) What is the monthly interest
An automobile loan of $15,000 at a nominal rate of 9% compounded monthly for 36 months requires equal end€of€month payments of $477. Complete the following table for the first
You borrow $150,000 with a 30‐year payback term and a variable APR that starts at 9% and can be changed every five years.(a) What is the initial monthly payment?(b) If, at the end of five years,
Sarah Maddox wants to buy a new car that will cost $18,000. She will make a down payment in the amount of $4,000. She would like to borrow the remainder from a bank at an interest rate of 9%
Talhi Hafid is considering the purchase of a used car. The price, including the title and taxes, is $9,530. Talhi is able to make a $2,530 down payment. The balance, $7,000, will be borrowed from his
Janie Curtis borrowed $22,000 from a bank at an interest rate of 9% compounded monthly. This loan is to be repaid in 36 equal monthly installments over three years. Immediately after her 20th
You are buying a home for $360,000. If you make a down payment of $60,000 and take out a mortgage on the rest at 8.5% compounded monthly, what will be your monthly payment if the mortgage is to be
For a $350,000 home mortgage loan with a 20‐year term at 9% APR compounded monthly, compute the total payments on principal and interest over the first five years of ownership.
A lender requires that monthly mortgage payments be no more than 25% of gross monthly income with a maximum term of 30 years. If you can make only a 15% down payment, what is the minimum monthly
To buy an $180,000 condominium, you put down $30,000 and take out a mortgage for $150,000 at an APR of 9% compounded monthly. Five years later, you sell the house for $205,000 (after all selling
Just before the 20th payment,Family A had a balance of $150,000 on a 9%, 30‐year mortgage.Family B had a balance of $150,000 on a 9%, 15‐year mortgage.Family C had a balance of $150,000 on a 9%,
Home mortgage lenders often charge points on a loan in order to avoid exceeding a legal limit on interest rates or to make their rates appear competitive with those of other lenders. As an example,
A restaurant is considering purchasing the lot adjacent to its business to provide adequate parking space for its customers. The restaurant needs to borrow $44,000 to secure the lot. A deal has been
Alice Harzem wanted to purchase a new car for $18,400. A dealer offered her financing through a local bank at an interest rate of 13.5% compounded monthly. The dealer’s financing required a 10%
David Kapamagian borrowed money from a bank to finance a small fishing boat. The bank’s loan terms allowed him to defer payments (interest is still being charged even though payment is deferred)
A loan of $18,000 is to be financed over a period of 24 months. The agency quotes a nominal interest rate of 8% for the first 12 months and a nominalinterest rate of 9% for any remaining unpaid
Robert Carré financed his office furniture through the furniture dealer from which he bought it. The dealer’s terms allowed him to defer payments (with interest being charged) for six months and
Suppose you are in the market for a new car worth $18,000. You are offered a deal to make a $1,800 down payment now and to pay the balance in equal end‐of‐month payments of $421.85 over a
Find the present worth of the cash receipts in the accompanying diagram if i = 10% compounded annually with only four interest factors. $200 $200 $200 $200 $150 $150 $100 $100 1 2 4 5 7 8 Years P 3.
Find the equivalent present worth of the cash receipts in the accompanying diagram, where i = 10% compounded annually. In other words, how much do you have to deposit now (with the second deposit in
What value of A makes the two annual cash flows shown in the following diagram equivalent at 10% interest compounded annually? $200 $200 $200 $200 $200 1 2 3 4 Years A A A 1 2 3 5 Years 4,
The two cash flow transactions shown in the accompanying cash flow diagram are said to be equivalent at 10% interest compounded annually. Find the unknown X value that satisfies the equivalence.
State the value of C that makes the following two cash flow transactions economically equivalent at an interest rate of 10%: $85 $85 20 20 $50 $50 C C 0 1 2 3 4 0 1 2 3 4
From the following cash flow diagram, find the value of C that will establish economic equivalence between the deposit series and the withdrawal series at an interest rate of 9% compounded annually.
Consider the following cash flow diagram. What value of C makes the inflow series equivalent to the outflow series at an interest rate of 12% compounded annually? $1,200 $1,200 $1,200 $1,200 $800
Four years ago, you opened a mutual fund account and made three deposits ($200 four years ago, $X three years ago, and $300 a year ago) where you earned varying interest rates according to the
A father decides to establish a savings account for his child’s college education on the day his baby is born. Any money put into the account will earn an interest rate of 8% compounded annually.
Find the value of X such that the following two cash flow transactions are economically equivalent at 10% compounded annually. $500 $500 $500 $500 $500 $500 3 4 х х 3 4 2. 2.
What single payment at the end of year 5 is equivalent to an equal annual series of payments of $800 beginning at the end of year 3 and ending at the end of year 12? The interest rate is 8%
You borrowed $4,000 to finance your educational expenses at the beginning of your junior year of college at an interest rate of 9% compounded annually. You are required to pay off the loan with five
Consider the following cash flow series at varying interest rates. What is the equivalent present worth of the cash flow series? $1,500 $1,000 $1,000 $1,000 5% 10% 6% 8% 3 VP = ? 4.
It is said that a lump-sum amount of $50,000 at the end of five years is equivalent to an equal‐payment series of $5,000 per year for 10 years, where the first payment occurs at the end of year 1.
At what rate of interest compounded annually will an investment double in five years? Find the answers by using (1) the exact formula and (2) the Rule of 72.
Determine the interest rate i that makes the pairs of cash flows shown in the following diagrams economically equivalent. $150 $150 $150 $150 $100 2 3 4 5 Years $200 $200 $150 $50 $50 1 2 3 5 Years
Recently, a suburban Chicago couple won Power ball, a multi state lottery game. The game had rolled over for several weeks, so a huge jackpot was at stake. Ticket buyers had the choice between a
The state of Florida sold a total of $36.1 million worth of lottery tickets at $1 each during the first week of January 2011. As prize money, a total of $41 million will be distributed over the next
A newspaper headline reads, “Millionaire Babies: How to Save Our Social Security System.” It sounds a little wild, but the concept expressed in the title of this newspaper headline probably
A loan company offers money at 1.25% per month compounded monthly.(a) What is the nominal interest rate?(b) What is the effective annual interest rate?
A department store has offered you a credit card that charges interest at 1.65% per month compounded monthly. What is the nominal interest (annual percentage) rate for this credit card? What is the
A discount interest loan is a loan arrangement where the interest and any other related charges are calculated at the time the loan is closed. Suppose a one‐year loan is stated as $10,000 and the
A California bank, Berkeley Savings and Loan, advertised the following information: 7.55% APR and effective annual yield 7.842%. No mention is made of the interest period in the advertisement. Can
American Eagle Financial Sources, which makes small loans to college students,offers to lend a student $500. The borrower is required to pay $38 at the end of each week for 16 weeks. Find the
A financial institution is willing to lend you $1,000. However, you must repay $1,080 at the end of one week.(a) What is the nominal interest rate?(b) What is the effective annual interest rate?
A loan of $20,000 is to be financed to assist a person’s college education. Based upon monthly compounding for 48 months, the end‐of‐the‐month equal payment is quoted as $520. What nominal
You are purchasing a $16,000 used automobile, which is to be paid for in 36 monthly installments of $517.78. What nominal interest rate are you paying on this financing arrangement?
To finance your car, you have decided to take a car loan in the amount of $15,000 from your credit union. You will pay off this loan over 60 months. If the required monthly payment is $322.41, what
You obtained a loan of $20,000 to finance your home improvement project. Based on monthly compounding over 24 months, the end‐of‐the‐month equalpayment was figured to be $922.90. What is the
Bank A charges 11.5% compounded monthly on its business loan. Bank B charges 11.2% compounded daily. If you want to borrow money, which bankwould you choose?
Bank A charges 11.5% compounded monthly on its business loan. Bank B charges 11.2% compounded daily. If you want to borrow money, which bank would you choose?(a) Monthly(b) Quarterly(c)
What is the effective interest rate per quarter if the interest rate is 9% compounded monthly?
What is the effective interest rate per month if the interest rate is 12% compounded continuously?
What is the effective interest rate per quarter if the interest rate is 6% compounded continuously?
James Hogan is purchasing a $25,000 automobile, which is to be paid for in 48 monthly installments of $563.44. What is the effective interest rate per month for this financing arrangement?
Find the APY in each of the following cases:(a) 11% compounded annually(b) 8% compounded semiannually(c) 9.5% compounded quarterly(d) 7.5% compounded daily
What will be the amount accumulated by each of the given present investments?(a) $5,500 in 10 years at 9% compounded semiannually.(b) $12,500 in 15 years at 8% compounded quarterly.(c) $13,600 in
What is the future worth of each of the given series of payments?(a) $10,000 at the end of each six‐month period for 10 years at 8% compounded semiannually.(b) $9,000 at the end of each quarter for
What equal series of payments must be paid into a sinking fund in order to accumulate each given amount?(a) $11,000 in 10 years at 8% compounded semiannually when payments are semiannual.(b) $3,000
What is the present worth of each of the given series of payments?(a) $1,700 at the end of each six‐month period for 10 years at 9% compounded semiannually.(b) $9,000 at the end of each quarter for
Suppose you deposit $1,000 at the end of each quarter for five years at an interest rate of 9% compounded monthly. Which of the following formulas will determine the equal annual end‐of‐year
Suppose a newlywed couple is planning to buy a home two years from now. To save the down payment required at the time of purchasing a home worth $350,000 (let’s assume this required down payment is
Georgi Rostov deposits $3,000 in a savings account that pays 6% interest compounded monthly. Three years later, he deposits $4,000. Two years after the $4,000 deposit, he makes another deposit in the
A man is planning to retire in 30 years. He wishes to deposit a regular amount every three months until he retires so that, beginning one year following his retirement, he will receive annual
Consider the following cash flow series. Determine the required annual deposits (end of year) that will generate the cash flows from years 4 to 7. Assume the interest rate is 6%, compounded monthly.
You are in financial trouble and are delinquent on your mortgage payment. Your bank has agreed to a repayment schedule of $1,600 per month, and it will charge 0.5% per month interest on the
A building is priced at $255,000. If a buyer makes a down payment of $55,000 and a payment of $2,000 every month thereafter, how many months will it take for the buyer to completely pay for the
By reading any business publication give examples that illustrate one of the four fundamental principles of engineering economics.
What value of C makes the two cash flows equal? Assume i = 10%. 20 20 $72 $50 $50 C 1 2 3 1 2 3
You are planning to save $1 million for retirement over the next 30 years.(a) If you are earning interest at the rate of 6% and you live 20 years after retirement, what annual level of living

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