IE 345 Engineering Economy (2019-2020 Spring) HOMEWORK # 1 Due Date: 17/04/2020, at 16:00 We hereby declare that, the work we are submitting in this homework assignment is our own work. Student ID Name and Surname Signature Instructions: Show all your work clearly in your handwriting in the spaces provided below each question. Submit your homework to the TA (Dr. Funda GNER) until the due date and time. GRADES Question no. Total Points 1 5 2 5 3 10 4 5 5 5 6 5 7 5 8 10 9 5 10 5 11 5 12 5 13 5 14 5 15 10 16 10 Points Got 100 1 1. What is the amount and frequency of dividend payments on a bond that has a face value of $10,000 and a coupon rate of 8% per year, payable semi-annually? 2 2. The production of polyamide from raw materials of plant origin, such as castor oil, requires20% less fossil fuel than conventional production methods. Darvon Chemicals borrowed $6million to implement the process. If the interest rate on the loan is 10% per year (on unrecovered balance) for 10 years, what is the amount of interest for year 2? 3 3. For the cash flows shown, determine: (a) the number of possible i* values (b) the i* value displayed by the IRR function (c) the external rate of return using the MIRR method if ii = 18% per year and ib = 10% per year. Year Revenue, $ Cost, $ 0 0 -6,000 1 25,000 -30,000 2 19,000 -7,000 3 4,000 -6,000 4 28,000 -12,000 4 4. Airodyne Wind, Inc., has wind tunnels that can operate vertically or horizontally for evaluating the effects of air flow on a component's PCB response and reliability. The company expects to build a new tunnel that will be outfitted with multiple sensor ports. For the estimates below, calculate the equivalent annual cost of the project. First Cost Replacement Cost, Year 2 AOC per year Salvage Value Life, Years Interest Rate -720,000 -320,000 -960,000 280,000 5 14% 5 5. U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $17 million now and another $10 million 1 year from now. If total operating costs will be $1.4 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 12 to recover its investment plus a return of 15% per year? 6 6. Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 10% per year and a study period of 10 years. Alternative First Cost AOC per year Annual Increase in Operating Cost, per Year Salvage Value Life, Years C -40,000 -4,000 -200 12,000 10 D -23,000 -2,500 -400 200 5 7 7. Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $360 million. The annual upkeep is expected to amount to $740,000. The turf will have to be replaced every 13 years at a cost of $980,000. Painting every 7 years will cost $73,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 6% per year? 8 8. Identify the following interest rate statements as either nominal or effective. a) 1.3% per week b) 1%, compounded daily c) Nominal 15% per year, compounded semiannualy d) Effective 1.5% per month, compounded weekly e) 15% per year, compounded quarterly 9 9. The optical products division of Panasonic is planning a $3.5 million building expansion for manufacturing its powerful Lumix DMC digital zoom camera. If the company uses an interest rate of 16% per year, compounded quarterly for all new investments, what is the uniform amount per quarter the company must make in order to recover its investment in 6 years? 10 10. Environmental recovery company RexChem Partners plans to finance a site reclamation project that will require a 4-year cleanup period. If the company borrows $4.1 million now, how much will the company have to get at the end of each quarter in order to earn 15% per year, compounded weekly on its investment? Calculate the answer using both formula and spreadsheet function? 11 11. For the cash flows shown, determine the future worth in year 5. Year Cash Estimated Flow i per year ($/year) 0 5000 9% 1-4 6000 9% 5 9000 10% 12 12. Income from recycling the paper and cardboard generated in an office building has averaged $2500 per month for the past 3 years. What is the income stream's future worth at an interest rate of 6% per year, compounded quarterly? 13 13. For the cash flows shown, calculate the future worth in year 13 using i = 12% per year. Year 0 1 2 3 4 5 6 Cash Flow ($) 200 200 200 200 300 300 300 14 14. Marcia observed the following cash flow series (in $1000 units) in an accounting report at work. The actual amounts in years 1 and 4 are missing; however, the report states that the present worth in year 0 was $378,000 at an interest rate of 11% per year. Calculate the value of x. Year 0 1 2 3 4 5 6 Cash Flow 40 x 40 40 x 40 40 ($x1000) 15 15. The future worth in year 8 for the cash flows shown is $26,000. At an interest rate of 8% per year, what is the value, x, of the cash flow in year 4? 16 16. The City of San Antonio is considering various options for providing water in its 50year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 4 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 23 years, what is the present worth of the desalting option revenue at an interest rate of 8% per year? 17