Problem 1: Company X is specialized in selling construction materials. It offers deferred payment plans for contractors. You, as a contractor, decided to accept X offer to supply your company with a fixed amount of Portland cement of value of 200 OMR per two weeks for nine months. The offer states that you will pay a full lump sum amount at the end of nine months with an interest rate of 2% per semi-monthly. The offer states that if you stopped buying the Portland cement in any time before the completion of nine months, the full payment due at the stopped month (Principal + interest) in addition to the interest for the remaining period would automatically become due. After three months, you realized the offer was expensive, and you found a similar offer with an interest rate of 2% per three-quarter for a supplied value of cement equals to OMR 300 per three weeks. You decided to buy the cement from another supplier for the rest of the period, and X asked you to pay your debt as per the contract. X also offered you another alternative instead: X reduced the interest rate to 1.9 per semi-monthly for the rest of the remaining period. Which of these alternatives should you accept? Explain. Support your answer by drawing the cash flow diagram. Solution box: Problem 2: As a building designer, you have been asked to analyze and select the best window frame type alternative--either aluminum or steel. The project is located in a remote area, and the nearest industrial area hosting steel and aluminum windows frames manufacturers is 250 km away. All project windows are identical, and the circumference of the window frame is 6.2 meter. A crew of two labors is required to manufacture one steel frame. It takes 2.5 hours to manufacture the first window every day, and the learning rate is 0.9. The number of production units is per day is limited to 8. The weight of steel is 12 kg per meter, and the weight of aluminum is 4.5 kg per meter. The cost of steel is 0.4 OMR per kg and the cost of aluminum 1.1 OMR per kg. If 45 windows frames are required for the project, the crew cost is 3 OMR per hour for steel frames and 3.6 for aluminum frames, and the transportation, price is 0.01 OMR per kg per 50 km, which alternative would you select? Solution box: Problem 3: Your company is environmentally conscious and is considering two heating options for a new buildings. What you know about each option is below, and your company will use an annual interest rate (MARR) of 7% for this decision. 1. Gas heating option: the initial equipment and installment of the natural gas system would cost OMR 83,000 right now. The maintenance costs of the equipment are expected to be OMR 730 per year, starting next year, for each of the next 20 years. The energy cost is expected to be OMR 1840 starting next year and is expected to raise by 7% per year for each of the next 20 years due to the price of the natural gas. 2. Geothermal heating option: because of green energy incentives provided by the government, the geothermal equipment and installation are expected to cost only OMR 72,000 right now, which is cheaper than the gas lines. There would be no energy cost with geothermal, but because this is relatively newer technology the maintenance is expected to be OMR 3680 per year, starting next year, for each of the next 20 years. Which is the lower cost option for the company? Use the present worth method. Solution box: Problem 1: Company X is specialized in selling construction materials. It offers deferred payment plans for contractors. You, as a contractor, decided to accept X offer to supply your company with a fixed amount of Portland cement of value of 200 OMR per two weeks for nine months. The offer states that you will pay a full lump sum amount at the end of nine months with an interest rate of 2% per semi-monthly. The offer states that if you stopped buying the Portland cement in any time before the completion of nine months, the full payment due at the stopped month (Principal + interest) in addition to the interest for the remaining period would automatically become due. After three months, you realized the offer was expensive, and you found a similar offer with an interest rate of 2% per three-quarter for a supplied value of cement equals to OMR 300 per three weeks. You decided to buy the cement from another supplier for the rest of the period, and X asked you to pay your debt as per the contract. X also offered you another alternative instead: X reduced the interest rate to 1.9 per semi-monthly for the rest of the remaining period. Which of these alternatives should you accept? Explain. Support your answer by drawing the cash flow diagram. Solution box: Problem 2: As a building designer, you have been asked to analyze and select the best window frame type alternative--either aluminum or steel. The project is located in a remote area, and the nearest industrial area hosting steel and aluminum windows frames manufacturers is 250 km away. All project windows are identical, and the circumference of the window frame is 6.2 meter. A crew of two labors is required to manufacture one steel frame. It takes 2.5 hours to manufacture the first window every day, and the learning rate is 0.9. The number of production units is per day is limited to 8. The weight of steel is 12 kg per meter, and the weight of aluminum is 4.5 kg per meter. The cost of steel is 0.4 OMR per kg and the cost of aluminum 1.1 OMR per kg. If 45 windows frames are required for the project, the crew cost is 3 OMR per hour for steel frames and 3.6 for aluminum frames, and the transportation, price is 0.01 OMR per kg per 50 km, which alternative would you select? Solution box: Problem 3: Your company is environmentally conscious and is considering two heating options for a new buildings. What you know about each option is below, and your company will use an annual interest rate (MARR) of 7% for this decision. 1. Gas heating option: the initial equipment and installment of the natural gas system would cost OMR 83,000 right now. The maintenance costs of the equipment are expected to be OMR 730 per year, starting next year, for each of the next 20 years. The energy cost is expected to be OMR 1840 starting next year and is expected to raise by 7% per year for each of the next 20 years due to the price of the natural gas. 2. Geothermal heating option: because of green energy incentives provided by the government, the geothermal equipment and installation are expected to cost only OMR 72,000 right now, which is cheaper than the gas lines. There would be no energy cost with geothermal, but because this is relatively newer technology the maintenance is expected to be OMR 3680 per year, starting next year, for each of the next 20 years. Which is the lower cost option for the company? Use the present worth method. Solution box