Questions and Answers of Engineering Economy

What is the present equivalent of a uniform series of annual payments of $3,500 each for five years if the interest rate, compounded continuously, is 10%?
The amount of $7,000 is invested in a Certificate of Deposit (CD) and will be worth $16,000 in nine years. What is the continuously compounded nominal (annual) interest rate for this CD?
Indicate whether each of the following statements is true (T) or false (F).(all sections)a. Interest is money paid for the use of equity capital.b. (A/F, i%, N) = (A/P, i%, N) + i.c. Simple interest
Mark each statement true (T) or false (F), and fill in the blanks in Part (e).(all sections)a. The nominal interest rate will always be less than the effective interest rate when r = 10% and M =
A $15,000 investment is to be made with anticipated annual returns as shown in the spreadsheet in Figure P4-130. If the investor€™s time value of money is 10% per year, what should be
If you borrow $3,000 at 6% simple interest per year for seven years, how much will you have to repay at the end of seven years?(4.2)(a) $3,000(b) $4,511(c) $1,260(d) $1,511(e) $4,260
Every year you deposit $2,000 into an account that earns 2% interest per year. What will be the balance of your account immediately after the 30th deposit?(a) $44,793(b) $60,000(c) $77,385(d)
Consider the following sequence of year-end cash flows:What is the uniform annual equivalent if the interest rate is 12% per year?(a) $20,422(b) $17,511(c) $23,204(d) $22,000(e) $12,422 2 Cash $8,000
If you borrow $5,000 to buy a car at 12% compounded monthly, to be repaid over the next four years, what is your monthly payment?(a) $131(b) $137(c) $1,646(d) $81(e) $104
The effective annual interest rate is given to be 19.2%. What is the nominal interest rate per year (r) if continuous compounding is being used? Choose the closest answer below.(a) 19.83%(b)
A bank advertises mortgages at 12% com-pounded continuously. What is the effective annual interest?(a) 12.36%(b) 12.55%(c) 12.75%(d) 12.68%(e) 12.00%
On a $200,000, 30-year fixed mortgage, the monthly payment will be approximately how much when the nominal interest rate on the mortgage is 4.2%?(a) $568(b) $980(c) $918(d) $1,000(e) $895
Adding a small amount to your monthly home mortgage payment will shorten the life of your loan. Adding $10 per month to your $540 monthly mortgage payment will trim how many months from a 30 year, 5%
Tennessee Tool Works (TTW) is considering investment in five independent projects, Any profitable combination of them is feasible.TTW has $50 million available to invest, and these funds are
Buildings that are constructed to be environmentally responsible are referred to as “green buildings.” They cut down on energy consumption, increase water efficiency, improve indoor air quality,
Are there multiple IRRs for the following cash flows? If so, how many are there? If not, what is the unique IRR? 3 EOY Cash flow -$1,000 $1,500 -$600 $500
To join an upscale country club, an individual must first purchase a membership bond for $20,000. In addition, monthly membership dues are $250. Suppose an individual wants to put aside a lump sum of
A large induced-draft fan is needed for an upgraded industrial process. The motor to drive this fan is rated at 100 horsepower, and the motor will operate at full load for 8,760 hours per year. The
A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be
The winner of a state lottery will receive $5,000 per week for the rest of her life. If the winner’s interest rate is 6.5% per year compounded weekly, what is the present worth of this jackpot?
A new six-speed automatic transmission for automobiles offers an estimated 4% improvement in fuel economy compared to traditional four-speed transmissions in front-wheel drive cars. If a four-speed
The price of a 10-year bond can decline by approximately 9% if interest rates rise by 1% point. To illustrate this, suppose you own a 10-year U.S. Treasury bond that has a bond rate of 2% per year.
A U.S. government bond matures in 10 years. Its quoted price is now 96.4, which means the buyer will pay $96.40 per $100 of the bond’s face value. The bond pays 5% interest on its face value each
A city is spending $20 million on a new sewage system. The expected life of the system is 40 years, and it will have no market value at the end of its life. Operating and maintenance expenses for the
Vidhi is investing in some rental property in Collegeville and is investigating her income from the investment. She knows the rental revenue will increase each year, but so will the maintenance
After graduation, you have been offered an engineering job with a large company that has offices in Tennessee and Pennsylvania. The salary is $55,000 per year at either location. Tennessee’s tax
A simple, direct space heating system is currently being used in a professional medical office complex. An upgraded “variable air-volume system” retrofit can be purchased and installed for
Refer to the following table of cash flows:What is the annual worth of these cash flows over 16 years when i = 5% per year? End of year 4 12 16 $5,000 $5,000 $5,000 $5,000 $5,000 Cash flow
Combined-cycle power plants use two combustion turbines to produce electricity. Heat from the first turbine’s exhaust is captured to heat water and produce steam sent to a second steam turbine that
An environmentally friendly green home (99% air tight) costs about 8% more to construct than a conventional home. Most green homes can save 15% per year on energy expenses to heat and cool the
Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $45,000. Annual
Stan Moneymaker has been informed of a major automobile manufacturer’s plan to conserve on gasoline consumption through improved engine design. The idea is called “engine displacement,” and it
A large automobile manufacturer is considering the installation of a high-tech material handling system for $30,000,000. This system will save $7,500,000 per year in manual labor, and it will incur
The EZ Credit Company offers to loan a college student $6,000 for school expenses. Repayment of the loan will be in monthly installments of $304.07 for 24 months. The total repayment of money is
A loan of $3,000 for a new, high-end laptop computer is to be repaid in 15 end-of-month payments (starting one month from now). The monthly payments are determined as follows.What nominal and
A large lithium-ion phosphate battery pack for an industrial application is expected to save $20,000 in annual energy expenses over its 6-year life. For a 3-year simple payback period, the
At a military base in Texas, Corporal Stan Moneymaker has been offered a wonderful savings plan. These are the salesperson’s words: “During your 48-month tour of duty, you will invest $200 per
To purchase a used automobile, you borrow $10,000 from Loan Shark Enterprises. They tell you the interest rate is 1% per month for 35 months. They also charge you $200 for a credit investigation, so
Experts agree that the IRR of a college education is about 12%/yr. This results from the increased earnings over your lifetime. Draw a CFD that supports the 12% annual return over the 40 years of
An integrated, combined cycle power plant produces 285 MW of electricity by gasifying coal. The capital investment for the plant is $570 million, spread evenly over two years. The operating life of
A solar sea power plant (SSPP) is being considered in a North American location known for its high temperature ocean surface and its much lower ocean temperature 100 meters below the surface. Power
A new automotive “dry paint” separation process is environmentally friendly and is expected to save $8.00 per car painted at a Detroit plant. The installed cost of the process is $8 million, and
Javier borrows $50,000 from a local bank at an APR of 9%, compounded monthly. His monthly payments amount to $50,000 (A/P, 0.75%, 60) = $1,040 for a 60-month loan. If Javier makes an extra payment on
Street lighting fixtures and their sodium vapor bulbs for a two-block area of a large city need to be installed at a first cost (investment cost) of $120,000. Annual maintenance expenses are expected
What is the IRR in the following cash flow?(a) 12.95%(b) 11.95%(c) 9.05%(d) 10.05%(e) 11.05% Year End Cash Flow ($) -3,345 1,100 1,100 1,100 1,100 2
If you invest $5,123 in a long-term venture, you will receive $1,110 per year forever. Assuming your interest rate is 10% per year, what is the capitalized worth of your investment? Choose the most
What is the equivalent AW of a two-year contract that pays $5,000 at the beginning of the first month and increases by $500 for each month thereafter? MARR = 12% compounded monthly.(a) $10,616(b)
A foreman supervises A, B, and eight other employees. The foreman states that he spends twice as much time supervising A and half as much time supervising B, compared with the average time spent
A car rental agency is considering a modification in its oil change procedure. Currently, it uses a Type X filter, which costs $5 and must be changed every 7,000 miles along with the oil (5 quarts).
A small textile plant was constructed in 2004. The major equipment, costs, and factors are shown below. Estimate the cost to build a new plant in 2014 if the index for this type of equipment has
You borrow $500 from a family member and agree to pay it back in 6 months. Because you are part of the family, you are only being charged simple interest at the rate of 0.5% per month. How much will
What is the future equivalent of $1,000 invested at 6% simple interest per year for 3½years?
Compare the interest earned by P dollars at i% per year simple interest with that earned by the same amount P for five years at i% compounded annually.
How much interest is payable each year on a loan of $2,000 if the interest rate is 10% per year when half of the loan principal will be repaid as a lump sum at the end of four years and the other
Suppose you contribute $10 per week ($520 per year) into an interest-bearing account that earns 6% a year (compounded once per year). That’s probably one less pizza per week! But if you contribute
You have just invested a one-time amount of $5,000 in a stock-based mutual fund. This fund should earn (on average) 9% per year over a long period of time. How much will your investment be worth in
A 12-cylinder heavy-duty diesel engine will have a guaranteed residual value of $1,000 in 5 years. Today (year 0) the equivalent worth of this engine is how much if the interest rate is 9% per year?
A certain college graduate, Sallie Evans, has $24,000 in student-loan debt at the end of her college career. The interest rate on this debt is 0.75% per month. If monthly payments on this loan are
Mr. Smith has saved $1,800 each year for 20 years. A year after the saving period ended, Mr. Smith withdrew $7,500 each year for a period of 5 years. In the sixth and seventh years, he only withdrew
In 1803, Napoleon sold the Louisiana Territory to the United States for $0.04 per acre. In 2014, the average value of an acre at this location is $10,000. What annual compounded percentage increase
Calculate the compounded future value of 20 annual payments of $5,000 each into a savings account that earns 6% per year. All 20 payments are made at the beginning of each year.
In 2014, the average debt for college student loans is $28,700. This amounts to a $330 monthly payment for a “standard” loan repayment plan over 10 years. What monthly interest rate is being
In 1885, first-class postage for a one-ounce letter cost $0.02. The same postage in 2015 costs $0.49. What compounded annual increase in the cost of first-class postage has been experienced over this
In 1972, the maximum earnings of a worker subject to Social Security tax (SST) was $9,000. The maximum earnings subject to SST in 2012 is $110,100. What compound annual increase has been experienced
The Dominion Freight Company has invested $50,000 in a new sorting machine that is expected to produce a return of $7,500 per year for the next 10 years. At a 7% annual interest rate, is this
Your parents make 20 equal annual deposits of $2,000 each into a bank account earning 3% interest per year. The first deposit will be made one year from today. How much money can be withdrawn from
Football coach Ira Blooper has just been fired as head coach at a large university. His buyout amount is $7.5 million, and Blooper will be repaid (as per his contract) in monthly installments over
A credit card company wants your business. If you accept their offer and use their card, they will deposit 1% of your monetary transactions into a savings account that will earn a guaranteed 5% per
Enrico Suarez has decided to purchase a house instead of renting an apartment. He can afford a monthly payment of $800, and he has saved $6,000 to use as a down-payment on a house. If the mortgage is
An outright purchase of $20,000 now (a lump-sum payment) can be traded for 24 equal payments of $941.47 per month, starting one month from now. What is the monthly interest rate that establishes
The Anderson County board of super-visors has agreed to fund an ambitious project that will “spend money now to save much more money in the future.” A total of $16.2 million will be awarded to
A 45-year-old person wants to accumulate $750,000 by age 70. How much will she need to save each month, starting one month from now, if the interest rate is 0.5% per month?
A large electronic retailer is considering the purchase of software that will minimize shipping expenses in its supply chain network. This software, including installation and training, would be a
The Dell Corporation borrowed $10,000,000 at 7% interest per year, which must be repaid in equal EOY amounts (including both interest and principal) over the next six years. How much must Dell repay
The cost to equip a large cruise ship with security cameras is $500,000. If the interest rate is 15% per year and the cameras have a life of six years, what is the equivalent annual cost (A) of the
Consider the accompanying cash-flow diagram. (See Figure P4-49.)a. If P = $1, 000, A = $200, and i% = 12% per year, then N=?b. If P = $1, 000, A = $200, and N=10 years, then i =?c. If A = $200, i% =
Today the average undergraduate student is responsible for paying off a $3,500 balance on his/her credit card. Suppose the monthly interest rate is 1.75% (21% APR). How many months will it take to
You have just inherited $100,000 as a lump-sum amount from your distant aunt. After depositing the money in a practically risk-free certificate of deposit (CD) earning 5% per year, you plan to
Suppose you drive a 2013 model auto-mobile that averages 25 miles per gallon (mpg) for 15,000 miles annually. If you purchase a new automobile that averages 30 mpg, how much extra money can you
Kris borrows some money in her senior year to buy a new car. The car dealership allows her to defer payments for 12 months, and Kris makes 48 end-of-month payments thereafter. If the original note
Leon and Heidi decided to invest $3,000 annually for only the first eight years of their marriage. The first payment was made at age 25. If the annual interest rate is 10%, how much accumulated
How much money should be deposited each year for 12 years if you wish to withdraw $309 each year for five years, beginning at the end of the 14th year? Let i = 8% per year.
Lisa plans to retire on her 61st birthday. On her 22nd birthday, Lisa will start saving $A per year for 40 years. Starting on her 62nd birthday, Lisa plans on withdrawing $10,000 and will continue
Maintenance expenses for a bridge on the Ohio River are estimated to be $20,000 per year for the first 8 years, followed by two separate $100,000 expenditures in years 12 and 18. The expected life of
A father wants to set up a bank account that will pay his daughter $18,000 at the end-of-quarter (EOQ) 4 and $32,000 at EOQ 8. He will fund this account by making quarterly payments of $X from the
John has just graduated from State University. He owes $35,000 in college loans, but he does not have a job yet. The college loan company has agreed to give John a break on a deferred-payment plan
What value of T makes these two cash flow diagrams (see Figure P4-74) economically equivalent at 8% annual interest?Figure P4-74: $1,000 $1,000 т $500 $500 2 3 4 6. EOY EOY 3T in 1.
Start saving for retirement immediately! Even a modest amount will add up in a hurry. Jay decides to follow this advice and puts away 1% of his annual salary of $50,000 per year. This equates to $500
A geometric gradient that increases at f̅ = 6% per year for 15 years is shown in the accompanying diagram. The annual interest rate is 12%. What is the present equivalent value of this gradient?
Stan Moneymaker needs 15 gallons of gasoline to top off his automobile’s gas tank. If he drives an extra eight miles (round trip) to a gas station on the outskirts of town, Stan can save $0.10 per
The decision was made by NASA to abandon rocket-launched payloads into orbit around the earth. We must now rely on the Russians for this capability. Use the principles of engineering economy to
A typical discounted price of a AAA battery is $0.75. It is designed to provide 1.5 volts and 1.0 amps for about an hour. Now we multiply volts and amps to obtain power of 1.5 watts from the battery.
Henry Ford’s Model T was originally designed and built to run on ethanol. Today, ethanol (190-proof alcohol) can be produced with domestic stills for about $0.85 per gallon. When blended with
A large electric utility company has proposed building an $820 million combined cycle, gas-powered plant to replace the electric generation capacity at one of its coal-fired facilities. Develop three
Studies have concluded that a college degree is a very good investment. Suppose that a college graduate earns about 75% more money per hour than a high-school graduate. If the lifetime earnings of a
Automobile repair shops typically recommend that their customers change their oil and oil filter every 3,000 miles. Your automobile user’s manual suggests changing your oil every 5,000–7,000
Often it makes a lot of sense to spend some money now so you can save more money in the future. Consider filtered water. A high-tech water filter cost about $60 and can filter 7,200 ounces of water.
The manufacturer of Brand A automobile tires claims that its tire can save 110 gallons of fuel over 55,000 miles of driving, as compared to a popular competitor (Brand B). If gasoline costs $4.00 per
The Almost-Graduating Senior Problem. Consider this situation faced by a first-semester senior in civil engineering who is exhausted from extensive job interviewing and penniless from excessive
Bad news: You have just wrecked your car! You need another car immediately because you have decided that walking, riding a bike, and taking a bus are not acceptable. An automobile wholesaler offers

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