Questions and Answers of Engineering Economy

What effective interest rate per 6 months is equal to a nominal 2% per month, compounded continuously?
What effective interest rate per year, compounded continuously, is equivalent to a nominal rate of 10% per year? Solve by formula and spreadsheet function.
Western Refining purchased a model MTVS peristaltic pump for injecting antiscalant at its nanofiltration water conditioning plant. The cost of the pump was $1200. If the chemical cost is $11 per day,
How much would your parents have to deposit each month into an account that grows at a rate of 12% per year, compounded semiannually, if they want to have $80,000 at the end of year 3 to cover part
Income from recycling the paper and cardboard generated in an office building has averaged $3000 per month for the past 3 years. What is the income stream’s equivalent worth now at an interest rate
Beginning 1 month from now, Thaxton Mechanical Products will set aside $1500 per month for possibly replacing its corrosion-resistant diaphragm pumps whenever it becomes necessary. The replacement
In an effort to save money for early retirement, an environmental engineering colleague plans to deposit $1200 per month, starting 1 month from now, into a fixed rate account that pays 8% per year,
The Fairfold family decided to buy a super ski and water sports boat. They took out an $80,000, 5-year, 6% per year, compounded semiannually loan with monthly payments from First Bank and Trust
Equipment maintenance costs for manufacturing explosion-proof pressure switches are projected to be $125,000 in year 1 and increase by 3% each year through year 5. What is the equivalent annual worth
Frontier Airlines hedged the cost of jet fuel by purchasing options that allowed the airline to buy fuel at a fixed price for 2 years. The savings in fuel costs were $140,000 in month 1, $141,400 in
Fieldsaver Technologies, a manufacturer of precision laboratory equipment, borrowed $2 million to renovate one of its testing labs. The loan was repaid in 2 years through quarterly payments that
Metalfab Pump and Filter, Inc. estimates that the cost of steel bodies for pressure valves will increase by $2 every 3 months. If the cost for the first quarter is expected to be $80, what is the
Assume you are considering the consolidation of all your electronic services with one company. By purchasing a digital phone from AT&T wireless, you can buy wireless e-mail and fax services for
Lotus Development has a software rental plan called SmartSuite that is available on the World Wide Web. A number of programs are available at $2.99 for 48 hours. If a construction company uses the
For the cash flows shown, determine the equivalent uniform annual worth in years 1 through 5 at an interest rate of 18% per year, compounded monthly. 1 2 3 0 0 350,000 350,000 350,000 4 Year Cash
Metropolitan Water Utilities purchases surface water from Elephant Butte Irrigation District at a cost of $100,000 per month in the months of February through September. Instead of paying monthly,
Northwest Iron and Steel is considering getting involved in electronic commerce. A modest e-commerce package is available for $30,000. The company wants to recover the cost in 2 years. Find the
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
Hemisphere, LLC is planning to outsource its 51-person information technology (IT) department to Dyonyx. Hemisphere’s president believes this move will allow access to cutting-edge technologies and
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
Radio Frequency Identification (RFID) is a technology used by drivers with “speed passes” at toll booths and ranchers who track livestock from “farm to fork.” Thrift-Mart is implementing the
Head & Shoulders shampoo insured a spokesman football player’s long hair for $1 million with Lloyd’s of London. The insurance payout would be triggered if he lost at least 60% of his hair
In an effort to have enough money to finance his passion for top-level off-road racing, a mechanical engineering graduate decided to sell some of his “toys." At time t = 0, he sold his chopper
Pollution control equipment for a pulverized coal cyclone furnace is estimated to cost $190,000 two years from now and an additional $120,000 four years from now. If Monongahela Power wants to set
The patriot missile, developed by Lockheed Martin, is designed to detect, identify, and shoot down aircraft and other missiles. The Patriot Advanced Capability- 3 was originally promised to cost $3.9
Because testing of nuclear bombs was halted internationally in 1992, the Department of Energy has developed a laser system that allows engineers to simulate (in a laboratory) conditions in a
The TerraMax truck currently being manufactured by Oshkosh Truck Co. is a driverless truck that is intended for military use. Such a truck frees personnel to more effectively perform nondriving
A friend tells you she has saved for 7 years and has a present sum of $10,000, which earned at the rate of 8% per year, compounded quarterly.(a) Determine the equivalent amount she had to start with
If the VF Corporation deposits $20 million of its retained earnings in an aggressive stock ownership fund for only 1 year, what will be the difference in the total amount accumulated (i.e., F) at 18%
Videotech specializes in online security software development. It wants to have $65 million available in 3 years to pay stock dividends. How much money must the company set aside now in an account
Jennifer and Rex both receive a dividend from their 401(k) retirement plan every 6 months. The earning rates for this year have been 5% per year, compounded quarterly for Jennifer, and 4.85% per
In order to find the future worth, F, from a present amount, P, 5 years from now at an interest rate of 12% per year, compounded quarterly, what interest rate must be used in the F∕P factor,
Eckelberger Products, Inc. makes high-speed recorders with high-speed scanning. The small company has been growing at an average rate of 75% per year for the past 4 years. The CEO asked you to
A credit card issued by the GECU credit union has an APR of 16% and an APY of 16.64%.(a) What is the compounding period?(b) Use the EFFECT function to find the compounding period.
The Premier Car Title Loan Company makes emergency loans of up to $500 for 1 month for a fee of 4% of the loan amount. If a person borrows $500, what is(a) The nominal interest rate per year, and(b)
A company that makes modular bevel gear drives with a tight swing ratio for optimizing fork-lift vehicles was told that the interest rate on a loan would be an effective 3.5% per quarter, compounded
Citizens Bank of Toronto advertises an APR of 12% compounded monthly for collateral loans. What is the APY? Also, write the spreadsheet function to display the APY.
Western Energy makes quarterly deposits into an account reserved for purchasing new equipment 2 years from now. The interest paid on the deposits is 12% per year, compounded monthly.(a) Identify the
You plan to deposit $100 per week into a fund that pays interest of 6% per year, compounded quarterly. Identify the interest period, compounding period, and number of times interest is compounded per
Identify the following interest rate statements as either nominal or effective:(a) 1.3% per month;(b) 1% per week, compounded weekly;(c) Nominal 15% per year, compounded monthly;(d) Effective 1.5%
For an APR of 10% per year, if interest is compounded quarterly, determine the nominal rate per(a) 6 months,(b) 2 years.
For an interest rate of 9% per year, compounded every 4 months, determine the nominal interest rate per(a) 8 months,(b) 12 months, and(c) 2 years.
For an interest rate of 1% per quarter, determine the nominal interest rate per(a) Semiannual period,(b) Year,(c) 2 years.
For an interest rate of 10% per year, compounded quarterly, determine the number of times interest is compounded(a) Per quarter,(b) Per 6 months,(c) Per year,(d) Per 3 years.
Determine the number of times interest is compounded in a year for the following interest statements:(a) 1% per quarter; (b) 2% per month;(c) 8% per year, compounded every 2 months.
Identify the compounding period for the following interest statements:(a) Nominal 7% per year, compounded monthly;(b) Effective 6.8% per year, compounded monthly;(c) Effective 3.4% per quarter,
What is the difference between APR and APY? Which one is used in interest factor formulas, tables, and spreadsheet functions?
Identify the compounding period for the following interest statements:(a) 1% per week;(b) 2.5 % per quarter; and(c) 8.5% per year, compounded semiannually.
In order to establish a contingency fund to replace equipment after unexpected breakdowns, a manufacturer of thin-wall plastic bottles plans to deposit $100,000 now and $150,000 two years from now
For the cash flows shown, you have been asked to calculate the present worth (in year 0) using i = 10% per year. Which of the following solutions is not correct?(a) P = 200 +
Assume you borrow $10,000 today and promise to repay the loan in two payments, one in year 2 and the other in year 4, with the one in year 4 being only half as large as the one in year 2. At an
The maker of a motion-sensing towel dispenser is considering adding new products to enhance offerings in the area of touchless technology. If the company does not expand its product line now, it will
If you borrow $24,000 now at an interest rate of 10% per year and promise to repay the loan with payments of $3695 per year starting 1 year from now, the number of payments that you will have to make
You found a report stating that the equivalent annual worth of chemical costs associated with a water treatment process were $125,000 per year for a 5-year period. The report stated that the cost in
At a return rate of 20% per year, the amount of money you must deposit for five consecutive years starting 3 years from now for the account to contain $50,000 fifteen years from now is closest to:(a)
You plan to pay $38,000 cash for the new truck you want to buy 5 years from now. You are a very astute investor; all your money earns at 20% per year. If you have already saved $9500, the amount your
For the diagram shown below, the respective values of n to calculate the present worth in year 0 by the equation P0= 100(Pˆ•A,10%,n1) Pˆ•F,10%,n2)are:(a) n1= 6, n2= 1(b) n1= 5,
An arithmetic gradient has cash flows of $1000 in year 4, $1200 in year 5, and amounts increasing by $200 per year through year 10. If you use the factor 200(P∕G,10%,n) to find PG in year 3, the
Detrich Products is planning to upgrade an aging manufacturing operation 5 years from now at a cost of $100,000. If the company plans to deposit money into an account each year for 4 years beginning
A uniform series of payments begins in year 4 and ends in year 11. If you use the P∕A factor with n = 8, the P value you get will be located in year:(a) 0(b) 3(c) 4(d) 5
The negative arithmetic gradient series in Problem 3.44 is missing the value in year 4. Solve for this value on a spreadsheet. In doing so, display both the full amount of the missing payment and the
Jowel Smithers and Sonda Richards merged all of their financial resources and opened a mobile phone sales and repair business in the upscale Domain Mall in Los Angeles 10 years ago with an initial
For the cash flows shown (in $1000 units), calculate the value of x that makes the present worth in year 0 equal to $300,000 at an interest rate of 10% per year. 5 3 4 Year Cash Flow, $1000 40 40 40
For the cash flows shown, find the future worth in(a) year 5, and(b) year 4. Assume an i of 10% per year. (This is Problem 3.25 above.) 3 Year 2 5 0 0 3000 3000 3000 3000 Cash Flow, $
(This is Problem 3.19 repeated for spreadsheet solution.) For the cash flows shown, find the value of x that makes the equivalent annual worth in years 1 through 7 equal to $300 per year. Use an
Hansus Enterprises is a start-up small business specializing in software systems for machinebased high-school student tutoring in science and math. Sheryl Hansus, the owner, has spoken with lenders
The operating cost of a pulverized coal cyclone furnace is expected to be $80,000 per year. The steam produced will be needed for 6 years—now through year 5. Determine the equivalent annual worth,
Revenue from gas wells that have been in production for at least 5 years tends to follow a decreasing geometric gradient. One particular rights holder received royalties of $4000 per year for years 1
The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate
Prudential Realty has an escrow account for one of its property management clients that contains $20,000. How long will it take to deplete the account if the client withdraws $5000 now, $4500 one
For the cash flows shown in the diagram, determine the equivalent uniform annual worth over years 1 through 5 at an interest rate of 10% per year. i = 10% per year 3 4 5 Year 350 400 450 500
Find the present worth at time 0 of the chrome plating costs shown in the cash flow diagram. Assume i = 10% per year. P = ? 2 3 4 5 Year 1000 1200 1400 1600 1800 2000
McCarthy Construction is trying to bring the company-funded portion of its employee retirement fund into compliance with HB-301. The company has already deposited $500,000 in each of the last 5
Wrangler Western has some of its jeans stonewashed under a contract with an independent contractor, Almos Garment Corp. If Almos’ operating cost is $22,000 per year for years 1 and 2 and then it
Dakota Hi-C Steel signed a contract that will generate revenue of $210,000 now, $226,800 in year 1, and amounts increasing by 8% per year through year 5. Calculate the future worth of the contract at
Calculate the present worth of all costs for a newly acquired machine with an initial cost of $29,000, no trade-in value, a life of 10 years, and an annual operating cost of $13,000 for the first 4
United Fruits now offers volume discounts by the 10-kilogram (10-kilo) pack to small, as well as large, supermarket chains for organically grown in-season fruit shipped directly from the orchard.
The annual worth for years 1 through 8 of the cash flows shown is $30,000. What is the amount of x, the cash flow in year 3, at i = 10% per year? Solve using(a) Tabulated factors, and(b) A
The future worth in year 8 for the cash flows shown is $20,000. At an interest rate of 10% per year, what is the value, x, of the cash flow in year 4? 3 1000 1200 1400 1800 2000 2200 2400 4. 2.
A software company that installs systems for inventory control using RFID technology spent $600,000 per year for the past 3 years in developing their latest product. The company optimistically hopes
Nippon Steel’s expenses for heating and cooling a large manufacturing facility are expected to increase according to an arithmetic gradient beginning in year 2. If the cost is $550,000 this year
A build-to-operate (BTO) company signed a contract to operate Alamosa County industrial wastewater treatment plants for the next 20 years. The contract will pay the company $2.5 million now and
Silastic-LC-50 is a liquid silicon rubber designed to provide excellent clarity, superior mechanical properties, and short cycle time for high speed manufacturers. One high-volume manufacturer used
The following series of revenues and expenses in $1000 units were recorded by a mobile phone business. At a return rate of 10% per year, (a) Determine the net future worth in year 10.(b) Did the
A recently hired CEO (chief executive officer)wants to reduce future production costs to improve the company’s earnings, thereby increasing the value of the company’s stock. The plan is to invest
A 5-year plan to raise extra funds for public schools involves an “enrichment tax” that will raise $56 for every student the first year, increasing by $1 per student per year thereafter. There
El Paso Water is planning to install wind turbines to provide enhanced evaporation of reverse osmosis concentrate from its inland desalting plant. The company will spend $1.5 million in year 1 and $2
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
A company that manufactures air-operated drain valve assemblies currently has $85,000 available to pay for plastic components over a 5 year period. If the company spent only $42,000 in year 1, what
Find the present worth for the following cash flow series (in $1000 units). i= 6% per year 8 Year 3 4 5 6. 90 90 90 90 100 90 200 200 4.
A company that utilizes carbon fiber 3-D printing wants to have money available 2 years from now to add new equipment. The company currently has $650,000 in a capital account and it plans to deposit
The simple interest rate per year that will accumulate the same amount of money in 2 years as a compound interest rate of 20% per year is closest to:(a) 20.5%(b) 21%(c) 22%(d ) 23%
The compound interest rate per year that amounts of $1000 one year ago and $1345.60 one year hence are equivalent to is closest to:(a) 8.5% per year(b) 10.8% per year(c) 20.2% per year(d ) None of
At a compound interest rate of 10% per year, the amount that $10,000 one year ago is equivalent to now is closest to:(a) $8264(b) $9091(c) $11,000(d ) $12,100
The time it would take for money to double at a simple interest rate of 5% per year is closest to:(a) 10 years(b) 12 years(c) 15 years(d ) 20 years
All of the following mean the same as Minimum Attractive Rate of Return except:(a) Hurdle rate(b) Inflation rate(c) Benchmark rate(d) Cutoff rate
All of the following are noneconomic attributes except:(a) Sustainability(b) Morale(c) Taxes(d) Environmental acceptability
Another name for noneconomic attributes is:(a) Sustainability(b) Intangible factors(c) Equivalence(d) Evaluation criteria
All of the following are examples of noneconomic factors except:(a) Availability of resources(b) Goodwill(c) Customer acceptance(d) Profit
State University tuition and fees can be paid using one of two plans. Early-bird: Pay total amount due one year in advance and get a 10% discount.On-time: Pay total amount due when classes start. If

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