EE Assignment 1-5 PDF
EE Assignment 1-5 PDF
EE Assignment 1-5 PDF
4. To provide for a college education for his daughter, a man opened an escrow account in
which equal deposits were made. The first deposit was made on January 1, 1990, and the
last deposit was made on January 1, 2014. The yearly college expenses, including tuition
were estimated to be Rs.400000 in the first year, and then onwards increases with a
gradient of Rs.20000 every year for each of the remaining 4 years. Assuming the interest
rate to be 6%, how much did the father have to deposit each year in the escrow account for
the daughter to draw this required college expenses for the 5 years duration beginning from
January 1, 2015?
5. Conventional agricultural equipment has a service life of 6 years. Newly designed
equipment is 50% costlier than the conventional one but has more advantages. The
operating costs of both these equipment are almost same and salvage value is negligible.
What will be the service life of the new equipment that makes its costs comparable to that of
the conventional one at i=10%?
ASSIGNMENT-2 (Nominal and Effective Interest Rates)
1. On January 1, a woman deposits $5000 in a credit union that pays 8% nominal annual
interest compounded quarterly. She wishes to withdraw all the money in five equal yearly
sums, beginning December 31 of the first year. How much should she withdraw each year?
2. An engineering student bought a car at a local used car lot. Including tax and insurance, the
total price was 300000. He is to pay for the car in 12 equal monthly payments, beginning
with the first payment immediately (in other words, the first payment was the down
payment). Nominal interest on the loan is 12%, compounded monthly. After six payments
(the down payment plus five additional payments), he decides to sell the car. A buyer
agrees to pay a cash amount to pay off the loan in full at the time the next payment is due
and also to pay the engineering student 100000. If there are no penalty charges for this
early payment of the loan, how much will the car costs to the new buyer?
3. A sheltered workshop requires a lift truck to handle pallets for a new contract. A lift truck can
be purchased for Rs.270000. Annual insurance costs are 3% of the purchase price, payable
on the first of each year. An equivalent truck can be rented Rs. 15000 per month payable at
the end of each month. Operating costs are same for both alternatives. For what minimum
number of months must a purchased truck be used on the contract to make purchasing
more attractive than leasing? Interest rate is 12% compounded monthly. Assume that the
purchased truck has no salvage value.
4. A loan of Rs.10, 000/- is made today under an agreement that Rs.14, 000 will be received in
payment some time in future. When should the payment be received, if the loan is to earn
interest at a rate of 8% compounded quarterly (interpolate if necessary)
5. The New Mexico State Police and Public Safety Department owns a helicopter that it uses
to provide transportation and logistical support for high-level state officials. The $495 hourly
rate covers operating expenses and the pilot's salary. If the governor uses the helicopter an
average of 2 days per month for 6 hours each day, what is the equivalent future worth of the
costs for 1 year at an interest rate of 6% per year, compounded quarterly.
ASSIGNMENT-3 (Present Worth, Annual Worth and Future Worth)
1. The present price (year 0) of kerosene is $1.80 per gallon, and its cost is expected to
increase by $.15 per year. (At the end of year 1, kerosene will cost $1.95 per gallon.) Mr.
Garcia uses about 800 gallons of kerosene for space heating during a winter season. He
has an opportunity to buy a storage tank for $600, and at the end of four years he can sell
the storage tank for $100. The tank has a capacity to supply four years of Mr. Garcias
heating needs, so he can buy four years worth of kerosene at its present price ($1.80), or
he can invest his money elsewhere at 6%. Should he purchase the storage tank? Assume
that kerosene purchased on a pay-as-you-go basis is paid for at the end of the year.
(However, kerosene purchased for the storage tank is purchased now.)
2. Compare the alternatives below on the basis of equivalent uniform annual worth analysis,
using the interest rate of 10% per year. (Where, K = Years, 1 through 10)
Plan A
Plan B
28,000
36,000
3,000
4,000
1,000
2,000
(2,200 + 75 K) (800+50 K)
10
10
3. A 50 HP motor is required to drive a pump to remove water from a tunnel. Two alternatives
are under consideration. Alternative A calls for the construction of an electric motor along
with power lines at a total cost of $4,900. The salvage value of this equipment after 4 years
is $700. Alternative B calls for purchase of a diesel pump set at a cost of $1925 with no
salvage value at the end of 4 years of its life. The cost of diesel per hour is $0.5 and
maintenance cost of $0.55 per hour. Cost of wages chargeable when the diesel pump set
runs is $2 per hour. How many hours of operation per year, the two machines have to run so
that the two alternatives incur equal annual cost. If the number of hours of operation is 100
per year which alternative is more economical if the interest rate is 12% per year?
4. Two sites are currently under consideration for a bridge to cross a river in New York. The
north site, which connects a major state highway with an interstate loop around the city,
would alleviate much of the local through traffic. The disadvantages of this site are that the
bridge would do little to ease local traffic congestion during rush hours, and the bridge would
have to stretch from one hill to another to span the widest part of the river, railroad tracks,
and local highways below. This bridge would therefore be a suspension bridge. The south
site would require a much shorter span, allowing for construction of a truss bridge, but it
would require new road construction. The suspension bridge will cost $50 million with
annual inspection and maintenance costs of $35,000. In addition, the concrete deck would
have to be resurfaced every 10 years at a cost of $100,000. The truss bridge and approach
roads are expected to cost $25 million and have annual maintenance costs of $20,000. The
bridge would have to be painted every 3 years at a cost of $40,000. In addition, the bridge
would have to be sandblasted every 10 years at a cost of $190,000. The cost of purchasing
right-of-way is expected to be $2 million for the suspension bridge and $15 million for the
truss bridge. Compare the alternatives on the basis of their capitalized cost if the interest
rate is 10% per year.
5. Using an interest rate of 10%, what is the capitalized cost of a tunnel to transport water
through the Girnar Mountain range if the first cost is $1,000,000 and the maintenance costs
are expected to occur in a 6-year cycles as shown below?
End of Year
Maintenance cost
$35,000 $35,000
$35,000 $45,000
$45,000 $60,000
have a 25-year life with a 5% salvage value. Tabulate the incremental cash flow and
determine the incremental rate of return.
3. Sandersen Meat Processors has asked its lead process engineer to evaluate two different
types of conveyors for the bacon curing line. Type A has an initial cost of $70,000 and a life
of 8 years. Type B has an initial cost of $95,000 and a life expectancy of 12 years. The
annual al operating cost for type A is expected to be $9000, while the AOC for type B is
expected to be $7000. If the salvage values are $5000 and $10,000 for type A and type S,
respectively, tabulate the incremental cash flow using their LCM and determine the
Incremental IRR.
4. Caterpillar Corporation wants to build a spare parts storage facility in the Phoenix, Arizona,
vicinity. A plant engineer has identified four different location options. Initial cost of
earthwork and prefab building, and annual net cash flow estimates are detailed in Table
below. The annual net cash flow series vary due to differences in maintenance, labor costs,
transportation charges, etc. If the MARR is 10%, use incremental ROR analysis to select the
one economically best location.
A
Initial Costs
+35000
+19500
+42000
Life, Years
30
30
30
30
Challenger 1 (Rs)
Challenger 2 (Rs)
First cost
30000
54000
Defender trade
10500
7500
Annual cost
9000
4500
3600
Salvage value
1500
3000
1500
Life, years
5 yr
5 yr
5 yr
2. The country tailors use many sewing machines in their clothes line. The general manager
wants to know the minimum cost life for these machines. Find this value at an interest rate of
20% per year, if the first cost is $5000 per machine.
Life in years
5000
----
3000
1000
1500
1500
1000
2000
500
2500
3000
5000
Undepreciated amount of capital remaining in the asset at the end of sixth year.
ii.