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Perpetuity

This document provides instructions and 5 problems for an engineering economics take-home exam. The problems involve calculating present values and equivalent amounts for perpetuities using cash flows diagrams and interest rates compounded continuously, bimonthly, quarterly and monthly. Students are asked to show their work and use a 5 decimal place interest rate. The problems cover donations providing recurring scholarships, endowments providing recurring payments to a university, costs of heat exchangers, funds for machine purchase and maintenance, and the capitalized worth of a sewage system.

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Vanessa Denise Aguilar
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Download as DOC, PDF, TXT or read online on Scribd
153 views

Perpetuity

This document provides instructions and 5 problems for an engineering economics take-home exam. The problems involve calculating present values and equivalent amounts for perpetuities using cash flows diagrams and interest rates compounded continuously, bimonthly, quarterly and monthly. Students are asked to show their work and use a 5 decimal place interest rate. The problems cover donations providing recurring scholarships, endowments providing recurring payments to a university, costs of heat exchangers, funds for machine purchase and maintenance, and the capitalized worth of a sewage system.

Uploaded by

Vanessa Denise Aguilar
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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ENGINEERING ECONOMY

TAKEHOME #2 PERPETUITY
Due on or before March 10, 2016 until 5pm
Name:
________

__________________________

Score:

Class Schedule: ________________________


Solve the following problems. Show all your
computations. Draw the cash flow diagram
for each problem and use interest rate with
exactly 5 decimal places.
1.
A fund is to be donated by wealthy
man to provide scholarships to deserving
students. The fund will grant P5,000 for each
semiannual of the first five years, P8000 for
each quarter of the next five years, and
P10,000
each
month
thereafter.
The
scholarship will start one semiannual after
the fund is established. If the fund earns 8%
per year compounded bimonthly, what is the
amount of the donation?

2.
A woman is considering giving an
endowment to a university in order to
provide payments of P15,000, P25,000,
respectively, at the end of the first, and
second semiannual during a year. If the
interest
rate
is
13%
compounded
continuously, what is the capitalized
equivalent that must be deposited now so
that the semiannual payments can be
repeated forever?

3. A heat exchanger is needed in a chemical


process. If interest is 9% compounded
quarterly, determine which of the following is
cheaper by comparing the capitalized costs:
Exchanger A costs P 155,350 with a scrap
value of P 15,000 and a useful life of 7 years.
Exchanger B costs P 165,850 with a scrap
value of P18,500 and a useful life of 10
years.

4. Determine the amount needed now to


purchase a machine for $500,000, provide an
annual fund of P75,000 for operation and
maintenance, and to replace it at the end of
every ten-year period. Money is worth 7.5%
compounded monthly.

5. 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 system are
projected to average $0.6 million per year. If
nominal
rate
is
8%
compounded
continuously, what is the capitalized worth of
the system?

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