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    Assignment #5 (Sep2019) - GDB3023-Solution

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    Danish Zabidi
    The document contains engineering economics problems and their solutions related to topics like compound interest, uniform series, equivalent annual cost, and present worth analysis. Problem examples include calculating the number of years until an investment goal is reached, determining the maximum justified extra cost of a more fuel efficient vehicle, and recommending whether to install insulation based on a present worth analysis of future heating cost savings versus the installation cost.

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    Assignment #5 (Sep2019) - GDB3023-Solution

    Uploaded by

    Danish Zabidi
    310 views4 pages
    The document contains engineering economics problems and their solutions related to topics like compound interest, uniform series, equivalent annual cost, and present worth analysis. Problem examples include calculating the number of years until an investment goal is reached, determining the maximum justified extra cost of a more fuel efficient vehicle, and recommending whether to install insulation based on a present worth analysis of future heating cost savings versus the installation cost.

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    The document contains engineering economics problems and their solutions related to topics like compound interest, uniform series, equivalent annual cost, and present worth analysis. Problem examples include calculating the number of years until an investment goal is reached, determining the maximum justified extra cost of a more fuel efficient vehicle, and recommending whether to install insulation based on a present worth analysis of future heating cost savings versus the installation cost.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    310 views4 pages

    Assignment #5 (Sep2019) - GDB3023-Solution

    Uploaded by

    Danish Zabidi
    The document contains engineering economics problems and their solutions related to topics like compound interest, uniform series, equivalent annual cost, and present worth analysis. Problem examples include calculating the number of years until an investment goal is reached, determining the maximum justified extra cost of a more fuel efficient vehicle, and recommending whether to install insulation based on a present worth analysis of future heating cost savings versus the installation cost.

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    © All Rights Reserved
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    of 4

    GDB3023

    ENGINEERING ECONOMICS & ENTREPRENEURSHIP


    SEPTEMBER 2019
    ASSIGNMENT #5 [CLO1]

    4-30 Luis wants to have $2,000,000 in net worth when he retires. To achieve
    this goal, he plans to invest $10,000 each year (starting one year from now)
    into an account that earns 10% interest compounded annually. The amount
    of time before Luis can retire as a multimillionaire is how many years?

    Solution

    Use the uniform series compound amount factor to find the equivalence between
    $2,000,000 and $10,000 per year for N years:

    $2,000,000 = $10,000(F/A, 10%, N)

    $2,000,000 = $10,000[(1+ 0.1)N - 1]/ 0.1

    200 = [(1 + 0.1)N - 1]/0.1

    20 + 1 = (1.1)N

    log(21) = N log(1.1)

    N = 31.94 years (call it 32 years)


    4-33 Automobiles of the future will most likely be manufactured largely with
    carbon fibers made from recycled plastics, wood pulp, and cellulose.
    Replacing half the ferrous metals in current automobiles could reduce a
    vehicle’s weight by 60% and fuel consumption by 30%. One impediment to
    using carbon fibers in cars is cost. If the justification for the extra
    sticker price of carbon-fiber cars is solely based on fuel savings, how much
    extra sticker price can be justified over a six-year life span if the carbon-
    fiber car would average 39 miles per gallon of gasoline compared to a
    conventional car averaging 30 miles per gallon? Assume that gasoline costs
    $4.00 per gallon, the interest rate is 20% per year, and 117,000 miles are
    driven uniformly over six years.

    Solution

    The carbon fiber automobile would average around 39 miles per gallon of gasoline.
    The dollar savings in fuel per year is

    117,000 117,000
    𝐴=[ 6 − 6 ] ($4.00) = $600
    30 39

    The extra sticker price that can be afforded is $600(P/A, 20%, 6) = $1,995. This is not
    a whole lot of room to wiggle compared to the sticker price of the conventional car. So
    the cost of manufacturing carbon fiber automobiles must be made much more
    competitive against conventional ferrous−aluminum car bodies and parts.
    4-40 Qwest Airlines has implemented a program to recycle all plastic drink cups
    used on their aircraft. Their goal is to generate $5 million by the end of
    the recycle program’s five-year life. Each recycled cup can be sold for
    $0.005 (1/2 cent).

    (a) How many cups must be recycled annually to meet this goal? Assume
    uniform annual plastic cup usage and a 0% interest rate.

    (b) Repeat Part (a) when the annual interest rate is 15%.

    (c) Why is the answer to Part (b) less than the answer to Part (a)?

    Solution

    (a) N = $1 million per year / $0.005 per cup = 200,000,000 cups per year

    (b) N = $5 million (A/F, 15%, 5)/($0.005 per cup) = 148,300,000 cups per year.

    (c) The compounding of interest.

    4-45 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 security cameras?

    Solution

    A = $500,000(A/P, 15%, 6) = $500,000(0.2642) = $132,100


    4-82 The heat loss through the exterior walls of a certain poultry processing
    plant is estimated to cost the owner $3,000 next year. A salesperson from
    Superfiber Insulation, Inc., has told you, the plant engineer, that he can
    reduce the heat loss by 80% with the installation of $18,000 worth of
    Superfiber now. If the cost of heat loss rises by $200 per year (uniform
    gradient) after the next year and the owner plans to keep the present
    building for 15 more years, what would you recommend if the interest rate
    is 10% per year?

    Solution

    Savings in heat loss: $3,000(0.8) = $2,400 next year


    Savings will increase by: $200(0.8) = $160 each year (gradient)

    P0(savings) = $2,400(P/A,10%,15) + $160(P/G,10%,15)


    = $2,400(7.6061) + 160(40.15)
    = $24,678.64

    The present equivalent value of the savings is greater than the installation cost of
    $18,000. Therefore recommend installing the insulation.

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