Engineering Economic Tutorial chp12 Textbook

Eng Econ - Tutorial 7Aug 2020
1. List three evaluation criteria besides the economic ones for selecting the best automobile to
purchase.
ECONOMIC DECISION: DOWN PAYMENT. CAR LOAN, MAINTENANCE, INSURANCE/ROADTAX
NON ECONOMIC DECISION: PERFORMANCE, SAFETY, COLOUR, STYLING, DESIGN.
2. Identify the following factors as either tangible or intangible: sustainability, installation cost,
transportation cost, simplicity, taxes, resale value, morale, rate of return, dependability,
inflation, acceptance by others, and ethics.
3. Identify at least five areas of personal finances in which engineering economic analysis can
be used by you in the future.
ANS: RETIREMENT PLANNING, CAR LOAN, CREDIT CARD, HOUSE LOAN, INVESTMENT IN
BUSINESSES, SELLING CAR/HOUSE, FINANCIAL DECISION FOR THE COMPANY.
4.0 ETHICS
After starting the wall and roof construction on a custom-designed home, FD, the prime
contractor, realized he was not going to make the big profit that he had anticipated due to the
many unique features of the home for which he had not correctly estimated the cost to the
owners. The contract was fixed-price with no more than 10% override on the total cost. As time
proceeded, FD took the choices of the owners on appliances, finishing work on the floors and
walls, and many other features and purchased look-alike substitutes from questionable-quality,
internationally-based manufacturers and vendors.
After living in the house for only 3 years, the owners were so disappointed with the quality of
work that they decided to bring a law suit against FD and his company for breach of contract.
However, they needed sound reasons upon which to base their legal claims against FD, were the
case to go to court. One of the owners, being an engineer, decided to consult the Code of Ethics
for Engineers to gain insight into what may be substantial violations performed during the
construction phase.
(a) Help the owners by suggesting Code violations and provide a brief logic as to why each one
sited from the Code may be a sound basis for legal action.
Fundamental Canons : clause 4 and 6
(b) Discuss the applicability to this situation of the Engineer’s Code of Ethics.
(c) Suggest other resources that may be of use to the owners as they ponder legal action.
5..Look up the numerical value for the following factors from the compound interest factor tables.
1. (F∕P,10%,7)
2. (A∕P,12%,10)
3. (P∕G,15%,20)
4. (F∕A,2%,50)
5. (P∕G,35%,15)
6..Which of the following 1-year investments has the highest rate of return: $12,500 that yields
$1125 in interest, $56,000 that yields $6160 in interest, or $95,000 that yields $7600 in interest?
7..A new engineering graduate who started a consulting business borrowed money for 1 year to
furnish the office. The amount of the loan was $45,800, and it had an interest rate of 10% per year.
However, because the new graduate had not built up a credit history, the bank made him buy loan-
default insurance that costs $900. In addition, the bank charged a loan set-up fee of 1% of the loan
principal. What was the effective interest rate the engineer paid for the loan?
8.. How much money should a bank be willing to loan a real estate developer who will repay the loan
by selling seven lakefront lots at $120,000 each 2 years from now? Assume the bank’s interest rate is
10% per year.
9.. Atlas Long-Haul Transportation is considering installing Valutemp temperature loggers in all of its
refrigerated trucks for monitoring temperatures during transit. If the systems will reduce insurance
claims by $100,000 in each of the next 2 years, how much should the company be willing to spend
now if it uses an interest rate of 12% per year?
10.. Meggitt Systems, a company that specializes in extreme-high-temperature accelerometers, is in-

vestigating whether it should update certain equipment now or wait and do it later. If the cost now
is $280,000, what is the equivalent amount 2 years from now at an interest rate of 12% per year?
11..A small oil company wants to replace its Micro Motion Coriolis flowmeters with nickel-based
steel alloy flowmeters from the Emerson F-Series. The replacement process will cost the company
$50,000 three years from now. How much money must the company set aside each year beginning 1
year from now in order to have the total amount in 3 years? Assume the company earns a generous
20% per year on investment funds.

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Eng Econ - Tutorial 7Aug 2020

10.. Meggitt Systems, a company that specializes in extreme-high-temperature accelerometers, is in-

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