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Assignment 1

This document provides information about an engineering economic analysis assignment. It includes: 1) An assignment asking students to solve and verify 14 problems involving engineering economic analysis. Submissions are due by March 19th, 2020. Late submissions will be reduced by 30%. 2) The submission should be sent by email to Mr. Ahmed Hazem. 3) Two sets of practice problems involving topics like present and future worth, interest rates, loans, and cash flows are provided to solve for the assignment.

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Mai Abd El-Aziz
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
77 views

Assignment 1

This document provides information about an engineering economic analysis assignment. It includes: 1) An assignment asking students to solve and verify 14 problems involving engineering economic analysis. Submissions are due by March 19th, 2020. Late submissions will be reduced by 30%. 2) The submission should be sent by email to Mr. Ahmed Hazem. 3) Two sets of practice problems involving topics like present and future worth, interest rates, loans, and cash flows are provided to solve for the assignment.

Uploaded by

Mai Abd El-Aziz
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Assignment -1

Engineering Economic Analysis

Sherif H. El-Gohary , Phd


[email protected]

1
Assignment Statement
 Each pair of students (Individually is
fine too) is asked to :
Solve two sets of problems included in this
statement (14 problems)
Verify using excel for all problems (14
problems)

Cover page for student names and IDs


2
Submission timing
 Submission deadline date is: Thursday,
March. 19th 2020 @ 11:59 p.m

 Late submission policy:


Starting from “Friday, Mar. 20th 2020 @
12:00 am” your mark will be reduced 30%
(i.e. 10 = 7)
3
Submission method
 Softcopy or Scanned version will be sent via
email to:

 Mr. Ahmed Hazem at:

[email protected]

4
Set 1
1)
Suppose that, to purchase a car, you are obtaining a personal
loan from your uncle in the amount of $75,000 (now) to be
repaid in three years.
If your uncle could earn 9% interest (compounded
annually) on his money invested in various sources, what
minimum lump-sum payment three years from now would
make your uncle happy economically?
2) State the present worth of the following future payments:
$8,000 five years from now at 8% compounded annually.
$10,000 six years from now at 10% compounded annually.
$12,000 eight years from now at 7% compounded annually.
$18,000 ten years from now at 9% compounded annually.

3) A project is expected to generate a cash flow of $8,000 in


year 1, $2,000 in year 2, and $5,000 in year 3. At the interest
rate of 8%, what the maximum amount that you could in the
project at year zero?
4)
What is the amount of 10 equal annual deposits that can provide five
annual withdrawals when a first withdrawal of $3,000 is made at the end
of year 11 and subsequent withdrawals increase at the rate of 6% per
year over the previous year's withdrawal if
a) The interest rate is 8% compounded annually?
b) The interest rate is 6% compounded annually?
5) If you desire to withdraw the following amounts over the next five years
from a savings account that earns 7% interest compounded annually, how
much do you need to deposit now?
Year Amount
2 $5,000
3 $6,000
4 $8,200
5 $4,500

6) How much invested now at an interest rate of 10% compounded annually


would be just sufficient to provide three payments as follows: the first
payment in the amount of $5,000 occurring two years from now, the second
payment in the amount of $7,000 four years thereafter, and the third
payment in the amount of $9,000 six years thereafter.
7)
Suppose that an oil well is expected to produce 1,200,000 barrels of oil during its first
year in production. However, its subsequent production (yield) is expected to increase
by 9% over the previous year's production. The oil well has a proven reserve of
10,500,000 barrels.

(a)
Suppose that the price of oil is expected to be $120 per barrel for the next six years.
What would be the present worth of the anticipated revenue stream at an interest rate
of 10% compounded annually over the next six years?
(b)
Suppose that the price of oil is expected to start at $120 per barrel during the first
year, but to increase at the rate of 3% over the previous year's price. What would be
the present worth of the anticipated revenue stream at an interest rate of 10%
compounded annually over the next six years?
(c)
Consider part (b) again. After three years' production, you decide to sell the oil well.
What would be a fair price?
Set 2

PRACTICE PROBLEMS
1) Find the effective interest rate per payment period for
an interest rate of 8% compounded monthly for each of
the given payment schedule:
(a) monthly
(b) quarterly
(c) semiannual
(d) annual
2) What is the future worth of each of the given series of payments?

(a) $12,000 at the end of each six-month period for 12 years at 8%


compounded semiannually.

(b) $8,000 at the end of each quarter for six years at 12% compounded
quarterly.

(c) $6,000 at the end of each month for 5 years at 6% compounded


monthly.
3)
Ahmed deposits $4,000 in a savings account that pays 8% interest
compounded monthly.

Three years later, he deposits $5,000.

Two years after the $5,000 deposit he makes another deposit in the amount
of $7,000.

Four years after the $7,000 deposit, half of the accumulated money is
transferred to a fund that pays 8% interest compounded quarterly.

How much money will be in each account six years after the
transfer?
4)
What is the present worth of each of the given series of
payments?

(a) $2,700 at the end of each six-month period for 10 years at


8% compounded semiannually.

(b) $10,000 at the end of each quarter for five years at 12%
compounded quarterly.

(c) $14,000 at the end of each month for eight years at 6%


compounded monthly.
5)
Suppose you borrowed $15,000 at an interest rate of 9%, compounded monthly
over 48 months. At the end of first year (after 12 payments), you want to negotiate
with the bank to pay off the remainder of the loan in twelve equal quarterly
payments. Interest rate and compounding frequency remain same. Find the
followings;
a) What is the amount of monthly payment?

b) How much will be paid up to 12th month or at the end of the year?

c) What will be the value of 15,000 after one year?

d) How much is left to be paid in next 36 months?

e) What will be quarterly effective interest rate?

f) What will be the amount of quarterly payment?


6)

Talha is considering the purchase of a used car. The price, including the
title and taxes, is $10,500. Talha is able to make a $2,500 down
payment. The balance, $8,000, will be borrowed from his credit union
at an interest rate of 10% compounded daily. The loan should be paid
in 48 equal monthly payments. Compute the monthly payment.

What is the total amount of interest Talha has to pay over the life of the
loan?
7)

A lender requires that monthly mortgage payments be no


more than one third of gross monthly income, with a
maximum term of 20 years. If you can make only a 20%
down payment, what is the minimum monthly income you
would need in order to purchase a $420,000 house when the
interest rate is 12% compounded monthly?
21

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