Fundamentals of Engineering Economic Analysis

Assignment
Exercises
1. For an interest rate of 8%, compounded annually, find (i)
how much can be loaned now if Rs. 5,000 will be repaid at
the end of 5 years? (ii) How much will be required in 4
years to repay a Rs 12,000 loan now? ​(3402.92, 16325.87)
2. You bought 100 shares on 2065 Chaitra 31. Your intention
is to keep the stock until it doubles in value. If you expect
15% annual growth for shares, how many years do you
expect to hold on the stock of shares? Compare the solution
obtained by rule of 72​. (5 years)
3. How much invested now at 6% would be sufficient to
provide three payments with the first payment in the amount
of Rs 2,000 occurring at the end of 1​st year, Rs 3,000 at the
end of 5 years, and Rs 4,000 at the end of 3 years?
(7487.04)
4. What equal annual series of payments must be paid into a
sinking fund to accumulate the following amount?
(a) Rs 10,000 in 13 years at 5% compounded annually
(564.56)
(b) Rs 25,000 in 10 years at 9% compounded annually
(1645.50)
(c) Rs 15,000 in 25 years at 7% compounded annually
(237.16)
(d) Rs 8,000 in 8 years at 12% compounded annually
(650.42)
5. Part of the income that a machine generates is put into a
sinking fund to replace the machine when it wears out. If Rs
1,500 is deposited annually at 7% interest, how many years
must the machine is kept before a new machine costing Rs
25,000 can be purchased? ​(11.43)
6. What will be the amount accumulated by each of these
present investments?
(a) Rs 2455 in 10 years at 6% compounded semi annually.
(4434)

Er. Santosh K. Shrestha Er. Ishwar Adhikari

 Fundamentals of Engineering Economic Analysis

(b) Rs 5500 in 15 years at 8% compounded quarterly.

(18037.63)
(c) Rs 21000 in 7 years at 9% compounded monthly
(39335.5)
7. Find the present worth of Rs10, 000 per year for 6 years if
the interest rate is compounded continuously? i=10%
(42900)
8. How much money must be invested in an account that pays
6 percent per year interest to be worth Rs 20,000 at the end
of 8 years if interest is compounded (a) annually (b)
semiannually (c) quarterly (d) monthly (e) weekly?
(12,548.25, 12463.34, 12,419.86, 12,390.48 , 12,379.09)
9. A deposit of Rs1, 000 ten years ago at an interest rate of 8%
per year compounded quarterly would be equivalent to how
much money now? (​2208)
10. How much money should you be willing to pay now for
guaranteed Rs 6000 per year for 9 years starting next year,
at a rate of return of 16% per year? ​(27639.263)
11. Suppose that you make $500 monthly deposits to a tax
deferred retirement plan that pays interest rate of 10%
compounded quarterly. Compute the balance at the end
of 10 years​. ($101,907.90)
12. ABC Company has a major fabrication plants in Kathmandu
and Pokhara The president want to know the equivalent
future value of Rs 10, 00,000 capital investments each year
for 8 years, starting 1 year from now. ABC Company earns
at a rate of 14% per year. ​(13232760.16)
13. An engineer is planning for his early retirement 30 years
from now. He believes he can comfortably set aside Rs 60,
000 each year for 30 years, starting now. If he plans to start
withdrawing money in the same year that he makes his last
deposit (i.e. year 30), what uniform amount could he
withdraw each year for next 30 years, if the account earned
interest at a rate of 8% per year? ​(603759.41)
14. Professional engineers require that Rs 5,000 per year be
placed into a sinking fund account to cover any unexpected

Er. Santosh K. Shrestha Er. Ishwar Adhikari

 Fundamentals of Engineering Economic Analysis

major rework on field equipment. In one case, Rs 5,000 was

deposited for 15 years and covered a rework costing Rs 10,
00,000 in year 15. What rate of interest did this practice
provide to the company? ​(32.12%)
15. An equipment manufacturer is considering replacing its old
spare parts with new one. The company expects to achieve
cost savings of Rs 4000 in the first year and amounts
increases by Rs 850 each year for the next 4 years. At an
interest rate of 12% per year what is the total present worth
of the savings? ​(19856.56)
16. Mr. Hem, an engineer has inspected the average cost on a
cement production for 8 years. Cost averages were steady at
Rs 10,000 per completed unit for the first 4 years, but have
increased consistently by Rs 5,000 per unit for each of the
last 4 years. Hem plans to analyze the gradient increase
using the P/G factor. Where is the present worth located for
the gradient? What is the gradient relation used to calculate
total present worth in year zero? i=10% ​(79126.12)
17. A new machine is expected to cost Rs. 6,000 and have a life
of 5 years. Maintenance costs will be Rs.1500 the first year,
Rs.1, 700 the second year, Rs.1, 900 the third year, Rs.
2,100 the fourth year, and Rs. 2,300 the fifth year. How
much should be deposited in a fund that earns 9% per year,
compounded monthly, in order to pay for this machine? ​(
49298)
18. A father wants to set aside money for his 8 year old son’s
college education, by making annual deposits to a bank
account in his son’s name that pays 8% per annum,
compounded quarterly. What equal deposits must the father
make on the son’s 9​th through 17​th birthdays, in order for the
son to be able to withdraw Rs.4, 000 on each of his four
birthdays from 18​th​ to 21​st​? ​(1044.5)
19. Rs. 90,000 investment is made. Over a 5-year period, a
return Rs 30,000 occurs at the end of the first year. Each
successive year yields a return that is Rs 3,000 less than the
previous year’s return. If money is worth 5 percent, use a

Er. Santosh K. Shrestha Er. Ishwar Adhikari

 Fundamentals of Engineering Economic Analysis

gradient series factor to determine the equivalent present

worth for the investment. ​( 15,173.55)
20. You are preparing the business plan for a new company. A
net revenue analysis covering the first six years is required
for obtaining financing. Net revenue in a year one is
expected to be Rs 50,000 and increase by 15% each year
thereafter. If interest rate is 12% and the net revenue is
assumed to be end of year cash flow, what is the present
value of the cash flow series over the 6 years? ​(286,447.62)
21. Deposits are made at the end of year 1 through 7 into an
account paying 5 percent per year interest. The deposits
start at Rs 40,000 and increase by 15% each year. How
much will be in the account immediately after the last
deposit? ​(50,116.78)
22. What is the amount of 10 equal annual deposits that can
provide five annual withdrawals, when a first withdrawals
of $ 1000 is made at the end of year 11, and subsequent
withdrawals increase at the rate of 6% per year over the
previous year’s , if
(a)The interest rate is 8% compounded annually?
(b)The interest rate is 6% compounded annually? ($307.96,
$ 357.87)
23. A saving bank offers long-term savings certificates at 7.5%
per year, compounded continuously. If a 10-year certificate
costs Rs.100, what will be its value at maturity? Compare
with the value that would be obtained if the interest were
compounded annually rather than continuously​. (48.52,
206.1)
24. A person borrows Rs.5, 000 for 3 years to be repaid in 36
equal monthly installments. The interest rate is 10%per
year, compounded continuously. How much money must be
repaid at the end of the each month? ​(161.5)

Er. Santosh K. Shrestha Er. Ishwar Adhikari