Scribd
Upload
24 views

Assignment I (Answers)

This document provides instructions for Assignment 1 in Engineering Economics. It is divided into two sections: Practice and Spreadsheet. The Practice section contains 6 exercises to be answered in a Word file, involving cash flow diagrams, economic equivalence, present and future worth calculations. The Spreadsheet section contains 2 exercises to be completed using the provided Excel templates, involving simple vs compound interest calculations over multiple years. Students are asked to submit both the Word and Excel files on Canvas.

Uploaded by

rachidsqali123
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
24 views

Assignment I (Answers)

This document provides instructions for Assignment 1 in Engineering Economics. It is divided into two sections: Practice and Spreadsheet. The Practice section contains 6 exercises to be answered in a Word file, involving cash flow diagrams, economic equivalence, present and future worth calculations. The Spreadsheet section contains 2 exercises to be completed using the provided Excel templates, involving simple vs compound interest calculations over multiple years. Students are asked to submit both the Word and Excel files on Canvas.

Uploaded by

rachidsqali123
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Pr.

El Hafdaoui
AUI, FALL. 2023
EGR 2302

Al Akhawayn University in Ifrane


School of Science & Engineering
Engineering Economics

Assignment I

Instructions:
 This homework is divided into two sections:
o Practice
o Spreadsheet

 The practice section should be answered and submitted in MS Word file.

 The spreadsheet section should be answered and submitted in MS Excel file. The
spreadsheet templates are gathered one the same Excel file, and this latter is available
on Canvas.

 To submit your work, log in to Canvas, and upload each file individually under
‘Assignment #1’. Please, do not zip your files.

Part I - Practice (Total 60 points):


Note: The questions to this part should be answered in a MS Word file.

Exercise 1 (5pts):
Construct a cash flow diagram to find the present worth in year 0 of a $900 expenditure in
year 3, a $700 receipt in year 3, and $250 expenses in each of years 5 and 7 at an interest rate
of 10% per year

$200
$250
Exercise 2 (15pts):
Use economic equivalence to determine the amount of money or value of i that makes the
following statements correct.
a. $7,000 today is equivalent to $6,070 exactly 1 year ago at i = 15.3% per year.
b. A car that costs $20,000 today will cost $20,800 a year from now at i = 4% per year.
c. At i = 5% per year, a car that costs $20,000 now, would have cost $19,048 one year ago.
d. Last year, Ayoub borrowed $20,000 to buy a jet. He repaid the principal of the loan plus
$2,750 interest after only 1 year. This year, his brother Kamal borrowed $15,000 to buy
a car and expects to pay it off in only 1 year plus interest of $2295. The rate that each
brother paid for his loan is 13.75% for Ayoub and 15.30% per year for Kamal.

Exercise 3 (10pts):
A company needs a $1 million balance in its contingency fund 3 years from now. The CFO
(chief financial officer) wants to know how much to deposit now into the company’s high-yield
investment account. Determine the amount if it grows at a rate of 20% per year (a) simple
interest, and (b) compound interest.
𝑭
(a) 𝑷 = 𝟏+𝒏𝒊 ≈ $𝟔𝟐𝟓, 𝟎𝟎𝟎
(b) 𝑷 = 𝑭 × (𝑷/𝑭, 𝟐𝟎%, 𝟑) ≈ $𝟓𝟕𝟖, 𝟕𝟎𝟒

Exercise 4 (10pts):
Afriquia Gas wants to have enough money available 7 years from now to purchase a new gas
station. If the estimated cost is $430,000, how much should the company set aside each year if
the funds earn 6% per year? Draw the cash flow diagram.
𝑨 = 𝑭 × (𝑨/𝑭, 𝟔%, 𝟕) ≈ $𝟓𝟏, 𝟐𝟑𝟎

Exercise 5 (10pts):
An arithmetic cash flow gradient series equals $300 in year 1, $350 in year 2, and amounts
increasing by $50 per year through year 9. At i = 7% per year, determine the present worth of
the cash flow series in year 0 and annual worth from year 1 to year 9. Draw the cash flow
diagram.
𝑷𝑻 = 𝑷𝑨 + 𝑷𝑮 = 𝟑𝟎𝟎 × (𝑷/𝑨, 𝟕%, 𝟗) + 𝟓𝟎 × (𝑷/𝑮, 𝟕%, 𝟗) ≈ $𝟑, 𝟏𝟏𝟐
𝑨𝑻 = 𝑨𝑨 + 𝑨𝑮 = 𝟑𝟎𝟎 + 𝟓𝟎 × (𝑨/𝑮, 𝟕%, 𝟗) ≈ $𝟒𝟕𝟖
G = $50
A = $300
Exercise 6 (10pts):
Calculate the present worth of a geometric gradient series with a cash flow of $20,000 in year
1 and increases of 4% each year through year 6. The interest rate is 8% per year. Draw the cash
flow diagram.
𝟏+𝒈 𝟏 + 𝟎. 𝟎𝟒
𝟏 − ( 𝟏 + 𝒊 )𝒏 𝟏 − (𝟏 + 𝟎. 𝟎𝟖)𝟔
𝑷=𝑨× = 𝟐𝟎, 𝟎𝟎𝟎 × ≈ $𝟏𝟎𝟏, 𝟑𝟏𝟕
𝒊−𝒈 𝟎. 𝟎𝟖 − 𝟎. 𝟎𝟒

A = $20,000
g = 4%

Part II - Spreadsheet (Total 40 points):


Note: For every exercise in this section, use its allocated spreadsheet template.

Exercise 7 (20pts):
Mousa and Younes both invest $700 at 8% per year for 5 years. Mousa receives simple interest,
and Younes gets compound interest. Use the spreadsheet and appropriate equations to fill out
the cells. Assume no withdrawals or further deposits are made during the 5 years.

Exercise 8 (20pts):
You are a well-paid engineer with a well-established international corporation. In planning for
your retirement, you are optimistic and expect to make an investment of $1,000 in year 1 and
increase this amount by 10% each year.
a) From your spreadsheet, how long will it take for your account to have a future worth of
$80,000 at a rate of return of 5% per year? 20 years
b) From your spreadsheet, how long will it take for your account to have a future worth of
$100,000 at a rate of return of 5% per year? 22 years

Note: For the present worth computations, use the NPV function, and for the future worth, use
the FV function. Add more years if needed.

You might also like