057:014 Engineering Economy



Engineering Economy NAME ___________________

Quiz #3 Date: February 14, 2003

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1) The Present Worth of the costs of a car lease, over 3 years, is $17,112.54. The alternative of a car loan involves an upfront payment of $4,000 and a monthly payment of $711 over 36 months. Show, using shorthand economic form, what is the minimum value of the used car that you could obtain in year 3 that would still make a loan preferable to a lease. Assume i = 12% per year

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a) What is the main advantage of using payback for evaluating a project?

It is simple.

b) What are the main drawbacks to using payback for evaluating a project?

1) No consideration of timing

2) No consideration of cashflow after breakeven point

c) What is the Internal Rate of Return for a project, expressed in terms of the Present Worth?

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2)

A proposed project has the following cash flows for each year:

|0 |1 |2 |3 |4 |

|-200,000 |+34,000 |+40,000 |+100,000 |+120,000 |

a) Calculate the Present Worth when MARR = 0%. Do not use shorthand economic form!

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= 94,000

PW = -200,000+34,000+40,000+100,000+120,000

b) Calculate the Future Worth at Year 4 (use shorthand economic form!)

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c) The maintenance for the new Trans-Pacific road tunnel will cost $11 million per year. What is the Capitalized Equivalent Cost, assuming an interest rate of 10%

[pic]=110,000,000

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