IE4503

ENGINEERING ECONOMICS

Assignment #1

Instructions:
Due date: 07.08.2012
Solutions should be written single-sided on A4 or 8 x 11 inch white good
quality paper. Pages must be numbered in sequence.
Students names and numbers should be typed on the top of the first
page.
All pages should be attached together.


1. A local defense contractor is considering the production of fireworks as a way to
reduce dependence on the military. The variable cost per unit is $40 D. The fixed
cost that can be allocated to the production of fireworks is negligible. The price
charged per unit will be determined by the equation p=$180 (5)D, where D
represents demand in units sold per week.

a. What is the optimum number of units the defense contractor should
produce in order to maximize profit per week?
b. What is the profit if the optimum number of units are produced?

2. A large wood products company is negotiating a contract to sell plywood
overseas. The fixed cost that can be allocated to the production of plywood Is
$900,000 per month. The variable cost per thousand board feet is $131.50. The
price charged will be determined by p=$600 (0.05)D per 1,000 board feet.

a. For this situation determine the optimal monthly sales volume for this
product and calculate the profit (or loss) at the optimal value.
b. What is domain of profitable demand during a month?

3. A municipal solid-waste site for a city must be located at Site A or Site B. After
sorting, some of the solid refuse will be transported to an electric power plant
where it will be used as fuel. Data for the hauling of refuse from each site to the
power plant are shown in the following table.

a. If the power plant will pay $8, 00 per cubic yard of sorted solid waste
delivered to the plant, where should the solid-waste site be located? Use
the citys viewpoint and assume that 200,000 cubic yards of refuse will be
hauled to the plant for one year only. One site must be selected.
Site A Site B
Average hauling distance 4 miles 3 miles
Annual rental fee for solid waste site $5,000 $100,000
Hauling cost $1,50 /yd
3
mile $1,50 /yd
3
mile
b. Referring to the electric power plant, the cost Y in dollars per hour to
produce electricity is Y = 12 + 0.3X + 0.27X
2
, where X is in megawatts.
Revenue in dollars per hour from the sale of electricity is 15X 0.2X
2
.
Find the value of X that gives maximum profit.

4. How much interest is payable each year on a loan of $2,000 if the interest rate is
10% per year when half of the loan principal will be repaid as a lump sum at the
end of four years and the other half will be repaid in one lump-sum amount at the
end of eight years? How much interest will be paid over the eight-year period?

5. How much should be deposited each year for 12 years if you wish to withdraw
$309 each year for five years, beginning at the end of the 14th year? Let i=8%
per year.

6. You purchase special equipment that reduces defects by $10,000 per year on an
item. This item is sold on contract for the next five years. After the contract
expires, the special equipment will save approximately $3,000 per year for five
years. You assume that the machine has no market value at the end of 10 years.
How much can you afford to pay for this equipment now if you require a 20%
annual return on your investment? All cash flows are end-of-year amounts.

7. Solve the value of Z in the accompanying figure, so that the top cash-flow
diagram is equivalent to the bottom one. Let i=8%per year.














8. A certain fluidized-bed combustion vessel has an investment cost of $100000, a
life of 10 years, and negligible market (resale) value. Annual costs of materials,
maintenance, and electric power for the vessel are expected to total $10,000. A
major relining of the combustion vessel will occur during the fifth year at a cost of
$30,000. If the interest rate is 15% per year, what is the lump-sum equivalent
cost of this project at the present time?