College of Engineering

Engineering Economy GE205

Final Exam

Fall 2014

Time Allowed: 2 hrs.

Draw Cash-Flow diagram to illustrate your solutions

Solve the following 12 problems

1. A company has extra funds to invest for future capital expansion. If the selected investment
pays simple interest, what interest rate would be required for the amount to grow from
$60,000 to $90,000 in 5 years?
2. CGK Rheosystems makes high-performance rotational viscometers capable of steady
shear and yield stress testing in a rugged, compact footprint. How much could the company
afford to spend now on new equipment in lieu of spending $200,000 one year from now and
$300,000 three years from now, if the company uses an interest rate of 15% per year?
3. A company that sells chemicals is considering investing in new equipment. If the new
equipment will cost $220000 to purchase and install, how much must the company save
each year for 3 years in order to justify the investment, if the interest rate is 10% per year?
4. Rolled ball screws are suitable for high-precision applications such as water jet cutting.
Their manufacturing cost is expected to increase because of increased productivity, as
shown in the table. Determine the equivalent annual cost at an interest rate of 15% per
year.
Years 1
2
3
4
5
6
7
8
Cost 200 205 210 215 220 225 230 235
5. A coal-fired power plant has upgraded an emission control valve. The modification first
costs only $8000 and is expected to last 6 years with a $200 salvage value. The
maintenance cost is expected to be high at $1700 the first year, increasing by 11% per year
thereafter. Determine the equivalent present worth of the modification and maintenance
cost at 10% per year.
1+
1 1+
=

6. The contract calls for a mining company to pay $20,000 per year for 20 years beginning 3
years from now (i.e., beginning at the end of year 3 and continuing through year 22) plus
$10,000 six years from now and $15,000 sixteen years from now. Utilize engineering
economy relations to determine the five equivalent values listed below at 15% per year.
a. Total present worth PT in year 0
b. Future worth F in year 22
c. Annual series over all 22 years
d. Annual series over the first 10 years
e. Annual series over the last 12 years

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7. Morris Glass Company has decided to invest funds for the next 5 years. The financial plan
is to invest first, allow appreciation to occur, and then use the available funds in the future.
All cash flow estimates are in $1000 units, and the interest rate expectation is 10% per
year.
Years 1 through 5: Invest $7000 in year 1, decreasing by $1000 per year through year 5.
Years 6 through 10: No new investment and no withdrawals.
Years 11 through 15: Withdraw $20,000 in year 11, decreasing 20% per year through year
15.
Determine if the anticipated withdrawals will be covered by the investment and appreciation
plans (Present Value of the total net cash flow)
8. Find the amount in the account after 10 years from now at an interest rate of 20% per year,
compounded semiannually.

9. An electric switch manufacturing company has to choose one of three different assembly
methods. Method A will have a first cost of $40,000, an annual operating cost of $9000, and
a service life of 2 years. Method B will cost $80,000 to buy and will have an annual
operating cost of $6000 over its 4-year service life. Method C will cost $130,000 initially with
an annual operating cost of $4000 over its 8-year life. Methods A and B will have no
salvage value, but method C will have some equipment worth an estimated $12,000. Which
method should be selected? Use present worth analysis at an interest rate of 10% per year.
10. Compare the alternatives shown below on the basis of a future worth analysis, using an
interest rate of 10% per year. Which alternative should you select? And why?

11. Find the capitalized cost of a present cost of $300,000, annual costs of $35,000, and
periodic costs every 5 years of $75,000. Use an interest rate of 15% per year.
12. Solve problem 10 on the basis of Annual worth analysis, and calculate the Capital Recovery
of each alternative
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