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Alexandria University Second Year Production

Faculty of Engineering 2nd Semester (2019-2020)


Production Engineering Department Engineering Economy – HS x64

3. Arithmetic Series
1. Find the equivalent present worth and equivalent annual worth for each payment series in the
table below if i=10% compounded annually.

Year 0 1 2 3 4 5 6
A - - 100 200 300 400 500
B - 200 300 400 500 600 700
C - 700 600 500 400 300 200
D - - 100 200 300 - 500

2. Suppose that annual income from a rental property is expected to start at EGP 1,300 per year
and decrease at a uniform amount of EGP 50 each year after the first year for the 20-year expected
life of the property. The investment cost is EGP 8,000 and the interest is 10% per year. Is this a
good investment?

3. A manufacturing firm is seeking a loan of EGP 200,000 to finance production of a new production
line. The bank had agreed to loan the firm an amount equal to 90% of the present worth of firm orders
received for delivery during the next 5 years. The orders received are 25,000 during the 1st year, 20,000
during the 2nd year, 15,000 during the 3rd year, 10,000 during the 4th year and 5,000 during the 5th
year. If the product will be sold for EGP 4 each, will the present worth of the orders received justify
the loan required? The interest is 10% compounded annually.

4. The heat loss through the exterior walls of a certain poultry processing plant is estimated to
cost the owner EGP 3,000 next year. A salesman from Super fiber Insulation, Inc., has told you,
the plant engineer, that he can reduce the heat loss by 80% with the installation of EGP 18,000
worth of super fiber now. If the cost of heat loss rises by EGP 200 per year (gradient) after the next
year and the owner plans to keep the present building for 15 more years, what would you
recommend if the interest rate is 10% per year?

5. Find the value of the unknown quantity in the following cash flow diagram to establish
equivalence of cash inflows and outflows. Let i = 8% compounded annually.

500 500 500


400
300
200
100

5 6 7 8 9

1 2 3 4