SHEET 1 ENGINEERING ECONOMY 2019-2020

ECONOMIC ENGINEERING FACTORS

Q1 A company expects to expense the following future maintenance expenditures :-

End of year 2 $12000 , End of year 3 $ 6000

End of year 5 $20000 , End of year8 $13000
What equal amounts would it have to set a side at the end of each year during the next 8 years
in order to provide for these future disbursements ? i = 8 % per year. Ans : A=$6210

Q2
The operating and maintenance costs of a certain piece of equipment are expected to be $5000
the first year and to increase by $500 per year during each remaining year of its expected 10
year life .
(a) what would be the equivalent uniform year end costs ?
(b) what is the present worth of the costs ?. i = 12 % pre year .
Ans : (a)A=$6792 , (b) P=$38378
Q4
A series of 10 payments of $ 1500 is equivalent to 3 equal payments at the ends of years ,
6 , 10 , and 15 at 12 % interest rate per year .What is the amount of these three payments ?.
Ans : $ 8380 .
Q5
A company is considering the purchase of an air compressor . The compressor has a first cost
of $ 5000 and the following end of year maintenance costs :

Year 1 2 3 4 5 6 7 8
Cost $ 800 800 900 1000 1100 1200 1300 1400
What is the present equivalent value of this series of costs if i = 12 % ?.
Ans : $ 10014
Q6
Suppose you hope to make an investment of amount P now such that you can withdraw
an equal annual amount of A1 = $200 per year for the first 5 years starting 1 year
after your deposit and a different annual withdrawal of A2 = $300 per year for the
following 3 years . Calculate the value of P , and the annual uniform series equivalent
using i = 12 % per year . ans : $ 1130 , $ 227.5

Q7
Assume that you want to invest an unknown amount into a factory 2 years from now that
is large enough to withdraw $ 400 per year for 5 years starting 3 years from now .
Construct the cash flow diagram , and determine this amount required , and its equivalent
value now using i=15 % Per year. Ans : F2=$1341 , P=$ 1014

Q8
At what annual interest rate are $450 a year ago and $ 550 one year from now
equivalent ?. Ans ; i = 10.55 %.

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Q9
Find the values of the following using the engineering economy factors.
a. ( P/A , 11% , 7) b.( F/A ,15 % ,5) c.( P / G , 8 % , 12)
d . ( A /G ,9 % ,10) e . ( F /G , 5 % ,6) f. ( P/D factor at , n= 7 years ,
i= 10% and E= 8% )

Ans : a. 4.713 b . 6.7424 c . 34.637 d . 3.7978 e . 16.038 f . 6.0268

Q10
If you purchase a piece of equipment which has a cost of $23000 , what amount of money will
you have to make each year to recover your investment in 6 years using i = 10 % per year .
Ans ; A= $ 5281

Q11

For the cash flow sequence described by { 500 + 30 K } ,where K in years ,

(a) draw the cash flow diagram for year 1 through 9 . (b) determine the value of G
© determine the cash flow amount in year 5 . (d) determine the present worth of the
cash flow in years 1 - 14 if i= 12 % per year . Ans (b) $ 30 (c) $ 650 (d) $ 4454

Q12

For the cash flow listed , determine the value G that will make the equivalent annual
worth equal to $800 using i = 20% per year . Ans : G = $ 470.8

Year 0 1 2 3 4
Cash flow $ 0 200 200+G 200+2G 200+3G

Q13
Determine the value of the present worth of a geometric series for ( n =1,2,3 and 4) for
an interesting rate i=10% , and an escalating rate 6% . Assume D =$1000 at the end of
year 1. Ans : P= $ 3443

Q14
Calculate the present worth of the following series of incomes and expenses . Use i= 8 %
.

Year Income , $ Expense , $

_____________________________________________________
0 12000 1000
1–6 800 100
7 – 11 900 200
______________________________________________________ Ans ; P= $ 15997

Q15
Calculate the annual worth of a machine which has an initial cost of $29,000 , a life 10
years , and an annual operating cost of $ 13,000 for the first 4 years , increasing by 10 %
per year thereafter. Use i=15 % per year. Ans A = $ 20800

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 Summery of formulas used :-

F= P (1+i) ⁿ , P=F / (1+i) ⁿ For single payment

P = A [ (1+i) ⁿ – 1] / i(1 +i) ⁿ For uniform annual series
F= A [( 1+ i) ⁿ– 1 ] / i For uniform annual series
P= G /i { [ (1+i) ⁿ -1] / i( 1+i) ⁿ - n / (1+i) ⁿ } For uniform gradient series
P= D { (1+E) ⁿ/(1+i) ⁿ - 1 } / ( E-i) For escalating ( Geometric ) series
F == Compound amount or future amount
P == Present worth amount G == A mount of uniform gradient
D == A mount of the first year of escalating series E == % increase of escalating series

Q16 . Find the present worth and equivalent annual worth of cash flows shown:_

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