Engineering Economic Analysis

• --- -._---

Problems 165

1. Present sumsPare beginning of period and all series receipts or disbursementsA
   and future sumsFoccur at the end of the interest period. The compound interest
   tables were derived on this basis.


2. In industrial economic analyses, the appropriate point of reference from which to
   compute the consequences of alternatives is the total firm. Taking a narrower view
   of the consequences can result in suboptimal solutions.


3. Only the differences between the alternatives are relevant. Past costs are sunk costs
   and generally do not affect present or future costs. For this reason they are ignored.


4. The investment problem is isolated from the financing problem. We generally
   assume that all required money is borrowed at interest ratei.


5. For now, stable prices are assumed. The inflation-deflation problem is deferred to
   Chapter 14. Similarly, our discussion of income taxes is deferred to Chapter 12.


6. Often uniform cash flowsor arithmetic gradients are reasonable assumptions. How-
   ever, spreadsheets simplify the finding of PW in more complicated problems.

Problems

Jl

Most problems could be solved with a spreadsheet, but

calculators and tabulated factors are often easier. The

icon indicates that a spreadsheet is recommended.

5-1 ComputePfor the following diagram.

5-3 What is the valueofPfor the situation diagrammed?

200

r I

300

I

200

r

100

5; t

0-1-2-3-4

1

i=10%

100

t 0

0-1-2-3-4

1

i=12%

p p

5-2 Compute the value ofPthat is equivalent to the four

cash flows in the following diagram. (Answer: P=$498.50)

30 5-4 Compute the value ofQin the following diagram.

r t t

0-1-2-3

1

30

r 50 50 50 50 50 50

t t t t t t

0-1-2-3-4-5

1

Q

i= 15%

i= 12%

p

----- - - - -

II~

.,

:IiII

r

t,