Engineering Economic Analysis

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Problems 167

5-10 Using 5% nominal interest, compounded continu-

ously, solve for,P.

500 500

LJ.. .i

1 2 3

P

5-11 Find Pfor the following cash flow diagram.

1000 1000 1000 1000

r T3t. r TT2+ r r

0-1-2-3-4-5-6-7-8-9-1O-11-12-13~oo

1

i=8%

p

5-12 The annual income from a rented house is $12,000.

The annual expenses are $3000. If the house can be

sold for $145,000 at the end of 10 years, how much

could you afford to pay for it now, if you considered

18% to be a suitable interest rate?

(Answer: $68,155)

5-13 Consider the following cash flow.At a 6% interest

rate, what is the value ofP,at the end of Year 1,

that is equivalentto the benefitsat the end of Years2

through 7?.

Year Cash Flow

1 -P

2 +100

3 +200

4 +300

5 +400

6 +500

7 +600

5-14 How much would the owner of a building be justified
in paying for a sprinkler system that will save $750
a year in insurance premiums if the system has to be
replaced every 20 years and has a salvagevalueequal
to 10%of its initialcost? Assumemoneyis worth7%.
(Answer:$8156)

5-15 Amanufacturer is considering purchasing equipment

which will have the following financial effects:

If money is worth 6%, should he invest in the equip-

ment?

5-16 Jerry Stans, a young industrial engineer, prepared

an economic analysis for some equipment to replace

one production worker. The analysis showed that the

present worth of benefits (of employing one less pro-

duction worker) just equaled the present worth of the

equipment costs, based on a lO-year useful life for

the equipment. It was decided not to purchase the

equipment.

A short time later, the production workers won a

new 3-year union contract that granted them an imme-

diate 40~-per-hour wage increase, plus an additional

25 ~-per-hour wage increase in each of the two sub-

sequent years. Assume that in each and every future

year, a 25 ~-per-hour wage increase will be granted.

Jerry Stans has been asked to r~vise his earlier

economic analysis. The present worth of benefits of

replacing one production employee will now increase.

Assuming an interest rate of 8%, the justifiable cost

of the automation equipment (with a lO-year useful

life) will increase by how much? Assume the plant

operates a single 8-hour shift, 250 days per year.

5-17 In a present worth analysis of certain equipment, one

alternative has a net present worth of +420, based on.

a 6-year analysis period that equals the useful life of

the alternative. A 10% interest rate was used in the

computations.

The alternative device is to be replaced at the

end of the 6 years by an identical item with the

same cost, benefits, and useful life. Based on a 10%

interest rate, compute the net present worth of the

alternative equipment for the 12-year analysis period.

(Answer: NPW =+657.09)

5-18 A project has a net present worth of -140 as of

January 1,2000. If a 10% interest rate is used, what

is the project NPW as of December 31, 1997?

5-19 On February 1, the Miro Company needs to purchase

some office equipment. The company is presently

short of cash and expects to be short for several

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Year Disbursements Receipts

(^0) $4400 $ 0
1 660 880
2 660 1980
3 440 2420
4 220 1760