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Engineering Economy Assignment

This document provides the instructions for Assignment #1 for the Engineering Economy course taught by Dr. M Sabir in Spring 2015. It states that the assignment is due on March 10th, 2015 and must follow specific formatting guidelines. It then lists 5 questions related to engineering economics concepts like loans, interest rates, discounts, and cash flows. Students are asked to calculate things like interest payments on loans, amounts of discounts, amounts that can be borrowed at different interest rates, payback periods to justify investments, and future worth of cash flows.

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Babar Ali Roomi
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375 views2 pages

Engineering Economy Assignment

This document provides the instructions for Assignment #1 for the Engineering Economy course taught by Dr. M Sabir in Spring 2015. It states that the assignment is due on March 10th, 2015 and must follow specific formatting guidelines. It then lists 5 questions related to engineering economics concepts like loans, interest rates, discounts, and cash flows. Students are asked to calculate things like interest payments on loans, amounts of discounts, amounts that can be borrowed at different interest rates, payback periods to justify investments, and future worth of cash flows.

Uploaded by

Babar Ali Roomi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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SPRING 2015

ENGINEERING ECONOMY (MS291)


Instructor: Dr. M Sabir
ASSIGNMENT# 1
INSTRUCTIONS:
 This assignment is for both sections (A & B) students.
 Submission date is 10th March 2015 (Tuesday) during class timings. No assignment will be
accepted after deadline.
 Assignment should be on A4 size pages; assignments on pages tear out from note books will
not be accepted.
 Clearly mention your Name, Reg No and Section on the title page.

Answer all questions.

1. XYZ manufacturing borrowed $1 million ($1,000,000) for installing new packaging equipment to
its assembly line. The lander set the terms for loan such that the company could pay interest only
at the end of each year for up to 5 years, after which the company would have to pay the entire
amount due. If the interest rate on the loan was 15% per year and the company paid only the
interest for 4 years, determine the following:
a) The amount of each of the four interest payments
b) The amount of the final payment at the end of year 5

2. In economics the term “recession” means the period during which the price of goods and services
goes down mainly due to low demand. A company that makes Ethernet adapters is planning to
expand its production facility at a cost of $1,500,000 one year from now. However, a contractor
who needs work has offered to do the job for $950,000 if the company will do the expansion now
instead of 1 year from now. If the interest rate is 16% per year, how much of a discount is the
company getting?

3. Western Hydra Systems makes a panel milling machine with a 2.7-m-diameter milling head that
emits low vibration and processes stress-relieved aluminum panels measuring up to 6000 mm
long. The company wants to borrow money for a new production/warehouse facility. If the
company offers to repay the loan with $60,000 in year 1 and amounts increasing by $10,000 each
year through year 5, how much can the company borrow at an interest rate of 10% per year?

4. A company that sells high-purity laboratory chemicals is considering investing in new equipment
that will reduce cardboard costs by better matching the size of the products to be shipped to the
size of the shipping container. If the new equipment will cost $220,000 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?

5. Henry Mueller Supply Co. sells tamperproof, normally open thermostats (i.e., thermostat closes
as temperature rises). Annual cash flows are shown in the table below. Determine the future
worth of the net cash flows at an interest rate of 10% per year.

Year 1 2 3 4 5 6 7 8
Income, $1000 200 200 200 200 200 200 200 200 200
Cost, $1000 90 90 90 90 90 90 90 90

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