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EHENGINEERING ECONOMY

TUTORIAL

SPRING SEMESTER

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I borrowed $15,000 from the bank that charges 10% interest per year compounded monthly. I wish to repay the loan by making 6 annual payments with the first payment will be done three years from now.

a) What will be the size of each payment? b) If the amount of money for first four

payments will be according to the part a , what should be the size of fifth payment in order to pay off the loan?

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Mehmet has been saving money by making deposits of $1000 per month for the past year. He has now decided to withdraw equal amounts from his saving every month starting one month from now. If he wishes to withdraw all his money in six months and the interest rate is 12% per year compounded quarterly, what will be the size of his withdrawals? Assume there is no inter-period compounding.

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A mining company is considering purchasing a machine which costs $30 000 and is expected to last 12 years, with a $3 000 salvage value. The annual operating expenses are expected to be $9 000 for the first 4 years, but owing to decreased use, the operating costs will decrease by $400 per year for the next 8 years. Alternatively, the company can purchase a highly automated machine at a cost of $58 000. This machine will last only 6 years, and its salvage value will be $15 000. Its operating cost will be $4 000 per year. If MARR is 20% per year, which machine should be selected on the basis of a present-worth analysis?

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Two methods can be used for producing expansion anchors. Method A costs $80,000 initially and will have a $15,000 salvage value after 3 years. The operating cost is $30,000per year. Method B will have $120,000 initial cost and $8000 annually for three years. The salvage cost for method B is $40,000. Which method should be used based on present worth analysis? (i=12%)