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Problem 1: (20 Points)

This document contains a midterm exam for an engineering economics course with 4 problems: 1) Calculate the value of A that makes two annual cash flows equivalent at a 13% interest rate. 2) Compare the costs of purchasing, leasing, or purchasing with a discount a vehicle over 42 months using present value calculations. 3) Calculate the equivalent annual payment over 5 years to cover maintenance costs that increase with inflation, given estimates of inflation and investment return rates. 4) Determine the quarterly deposit amount that will allow withdrawing the amounts in a cash flow diagram at an 8% quarterly interest rate.

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Tamara al bittar
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32 views3 pages

Problem 1: (20 Points)

This document contains a midterm exam for an engineering economics course with 4 problems: 1) Calculate the value of A that makes two annual cash flows equivalent at a 13% interest rate. 2) Compare the costs of purchasing, leasing, or purchasing with a discount a vehicle over 42 months using present value calculations. 3) Calculate the equivalent annual payment over 5 years to cover maintenance costs that increase with inflation, given estimates of inflation and investment return rates. 4) Determine the quarterly deposit amount that will allow withdrawing the amounts in a cash flow diagram at an 8% quarterly interest rate.

Uploaded by

Tamara al bittar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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LEBANESE Dept.

: Civil engineering
UNIVERSITY Semester : 5
ENGINEERING Date : 24 may 2014
FACULTY Prof. : Dr T. Al-Bittar
BRANCH I
Documents Forbidden Duration : 2 hours
Midterm Exam

ENGINEERING ECONOMICS

Problem 1: (20 Points)


What value of A makes two annual cash flows equivalent at 13% interest compounded
annually?

Problem 2: (35 Points)


Suppose you intend to own or lease a vehicle for 42 months. Consider the following three
ways of financing the vehicle:
• Option A: Purchase the vehicle at the normal price of $32,508, and pay for the vehicle over
42 months with equal monthly payments financing. The price of resale the vehicle at the end
of the 42 months is $17,819
• Option B: Purchase the vehicle at a discount price of $31,020 to be paid immediately. The
price of resale the vehicle at the end of the 42 months is $17,819
• Option C: Lease the vehicle for 42 months.
If the funds that would be used to purchase the vehicle are presently earning 4.5% annual
interest compounded monthly, which financing option is a better choice?
Hint: compare the three options at the present time (n=0).
Problem 3: (25 Points)
A company is considering buying workstation computers to support its engineering staff. In
today's dollars, it is estimated that the maintenance costs for the computers (paid at the end of
each year) will be $25,000, $30,000, $32,000, $35.000, and $40.000 for years one through
five, respectively. The general inflation rate (f) is estimated to be 8% per year, and the
company will receive 15% per year on its invested funds during the inflationary period.
The company wants to pay for maintenance expenses in equivalent equal payments (in actual
dollars) at the end of each of the five years. Find the amount of the company's annual
payment.

Problem 4: (20 Points)


What is the amount of the quarterly deposits A such that you will be able to withdraw the
amounts shown in the cash flow diagram if the interest rate is 8% compounded quarterly?

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