Engineering Economics

Questions & Answers

4. Retirement planning. - Calculate the amount needed at the beginning of retirement and the yearly savings during the accumulation phase for the following case. Data: yearly retirement income $20,000; years to be covered 30, retirement account rate 6%; return on the investment during accumulation phase 10%; years until retirement 20.

6. Bond valuation: fair price (present value). - Calculate the fair value of a bond with the following characteristics: face $1,000; coupon rate 8%; years until maturity 12; investor's required return 9%

3 A new equipment has a life of 15 years and requires an initial investment of $200,000. It has operation and maintenance costs at $20,000 per year. The equipment also requires a yearly license with an expected cost of $500 for the first year, and it is expected that this license cost will increase by $500 per year. Considering a yearly interest rate of 4%, determine the present worth of the investment.

6) A construction business requires a water pump for their operations. According to their estimate the current water pump has a yearly maintenance cost of $35,000 and it could last for 7 more years.

7. Jonah has two equipment options, use PW to determine which option should be selected. Consider a 5% interest rate per year. • Option 1 has an initial cost of $650, delivers yearly benefits of $250, and has a duration of 3 years. • Option 2 has an initial cost of $950, delivers yearly benefits of $400, and has a duration of 4 years.

9. Jimmy saved $350 each month for 35 years for his retirement. Determine the value of his savings at the end of the 35 years. Considering your future value calculations, determine the amount that he could withdraw monthly for the following 20 years. Also, determine how much he could withdraw each month indefinitely. Use a 9% interest rate per year.

1) if you should take on the project if the MARR is 20%.  [1 point] 2) Analysis how the following factors will change the decision of whether you accept the project: Initial investment - $50, 000 Unit Price - $100 Unit Cost - $50 Each factor will change between -25% to 25%. [2 points] 3) Explain which factor has the most impact on project's profitability [1 point] 4) Plan for the worst-case scenario from Step 2 and determine if a project should still be accepted? [1 point] Bonus Mark [1 point] Determine the breakeven unit price and unit cost. 

13. Jimmy is considering buying a 3D printer and his options are as follows. Using a 5% interest rate per year, determine the Present worth and which option he should choose.

A city Water company is comparing 2 plans for supplying water to new subdivisions as the city expands Plan A: will cover requirements for the next 20 years and costs $450 000. After 20 years a 2nd facility will have to be added at the same cost. To maintain the required level of service yearly maintenance will have to be done at an estimated $2500, with yearly operating costs expected at $40 000 for the first 10 years, then increasing by $1000 for years 11-20. This cost is expected to double once the 2nd facility is built. Major overhauls to the facilities are projected to be required every 20 years at a costs of $75 000 per facility. Plan B: will supply all water for the area indefinitely into the future, although the facility will operate at half capacity for the first 20 years. Annual operating costs over this period are expected to be $35 000, then will increase to $65 000 in year 21 with yearly maintenance being $1500. The initial cost for this plan is $600 000, with major overhauls required every 40 years at an estimated cost of $200 000. a) Perform a present value analysis on each of the options for a single service life cycle if i=10%. What values do you get for each option? b) Is this a reasonable way to compare these 2 machines? Explain your why or why not what approach you would recommend for a better comparison, c) The resident's will be charged based on the annual equivalent amount. What is the annual equivalent amount for each of the plans, and which version would you recommend to Halifax Water? Explain your reasoning ANSWER, A,B AND C.

1. What is the NPV of this project? 2. What is the IRR of this project? 3. Is the project acceptable according to the guidelines of the two previous criteria?

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