Engineering Economy

Session 1 Assignment (25pts.)

Due: Sunday September 21, 2025 by 11:59 pm CST

Answer the following questions, save your file as: YourInitialsCh2_3_5Answers.xls and submit it in the Session 1 dropbox. You must show all the steps to get full credit . Please submit as an Excel file with all of your calculations shown.

Important Note: Do not use solutions manual, etc. You must submit your own work. If you work with another student or compare answers, etc., you must list the names of the students that you worked with at the top of your homework. Example: I collaborated with John Doe and Barb Smith.

Reminder on Excel Function NPV. NPV function does not include cash flows for time period zero. You must add any cash flows from time period zero to the results of NPV in order to get total Present Worth. Include all years. Don’t leave blanks (use 0s if there is no cash flow for the year).

Chapter 2 Problems

(i) (2 pts) Draw a cash flow diagram for the following: Your company has a project with a first cost of $15,000, a 10 year life, $5,000 of profit at the end of each year, $2,000 of expense at the end of each year, and a salvage value of $2,000 after 10 years. Draw arrows for all cash flows (when they occur and up or down) that will occur. You can draw arrows (like examples on page 37) or create spreadsheet bar chart (like examples on page 38). Follow the convention listed on page 35.

(ii) (2 pts) Note: formula and examples are on page 45 of text. Or you can use Excel Function EFFECT.

a. If the nominal annual interest rate is 5.25%, what is the effective annual interest rate when interest is compounded Quarterly (4 compounding periods).

b. If the nominal annual interest rate is 8%, what is the effective annual interest rate when interest is compounded Daily (365 compounding periods).

Chapter 3 Problems

(iii) (3 pts) What is the monthly payment for a 3 year new car loan, when the nominal annual interest is 6%. After the down payment and other up-front charges, the amount borrowed is $44,000. Show your calculations and results using two methods:

a. Use Engineering Economy factors and the compound interest tables found in Appendix C.

b. Using spreadsheet. Set up table with known values and use Excel payment function (PMT).

c. What is the monthly payment if the loan interest rate is the same, but loan is for 4 years?

(iv) (2 pts) Solve problem 3.15 on p.87 using spreadsheet. Set up table with known values and use Excel - Number of Periods function (NPER). Answer = 26.4 months.

(v) (2 pts) A company is purchasing an existing warehouse and land for $24 million and will pay off the land in 20 equal annual year-end payments.

a. If the interest rate is 7.0%, how much is each payment?

b. If the interest rate is 4.5%, how much is each payment?

(vi) (2 pts) A consulting firm gives their Engineers a $5,000 annual year-end bonus every year until they retire, if they have obtained and retained their Professional Engineer license. If Bob obtains his license and then works and retains his license for an additional 20 years, what is the Present Worth (PW) of the bonus at i=4 %.

Chapter 5 Problems

(vii) (2 pts) Solve problem 5.1 on p 140, but assume Cathy’s discount rate is 10% (instead of 12%).

(viii) (3 pts) Solve problem 5.4 on p.140 using two methods. Answer: Present Worth = $22,891

a. Using spreadsheet. Set up table with known values and use the Excel Present Value function (PV).

b. Using spreadsheet. Set up table with yearly cash flows and use the Excel Net Present Value function (NPV).

c. Why is the $200K not included in the analysis?

(ix) (3 pts) A project has a first cost of $10,000, net annual benefits of $2,500, and a salvage value after 8 years of $3,000. The project will be replaced identically at the end of 8 years and again at the end of 16 years. What is the Present Worth of the entire 24 years of service if the interest rate is 8%?

a. Solve setting up a table with yearly cash flows and use the Excel Net Present Value Function (NPV).

b. Repeat the problem, but assume there is no salvage value.

(x) (2 pts) Determine the down payment that must be made on an automobile that cost $42,000 if you want to make monthly payments of $700 for 48 months if the annual (nominal) interest rate is 6.1%.

(xi) (2 pt) Determine what your monthly loan payment would be if you purchase a new house.

a. Pick a purchase price for a home.

b. Determine a reasonable current market nominal annual interest rate for your home loan. (you can check the internet).

c. Pick either a 15 year or 30 year loan. (180 or 360 monthly payments)

d. What will your monthly loan payment be. Show your work.