engineering economics

ENGINEERING ECONOMIC ANALYSIS

Due on Thursday 3-24-2016

DRAW ALL CASH FLOW DIAGRAMS

1. Determine the rate of return of the following investment using calculator.

Year	$
0	-5000
1	1000
2	2000
3	3000
4	4000

2. A consulting company plans to purchase a new computer network for $125,000 to save $35,000/year over its projected 9 year life from doing all their CAD activities in house. At the end of its life, the salvage value of this system is estimated to be $12,500. What is the rate of return of this investment (I want the actual rate) and is it a good idea if the MARR = 8%/year?

3. An individual has $50,000 to invest. The government treasury bills (T-bills) pay 3.5% interest per year. She considers investing in the stock parket instead, by buying a stock that now sells for $35 each and pays an anuual dividend of $7/per stock. She thinks that after 7 years the stock will be selling for $55 each. What is the rate of return of the stock investment and is it a better deal than the T-bills?

4. Compare the following two alternatives by the IRR method, given MARR of 6%/year.

Alt.	Construction cost $	Benefits $/yr	Salvage $	Service Life (yrs)
A	110,000	45,000	10,000	7
B	275,000	55,000	25,000	7

5. Compare the following two alternatives by the IRR method, given MARR of 8%/year.

Alt.	Construction cost $	Benefits $/yr	Salvage $	Service Life (yrs)
A	510,000	145,000	10,000	7
B	775,000	155,000	20,000	9

6. Compare the following 3 alternatives of the same service life (5 years) using the ROR (Differential Rate of Return) method with a MARR = 10%/year. Verify your hand calculations using the Excel’s built in function.

Year	A	B	C
0	-250,000	-400,000	-1,000,000
1	300,000	350,000	650,000
2	450,000	475,000	500,000
3	350,000	425,000	450,000
4	300,000	350,000	400,000
5	200,000	250,000	300,000