EGG 307 HW 10 - EGG 307 Engineering Economics Homework No...

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EGG 307: Engineering Economics Homework No. 10: Sample Solutions. Q1. Problem 8-6 Calculate and compare the PW value of the two alternatives Alternative A : Cash flows are in “actual dollars”, therefore calculate PW based on the “market” interest rate, i c = r + f + f = 0.09 + 0.06 + (0.09)(0.06) = 0.1554 Î 15.54% PW(Alt. A) = -120,000(P/F, 15.54%, 1) -132,000(P/F, 15.54%, 2) -148,000(P/F, 15.54%, 3) -160,000(P/F, 15.54%, 4) = -$388,466 (Using formulae) Alternative B : Cash flows are in “real dollars”, therefore calculate PW based on the “real” interest rate, = 9% PW(Alt. B) = -100,000(P/A, 9%, 4) - 10,000(P/A, 9%, 4) = -100,000(3.2397) - 10,000(4.511) = -$369,080 (Using factors from tables) Hence, Alternative B has lower present worth of costs. Q2. Problem 8-58 All cash flows are in “actual dollars”, therefore calculate PW based on the “market” interest rate, = + + = 0.098 + 0.02 + (0.098)(0.02) = 0.12 Î 12% PW(Alt. A) = -27,000 + 4,000(P/A, 12%, 5) = -$2,581
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EGG 307 HW 10 - EGG 307 Engineering Economics Homework No...

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