EGG 307 HW 2 - 2 Using the formula with modified values of...

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EGG 307: Engineering Economics Spring 2009 Homework No. 2: Due Wednesday 1/28/09 Problems : 2-14; 2-16. Problems : 4-8, 4-10; 4-15, 4-18, 4-19. Notes: (1) For Problem 2-14 , answer the following additional questions: (c) What is the maximum amount of wood products can the company produce and sell without loosing money? (d) Repeat part (a) of the problem, but assume that 10% of the wood products produced are defective and cannot be sold. Hint: You have to modify your revenue function. (2) Hint for Problem 2-16 , develop a profit function and use calculus to determine the value of X that will maximize the profit. (3) For Problems 4-15 and 4-19 , use both the exact formula and the “Rule of 72” and then compare the results. Solutions: (c) This corresponds to the upper limit breakeven point, which is 6,672 units/month (See (b) above). (d) If D units are produced, only 0.9D can be sold, therefore Price, P = 600 – 0.05(0.9D), and Total revenue, TR = [600 – 0.05(0.9D)]x[0.9D] = 540D – 0.0405D
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Unformatted text preview: 2 Using the formula with modified values of a and b , The optimal quantity to be produced, D = (540 – 131.50)/(2x0.0405) = 5,043 units/month Quantity to be sold = 0.9D = 4,539 units/month Price, P = 600 – 0.05x4,539 = $373.06 Total profit = total revenue – total cost = $373.06x4,539 – (900,000 + 131.50x5,043) = $130,076. EGG 307: Engineering Economics Spring 2009 | By using the rule of 72: | No. of years = 72/i% = 72/10 = 7.2 years. | - very close to the exact calculation 4-19 If cash flow doubles every 4 years, then using the rule of 72 , the principle will grow N times over 36 years, where N = 2 (No. of 4-year periods) = 2 9 = 512, Therefore, F = $1,000 x 512 = $512,000 Net gain = 512,000 – 1,000 = 511,000 By exact calculations : 2P = P(F/P, i , 4) Î 2 = (1+ i ) 4 Î i = 2 1/4 – 1 = 18.92% Therefore, F = P(F/P, 18.92%, 36) = $512,000 Net gain = 512,000 – 1,000 = 511,000...
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This note was uploaded on 07/13/2009 for the course EGG a taught by Professor Dr.kaseko during the Spring '09 term at University of Nevada, Las Vegas.

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EGG 307 HW 2 - 2 Using the formula with modified values of...

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