EGG 307 Exam 2 Solutions

# EGG 307 Exam 2 Solutions - EGG 307 ENGINEERING ECONOMICS...

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EGG 307: ENGINEERING ECONOMICS 2 nd Midterm Exam - Sample Solution Problem 1 Solution (a) Nominal interest rate/quarter, r = 12%/4 = 3%; Compounding periods, m = 3 (months); N = 3x4 = 12 quarters Effective interest rate per quarter = (1+r/m) m = (1 + 0.03/3) 3 – 1 = 3.03% Therefore, A = -\$50,000(A/P, 3.03%, 12) = -50,000 + + 1 0303 0 1 0303 0 1 0303 0 12 12 ) . ( ) . ( . = -\$5,032 (a) Nominal interest rate per month, r = 12%/12 = 1%; Compounding is continuous; N = 36 months Therefore, A = P 1 1 rN r rN e e e ) ( = -50,000 1 1 36 01 0 01 0 36 01 0 x . . x . e ) e ( e = -\$1,662 Problem 2 Solution (a) To use present worth analysis, assume repeatability of the investments and use a common analysis period of N = 12 years PW(A) = -\$300,000 –300,000(P/F, 15%, 4) – 300,000(P/F, 15%, 8) + 110,000(P/A, 15%, 12) = -\$300,000 –300,000x0.5718 – 300,000x0.3269 + 110,000x5.421 = +\$26,700 PW(B) = -\$650,000 – 650,000(P/F,15%, 6) + 200,000(P/F,15%, 6) + 200,000(P/F,15%, 12)

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EGG 307 Exam 2 Solutions - EGG 307 ENGINEERING ECONOMICS...

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