Homework 3

# Homework 3 - E 60 Engineering Economy Autumn 2007-2008...

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E 60 Engineering Economy October 30 Autumn 2007-2008 Homework 3 Solutions Professor Samuel Chiu Homework 3 Solutions 3.27 Assumption: The bills of any month are paid at the end of the month, i.e., bill of June is paid at the end of June. We need compute present value of the savings from the bills. This gives the maximum amount Anita should spend on the insulation. The cash flow diagram in a year is: \$25 \$25 \$25 \$40 \$40 \$40 0 2 3 4 8 9 10 12 Present value of the savings in the first year: 185 ) 7 %, 75 . 0 , | )( 3 %, 75 . 0 , | ( 40 ) 1 %, 75 . 0 , | )( 3 %, 75 . 0 , | ( 25 = + = F P A P F P A P P .5 Then the total present value of the savings over 5 years is: 5 . 781 ) 48 %, 75 . 0 , | ( 5 . 185 ) 36 %, 75 . 0 , | ( 5 . 185 ) 24 %, 75 . 0 , | ( 5 . 185 ) 12 %, 75 . 0 , | ( 5 . 185 5 . 185 = + + + + = F P F P F P F P P 3.41 The table is like this: End of Month Interest Payment Repayment of Principal Remaining Loan Balance 1 112.50 260.78 14739.22 2 110.54 262.74 14476.48 3 108.57 264.71 14211.78 4 106.59

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Homework 3 - E 60 Engineering Economy Autumn 2007-2008...

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