hw2 - • convert each X back to a present value write down...

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CE 167: Engineering Project Management HO08 1 Engineering Economy Assignment 2 HO: Thursday January 31, 2008 DUE: Thursday February 7, 2008 1. (1 point) Write out the formula to show the relationship between P and F while taking time value of money and compounding into account. 2. (5 points) Today, you are borrowing $500 from a friend. She wants you to return that money plus a monthly interest rate of 3% and she wants you to pay back equal amounts of what you owe her at the start of each of the following three months. How much will you be paying her and when? HINT: use the formula from question 1 assume the amount you are looking for is X draw a cash flow diagram showing each X
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Unformatted text preview: • convert each X back to a present value; write down in an equation that when they are added, they should total the amount borrowed. • solve for X 3. (4 points) As the owner of an engineering firm, you are wondering if you should replace your office furniture now or wait and do so 1 year from now. If you do it now, the cost of new furniture and installation will be $3,000. If you wait 1 year from now, the cost is expected to be $3,200. 3.1. (2 points) Draw a cash flow diagram for each of the two alternatives. 3.2. (2 points) Using an interest rate of 5% per year and annual compounding, should you replace your furniture now? Show and explain your rationale....
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