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HW 10 - gasoline prices will increase at 12 per year...

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Eng Econ Set No. 03 Problem No. 1: A project will cost $50,000. The benefits at the end of the first year are estimated to be $10,000, increasing at a rate of $1,000 per year in subsequent years (i.e., an arithmetic series). Using a 10-year analysis period and a 8% interest rate, compute the benefit-cost ratio. Problem No. 2: An investor is considering buying some land for $100,000 and constructing an office building on it. Three different buildings are being analyzed. Using a benefit-cost ratio analysis and an interest rate of 8%, determine which alternative, if any, should be selected. Building Height 2 Stories 5 Stories 10 Stories Land cost 100,000 100,000 100,000 Bldg cost 400,000 800,000 2,100,000 Resale value after 200,000 300,000 400,000 20 yrs Net annual income 70,000 105,000 256,000 Problem 3: An automobile manufacturer has an automobile that gets 25 miles/gallon of gasoline. It is estimated that
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Unformatted text preview: gasoline prices will increase at 12% per year, compounded annually, for the next eight years. The auto manufacturer thinks that the improvements in auto design will keep pace with the increase in gasoline cost so that the fuel cost will remain constant. To achieve this, what will be the rate of gas consumption of new automobiles eight years from now? Problem 4: A person bought a 5% tax-free municipal bond which cost $1,000 and will pay $50 interest each year for 20 years. The bond will mature at the end of the 20 years and return the original $1,000. If there is 2% annual inflation during this period, what rate of return will the person receive after the effect of inflation has been accounted for?...
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