1
SEEM 2440A/B - ENGINEERING ECONOMICS
First term (2010 – 2011)
Assignment 2 (Solution)
Due date: 19, October, 2010
Important notes:
1.
You must submit your assignment on time.
No late assignment will be accepted.
2.
You must drop your assignment into the assignment collection box
A09
. Don’t
hand in your assignment to instructor and TAs.
1.
If the relationship between the cost of the item in year
k
(
C
k
) and the cost index in
year
k
(
I
k
)
is given by
.
3
k
k
I
C
Suppose the above relation holds for all years. How do you modify the formula
for
C
n
, the cost of the item in year
n
(
n
>
k
), in P.10 of Chapter 3?
Solution:
By the new relationship:
.
3
k
k
I
C
we can rewrite the cost index model as
follows,
.
,
3
3
k
n
I
I
C
C
k
n
k
n
Problems 2 to 8 are taken from the textbook (
Engineering Economy
, by William G.
Sullivan, Elin M. Wicks, and C. Patrick Koelling, 14th edition, Pearson Education,
Inc. 2009.). The number in the parentheses is the problem number in the textbook.
2.
(3-2) You are planning to build a new home with approximately 2,000 – 2,500
gross square feet of living space on one floor. In addition, you are planning an
attached two-car garage (with storage space) of approximately 450 gross square
feet. Develop a cost and revenue structure for designing and constructing,
operating (occupying) for 10 years, and then selling the home at the end of the 10
th
year.
Note
: Take the list in P.6 of Chapter 3 as a reference. If you find some terms you
are not familiar, search them from internet or ask the TAs. You are not required to
do any calculation. There is no definite answer for this problem.
Solution:
A representative cost and revenue structure for construction, 10-years of
ownership and use, and the sale of a home is:
Cost or Revenue Category
Typical Cost and Revenue Elements
Captial Investment
Real estate (lot) cost; architect/engineering fees;
construction costs (labor,material, other); working capital
(tools, initial operating supplies, etc.); landscaping costs.