IE343_HW4_Solutions

IE343_HW4_Solutions - Homework Assignment #4 Solutions...

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Unformatted text preview: Homework Assignment #4 Solutions PURDUE UNIVERSITY IE 343: Engineering Economics Fall 2010 Instructor: A. Capponi Homework Assignment #4 Assigned: 17 Sept 2010 Due: 24 Sept 2010 Missing name on the top of each page submitted – 2 Not stapled together – 2 Not completed on the correct template – 10 Problem 1 Textbook Problem 4-86 (10 points) For the first series, the amount $1,000 is at the end of year 0. To get A1, this quantity needs to be multiplied by the interest rate (1,000 x 1.05) ( )[ (| )( | )] ( ) For P2, the $2,000 is A1. [ (| ( [ ( )( )( ) )] )] [ ( )( )] Thus, select Series 2. Problem 2 Textbook Problem 4-93 a) (10 points) [ (| )( | )] [ ( )( )] b) For this second part, we have a uniform gradient but the incremental amount is the unknown. ( ) ( ) ( ) ( ) c) Equate P0 and P0’, and solve for G 22,986.4 + 17.806 G = 34,717 17.806 G = 11,730.6 G = $658.80 IE 343 – Homework Assignment #4 Solutions – Page 1 Homework Assignment #4 Solutions Problem 3 (10 points) How much would the owner of a building be justified in paying for a sprinkler system that will save $750 a year in insurance premiums if the system has to be replaced every 20 years and has a salvage value equal to 10% of its initial cost? Assume MARR = 7%. 750 750 750 0.1X 750 .... 0 1 2 19 20 X (| ) (| ) X = 8,156.30 If the price of the sprinkler system is less than $8,156.30, then PW>0, and the system is economically justified. Problem 4 Textbook Problem 5-12 (10 points) (| (| ( ) (| ) ) ) ( (| ) IE 343 – Homework Assignment #4 Solutions – Page 2 ) Homework Assignment #4 Solutions Problem 5 Textbook Problem 5-16 part (a) (15 points) ( )( ( )( ) ) Problem 6 Textbook Problem 5-20 (10 points) ( (| ) ) ( ( ) ) Or (| (| ) ( ) ) ( ) Problem 7 Consider two possible sequences of end-of-year returns: (5 points) x= (20, 20, 20, 15, 10, 5) and y = (10, 10, 15, 20, 20, 20) Which sequence is preferable if the interest rate, compounded annually, is In all parts, we need to compute the present value ( ) and ( ) of the two cash sequences x and y, where ( ) denotes the present value of x when the interest rate per period is i. (a) i = 3%. We have () and () , thus y is preferred to x. (b) i = 5%. We have () and () , thus y is preferred to x. (c) i = 10%. We have () and () , thus x is preferred to y. IE 343 – Homework Assignment #4 Solutions – Page 3 ...
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