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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 486 (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 493
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 512 (10 points) ( (
( ) (
)
) )
( (
) IE 343 – Homework Assignment #4 Solutions – Page 2 ) Homework Assignment #4 Solutions
Problem 5
Textbook Problem 516 part (a) (15 points)
( )( ( )( ) ) Problem 6
Textbook Problem 520 (10 points)
(
( ) ) (
( )
) Or
(
( ) (
) )
( ) Problem 7
Consider two possible sequences of endofyear 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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