IE343_HW6_Solutions

# IE343_HW6_Solutions - Homework Assignment#6 Solutions...

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Homework Assignment #6 Solutions IE 343 Homework Assignment #6 Solutions Page 1 PURDUE UNIVERSITY Homework Assignment #6 IE 343: Engineering Economics Assigned: 01 Oct 2010 Fall 2010 Due: 08 Oct 2010 Instructor: A. Capponi Missing name on the top of each page submitted 2 Not stapled together 2 Not completed on the correct template 10 Problem 1 (15 points) Find the internal rate of return of a two-year investment that, for an initial payment of \$1,000, generates a revenue of \$500 at the end of the first year, and a revenue of \$300 at the end of the second year. The present worth of this investment as a function of the interest rate i is given by ( ) ( ) Let . In order to find the internal rate of return i, we need to find to solve the second order equation which may be rewritten as thus yielding and Since i > -1, then x > 0. Therefore, the solution is . 1000 500 300 0 1 2

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Homework Assignment #6 Solutions IE 343 Homework Assignment #6 Solutions Page 2 Problem 5-46 (15 points) A small company purchased now for \$23,000 will lose \$1,200 each year the first four years. An additional invested \$8,000 in the company during the fourth year will result in a profit of \$5,500 each year from the fifth year through the fifteenth year. At the end of 15 years, the company can be sold for \$33,000.
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