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IE343_HW11_Solutions

# IE343_HW11_Solutions - Homework#11 Solutions PURDUE...

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Homework #11 Solutions PURDUE UNIVERSITY Homework Assignment #11 IE 343: Engineering Economics Assigned: 29 Nov 2010 Fall 2010 Due: 5 Dec 2010 Instructor: A. Capponi Problem 1 (10 points) The auto of your dreams costs \$20,000 today. You have found a way to earn 15% tax free on an auto purchase account. If you expect the cost of your dream auto to increase by 10% per year, how much would you need to deposit in the “auto purchase account” to provide for the purchase of the auto 5 years from now? ANS: The inflation rate is f = 10%. The market rate is i m = 15%. The cost of auto 5 years from now is: ( ) ( ) The amount to deposit now to have \$32,210 five years from now is ( | ) ( | )

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Homework #11 Solutions Problem 2 (10 points) A firm is having a large piece of equipment overhauled. It expects that the machine will be needed for the next 12 years. The firm has an 8% MARR. The contractor has suggested three alternatives: A. A complete overhaul for \$6,000 that should permit 12 years of operation B. A major overhaul for \$4,500 that can be expected to provide 8 years of service. At the end of 8 years, a minor overhaul would be needed.
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