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Unformatted text preview: HomeworkAssignment#4Solutions
PU R D U E U N I V E RSI T Y
I E 343 : E n gi n e e r i n g E con om i cs
F a l l 2010
I nst r u c to r : A . C a p pon i
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A ssign e d : 17 Se p t 2010
D u e : 24 Se p t 2010
2 P r ob l e m 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.
P r ob l e m 2
Textbook Problem 493 (10 points) a)
b) For this second part, we have a uniform gradient but the incremental amount is the
unknown.
c) Equate P0 and P0
22,986.4 + 17.806 G = 34,717
17.806 G = 11,730.6
G = $658.80 IE343 HomeworkAssignment#4Solutions Page1 HomeworkAssignment#4Solutions
P r ob l e m 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.
P r ob l e m 4
Textbook Problem 512 IE343 HomeworkAssignment#4Solutions Page2 (10 points) HomeworkAssignment#4Solutions
P r ob l e m 5
Textbook Problem 516 part (a) (15 points) P r ob l e m 6
Textbook Problem 520 (10 points) Or (5 points) P r ob l e m 7
Consider two possible sequences of endofyear returns:
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 pr e f e r r ed to x. (b) i = 5%. We have and , thus y is pr e f e r r ed to x. (c) i = 10%. We have and , thus x is pr e f e r r ed to y. IE343 HomeworkAssignment#4Solutions Page3 ...
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 Spring '11
 Capponi

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