IE343_HW4_Solutions - HomeworkAssignment#4Solutions...

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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 Missing name on the top of each page submitted Not stapled together 2 Not completed on the correct template 10 H om e w o r k A ssign m e n t #4 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 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. P r ob l e m 2 Textbook Problem 4-93 (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 5-12  IE343 HomeworkAssignment#4Solutions Page2 (10 points) HomeworkAssignment#4Solutions  P r ob l e m 5 Textbook Problem 5-16 part (a) (15 points) P r ob l e m 6 Textbook Problem 5-20 (10 points) Or (5 points) P r ob l e m 7 Consider two possible sequences of end-of-year 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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