Name (please print)
Luks Gutume
ENG 106 – Engineering Economics
Midterm
Winter 2011
You may use four sheets of handwritten notes. No other reference materials, calculators or other electronic devices
are allowed. State any assumptions, show all your work and explain where appropriate. You may use shorthand
notation, e.g., (P/A, 5%, 3), where helpful. Do not use Excel functions.
The test has four problems and 100 points.
1. Chifung consumes 10 kg of rice per year and plans to continue at this rate for many, many years. He just ran out
of rice, so will make a quick run to COSTCO to replenish his supply. COSTCO currently offers rice in 10kg bags
at $20 each, and 50kg bags at $85 each. Chifung’s market interest rate is 6% per year, and the price of rice is
expected to increase at the general inflation rate of 2% per year.
a) (15 pts) Using present worth
as the basis for comparison, set up all the relationships
needed to determine whether
Chifung should purchase the 10kg bag or the 50kg bag.
Need a common analysis period. For longterm need, different lives (one year for 10kg bag and 5 years
for 50kg bag) and stable “technology” – rice isn’t changing dramatically – the LCM of five years is a
good choice.
Could use either actual $ or yearzero $, but the latter is easier so will do so below. Must use i’ to make
equivalence calcs with constant $: i’ = (1+i)/(1+fbar)1 = (1.06)/(1.02) – 1
10kg bag, purchased at the beginning of each of next five years: PW = $20[ 1 + (P/A, i’, 4)]
50kg bag, purchased now: PW = $85
b) (15 pts) Repeat the analysis in (a), using annual equivalent worth
as the basis for comparison. Again, set up all
the relationships
needed. Relationships using the computational advantages of AEW in this case will receive more
credit.
Easiest approach: Find AEWs in yearzero $ of the “first copies” for the two alts, so the AEWs will
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 Spring '12
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 Foxit Reader, Foxit, general inflation rate, actual dollars, 50kg bag

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