ECE 390 WINTER 2015
PROBLEM SET-2
1. Gail has won a lottery that pays her $100,000 at the end of this year, $110,000 at the end
of the next year, $120,000 the following year, and so on, for 30 years. Leon has offered
Gail $2,500,000 today in exchange for
Chapter 4 Questions (From ECE390 Text)
10) What is the IRR for a $1000 investment that returns $200 at the end of each of the next
(a) 7 years?
(b) 6 years?
(c) 100 years?
(d) 2 years?
14) Aline has three contracts from which to choose. The first contract
ECE 390 WINTER 2015
PROBLEM SET-1
1. The next table presents the activities to build a small bridge at a site. The table shows
quantities for each activity, the unit of measurement associated to each activity, and its
unit cost. With these data determine:
ECE390: Fall 2016
Lecture Examples: Engineering Costs, Demand, Supply and Markets
1. DK Transport is considering the profitability of chartering a bus to take people from Waterloo to an
event in Toronto. DK Transport plans to provide transportation, event
ECE390: Lecture Example
Incremental Benefit-Cost Analysis
1. Consider four alternative projects listed in increasing order of investments. Find out the best
alternative for the investment using B/C analysis. Use MARR of 15%.
Input Data
Initial cost
Useful
ECE390 Fall 2016
Lecture Examples: Present Worth, Future Worth, and Annual Worth Analysis
1. A firm is considering two different mechanical devices for installation, to reduce costs. Both devices have useful
lives of five years and no salvage value. Devic
ECE390: Fall 2016
Lecture Examples: Internal Rate of Return
1. Given the net cash flows for three different projects:
Project
0
1
2
3
4
A
-$1000 -$500
$800
$1500
$2000
B
-$1000 $3900
-$5030
$2145
C
$1000
-$450
-$450
-$450
Examine the above cash flows and
ECE390: Fall 2016
Lecture Examples: Interest Rates and Time Value of Money
1. Find the future worth of a principal amount of $500, at 6% interest compounded quarterly, over a
period of 3 years.
Answer: $597.81
2. David deposits $100 in a bank at 5% intere
ECE390 Fall 2016
Lecture Examples: Comparison of Projects
1. Consider two investments. The first costs $1 today and returns $2 in one year. The second costs
$1000 and returns $1900 in one year. Which is the preferred investment if MARR = 70%?
Answer: The
ECE390: Fall 2016
Lecture Examples: ERR, Approximate ERR and MIRR
1. The Boeing Company has received a NASA contract worth $460 million to build rocket boosters
for future space missions. NASA will pay $50 million when the contract is signed, another $360
ECE390 Fall 2016
Lecture Examples: Payback Period, Benefit Cost Analysis
1. The first cost of a project is $10,000. The project accrues an annual savings of $2,000. Find the
simple payback and discounted payback with a discount rate of 10%.
Answer: Simple
ECE390: Fall 2016
Lecture Examples: Depreciation
1. Consider the following automobile data:
Cost basis of the asset, P
= $10,000
Useful life, N
= 5 years
Estimated salvage value, S = $2,000
Compute the annual depreciation allowances and the resulting book
ECE390: Fall 2016
Lecture Examples: Gradient Series Cash Flows
1. On a certain piece of machinery, it is estimated that the maintenance expenses will be as follows:
Year
1
2
3
4
Maintenance +$100
+$200
+$300
$400
What is the equivalent uniform annual main
ECE 390 WINTER 2015
PROBLEM SET-3
1. Data for two independent investment opportunities are shown below:
Initial cost
Revenues (annual)
Costs (annual)
Scrap value
Service life
Machine A
$ 1,500,000
$ 900,000
$ 600,000
$ 100,000
5 years
Machine B
$ 2,000,00
ECE 390 WINTER 2015
PROBLEM SET-8
1. Regional Express is a small courier service. By introducing a new computerized tracking
device, it anticipates some increase in revenue, currently estimated at $2.75 per parcel.
The possible new revenue ranges from $2.
ECE 390 WINTER 2015
PROBLEM SET-7 SOLUTION
1. A=Annual Savings
i= interest rate
The total savings are defined as follows:
= ( , , ) =
(1 + ) 1
For each case, we need to solve for N (the number of years) using the following function:
50000 =
(1 + ) 1
Th
ECE 390 WINTER 2015
PROBLEM SET-8 SOLUTION
1. The expected value of the revenues per parcel is calculated as the summation of the
multiplications between the possible revenues per parcel and their corresponding
probabilities :
= 2.95 0.1 + 3.25 0.35 + 3.
ECE 390 WINTER 2015
PROBLEM SET-7
1. The Kelowna Go-Kart Klub has decided to build a clubhouse and track several years
from now. The club needs to accumulate $50,000 by setting aside a uniform amount at
the end of every year. It believes it is possible to
ECE 390 WINTER 2015
PROBLEM SET-5
1. Charlie has a project for which he had determined a present worth of $56,740. He now
has to calculate the IRR for the project, but unfortunately he has lost complete information
about the cash flows. He knows only that
ECE 390 WINTER 2015
PROBLEM SET-4 SOLUTION
1. MARR=6%
a) Exact ERR
Reinvest 10,000 at 6% for one year and calculate net flow at year 1
1 = 10000 (1 + 0.06) 8000 = 2600
Since flow is positive, reinvest again and calculate net flow at year 2
2 = 2600 (1 +
ECE 390 WINTER 2015
PROBLEM SET-6
1. You are in charge of organizing an alumni reunion next year and have started a WBS that
has five major groupings: food, guests, facilities, reunion event, and supervision. Organize
the work packages below into the appr
ECE 390 WINTER 2015
PROBLEM SET-4
1. A cash flow sequence has a receipt of $10,000 today, followed by a disbursement of
$8,000 at the end of this year and again next year, and then a receipt of $5,500 three
years from now. The MARR is 6 percent.
(a) What
Chapter 3 Questions (From ECE390 Text)
3) Yun is deciding among a number of business opportunities. She can
(a) Sell the X division of her company, Yunco
(b) Buy Barzoo's company, Barco
( c ) Get new financing
(d) Expand into Tasmania
There is no sense in