Benefit-Cost Analysis Problems
10.3 The following data are available for a project:
Present worth of benefits $17,000,000
Present worth of operating and maintenance costs $5,000,000
Present worth of capital costs $6,000,000
(a) Find the benefit-cost ratio
Time Value of Money Solutions
2.5
P = 2000
N = 5 years
i = 0.12 per year
F = P(1+i)N = 2000(1+0.12)5 = 3524.68
The bank account will have a balance of $3525 at the end of 5 years.
2.7
From: F = P(1 + i)N
P = F/(1 + i)N = 50 000/(1 + 0.02)20 = 33 648.57
Gr
Comparison Methods Problems
4.2
The intersection of King and Main streets needs widening and
improvement. The possibilities include:
1. Widen King
2. Widen Main
3. Add a left-turn lane on King
4. Add a left-turn lane on Main
5. Add traffic lights at the i
Time Value of Money Problems
2.5
How much will be in a bank account at the end of five years if $2000 is
invested today at 12 percent per annum, compounded yearly?
2.7
Greg wants to have $50 000 in five years. The bank is offering five-year
investment cer
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Cive 292 Tutorial 1
Question 3.13
A manufacturing company made an investment 10 years ago that is now worth $1,500,000.
How much was the initial investment:
a) At a simple interest rate of 10% a year?
b) At an interest rate of 10% a year compounding annua
CivE/EnvE 292 Engineering Economics
Fall 2012
Midterm Exam
3:30 5:30 PM, Wednesday Oct 17, 2012
Prof. B. Hellinga
Check to be sure that you have eight pages containing the 5 questions in this exam.
This exam
Engineering Economics
Mid-Term Exam Formula Sheet
ie = e r 1
is = r/m
ie = (1 + is)n 1
Discrete Compound Interest Factors
Compound amount factor
N
Sinking fund factor
( F / P, i, N ) = (1 + i )
1
( P / F , i, N ) =
(1 + i )N
i
( A / F , i, N ) =
(1 + i )N
Comparison Methods Solutions
4.2
If the city does not widen either King or Main, there are two projects,
stoplights and no stoplights.
If the city widens King, the following 5 projects are available:
Left Lane on King
Stoplights
Advanced Green on King
no
Depreciation and Financial Accounting Problems
6.7
An asset costs $14 000 and has a scrap value of $3000 after seven years.
Calculate its book value using straight-line depreciation: a) After one year; b)
After four years; c) After seven years
6.13
At the
IRR and ERR Problems
5.4
Hector works for a large-scale food company that is considering the replacement
of a scale on its packaging line. What comparison methods(s) would be
appropriate for choosing which scale to buy?
5.12
An advertising campaign will c
Cash Flow Analysis Problems
3.13 An investment pays $10 000 every five years, starting in seven years, for
a total of four payments. If interest is 9 percent, how much is this investment
worth today?
3.15 What is the present worth of the total of 20 payme
Replacement Decisions Solutions
7.3
Only a), c) and h) are capital costs.
b), e) g) and possibly i) are operating and maintenance costs
d), f) and i) are installation costs
7.5
As an example calculation for year 6:
= 10 000(1 0.2)6
Salvage value
= 2621
=
IRR and ERR Solutions
5.4
Since Hector works for a large company, and there is probably detailed
information available about the benefits and costs of new scales, IRR would be
the likely choice. An acceptable alternative would be present or annual worth.
Replacement Decisions Problems
7.3
Which of the following is a capital cost?
a)
b)
c)
d)
e)
f)
A new printer
Paper for a new printer
Cable to link data sensor nodes for a production management system
Transportation costs to move a new kiln from the manufa
Chapter 4: Comparison Methods
Compute PW or AW using MARR. Projects with PW or AW >0 should be accepted
Payback Period:
Chapter 5: Comparison Methods Part 2
The IRR on an investment is the interest rate, i*, such that, when all cash flows
associated with
Assignment 9
Marking scheme:
Q10.4 (5 marks)
part (a) - compute BCR for both projects part (b) - compute MBCR for both projects part (c) - compute BCR for both projects for the increment part (b) - compute the PW of the two projects part (c) - which is th
Value of an Asset(Continued)
We need depreciation model which is able to estimate the book value of an
asset for the following reasons:
1) Need to know the current value of the asset for purposes of borrowing
money.
2) Asset replacement decisions.
3) Gove
Balance Sheet
Example
Researching Motion
TSX: RIM
US : RIMM
Financial Statements part of Annual Report
note: all values int hous and so US
Balance Sheet Assets and Liabilities
Balance Sheet Assets and Liabilities
Balance Sheet Owners Equity
Income Stateme
Reasons for Depreciation
There are three major causes for depreciation:
1)
Use-.related physical loss
e.g.An automobile engine has limited life span because the metal parts
within it wear out.
Expressed/ measured inter ms of units of product one.g. thousa
Values in Financial Statements
Remember that many reported values in financial statements are estimates, and they may differ from the actual market price
Cost principle of accounting:
Assets are to be valued on the basis of their cost (purchase value)
Ass
Measuring the Performance of a firm
Balance sheet
Lists:
Assets
Liabilities(Debts)
Equity of Owner(s)
Income statement
Summarizes revenues and expenses over period
o6me
Lists:income received during period,expenses incurred during the same period
Net incom
Compare this value to the market value of two year old Civic Straight-.line
estimate:$15,919 Market value: 13,995
Example(continued)
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
0
Book Value ($)
Depreciation of Honda Civi