Engineering Economics

Assignment:

Complete the following problems using an Excel spreadsheet. You must show your work to get full credit.

1. Assume that you are planning on purchasing a new car for \$30,000. You will be able to make a down payment of \$5,000. The remaining \$25,000 will be financed by the dealer. The dealer computes your monthly payment to be \$650.00 for 48 months of financing. What is the dealer’s annual rate of return on this car loan?
1. Consider the following projects with the following sequences of cash flows:

Period                                                  Net Cash Flow

n                                   A                     B                     C                   D

0                              \$-30,000          -\$25,000          \$45,250           -\$60,000

1                              \$14,000           \$35,000           -\$20,000          -\$3,500

2                              \$25,000           \$35,000           -\$20,000          -\$7,250

3                              \$35,500           -\$28,000          -\$20,000          \$90,250

a)      Which of the projects represent simple investments?

b)      Which of the projects represent nonsimple investments?

c)      Compute the i* for each project.

d)     Which of the projects has no rate of return?

1. Consider the following project’s cash flows:

n                      Net Cash Flow

0                          -\$5,000

1                           \$1,000

2                            \$750

3                               X

Assume that the project’s IRR is 12%.

a)      Find the value of X.

b)      Is the project acceptable at MARR = 10%?

Formatting:

Text Size: All of the text in this assignment needs to be set in 10 or 12-point size. Please resist the temptation to mix and match point sizes. If you doubt your applications intentions, just select all of your text and insure that it is in 10 or 12-point size.

Margins: The right and left side can be set for ½” (0.5) margins. Set the top and bottom margins to one (1”). The only text that ends up on the outside of the one-inch margin is the page number.

Name Block: Place the name block in the upper left corner of the page. In MS Excel, use the left side cells. In this class the name block only needs to be on the first page. Put your name first, then the class title and then the date. Example:

TECH 452 –Engineering Economics

Title: Skip one cell and place the title on the left, just below the name block. The title for this assignment is “Homework 5”.

Spelling/Grammar Checking: Remember to do your spelling and grammar checking before turning your assignments in. When doing the spelling/grammar checking keep in mind that some words such as mush and must, woods and words, or here and cow, will not be caught by either check. To correct these problems, you will need to proofread your work.

Page Numbers: Any homework that has more than one page needs to have page numbers on it. Please place your page numbers on the bottom of the page. In MS Excel, use the footer selection and place the page number in the bottom center or bottom right of the page.

Content:

Problem Number: List each problem’s number on the left, placing a blank cell above it.

State or summarize the Problem: For this assignment,you may state the problem either exactly as it appears in the book or you may summarize the all the values, terms and percentages. This is to help insure that you use the correct values in your calculations. If you chose to summarize, this will count as stating the given. You will need to break long text up between cells so that you will stay with-in the printing boundaries of the page.

State the Given: Skip one cell and write the word “Given:” Follow that with what is known from the problem. If the problem has multiple parts, place the letter of each part before the “Given”. If the problem has a table, then reproduce the table.

Solve the Problem: Show your work in solving the problem

Problem Tip:

The i* represents the breakeven interest rate that makes the PW of the project equal to zero. The symbol IRR represents the internal rate of return of the investment. For a simple (or pure) investment, IRR = i*. For a nonsimple investment, generally i* is not equal to IRR.