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Homework 8

The document outlines an engineering economy assignment with four problems related to cash flows, investment analysis, and equipment costs. It includes calculations for annual equivalent cash flows, capital costs, net savings per machine hour, and a comparison of two machines for a company's needs over seven years. The assignment requires the application of financial principles and interest rates to determine the best investment options.

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5 views1 page

Homework 8

The document outlines an engineering economy assignment with four problems related to cash flows, investment analysis, and equipment costs. It includes calculations for annual equivalent cash flows, capital costs, net savings per machine hour, and a comparison of two machines for a company's needs over seven years. The assignment requires the application of financial principles and interest rates to determine the best investment options.

Uploaded by

meliscmen
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

IE223 - ENGINEERING ECONOMY

ASSIGNMENT 8
1. The Solar Energy Company is producing electricity directly from a solar source by using a
large array of solar cells and selling the power to the local utility company. Because these
cells degrade over time, thereby resulting in lower conversion efficiency and power output,
the cells must be replaced every four years, which results in a particular cash flow pattern that
repeats itself as follows: n = 0, -$600,000; n = 1, $400,000; n = 2, $300,000; n = 3, $200,000;
and n = 4, $100,000. Determine the annual equivalent cash flows at i = 10%.

2. You are considering investing $65,000 in new equipment. You estimate that the net cash
flows will be $18,000 during the first year, but will increase by $2,500 per year the next year
and each year thereafter. The equipment is estimated to have a 10-year service life and a net
salvage value of $5,000 at that time. Assume an interest rate of 9%.

(a) Determine the annual capital cost (ownership cost) for the equipment.
(b) Determine the equivalent annual savings (revenues).
(c) Determine whether this is a wise investment.

3. You have purchased a machine costing $30,000. The machine will be used for two years,
and at the end of this time, its salvage value is expected to be $18,000. The machine will be
used 6,000 hours during the first year and 8,000 hours during the second year. The expected
annual net savings will be $35,000 during the first year and $42,000 during the second year. If
your interest rate is 12%, what would be the equivalent net savings per machine hour?

4. Your company needs a machine for the next seven years, and you have two choices
(assume an annual interest rate of 15%).

 Machine A costs $100,000 and has an annual operating cost of $47,000. Machine A
has a useful life of seven years and a salvage value of $15,000.
 Machine B costs $150,000 and has an annual operating cost of $30,000. Machine B
has a useful life of five years and no salvage value. However, the life of Machine B
can be extended by two years with a certain amount of investment. If Machine B’s life
is extended, it will still cost $30,000 annually to operate and still have no salvage
value.

What would you pay at the end of year 5 to extend the life of Machine B by two years?

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