IE 347 Engineering Economics Problem Set 1
Chapter 2, Problem 5.
Sensotech Inc., a maker of microelectromechanical systems, believes it can reduce
product recalls by 10% if it purchases new software for detecting faulty parts. The cost of
the new software is $225,000. (a) How much would the company have to save each year
for 4 years to recover its investment if it uses a minimum attractive rate of return of 15%
per year? (b) What was the cost of recalls per year before the software was purchased if
the company did exactly recover its investment in 4 years from the 10% reduction?
Chapter 2, Problem 6.
Thompson Mechanical Products is planning to set aside $150,000 now for possibly
replacing its large synchronous refiner motors whenever it becomes necessary. If the
replacement isn’t needed for 7 years, how much will the company have in its investment
set-aside account if it achieves a rate of return of 18% per year?
Chapter 2, Problem 32.
Income from cardboard recycling at Fort Bliss has been increasing at a constant rate of
$1000 in each of the last 3 years. If this year’s income (i.e., end of year 1) is expected to
be $4000 and the increased income trend continues through year 5, (a) what will the
income be 3 years from now (i.e., end of year 3) and (b) what is the present worth of the
income over that 5-year period at an interest rate of 10% per year?
Chapter 2, Problem 36.
For the cash flow shown below, determine the value of G that will make the future worth
in year 4 equal to $6000 at an interest rate of 15% per year.
Year 0 1 2 3 4
Cash Flow 0 $2000 2000–G 2000–2G 2000–3G
Chapter 2, Problem 38.
A start-up direct marketer of car parts expects to spend $1 million the first year for
advertising, with amounts decreasing by $100,000 each year. Income is expected to be $4
million the first year, increasing by $500,000 each year. Determine the equivalent annual
worth in years 1 through 5 of the company’s net cash flow at an interest rate of 16% per
year.
Chapter 2, Problem 42.
Hughes Cable Systems plans to offer its employees a salary enhancement package that
has revenue sharing as its main component. Specifically, the company will set aside 1%
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IE 347 Engineering Economics Problem Set 1
of total sales for year-end bonuses for all its employees. The sales are expected to be $5
million the first year, $6 million the second year, and amounts increasing by 20% each
year for the next 5 years. At an interest rate of 10% per year, what is the equivalent
annual worth in years 1 through 5 of the bonus package?
Chapter 2, Problem 45.
Thomasville Furniture Industries offers several types of high-performance fabrics that are
capable of withstanding chemicals as harsh as chlorine. A certain midwestern
manufacturing company that uses fabric in several products has a report showing that the
present worth of fabric purchases over a certain 5-year period was $900,000. If the costs
were known to geometrically increase by 5% per year during that time and the company
used an interest rate of 15% per year for investments, what was the cost of the fabric in
year 2?
Chapter 3, Problem 8.
BKM Systems sales revenues are shown below. Calculate the equivalent annual worth
(years 1 through 7), using an interest rate of 10% per year.
Year Disbursement, $ Year Disbursement, $
0 4 5000
1 4000 5 5000
2 4000 6 5000
3 4000 7 5000
Chapter 3, Problem 17.
A mechanical engineer who recently graduated with a master’s degree is contemplating
starting his own commercial heating and cooling company. He can purchase a Web page
design package aimed at delivering information only for $600 per year. If his business is
successful, he will purchase a more elaborate e-commerce package costing $4000 per
year. If the engineer purchases the less expensive page now (beginning-of-year
payments) and he purchases the e-commerce package 1 year from now (also beginning-
of-year payments), what is the equivalent annual worth of costs for the website for a 5-
year period (years 1 through 5) at an interest rate of 12% per year?
Chapter 3, Problem 22.
Use the cash flow diagram below to calculate the amount of money in year 5 that is
equivalent to all the cash flows shown, if the interest rate is 12% per year.
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IE 347 Engineering Economics Problem Set 1
Chapter 3, Problem 27.
Find the value of x below such that the positive cash flows will be exactly equivalent to
the negative cash flows, if the interest rate is 14% per year.
Chapter 3, Problem 28.
In attempting to obtain a swing loan from a local bank, a general contractor was asked to
provide an estimate of annual expenses. One component of the expenses is shown in the
cash flow diagram below. Convert the amounts shown into an equivalent uniform annual
amount in years 1 through 8, using an interest rate of 12% per year.
Chapter 3, Problem 30.
Find the value of x in the diagram below that will make the equivalent present worth of
the cash flow equal to $15,000, if the interest rate is 15% per year.
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IE 347 Engineering Economics Problem Set 1
Chapter 3, Problem 32.
Calculate the annual worth (years 1 through 7) of the following series of disbursements.
Assume that i = 12% per year.
Year Disbursement, $ Year Disbursement, $
0 5000 4 5000
1 3500 5 5000
2 3500 6 5000
3 3500 7 5000
Chapter 3, Problem 38.
Herman Trucking Company’s receipts and disbursements (in $1000) are shown below.
Calculate the future worth in year 7 at an interest rate of 10% per year.
Year Cash Flow, $ Year Cash Flow, $
0 –10,000 4 5,000
1 4,000 5 –1,000
2 3,000 6 7,000
3 4,000 7 8,000
Chapter 3, Problem 50.
For the cash flow tabulation, calculate the equivalent uniform annual worth in periods 1
through 10, if the interest rate is 10% per year.
Year Amount, $ Year Amount, $
0 2000 6 2400
1 2000 7 2300
2 2000 8 2200
3 2000 9 2100
4 2000 10 2000
5 2500
Chapter 3, Problem 53.
Compute the future worth in year 10 at i = 10% per year for the cash flow shown below.