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IE 451 Engineering Economy

Exam #2 Due Tuesday, July 26, 2012 (11:59pm US Mountain Time) Name:_________________
Notes: a. If there is no justification on your answer, you will get ZERO credit. Thus, show your calculation procedure and circle your final answer. b. Use the interpolation technique if the compound interest tables in Appendix B of our text do not provide the value of interest factors. c. Exam Submission Guideline: To submit your exam, you should press

Submit Assignment (see below). You can either type your solution directly in the submission box under the Text Entry menu or submit a single word document file (or a single pdf file with scanned copy of it) as an attachment under the File Upload menu. Please do not email me your work.

(1) If i = 6%, compute the value of D that is equivalent to the two disbursements shown. 200 200 100

(2) Two mutually exclusive alternatives are being considered. Year A B 0 -2500 -6000 1 +746 +1664 2 +746 +1664 3 +746 +1664 4 +746 +1664 5 +746 +1664

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IE 451 Engineering Economy

If the minimum attractive rate of return is 8%, which alternative should be selected? Solve the problem by a. Present worth analysis b. Annual cash flow analysis c. Rate of return analysis

(3) Three mutually exclusive alternatives are being considered. Initial investment Annual net income Computed rate of return A 30000 3055.5 8% B 22000 2077 7% C . 15000 1643 9%

Each alternative has a 20 year useful life with no salvage value. If the minimum attractive rate of return is 7%, which alternative should be selected?

(4) As shown in the cash flow diagram, there is an annual disbursement of money that varies from year to year from $100 to $300 in a fixed pattern that repeats forever. If interest is 10%, compute the value of A, also continuing forever, that is equivalent to the fluctuating disbursement. 300 300 300 300 200 200 200 200 200 200 200 100 100 100 n= A A A A A A A A A A A A A A A i = 10%

(5) You are considering the purchase of a $2,500 stereo. The down payment is $500. The downpayment is due immediately, followed by 12 monthly payments of $200 that are due at the end of each month. What is the nominal annual interest rate that you would pay? What is the effective annual interest rate?

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