IME 301 Engineering Economy, ksk

Exam 1 MODEL
All questions carry equal marks. Round off all answers to the second decimal place. Express
interest rates as percent.
1. Find the value of Q in the following cash flow diagram for i1!"#
1 ! $ %
Q
!&&
'
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!. Find the value of R in the following cash flow for i1!"#
R
1&& 1&& 1&& 1&&
1 ! $ %
'
1&&
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$. Find the value of * in the following cash flow for i1!"#
+&
1!&
1,&
&
*
1 !
$
%
!%&
'
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%. Find the value of - in the following cash flow for i1!"#
-

- -
- -
!&
%&
+&
,&
& '
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'. Find the value of . in the following cash flow for i 1!"
$&& $&&
!&& !&&
1&& 1&&
& & & &
1 ! $ % ' + / , 0 1&yrs
.
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+. A ('1&&& loan is 2eing repaid in five end)of)year payments. 3f the first four of them equals
(1&&& each1 what is the value of the last payment4 3nterest is 1!".
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/. 5hat sum of money now is equivalent to (,!'& three years from now1 if interest is 1!" per
year1 compounded semi)annually4
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,. 3n how many years will a sum of money triple1 if invested at 1!" annual interest1 compounded
quarterly4
)))))yrs.
0. 3f the annual effective interest rate is 1!"1 what is the nominal monthly interest rate if
compounding is done monthly4
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1&. 3f a credit card company charges $" each month on the unpaid 2alance1 compounded
monthly1 what is the nominal annual rate 2eing charged4
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11. 3f a credit card company charges $" each month on the unpaid 2alance1 compounded
monthly1 what is the effective annual rate4
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1!. At a furniture company1 customers who purchase on credit1 pay an annual effective interest
rate of $+" 2ased on monthly compounding. 5hat is the nominal1 annual interest rate they pay4
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1$. 3f a 2ank pays 1!" interest 6per year7 on savings accounts 2y continuous compounding1 what
would 2e the value of (1&& deposited today after ' years.
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1%. -o repay a (1&&& loan1 a man paid (0& at the end of each month for fifteen months. 5hat
was the 6annual7 nominal interest rate4 Assume monthly compounding.

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1'. A couple starts saving for their retirement 2y putting (1&&& at the end of this year and
increasing the savings 2y '" each year. 3f the savings earn +" annual interest1 what would 2e the
value of their savings at the end of $& years4
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1+. 3n pro2lem 1'1 if the savings earn '" annual interest rate1 what would 2e the value of the
couple8s savings at the end of $& years4
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1/. 3f 9athy deposits (1'&& in a 2ank savings account that pays 1&" interest per year1
compounded daily1 how much will she have in her account at the end of two and one)half years4
6:ne year $++ days7
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1,. An engineering student 2ought a (/' 2icycle and agreed to pay for it with a single (,'
payment at the end of six months. Assuming semi)annual compounding1 what is the annual1
effective interest rate4
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10. ;ompute the value of . in the cash flow diagram 2elow if the interest rate is 1!"1
compounded quarterly#
'&&
%&&
$&&
%&&
$&&
.
1 ! $ % 'yr
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!&. ;ompute the value of < in the cash flow diagram 2elow if the interest rate is 1!"1
compounded every six months.
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!1. -he <ro2lem solving process or the Engineering decision making process is descri2ed in a
sequence of steps involving the following steps. ;hoose the correct sequence of the steps.
a. 11!1$1%1'1+ 6 7
!!. -he engineering economic principles and methods are used in what step of the engineering
decision making process4
a. <ro2lem analysis 6 7
!$. An am2itious person who wants to enhance her status in life is planning to attend college and
is evaluating the total cost of her college education. *he has to give up her current =o2 in a
laundry at an annual salary of (1,1&&&. -his (1,&&& will 2e counted as#
a. life enhancing cost 6 7
!%. :ne important concept that engineers should take from the study of engineering economics is#
they should design their products
a. to minimi>e life cycle cost 6 7
!'. A consulting firm sells its engineering hours at the rate of (0& per hour. -he cost per hour for
the firm including salary and 2enefits is (+&. -he fixed cost for the firm including rent1
<
(1&& 1&& 1&& 1&& 1&& 1&& 1&& (1&&
! % + , 1& 1! 1% 1+yrs.
supervision1 heating ? lighting is ($&&1&&& per year. After how many num2er of hours the
company will start making profit in a year4
a. @ot enough information 6 7