ENGINEERING ECONOMY (MS291)

Instructor: Dr. M Sabir

ASSIGNMENT# 2

INSTRUCTIONS:
 This assignment is for both sections (A & B) students.
 Plagiarized (copied) assignments will not be accepted and will be marked zero.
 Submission date is February 26th 2014, (Wednesday) till 12:00 pm. No assignment
will be accepted after deadline.
 Assignment should be on A4 size pages; assignments on pages tear out from note
books will not be accepted.
 Clearly mention your name, Reg No and section on the title page.
 Answer all questions.

1. Metso Automation, which manufactures addressable quarter-turn electric actuators, is planning to

set aside $100,000 now and $150,000 one year from now for possible replacement of the heating
and cooling systems in three of its larger manufacturing plants. If the replacement won’t be
needed for 4 years, how much will the company have in the account, if it earns interest at a rate of
8% per year?

2. Syringe pumps often fail because reagents adhere to the ceramic piston and deteriorate the seal.
Trident Chemical developed an integrated polymer dynamic seal that provides a higher sealing
force on the sealing lip, resulting in extended seal life. One of Trident’s customers expects to
reduce downtime by 30% as a result of the new seal design. If lost production would have cost
the company $110,000 per year for the next 4 years, how much could the company afford to
spend now on the new seals, if it uses an interest rate of 12% per year?

3. In an effort to reduce childhood obesity by reducing the consumption of sugared beverages, some
states have imposed taxes on soda and other soft drinks. A survey by Roland Sturm of 7300 fifth-
graders revealed that if taxes averaged 4 cents on each dollar’s worth of soda, no real difference
in overall consumption was noticed. However, if taxes were increased to 18 cents on the dollar,
Sturm calculated they would make a significant difference. For a student who consumes 100
sodas per year, what is the future worth of the extra cost from 4 cents to 18 cents per soda?
Assume the student consumes sodas from grade 5 through graduation in grade 12. Use an interest
rate of 6% per year.

4. Western Hydra Systems makes a panel milling machine with a 2.7-m-diameter milling head that
emits low vibration and processes stress-relieved aluminum panels measuring up to 6000 mm
long. The company wants to borrow money for a new production/warehouse facility. If the
company offers to repay the loan with $60,000 in year 1 and amounts increasing by $10,000 each
year through year 5, how much can the company borrow at an interest rate of 10% per year?

5. Apple Computer wants to have $2.1 billion available 5 years from now to finance production of a
handheld “electronic brain” that, based on your behavior, will learn how to control nearly all the
electronic devices in your home, such as the thermostat, coffee pot, TV, and sprinkler system.
The company expects to set aside uniformly increasing amounts of money each year to meet its
 goal. If the amount set aside at the end of year 1 is $50 million, how much will the constant
increase G have to be each year? Assume the investment account grows at a rate of 18% per year.

6. High-tech companies such as IBM, AMD, and Intel have been using nanotechnology for several
years to make microchips with faster speeds while using less power. A less well-known company
in the chip business has been growing fast enough that the company uses a minimum attractive
rate of return of 60% per year. If this MARR is an effective annual rate compounded monthly,
determine the effective monthly rate.

7. A small company that makes modular bevel gear drives with a tight swing ratio for optimizing
pallet truck design was told that the interest rate on a mortgage loan would be an effective 4% per
quarter, compounded monthly. The owner was confused by the terminology and asked you to
help. What are (a) the APR and (b) the APY?

8. How much will be in a high-yield account at the National Bank of Arizona 12 years from now if
you deposit $5000 now and $7000 five years from now? The account earns interest at a rate of
8% per year, compounded quarterly.

9. Loadstar Sensors is a company that makes load/force sensors based on capacitive sensing
technology. The company wants to have $28 million for a plant expansion 4 years from now. If
the company has already set aside $12 million in an investment account for the expansion, how
much more must the company add to the account next year (i.e., 1 year from now) so that it will
have the $28 million 4 years from now? The account earns interest at 12% per year, compounded
quarterly.

10. A structural engineering consulting company is examining its cash flow requirements for the next
6 years. The company expects to replace office machines and computer equipment at various
times over the 6-year planning period. Specifically, the company expects to spend $21,000 two
years from now, $24,000 three years from now, and $10,000 five years from now. What is the
present worth of the planned expenditures at an interest rate of 10% per year, compounded
semiannually?