INS-301E Engineering Economics 2022-2023 Fall Semester Homework

In the problem, the last number of your student number will be used as Y, and the second last
number will be used as X.
For example → if Student ID: 010170067; X=6, Y=7 → The monthly interest rate: 1.67%
Question 1: Calculate the equal quarterly (3 months) payments for a loan of 125,000 TL which
will be repaid in 5 years. The monthly interest rate is 1.XY%. Also, calculate the annual
effective interest rate for this monthly interest rate. (20 Points)
The calculated effective annual interest rate will be used for solving the second question.
Question 2: Entertainment Showland, one of North America's leading entertainment center
chains, decided to establish an entertainment complex in Istanbul due to its international and
metropolitan character. When the cost structure of the company is analyzed, it is seen that
the highest cost item consists of “rent expenses”. Therefore, the construction investment will
be made by the company. They contacted Cesur İnşaat Müşavirliği A.Ş. and requested a
detailed report to clarify their investment decisions in Turkey. Cesur İnşaat Müşavirliği A.Ş. has
provided an analysis that will form the basis of the feasibility report for two alternative
projects.
• First alternative: To construct the building system as reinforced concrete.
• Second alternative: To construct the building system as steel construction.
1st alternative
• Expected lifetime: 30 years,
• Construction cost: (133+Y) million TL,
• Land development cost: (35+Y) million TL,
• Salvage value (at the end of the lifetime): (38,5+X) million TL,
• Maintenance cost: 9 million TL at the end of the 9th year, 13 million TL at the end of
the 11th year, 7 million TL per year starting from the end of the 20th year,
• HVAC and fuel expenses: 4,X million TL per year,
• Operating expenses: 11,X million TL per year,
• Revenue: (45+Y) million TL per year,
2nd alternative
• Expected lifetime: 40 years,
• Construction cost: (163+X) million TL,
• Land development cost: (35+X) million TL,
• Salvage value (at the end of the lifetime): (62+Y) million TL,
• Maintenance cost (at the end of the lifetime): 6,5 million TL per year,
• HVAC and fuel expenses: 10,X million TL per year,
• Operating expenses: 13,Y million TL per year,
• Revenue: (55+Y) million TL per year,
As a result of the negotiations with Cesur İnşaat Müşavirliği A.Ş., construction of both
alternatives will be completed, and operation will start at the end of the 1st year (incomes
and expenses will occur at the end of the 2nd year). A company named “International
Entertainment and Show Center” has been established in Turkey for investment. It is
determined that the required investment can be made with a loan. The interest rate is the
annual effective interest rate calculated in the previous question (in Question 1). For such
investments, the applicable tax rate is 30%, and straight line depreciation will be applied in
the valuation of the investment.
For the investment that preliminary studies have been completed;
1) Prepare the tables that show each year's income and expenditure budgets separately for
both steel and reinforced concrete construction alternatives.
2) Draw cash flow diagrams for each alternative.
3) Decide the feasibility of this investment within the scope of you have seen the course,
Compare alternatives by calculating;

• Present Worth (PW) analysis (by using the least common multiple (LCM) method),
• Annual Worth (AW) analysis,
• Rate of Return (ROR) analysis.
Discuss the findings obtained as a result of the application of each method separately in terms
of investment decisions.
4) In light of the findings obtained by applying all methods, which alternative should be
chosen? Or should the doing nothing alternative be chosen? All methods must be taken into
account to make this decision. Please explain in detail. (80 Points)

Note: You need to calculate using the numerical data, but this is insufficient. You also need
to explain and discuss the numerical results found by different methods.

Good luck to everyone, stay healthy.