DAMEITTA UNIVERSITY

Faculty of ENGINEERING
Program/ First Year Mechanical & Electrical Depts.
semester First
Year 2019-20
Course title: Engineering Economy Sheet No. 3

1. A manufacturer of off-road vehicles is considering the purchase of dual-axis

inclinometers for installation in a new line of tractors. The distributor of the
inclinometers is temporarily overstocked and is offering them at a 40%
discount from the regular cost of $142. If the purchaser gets them now
instead of 2 years from now, which is when they will be needed, what is the
present worth of the savings per unit? The company would pay the regular
price, if purchased in 2 years. Assume the interest rate is 10% per year.
Cost now = 142(0.60)
= $85.20
ଵ
Present worth at regular cost =142 ሺܲ ോ‫ܨ‬ǡͳͲΨ ǡʹሻൌ ͳͶʹቂ(ଵା௜)೙ ቃ

142(P/F,10%,2)
= 142(0.8264)
= $117.35
Present worth of savings = 117.35 – 85.20
= $32.15
2. The Moller Skycar M400 is a flying car known as a personal air vehicle
(PAV) that is expected to be FAA-certified by December 31, 2011. The cost
is $985,000, and a $100,000 deposit will hold one of the first 100 “cars.”
Assume a buyer pays the $885,000 balance 3 years after making the
$100,000 deposit. At an interest rate of 10% per year, what is the effective
total cost of the PAV in year 3?
F = P (1 + i) n
F = 100,000(F/P,10%,3) + 885,000
= 100,000(1.3310) + 885,000
= $1,018,100
3. A family that won a $100,000 prize on America’s Funniest Home Videos
decided to put one-half of the money in a college fund for their child who

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 was responsible for the prize. If the fund earned interest at 6% per year, how
much was in the account 14 years after it was started?
F = 50,000(F/P,6%,14)
= 50,000(2.2609)
= $113,045
4. One of the biggest vulnerabilities in a control system is network devices,
such as Ethernet-based network switches that are located in unsecured
locations and accessible to everyone. DeltaX switches, manufactured by
Dahne Security, allow the user to automatically lock and unlock the port
access to all switches in the network. The company is considering expanding
its manufacturing lines now or doing it in 3 years. If the cost nowwould be
$1.9 million, what equivalent amount could the company afford to spend in
3 years? The interest rate is 15% per year.
F = 1,900,000(F/P,15%,3)
F = 1,900,000(1.5209)
= $2,889,710
5. A company that sells high-purity laboratory chemicals is considering
investing in new equipment that will reduce cardboard costs by better
matching the size of the products to be shipped to the size of the shipping
container. If the new equipment will cost $220,000 to purchase and install،
how much must the company save each year for 3years in order to justify
the investment, if the interest rate is 10% per year?
A = 220,000(A/P,10%,3)
= 220,000(0.40211)
= $88,464
6. Red Valve Co. of Carnegie, Pennsylvania, makes a control pinch valve that
provides accurate, repeatable control of abrasive and corrosive slurries,
outlasting gate, plug, ball, and even satellite coated valves. How much can
the company afford to spend now on new equipment in lieu of spending
75,000$four years from now? The company’s rate of return is 12% per year.
P = 75,000(P/F,12%,4)
= 75,000(0.6355)

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= $47,663
7. If GHD Plastics purchases a new building now for 1.3$million for its
corporate headquarters, what must the building be worth in 10 years? The
company expects all expenditures to earn a rate of return of at least 18% per
year.
F = 1.3(F/P,18%,10)
= 1.3(5.2338)
= 6.80394 ($6,803,940)
8. CGK Rheosystems makes high-performance rotational viscometers capable
of steady shear and yield stress testing in a rugged, compact footprint. How
much could the company afford to spend now on new equipment in lieu of
spending $200,000 one year from now and $300,000 three years from now,
if the company uses an interest rate of 15% per year?
P = 200,000(P/F,15%,1) + 300,000(P/F,15%3)
= 200,000(0.8696) + 300,000(0.6575)
= $371,170
9. Five years ago a consulting engineer purchased a building for company
offices constructed of bricks that were not properly fired. As a result, some
of the bricks were deteriorated from their exposure to rain and snow.
Because of the problem with the bricks, the selling price of the building was
25% below the price of comparable, structurally sound buildings. The
engineer repaired the damaged bricks and arrested further deterioration by
applying an extra-strength solvent-based RTV elastomeric sealant. This
resulted in restoring the building to its fair market value. If the depressed
purchase price of the building was $600,000 and the cost of getting it
repaired was $25,000, what is the equivalent value of the “forced
appreciation” today, if the interest rate is 8% per year?
Gain in worth of building after repairs = (600,000/0.75 – 600,000) - 25,000 =
175,000
F = 175,000(F/P,8%,5)
= 175,000(1.4693)
= $257,128

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10. 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?
F = 100,000(F/P,8%,4) + 150,000(F/P,8%,3)
= 100,000(1.3605) + 150,000(1.2597)
= $325,005
11. Syringe pumps often fail because reagents adhere to the ceramic piston and
deteriorate the seal. Trident Chemical developed an integrated polymer
dynamic seal that provides a higher sealing force on the sealing lip, resulting
in extended seal life. One of Trident’s customers expects to reduce downtime
by 30% as a result of the new seal design. If lost production would have cost
the company 110,000$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?
P = (110,000* 0.3)(P/A,12%,4)
= (33,000)(3.0373)
= $100,231
12. China spends an estimated $100,000 per year on cloud seeding efforts, which
includes using antiaircraft guns and rocket launchers to fill the sky with
silver iodide. In the United States, utilities that run hydroelectric dams are
among the most active cloud seeders, because they believe it is a cost-
effective way to increase limited water supplies by 10% or more. If the yields
of cash crops will increase by 4% each year for the next 3 years because of
extra irrigation water captured behind dams during cloud seeding, what is
the maximum amount the farmers should spend now on the cloud seeding
activity? The value of the cash crops without the extra irrigation water would
be $600,000 per year. Use an interest rate of 10% per year.
P = 600,000(0.04)(P/A,10%,3)
= 24,000(2.4869)

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= $59,686
13. The Public Service Board (PSB) awarded two contracts worth a combined
$1.07 million to improve (i.e., deepen) a retention basin and reconstruct the
spillway that was severely damaged in a flood 2years ago. The PSB said
that, because of the weak economy, the bids came in $950,000 lower than
engineers expected. If the projects are assumed to have a 20-year life, what
is the annual worth of the savings at an interest rate of 6% per year?
A = 950,000(A/P,6%,20)
= 950,000(0.08718)
= $82,821
14. The National Highway Traffic Safety Administration raised the average fuel
efficiency standard to 35.5miles per gallon for cars and light trucks by the
year 2016. The rules will cost consumers an average of $434 extra per
vehicle in the 2012 model year. If a person purchases a new car in 2012and
keeps it for 5 years, how much must be saved in fuel costs each year to justify
the extra cost? Use an interest rate of 8% per year.
A = 434(A/P,8%,5)
= 434(0.25046)
= $108.70
15. 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 7300fifth-graders revealed that if taxes
averaged 4cents 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 100sodas 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.
F = (0.18 – 0.04)(100)(F/A,6%,8)
= 14(9.8975)
= $138.57

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16. Henry Mueller Supply Co. sells tamperproof، normally open thermostats
(i.e., thermostat closes as temperature rises). Annual cash flows are shown
in the table below. Determine the future worth of the net cash flows at an
interest rate of 10% per year.

F = (200 – 90)(F/A,10%,8)
= 110(11.4359)
= $1,257,949
17. The Texas Tomorrow Fund (TTF) is a program started in 1996 in Texas
wherein parents could prepay their child's college tuition when the child was
young. Actuaries set the price based on costs and investment earnings at that
time. Later, the Texas legislature allowed universities to set their own tuition
rates; tuition costs jumped dramatically. The cost for entering a newborn in
1996 was $10,500. If the TTF fund grew at a rate of 4% per year, while
tuition costs increased at 7% per year, determine the state’s shortfall when a
newborn enters college 18 years later.
Fdifference = 10,500(F/P,7%,18) - 10,500(F/P,4%,18)
= 10,500(3.3799) - 10,500(2.2058)
= $12,328
18. A company that makes self-clinching fasteners expects to purchase new
production-line equipment in 3 years. If the new units will cost $350,000,
how much should the company set aside each year, if the account earns 10%
per year?
A = 350,000(A/F,10%,3)
= 350,000(0.30211)
= $105,739