CANADIAN INTERNATIONAL COLLEGE (CIC)

COURSE NAME :ENGINEERING ECONOMICS. COURSE CODE : IEN 351

SUPRVISOR: PROF. MAGDY ABDELAZIZ ZAHW
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Assignment # 4 CH4: MEASURING THE WORTH OF INVESTMENTS

1. An investment of $20,000 is to be made on a computer that will last for 5 years and have a
zero salvage value at that time. Operating, maintenance, and software costs are projected to be
$15,000 the first 3 years and $20,000 the last 3 years. The minimum attractive rate of return is
specified to be 12%. Determine for this investment the following:
a. Present worth.
b. Annual worth.
c. Future worth.
d. Pay Back Period Method.
c. Also, determine the Capital Costs recovery for this investment.

2. Many chemicals Unlimited -- purchases a computer-controlled filter for EGP 100,000. The
purchase price is borrowed from a bank at 15% compounded annually. The loan is to be paid
back with equal annual payments over a 5-year period. The filter is expected to last 10 years, at
which time it will have a salvage value of $10,000. Over the l0-year period the operating and
maintenance costs are anticipated to equal EGP 20,000/year; however, by making the
investment, annual fines of EGP 50,000 for pollution will be avoided. The firm expects to earn
12% on its investments. Determine each of the following measures of investment worth and state
whether or not the filter purchase was economically sound.
a. Present worth.
b. Annual worth.
c. Future worth.
d. Pay Back Period Method.
c. Also, determine the Capital Costs recovery for this investment.
3. Two investment alternatives are to be evaluated and the economically better alternative
specified. The cash flow profiles for the alternatives are shown below.

a. Assuming $15,000 is available to invest, determine the total cash flow associated with
each alternative over each year of the planning horizon. Any excess capital is invested at
MARR=15%, earning annual returns over the planning horizon of 8 years.
b. Determine the incremental cash flow profile between Alternatives 2 and 1 for each year
of the planning horizon.

4. Two mutually exclusive proposals, each with a life of 5 years, are under consideration. MARR
is 12%. Each proposal has the following cash flow profile:

a. Clearly specify the alternatives available and their net cash flow profiles.
b. Determine which alternative the decision maker should select. Use a ranking approach
and the present worth method.
c. Determine which alternative the decision maker should select. Use an incremental cash
flow approach and the present worth method.
d. Repeat part (b) using the annual worth method.
e. Repeat part (c) using the annual worth method.
f. Repeat part (b) using the future worth method.
g. Repeat part (c) using the future worth method.
h. Repeat part (c) using the internal rate of return method.
i. Repeat part (c) using the external rate of return method.