IE4503

ENGINEERING ECONOMICS

Assignment #4
Instructions:
Due date: 16.04.2014 at 3 pm
_ Solutions should be written on single-sided A4 or 8 x 11 inch white good quality paper.
Pages must be numbered in sequence.
_ Students’ names and numbers should be typed on the top of the first page.
_ Assignments should be solved by maximum 3 people.
_ All pages should be attached together.
Note: The assignments which are copied by each other will be evaluated with grade 0.

1. (25 points) A $45,000 investment on a new CNC machine is projected to improve

throughput and increasing revenue by $14,000 per year for five years. The production
line will have an estimated market value of $4,000 at the end of five years and a
MARR=12%.

a) (10 points) Using FW, is this a good investment?

b) (15 points) Calculate the IRR for this investment. How would you explain result of
your analysis? (Show your analysis in graphs of present worth versus interest rate)

2. (30points)
 3. ( 30 points) Project cash flow is given in table and MARR is assumed to be 12 % per
year.

Proposal A

Investment cost $15,000

Expected life 6 years
Market value $ -2,000
Annual Receipts $11,000
Annual Expenses $6,000

a) Determine the simple and discounted payback period of given project above.
b) Evaluate this single project using ERR method.
c) Evaluate this project using B-C ratio.

4. (15 points) Two mutually exclusive harvesting combines are being considered for
purchase by a wheat farmer .He must buy a new combine now. Information relevant to
his comparison of the alternatives is summarized below.
Deere FMC
Capital investment $240,000 $200,000
Market value at the end $80,000 $20,000
of service life
Annual fuel and maintanence $5,000 $10,000
expenses
Service life 12 years 12 years

Use the IRR method to determine the better machine to purchase. The farmer’s
MARR=12% per year.