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ENG007

ENGINEERING ECONOMICS
Summer Course
Assignment #2

Instructions:
 Due date: 09.08.2006
 Printout this assignment including 4 questions
 Write down your solutions just below the questions

Student ID: Student name:

1. An apartment complex wishes to establish a fund at the end of 2005 that by the end of year
2019 will grow to an amount large enough to place new roofs on its 39 apartment units. Each
new roof is estimated to cost \$2500 in 2017 at which time 13 apartments will be reroofed. In
2018, another 13 apartments will be reroofed, but the unit cost will be \$2625. The last 13
apartments will be reroofed in 2019 at a unit cost of \$2750. The annual effective interest rate
that can be earned on this fund is 4%. How much money each year must be put aside (saved)
starting at the end of 2006 to pay for all 39 new roofs? State any assumptions you make.
Solution:
2. An electric motor is being considered to drive a centrifugal pump. The motor is capable of
delivering 50 horsepower (output) to the pumping operation. It is expected that the motor will
be in use 1,000 hours per year. If electricity costs \$0.07 per kilowatt-hour, what is the annual
equivalent cost of the motor if MARR = 8% per year? Refer to the following data. Recall that
1hp = 0.76 kW.

Motor
Initial cost \$1,200
Electrical Efficiency 0.82
Annual Maintenance \$60
Life 4 years
Solution:

3. The Anirup Food Processing Company is presently using an outdated method for filling 25-
pound sacks of dry dog food. To compensate for weighing inaccuracies inherent to this
packaging method, the process engineer at the plant has estimated that each sack is
overfilled by 1/8 pound on the average. A better method of packaging is now available that
would eliminate overfilling (and underfilling). The production quota for the plant is 300,000
sacks per year for the next six years, and a pound of dog food costs this plant \$0.15 to
produce. The present system has no market value and will last another four years, and the
new method has an estimated life of four years wit a market value equal to 10% of its
investment cost, I. the present packaging operation expense is \$2100 per year more to
maintain than the new method. If the MARR is 12% per year for this company, what amount,
I, could be justified for the purchase of the new packaging method?
Solution:

4. How much does the project earn as present worth when having a following cash flow diagram
at MARR = 20%? You know that in the following cash flow diagram the equivalent cash
outflow equals the equivalent cash inflows when i = 25% per year.
Z

A = \$500 / year

1 2 3 4 5 6 7 8 9
0 0 0 0 0 0 0 0

Z
Solution: