Engineering Economics Practice Problems

MER 439 Design of Thermal Fluid Systems Prof. Wilk Engineering Economics Practice Problem Set 2 January 10, 2007.

1. A person deposits $6000 per year into a retirement account which pays interest at 8% per year. Determine the amount of money in the account at the end of 30 years. Answer: $679,699.

2. You deposit $8000 in year 1, $8500 in year 2, and amounts increasing by $500 per year through year 10. At an interest rate of 10% per year, determine the future worth at the end of year 10. Answer: $157,183

3. The maintenance cost for a certain piece of equipment is $1000 per year for the first 5 years and $2000 per year for the next 5 years. At an interest rate of 10% determine the present worth of this maintenance cost. Answer: $8497

4. If a sum of $5000 is deposited now, $7500, 3 years from now, and $2000 per year in years 4 through 10, determine the amount at the end of year 10 if the interest rate is 10%. Answer: $44,404

5. The Lee Key Roof company has offered a small company two methods by which to pay for some needed roof repairs. Method 1 involves a payment of $2500 as soon as the job is done (now). Method 2 allows the company to defer payment for 5 years at which time a payment of $5000 would be required. If i=10% per year, compute the present worth of each method. Which would be preferred by the customer? P2=$3105

6. A construction company invests $50,000 in a new piece of equipment. If the income from temporary leasing of the equipment is expected to bring in $10,000/year, determine the length of time required to recover the investment at an interest rate of 12%/year. Answer: 8.1 yrs.