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Computations on Engineering Economics

Coursework Instructions:

Please read the questions carefully and finish those problems.(show the steps)

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  Engineering Economics Name Course Institution Date     Question 1  Discounted payback period   Initial investmentà 34,000  Interest rate 16%  Cash flow 9,000
Year  Cash Flow NCF PV  Factor DCF CCF
0 -34,000 -34000 1         (34,000)              (34,000)
1 9,000         (25,000) 0.8621        7,758.62 -26,241.38
2 9,000         (16,000) 0.7432        6,688.47 -19,552.91
3 9,000           (7,000) 0.6407        5,765.92 -13,786.99
4 9,000              2,000 0.5523        4,970.62 -8,816.37
5 9,000           11,000 0.4761        4,285.02 -4,531.36
6 9,000           20,000 0.4104        3,693.98 ($837.38) 
7 9,000           29,000 0.3538        3,184.47 2,347.09
8 9,000           38,000 0.3050        2,745.23 5,092.32
9 9,000           47,000 0.2630        2,366.58 7,458.89
10 9,000           56,000 0.2267        2,040.15 9,499.05
11 9,000           65,000 0.1954        1,758.75 11,257.80
  CF àCash Flow NCF  àNet Cash Flow PV  àPresent Value Factor, PV$1 = 1/(1+i)n DCF à Discounted Cash Flow, CF × PV$1 CCF  àCumulative Discounted Cash Flow   Discounted Payback Period = X + Y/Z = 6 + |-837.38| / 3184.47 ≈ 6.26 years.     Question 2  To have 30,000 available 15 years the plan is to open an account that pays 4.0% interest now and then makes equal deposits for 14 years Value of deposits in 15 years = D´FVIFA4%,14 D*18.292=30,000 so D= 30,000/ 18.292= $ 1,640 Answer = $ 1,640 Question 3 Option One
Option One  Purchase (Cost) Year 1 Year 2 Year 3
  -37,000 -10,000 -11,500 -14,000
Salvage Value       3,000
Cash flows -37,000 -10,000 -11,500 -11,000
PVIF 1 0.9174 0.8417 0.7722
PV -37000 -9174.31 -9679.32 -8494.02
NPV                 (64,347.65)      
  Option Two
Option Two Purchase (Cost) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
  -71,000 -11,000 -12,200 -13,500 -14,900 -15,500 -16,000
Salvage Value             2,000
Cash flows -71,000 -11,000 -12,200 -13,500 -14,900 -15,500 -14,000
PVIF 1 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963
PV -71000 -10091.7 -10268.5 -10424.5 -10555.5 -10073.9 -9540.28
NPV              (131,954.47)            
  Options one has lower negative NPV at   ($ 64,347.65) and is the better option. The NPV decision criterion is choosing an investment with a positive NPV and the highest NPV (Chesney, Gheyssens & Taschini, 2013).       Question 4 Payback period
Year  Cash Flow NCF
0 -38,000 -38,000
1 -9,000 -47,000
2 -5,000 -52,000
3 6,000 -46,000
4 15,000 -31,000
5 23,000 -8,000
6 28,000 20,000
7 21,000 41,000
8 14,000 55,000
9 9,000 64,000
10 3,000 67,000
  Payback= 5 years + (-8000/28,000) ≈ 5.29 years

  Discounted Payback Period

Year  Cash Flow NCF PV  Factor DCF CCF
0 -38,000         (38,000) 1         (38,000)              (38,000)
Updated on
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