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Tut 7

The document presents a tutorial on engineering economy focusing on electrical and petroleum sectors, featuring problems related to investment analysis, capital recovery, and present worth calculations. It includes scenarios for evaluating the financial viability of mining equipment and investment proposals with varying cash flows and interest rates. Additionally, it discusses the determination of internal rate of return and payout periods, along with considerations for investment recommendations based on minimum attractive rates of return.

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9 views2 pages

Tut 7

The document presents a tutorial on engineering economy focusing on electrical and petroleum sectors, featuring problems related to investment analysis, capital recovery, and present worth calculations. It includes scenarios for evaluating the financial viability of mining equipment and investment proposals with varying cash flows and interest rates. Additionally, it discusses the determination of internal rate of return and payout periods, along with considerations for investment recommendations based on minimum attractive rates of return.

Uploaded by

ibtihal esam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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ENGINEERING ECONOMY

( Electrical – Petroleum )
Tutorial No.(7)

[1] A firm requires power shovels for its open-pit mining operation. The mining
equipment, with an initial cost of $250,000, has an estimated salvage value of
$35,000 at the end of 10 years service , If the firm uses a rate of interest of 12%
for the project evaluation, How much must be earned on an equivalent annual
basis so that the firm recovers its invested capital , and earns a return on the
capital committed to the equipment during its lifetime?

[2] Two investment proposals have the same first cost of $45000. One has a net
annual receipt of $500 that extends to infinity, while the other proposal produces
an annual net profit of $900 for 13 years. If the interest rate is taken as 7%
compounded annually which proposal is better?

[3] What principal is sufficient to provide for a replacement costing $77,000 at


the end of each 3rd year from now, continuing forever, if interest is 11.75% per
year?

[4] The present worth of a certain proposal PW(i), is given as shows below,
where period ‘’n’’ is in years and the nominal interest rate r, is compounded
continuously:
PW(i) = - $18500 + $5000 [P/A r,5][P/F r,3] + { $17500 - $500 [A/G r,6] } * [P/A
r,6][P/F r,9] + $10000 [P/A r,5][P/F r,15] +

{$15000 + $2500 [A/G r,5] } [P/A r,5][P/A r,20].

I) Sketch a cash flow diagram for this proposal


II) Determine the present worth PW(i) at the following interest rates:
(1) I = 0.0%
(2) I = 20%
(3) I = 25%
(4) I =

III) Using values obtained in Part (II) above estimate the internal rate of
return IRR for the proposal.
IV) Determine the payout period POP
V) If the minimum attractive rate of return, MARR is given as 18% discuss
the economical feasibility of this proposal. Do you recommend
investment? Why?

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