IE 492

Homework- Engineering Economy

Part II

1.)    A credit card company charges 18% interest a year.  What is the effective interest rate if 1.5% is charged monthly on the outstanding balance?

2.)    The following data has been compiled for a prospective capital investment.

Initial cost         $30,000

Usage period      5 years

Salvage value      $ 5,000

Annual receipts      $24,000

Annual expense      $12,000

a.)    If the company wants 10% a year rate of return should it proceed?

b.)    What approximate rate of return does this project make?

3.)    A machine costing $100,000 is being considered to be used to package a product for the next 6 years.  Expected is that it will have a salvage value of $10,000 and annual operating costs of $25,000 a year.   Another machine costing $150,000 can also be used.  It is anticipated to have a $40,000 salvage value at the end of six years and cost $8,000 a year to run.   If the cost of money is 12% a year.

a.)    What would be the annual cost to use each of those machines?

b.)    Which would be cheaper to use?

4.)    An individual approaches the ABC Loan Company for a $1,000 loan to be repaid in 24 monthly payments.  It states that the interest charge is 1.5% a month.  The monthly payment is figured to be:

Interest: 1030 (24) (.015)= 371

Total:     1030 + 371 = 1401

          1401/24 = $58.50 

What is the effective annual interest rate being paid?

5.) 5)

Which would be the most economical alternative if the cost of money is 15%

6.) There is a vacant lot that can be utilized in the following manner.

If a minimum of 6% rate of return is desired, which alternative should be selected?