ENgineering Economics

Page 1 of 3 University of Manitoba Centre for Engineering Professional Practice and Engineering Education Price Faculty of Engineering Engineering Economics - ENG3000 Assignment # 7 Due Friday November 27 th, 20 20 (11:59PM) General g uidelines (Please read carefully) : 1. Both hand -written and typed submissions are acceptable. But remember that typing is not required. 2. Your submissio n must be readable, clear, easy -to-follow, neat , and submitted in pdf format . 3. Sideways, blurry, and out -of-order answers will not be marked. 4. Write your name on each page of your submission. 5. Insert page numbers on each page and scan the pages in order. 6. Keep the hard copies till the end of the semester. 7. Each student must submit only one file including all of the answers to the problems . 8. You do not need to include the problems but if you feel like it, go ahead. 9. Highlight your final ans wers and show all the steps. 10. Includ e at least 2 d ecimal places for your ans wers . 11. One problem per page is the ideal submission format. 12. Any questions regarding the marking must be directed to the TAs. 13. Please submit your work before the due date as late submissions cause extra work for all of us. Page 2 of 3 1. A specific investment requires a first cost of $125,000 on some equipment which is going to serve for 7 years. The equipment is not going to have any salvage value at the end of its expected life. If the interest rate is 7%, d etermine the depreciation schedu le using the straight line depreciation and SOYD methods . (5 Marks) 2. A machine has a first cost of $1,450,000 and a salvage value of $7 2k. The depreciation life is believed to be 9 years. Use the straight -line depreciation method and calculate the following: (5 Marks) a. The depreciation amount in any year. b. The book value at the beginning of Year 8. 3. Use the SOYD method to develop a depreciation schedule for an asset with a first cost of $1,470,000, salvage value of $29,500 and useful life of 6 years in total. (5 Marks) 4. a) What is the market interest rate i f the real interest rate of an investment is 11% and the inflation rate is 7%. Circle the right answer and show your calculation. (2 Marks) a) 3.74 % b) 11.85% c) 8.8 % d) 18.8% b) You will earn an interest of $21 70 every year if you deposit $1 5,500 in a well -paid bank account. What is the real annual rate of return i f the general inflation rate is 8.5 % per year, (3 Marks) 5. Jean Michel Jarre who is a junior engineer , expects an annual salary of $71, 000 at the beginning of his care er. Based on what Jean -Michel’s friends have told him, the company who has promised to hire him, has given annual salary increases of 4% on average in the last several years. How much, in i year -1 dollars, will Jean -Michel’s be earning each year , if inflation is believed to be 3% per year for the next five years. What is the real rate at which Jean -Michel’s salary is going to rise ? (5 Marks) 6. In order to purchase copyrighted design of manufacturing machine, a firm has to spend 7.5 million dollars. Upon th e purchase, a n annual return of $900k is expected, if a low number of sales happen . With a modest number of sales, the firm can expect a return of $1.9 million each year and with a high number of sales, a return of $3.7 million has been projected. The overall length of this financial investment is believed to be 5 years for all scenarios. The firm also knows that t he probability of a high sale number is going to be 0. 3 and 0. 4 for the probability of the mod est sales. Using an interest rate of 1 0%, c alculate the ‘expected present worth’ of th is investment. Comment if t he company should make the investment or not? (5 Marks) Page 3 of 3 7. A start -up business has started manufacturing and distribution of some the weighted blankets. The blanket are going to be manufactured overseas and shipped to Canada. The company has studied the issues regarding transportation and delays and has learned that shipping may be postponed 35 % of the time due to possible weather instabilities. T here may also be a quality issue 2 0% of the time Independent of the shipping issues. The provided table shows the annual profit as a result of these shipping and quality issues . Decide based on the expected value (EV) , if the start -up company should keep thinking about importing the blankets from aboard or manufacture them locally . (5 Marks) Transportation Quality Annual Profit ($) No transport issues Good $185 ,000 No transport issues Unacceptable - 33 ,000 Transportation issues Good 78,000 Transportation issues Unacceptable -88 ,000 8. Construction duration for a fancy house in Winnipeg area is very much depending on the weather condition . If the weather is very hot, t he project is going to take 2 41 days to complete . The completion of the house is going to take 315 days in mild weather and if the weather is very cold , it is going to take 360 days to complete the house . Based on the past weather information obtaine d from Environment Canada, we know that the probability of very hot weather is 18 % and 61% for the weather to be mild. Find the expected completion time for the project based on th e table probability distribution . (5 Marks) 9. Follow the given link, g o to MPI ’s website , and calculate the effective annual interest rates of the estimated payments table for all the available re -payment options. Enter your results in the provided table (10 Marks) Winter Tire Program: https://www.mpi.mb.ca/Pages/winter -tire -program.aspx The estimated payments have been calculated at 5 .95% based on the provided information on the webpage. Does this match the values you calculated? Yes or no, why? Dollars Financed ($) 1 Year (i a %) 2 Year (i a %) 3 Year (i a %) 4 Year (i a %) 500 750 1000 1250 1500 1750 2000