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ASSIGNMENT 1

HUM 4002 - ENGINEERING ECONOMICS AND FINANCIAL MANAGEMENT

1. To provide for a college education for his daughter, a man opened an escrow account in which equal
deposits were made. The first deposit was made on January 1, 1990, and the last deposit was made on
January 1, 2014. The yearly college expenses, including tuition were estimated to be Rs.400000 in the
first year, and then onwards increases with a gradient of Rs.20000 every year for each of the remaining 4
years. Assuming the interest rate to be 6%, how much did the father have to deposit each year in the
escrow account for the daughter to draw this required college expenses for the 5 years duration beginning
from January 1, 2015?

2. Suppose that an oil well is expected to produce 100,000 barrels of oil during its first year in production.
However, its subsequent production (yield) is expected to increase by 1,000 over the previous years
production. The oil well has a proven reserve of 1,000,000 barrels. Suppose that the price of oil is expected
to be $60 per barrel for the next several years. What would be the present worth of the anticipated revenue
stream at an interest rate of 12% compounded annually over the next several years? After three years
production, you decide to sell the oil well. What would be a fair price?

3. Determine the value of P for the cash flow diagram shown below at 8% annual interest rate.

4. Solve for the present worth of this cash flow shown below using 10% interest compounded annually. Use
Gradient series concepts wherever applicable.
5. The Engineering Economist (a professional journal) offers three types of subscriptions, payable in
advance: one year at $66, two years at $120, and three years at $160. If money can earn 6% interest
compounded monthly, which subscription should you take? (Assume that you plan to subscribe to the
journal over the next three years.)

6. Henry Cisco is planning to make two deposits: $25,000 now and $30,000 at the end of year 6. He wants
to withdraw C each year for the first six years and C+1000 each year for the next six years. Determine the
value of C if the deposits earn 10% interest compounded annually.

7. A man is planning to retire in 25 years. He wishes to deposit a regular amount every three months until he
retires, so that, beginning one year following his retirement, he will receive annual payments of $60,000
for the next 10 years. How much must he deposit if the interest rate is 6% compounded quarterly?

8. Tony Wu is considering purchasing a used automobile. The price, including the title and taxes, is $12,345.
Tony is able to make a $2,345 down payment. The balance, $10,000, will be borrowed from his credit
union at an interest rate of 8% compounded daily. The loan should be paid in 36 equal monthly payments.
Compute the monthly payment.