COLLEGE OF ENGINEERING

DEPARTMENT OF ELECTRICAL AND ELECTRONICS ENGINEERING

2017/2018, Second Semester Examination (PGD)
EEE 709: ENGINEERING ECONOMICS Unit: 2
Instruction: Answer four questions only Time Allocated: 2 hrs.

QUESTION 1
(a) A $100,000 machine has a 6-year depreciable life and a $7500 salvage value at the end of
the 6 years. Compute the depreciation schedule and the book value at the end of each year
using:
i. Straight-line depreciation.
ii. Double declining balance depreciation.
[7 Marks]
(b) A construction company has an option to purchase a certain bulldozer for $110,000 at any
time between now and 4 years from now. If the company plans to purchase the dozer 4 years
from now. Calculate the equivalent present amount that the company is paying for the dozer
at 12 % per year interest.
[5 Marks]
(c) Calculate the future worth (in year 8) of $16,000 in year 2, $12,000 in year 4, and $12,000
in year 6 at an interest rate of 10% per year.
[3 Marks]

QUESTION 2

(a) Describe the key characteristics of costs that can be depreciated.

[6 Marks]

(b) A couple with a newborn daughter wants to establish a college fund to pay for
future college expenses. The couple can earn 7% (assume that this is a market
based interest rate) compounding annually on their investments and estimate that
future college costs will be $60,000 (nominal dollars) per year for four years.
Assume that the daughter enters college at age 18 and that payments are made on
each birthday. Also, assume that college costs must be paid at the beginning of
the college year. What annual payment must be made to ensure that a sufficient
amount has been saved to cover all costs when the daughter enters college?
[5 Marks]
(c) A company is trying to consider to invest $1000 at an interest rate of 6% compounded
annually for 5 years or investing same amount at 7% per year simple interest for 5 years.
Determine which option is better.
[4 Marks]
QUESTION 3
(a) Ingot Land Company owns four trucks dedicated primarily to its landfill business. The
Company’s accounting record indicates the following.

Description A B C D
Purchase cost $ 50,000 $ 25,000 $ 18500 $ 35600
Salvage value $ 5,000 $ 2,500 $ 1,500 $3,500
Useful life (mile) $200,000 $120,000 $100,000 $ 200,000
Accumulated $0 $1,500 $ 8,925 $ 24,075
depreciation as the
year begins
Miles driven $25,000 $12, 000 $15,000 $20,000
during the year

Determine the amount of depreciation for each truck during the year.
[6 Marks]
(b) What is the future worth of a series of equal year-end deposit of $5000 for 10 years in a
savings account that earns 8% annual compound interest if
i. all deposits are made at the end of each year?
ii. all deposits are made at the beginning of each year?
[4 Marks]
(c) Discuss the factors affecting time value of money in Nigeria. [5 Marks]

QUESTION 4
(a) Write short notes on the following
i. Time value of money
ii. Cost of money
iii. Cash flow diagram
[6 Marks]
(b) Outline the depreciation methods and discuss them.
[5 Marks]

(c) A series of 10 annual payments of $2000 is equivalent to two equal payments, one at the
end of 15 years and the other at the end of 20 years. The interest rate is 8%, compounded
annually. Calculate the amount of the two equal payments.
[4 Marks]
QUESTION 5
(a) Pings Technology, decides to invest certain amount of money over the next four years in
automating its customer service department. The company can earn 10% on a lump sum
deposited now, and it wishes to withdraw the money in the following increments:

Year 1: $25,000 to purchase a computer and database software.

Year 2: $3000 to purchase additional hardware to accommodate.
Year 3: No expenses and
Year 4: $ 5000 to purchase software upgrades.

(i) How much money must be deposited now in order to cover the anticipated
payments over the next fours years
(ii) Discuss the indication and implications of the obtained results
(iii) Use a cash flow diagram to illustrated the decomposition of the uneven cash flow
series.

[9 Marks]
(b) An Amount of $ 10,000 is borrowed at 12% interest which is compounded monthly.
(i) Calculate the Monthly payments to be over a period of 5 years
(ii) What would be annual payment, if the loan is for 5 years
Assume that all payments occur at the end of a given period.
[6 Marks]