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Name & Student #_ _______________________

Carleton University
DEPARTMENT OF CIVIL & ENVIRONMENTAL ENGINEERING
ECOR 3800B Engineering Economics
February 10, 2009 TERM TEST 2009 1 Hour + 15 Minutes
(a) Closed Book. (b) One 8.5”x11” single sided crib sheet is allowed. (c) Sheets of
selected formulas and tables are provided. (d) Calculators are allowed, but
programmable calculators are not allowed.

1(a) Suppose you obtain a loan in the amount of $3,000 for upgrading your computer
workstation. Repayment period = 24 months. Annual nominal interest rate = 12%.
(i) What is the monthly payment if it is intended to cover interest and principal?
(2.5 marks)
(ii) What is the balance of principal following the third monthly payment?
(2.5 marks)
1(b) An emission testing shop is interested in evaluating two equipment designs. The
costs are shown below. Which should be selected at an interest rate of 5% per year? The
need for testing equipment will continue in the foreseeable future. NOTES: You are
expected to select the appropriate methodology to solve this problem. Costs are shown as
–ve and salvage is shown as +ve.
Design D1 Design D2
First cost, $ -$120,000 -$230,000

Maintenance cost -$25,000/yr -$22,000 for year 1, an increase of $500/year for

following years (i.e., 22,500 for year 2, etc.)

Salvage value, $ +2,000 +6,000

Life, years 3 years 6 years

(5 marks)
(2)(a) For the cash flow sequence shown below (in thousands of dollars), determine the
amount of money that can be withdrawn every 6 years for an infinite period of time, if
the first withdrawal is to be made at the beginning of year 12. Interest rate is 8% per
year. NOTE: The second withdrawal is to be made at the beginning of year 18, etc.
End of Year 0 1 2 3 4 5 6
Deposit amount, (in 100 120 120 120 120 120 120
thousands of dollars)
(5 marks)
(2)(b) An oil company issued bonds 2 years ago with a face value of $10,000 each and
bond interest rate is 20% per year payable quarterly. The bonds have a maturity date
of 8 years from the date they were issued. If the interest rate in the market place is
20% per year, compounded quarterly, what is the present worth of one bond to an
investor who wishes to purchase it today?
(5 marks)
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3. Data for three mutually exclusive testing machine alternatives are as follows.
Alter- Investment cost ($) Salvage value ($) Life Annual net income($)
native at the end of year 0 at the end of life (yrs)
X -5,000 +1,500 3 +2,500 for yr 1, increase of 8%/yr for
following yrs
Y -9,000 +500 6 +2,700 for yr 1, increase of 8%/yr for
following yrs
Z -18,000 +2,000 6 +4,000 for year 1, increase of $500/yr for
following yrs
MARR = 8%
Which alternative should be selected? The need for testing equipment will continue in
the foreseeable future. Use a technically correct method.
(10 marks)