Scanned with CamScanner
17
18
19
20
21
22
23
24
25
26
27
28
29
30
$206,282
$20,628.2
$216,596
$21,659.6
$227,426
$22,742.6
$238,797
$23,879.7
$250,737
$25,073.7
$263,273
$26,327.3
$276,437
$27,643.7
$290,259
$29,025.9
$304,772
$30,477.2
$320,011
$32,001.1
$336,011
$33,601.1
$352,812
$35,281.2
$370,452
$37,045.2
$388,975
$38,897.5
Total by end of 30 years of investment
$21,217.5
$22,278.4
$23,392.3
$24,562.0
$25,790.1
$27,079.6
$28,433.5
$29,855.2
$31,348.0
$32,915.4
$34,561.1
$36,289.2
$38,103.7
$40,008.8
$645,785.6
%%%
%%%%%%%
8
$8,400 = 60,000(1 + i)10
FW(i)y = -$500(1 + 0.1)3 + $150(1 + 0.1)2 + $150(1 + 0.1)1 + $150
+ $100(1 + 0.15)2 + $100(1 + 0.15) + 0
0.14 = (1 + i)10
Log(0.14) = log((1 + i)10)
FWy = -$665.5+ $181.5 + $165 + $150 + $132.3 + $115
i = -1.8215
FWy = $78.3 $78
To find car worth at the end of year seven, I'll use F = A [(1+0)*2)
%%
6%%%%%%%%
%%%%%%%%%%%%%%%
((1 - 1.8215) - 1)
F, = $60,000
-1.8215
6. Joe's starting salary as a mechanical engineer is around 90,000. Joe is planning to place a total of 10%
of his salary each year in the mutual fund. Joe expects a 5% salary increase each year for the next 30
years of employment. If the mutual fund will average 8% annual rate of return over the course of his
career what can Joe expect at retirement.
Solution:
Fy $24,622
So the car worth at the end of year seven is about $24,622.
Assume no tax deduction from his income, 5% salary increment annually is
happening, and 8% investment returns is happening after each year. Then at the end
of 30 years the total will be about $645,786. The table below show what been
described:
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
5. Consider the independent investment projects in the following table: Compute the project worth of each
project at the end of six years with variable MARR as follows: 10% for n - 0 ton 3 and 15% for n-4
to n-6
n
0
1
Project Cash Flows
n
Project X
Project Y
0
-800
-500
1
150
150
150
150
350
150
4
-200
100
5
500
100
400
Project X Solution:
2
3
4
5
6
Salary
increment
$90,000
$94,500
$99,225
$104,186
$109,396
$114,865
$120,609
$126,639
$132,971
$139,620
$146,601
$153,931
$161,627
$169,708
$178,194
$187,104
$196,459
10% of salary at year
end
$9,000.0
$9,450.0
$9,922.5
$10,418.6
$10,939.6
$11,486.5
$12,060.9
$12,663.9
$13,297.1
$13,962.0
$14,660.1
$15,393.1
$16,162.7
$16,970.8
$17,819.4
$18,710.4
$19,645.9
7
8
9
10
11
12
13
14
15
16
Mutual fund 8%
$-
$9,720.0
$10,206.0
$10,716.3
$11,252.1
$11,814.7
$12,405.5
$13,025.7
$13,677.0
$14,360.9
$15,078.9
$15,832.9
$16,624.5
$17,455.7
$18,328.5
$19,244.9
$20,207.2
FW (l)x = -$800(1 + 0.1)3 + $150(1 + 0.1)2 + %150(1 + 0.1)1 + $350
+ (-$200(1 + 0.15)2 + $500(1 + 0.15)1 + $400
FW = $1,064.8 + $181.5 + $198 + $350 - $264.5 + $575 + $400
FWx = $342.2 - $ 342
Project Y Solution:
6
7
3. Using Excel, identify all positive rates of return for each project
n
0
1
They are the three widely used in statement report to quickly assess the
profitability of the operation. The gross margin is presenting earnings and company
profitability at the most fundamental level. If gross margin is high, then producing
is good and have an option to take advantage of this money in other operations. If
it's low, then the company needs to monitor. It offers a more specific look at how
well a company is managing the resources that contribute directly to the production
of its saleable goods and services. Operating margin in the other hand is presenting
company profit before tax deduction and stockholder interest. It represents how the
company is controlling cost and expenses associated with the operation. It's used by
investors and analysts most of the time. The net profit margin is a sign of how
effective a company is at cost control. The higher number, the more revenue
converting to actual profit and that after deducting all expenses and left with net
revenue. It is also for comparison with other companies in the same field and present
the industry and structure are doing well.
А
-2500
100
100
100
2100
Net Cash Flow
B
-2000
800
600
500
700
с
-10000
5600
4900
-3500
7000
D
-2500
- 1360
4675
2288
2
3
4
- 1400
5
6
7
2100
900
Solution:
Excel Built in function is =IRR (Values, (guess]), which returns the internal rate of
return for a series of cash flows. The cash flows must occur at regular intervals, but
do not have to be the same amounts for each interval. IRR results are approximated
(Excel file attached)
n
С
D
0
1
2
A
-2,500
100
100
100
2,100
0
B
-2,000
800
600
500
700
-2,500
-1,360
4,675
2,288
0
0
3
-10,000
5,600
4,900
-3,500
7,000
-1,400
2100
900
19%
4
0
5
6
0
0
0
7
IRR
0
-1%
0
12%
0
35%
%%%
%%%%%%%%%%%%%%%%%%%%%%
4. John paid $60,000 for his brand new Mercedes Benz, ten years later he sold it to his brother for $8,400.
What was his average rate of depreciation and what was the car worth at the end of year seven?
Solution:
F = P(1 + i)"
4
5
1
1
X1 = -1.473 = & X2 = 0.8484 =
1 + i1
1 + 12
during any particular period, unless has an obligation to meet any increased
production that will certainly increase and count as manufacturing overhead.
i1 -167% (Not economic Significance because it's < -100%)
So iz – 18% (Acceptable)
%%%%%%%%%%%%%%%%%%%%%
6%%%%
6%%%
For Nonmanufacturing costs, there are two additional costs to support any
manufacturing operation. First, marketing and selling costs; that include all
significant costs to secure consumer orders, finish the product, and deliver it. Second
are administrator costs. By breaking down these data costs, it easy to monitor all
over costs. For example, overhead which is any similar items associated with the
company's selling and administrative functions. In marketing, any costs include all
executive, organizational, and clerical costs associated with sales activities. In
administrative functions, the executive compensation, general accounting, public
relations, and secretarial support, associated with the general management of an
organization.
2. Chapter 8 Terms:
a. Define and give types of Manufacturing Cost, Nonmanufacturing Cost, and Opportunity Cost.
b. Defined how Differential Cost and Differential Revenue are involved in choosing among
alternatives
c. What is the difference between Gross Margin, Operating Margin, and Net Profit Maryin?
Solution a:
For opportunity cost, is defined as a benefit that could receive by taking an
alternative action. In fact, all opportunities are under a cost. This type of cost arises
when a project uses resources that may already have been paid for by the firm for a
project. For example, selling an asset already has and not in use. Renting or leasing
asset out, replace a source with a source.
Solution b:
Cost in engineering economics is used in many different ways. Because of the
varieties of costs for each one classified differently according to the immediate needs
of management, and classification definition of cost. It can be helpful to understand
cost in business organization because of their basic activities from acquiring raw
materials, produce and finish goods, marketing, etc. Then evaluate these costs to
make an early estimates of a product's cost component enables developers to manage
resources wisely and evaluate the products economic viability.
For manufacturing costs, there are several types illustrated in the process of
purchasing and containing materials, manufacturing, finishing, and sell it to
consumers. Most manufacturing companies divide manufacturing cost into three
broad categories:
• Direct raw materials: are any materials used in the final product stage and
can easily trace to it. This final stage can be a start state in another manufacture
company and count as a raw material. This cycle keeps going until delivered
to customers.
• Direct labor: Like direct raw materials costs go into the production of a
product which is in assembly-line workers.
• Manufacturing overhead: Includes all manufacturing costs except the cost
of direct materials and direct labor. In other words, the costs of indirect
materials like repair and maintenance on production equipment and tools. In
fact, it is not easy to trace to a specific unit of output. In addition, many
manufacturing overhead costs do not vary as output changes, as long as the
production volume stays within the capacity of the plant. For example,
depreciation of factory buildings is unaffected by the amount of production
There are still decisions involve choosing among alternatives. Each
alternative in business decisions has a cost and is beneficial to be compared with
costs and benefits of other available alternatives. These differences are called
differential cost. In engineering applications, it's cost-volume relationships and
useful in making a short term operational decisions. Deferential revenue is in
between revenues differences. For example, if there are a differential costs between
the proposed method has a lower cost and a current method has a higher cost, then
adopting a new method is better decision. This is known as method changes. Other
examples, in manufacturing environments it's better to add another 8 hours operation
shift then adds 8 hours overtime operation shift when volume demand is high. When
its low volume, it's better to shut down manufacture temporarily until operations
become normal. This is called operational planning. Other decisions called Make-
or-buy which involves hiring others to do certain things instead of buying and
operating it. These examples are explaining how deferential cost and revenue are
playing an important role in decisions.
Solution c:
2
3
Purchase answer to see full
attachment