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(ECON115)[2009](f)midterm~ee_pax^_10224.pdf
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Econ 115 Engineering Economics and Finance Name:______________
Fall, 2009 ID:_________________
Midterm Exam
Instructor: YU, Yan Lecture #:____________

General instruction: This is a closed-book exam. You may use calculators. Steps of calculation must be shown, including functional symbol of factors (such as (P/A, 10%, 6)) and its value (here 4.3553). Draw cash flow diagram whenever possible (it counts for 10% of total marks). You have 120 minutes for this exam.

Question 1 (2.2, 2.3) (20 points) Upon his employment at the age of 22, Robert began to make a series of equal year-end deposits of $1100 to his retirement fund. After working for 5 years, he is able to increase his saving. He plans to increase his annual deposits to $2200, starting at the end of next year (i.e., at the age of 28). He also intends to increase the amount by $400 each year for the next 13 years (i.e., until the age of 41), and continue his equal deposits of $7400 each year until the age of 60. He expects to retire at the age of 65. How much would his retirement fund be worth at the time of his retirement if it earns a rate of return of 10% per year?



























Question 2 (3.5) (20 points) A new water treatment operation is being considered for the new automated water treatment plant in South Africa. The system can be purchased and installed for $24.5 million and requires additional annual operating and maintenance expenses of $2.7 million over a 22-year period. However, it will save an estimated $6.7 million each year from the reduced operational, environmental, and security risks. The company uses a MARR of 12 percent per year in its economics evaluations of the new system. The market value of the system will be $4.45 million at the end of 22 years. Use IRR method to determine if this system should be purchased. (Must use linear interpolation and draw a relevant graph. No interest tables provided for this question. Please use relevant formulas to calculate.)




































Question 3 (4.2, 4.4) (30 points) HealthRx, a major manufacturer of non-invasive breast and cervical cancer detection products is planning to expand its market in Asia. Three single-patient-use disposable devices based on its proprietary technology to identify cancers and precancers painlessly and noninvasively by scanning the cervix with light are being considered. The costs to manufacture these devices are the following:
Alternative
Soft Touch
Light Touch
Gentle Touch

Initial costs
$500,000
$620,000
$735,000

Annual operating costs
$15,000
$14,500
$14,000

Salvage Value (at the end of the 7th year)
$70,000
$80,000
$85,000

Sell price per unit
$340
$360
$390




Assume the company uses a MARR of 10% and 7 years as study period. If the