Majmaah University
College of Engineering
GE 407 Engineering Economics
Date: 3/09/2015 (I semester)
Exercise 1 – Cash Flow Diagram
Date of submission : Oct 22, 2015
Part I
1. A company had the following cash flow diagrams for two projects:
a. Explain the CFD
500 SR
0
1
2
3
4
100 SR
-
b.
8 Million SR
7 Million SR
0
4 M SR
1
2
2 M SR
3
4
5M SR
2. A technology company will invest in the production of a new smart watch.
At the beginning of the project, the company will purchase the machines
and materials for 20 million SR. The construction cost of the plant site
during the first year will be 5 million SR, and during the second year, the
construction cost will be 7 million SR. During the third year, the
production of the smart watch will begin with annual sales as follows:
Year
3
4
5
Sales (million SR)
100
170
210
The plant site will be sold at the end of year 5 for 80 million SR. Construct the
cash flow diagram for this project.
Majmaah University
College of Engineering
Part II: Simple Present and Future Equivalence
1. Find the equivalent present worth for the following cash flow diagram for 𝑖 =
5% per year:
10000 SR
1
2
3
4
5
Years 
20000 SR
6
7
8
9
10
12000 SR
2. A technology company will invest in the production of a new smart watch.
At the beginning of the project, the company will purchase the machines and
materials for 20 million SR. The construction cost of the plant site during the
first year will be 5 million SR, and during the second year, the construction
cost will be 7 million SR. During the third year, the production of the smart
watch will begin with annual sales as follows:
Year
3
4
5
Sales (million SR)
100
170
210
The plant site will be sold at the end of year 5 for 80 million SR. What is the
equivalent present worth of the company?
3. A person has purchased a car of 40000 SR. Person has got transferred the
car in his name but has no money to pay now. It is agreed between seller and
buyer that equivalent amount will be paid at other time ?
i) What amount the person has to pay if it has to be paid at the end of 5
years?
ii) It may be possible that buyer can pay at the end of 3 years. What is the
equivalent amount the buyer must pay?