Howard University
Department of Civil and Environmental Engineering – Engineering Economics
CIEG 354
Assignment # 5 (Chapters 9 in the textbook)
For the questions below, provide the Cash Flow Diagram (CFD) in your solution, if possible.
Q 5.1:
Compute the future worth for the following cash flow.
Q 5.2:
Using the benefit-cost ratio along with NPW analysis, determine which one of the two mutually
exclusive alternatives should be selected. Each alternative has a 10-year useful life. Assume a
i=20%.
A
B
First cost
-$560
-$340
Uniform annual
benefit
140
100
Salvage value
40
0
Q 5.3:
A machine costs $5240 and produces benefits of $1000 at the end of each year for 8 years.
Assume an annual interest rate of 10%.
(a)What is the payback period (in years)?
(b)What is the breakeven point (in years)?
(c)Since the answers in (a) and (b) are different, which one can be used to compare this cash
flow with other possible alternatives, and why?
Hint: use a graphical solution with no interest rate for (a). You can use either hand calculations
or a graphical solution for (b). The interest rate should be used in (b).
Q 5.4:
If i =12%, compute the value of X that makes the two alternatives equally desirable. The two
alternatives are assumed to be continuously replaced. Use EUAW analysis in your solution.
A
$800
230
5
Cost
Uniform annual benefit
Useful life, years
B
$1000
230
X
Q 5.5:
If the i = 5% and both alternatives have the same useful life of 6 years, compute the value of X
that makes the two alternatives equally desirable. Use NPW analysis in your solution.
A
B
Cost
$150
$X
Uniform annual benefit
40
65
Salvage value
100
200
Q 5.6:
If you have a tax-free retirement annuity plan and you have three options. you can receive (A)
$30,976 now, (B) $4315.2 per month for the rest of your life, or (C) $6165.6 per year for the next
10 years. What should you do? Assume that the payments are received at the end of the year
and that the 10-year annuity will continue to be paid to loved heirs if you die before the 10 years
are over. If i = 6%, develop a choice table for lives from 5 to 30 years.
Hint: Use EUAB and graphical analysis in your solution.
Year
A
B
C
0
$30,976
0
0
1-10
0
$4315.2
$6165.6
11-30
0
$4315.2
0