HES3380 Engineering Management I Minor Activity Report 2 Name:SAHA SUMAN Student ID: 6726143 Tutorial Group: 1 Date: 20 10 0!

1. By using equipment ZX in its current process, FunQ company can have a saving around $40,000 per year (cash in !o"#. $ this equipment can %e %ought or $110,000 and the equipment "i!! %e disposed "ithout cost or %ene it a ter 10 years. &hat is the payback period or %uying the equipment' (uggested (o!ution)

*ears

+. ,he pro it out o a p!astic mou!ding machine is $+-.,000 over . years. $ the initia! investment requires $1.0,000. &hat is the rate of return o %uying this p!astic mou!ding machine' (uggested so!ution

/ $ 59,000 Project cost = initial investment = $150,000

00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000 1. 2ac3 "ants to %orro" $.0,000 rom the %an3 no" in hope that he can return it as !ump sum o money a ter . years. (ince the !oan is insecure, the interest rate is 4+0 per annum. a. 5o" much shou!d %e repaid at the end o the . years period' %. ,he %an3 manager in orms 2ac3 that the %an3 requires some repayments and they cannot "ait that !ong. &hat "ou!d %e year!y repayments i an equa! amount to %e paid' c. &hat i the money is to %e repaid month!y over . years' Suggested solution

(a# Principal amount borro!ed = $ 50,000 "nnual interest rate= #0$ per annum 1st year interest =0%# 50,000 =$10,000 #nd year interest= &50,000'10,000( )rd year interest = &*0,000'1#,000( +t, year interest=&-#,000'1+,+00( 5t, year interest= &1-,#.0'.*,+00( 0%# = $1#,000 0%#=1+,+00 0%#= 1-,#.0 0%# = #0,-)*

/otal accumulated interest= $-+,+1* /otal repayment at t,e end of 5 yrs period = -+,+1*'50,000=$1#+,+1* "lternative solution
P= F (1 + k # n

1= $50,000
&b(

0iven P=$50,000 k= #0$= 0%# ,n=5 =$50,000 = $1#+,+1*

/ $16,718.-&c(

0iven P= $50,000, 60 month!y repayments.

/ $11+4.6-

,here ore 2ac3 "ou!d need to pay $1,1+4.6- per month or . years (60 months#. 5is tota! repayment in . years "i!! %e $ 1,1+4.6- per month 60 months / $7-,481.4

4. 9ro:ect ; requires $100,000 initia!!y %ut it provides $.0,000 income per year or three years. 9ro:ect B, ho"ever, requires $.0,000 "ith annua! return o $10,000 or three years. &hich pro:ect "ou!d you se!ect i the interest rate is 1.4 per annum %ased on <9=' Suggested Solution
n

NPV = Ao +
t =1

Ft (1 + k # t
1

Project 1

NPV = $100,000 +

$.0,000 t t =1 (1 + 0.1.# / 0 $100,000 > ($ 41,478.+6 > $17,807.18>$1+,87..81# / $ 14,161.+. Project # 1 $10,000 NPV = $.0,000 + t t =1 (1 + 0.1.#

/ ?$ .0,000 > ( $+6,086.-6 > $ ++,684.11>$1-,7+..4-# / $ 18,4-6.76 Because the <et present va!ue (<9=# o pro:ect + is @ than pro:ect 1 , $ "ou!d se!ect pro:ect +.
.. ; student has spent $10,000 out o his credit card and he "ant to return $+.0 each month. ;ssuming the interest rate is +44 per annum. 5o" !ong "i!! it ta3e to c!earout his de%t' &hat i he pays $100 per month "ith the same interest rate' Aepeat the ca!cu!ations or $400, $.00 and $600 repayments per month' Bo you have any particu!ar o%servation'

 Case 1) Aeturns $+.0 each month Diven 9 / $10,000, ;/ $+.0, 3 / +44 / 0.+4 annua!!y / month!y

Case +) Aeturns $100 each month $nstead ; / $100

Case 1) Aeturns $ 400 each month $nstead ; / $400

Case 4 ) Aeturns $.00 each month $nstead ; / $.00

Case . ) Aeturns $ 600 each month $nstead ; / $600

2t can be seen t,at t,e greater t,e amount t,e student returns, t,e s,orter time span re3uired to clear out ,is debt%

6. ; riend has o ered ;mir an interesting investment opportunity. ;mir needs to pay
$+00,000 no" and in return he gets $10,000 per year or our year and "ho!e investment amount, ie $+00,000, in the i th year. &hat is the interna! rate o return or this investment and "hat is your advice or ;mir' (hint) to determine interna! rate o

return, <9= shou!d %e set to Eero and so!ve the re!ated equation or i, this is o ten di icu!t i not impossi%!e. (o trai! and error method cou!d %e used or "hich Ficroso t GHce! is very handy. $nterna! rate o return in this case shou!d %e around 41+.67#

NPV = Ao +
t =1

Ft (1 + k # t

0=

$#00,000 ' +

(1 + k #
t =1

$10,000
t

$+00,000 (1 + k #.

0=

k = 1#%*-$= 1#%*-4100 = 0%01#*- satisfies t,e above e3uation ie for t,e 56S of t,e e3uation to be e3ual to t,e 76S of t,e e3uation 8y advice for aamir is t,at 2f ,e can use t,e $#00,000 to get a better return of 1#%*-$ on any ot,er investment, ,e s,ould probably invest t,ere%

P=

F (1 + i # n
n

P=

A(1 (1 + i # n # i

NPV = P +
j =1

Fj (1 + i # j