Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
Question
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Chapter 4, Problem 125P
To determine

i.

Whether given statement is true or not” Waiting for 5 years to start saving doubles what you deposit each year”.

Expert Solution
Check Mark

Answer to Problem 125P

The statement is false.

Explanation of Solution

Given:

Retirement period from now: 40 years

Amount required: $ 2 M

Interest Rate = 10%.

Calculation:

If savings are done for amount S immediately:

$2000000=S×FVIFA(10%,40)$2000000=S×443.5926S=$4518.83

If I start saving after 5 years later with annual saving being S, then:

$2000000=S×FVIFA(10%,35)$2000000=S×271.0244S=$7379.41.

Conclusion:

Since $7379.41 is much less than the double of $4518.33 (which is equal to $9036.66), the statement is false.

To determine

ii.

Whether required multiplier is higher or lower than 10% rate.

Expert Solution
Check Mark

Answer to Problem 125P

Required multiplier is higher.

Explanation of Solution

Given:

Interest Rate = 12%

Retirement period from now: 40 years

Amount required: $ 2 M.

Calculation:

When interest rate is 12%

Required multiplier (FVIFA factor) =

FVIFA(12%,40)=767.0914>442.5926(Higher).

Conclusion:

Required multiplier is higher.

To determine

iii.

Interest Rate.

Expert Solution
Check Mark

Answer to Problem 125P

Interest rate is 0% or 14.78%.

Explanation of Solution

Given:

Savings are done of double amount after 5 years

Retirement period from now: 40 years

Amount required: $ 2 M.

Calculation:

Let required interest rate per year be R%

$2000000FVIFA(R%,40)=2×$2000000FVIFA(R%,40)

FVIFA(R%,40)=2×FVIFA(R%,35)

[(1+R)401]R=2×[(1+R)351]R[(1+R)401]=2×[(1+R)351]

(1+R)401=2×[(1+R)352]2×[(1+R)35]=(1+R)40+1

If 1+R = Z, then,

2Z35=Z40+1Z402Z35+1=0

Solving this polynomial equation,

Z=1orZ=1.1478(theonlytworealroots)1+R=1or1+R=1.1478R=0orR=0.1478.

Conclusion:

R = 0% or R = 14.78%.

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Chapter 4 Solutions

Engineering Economic Analysis

Ch. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 8PCh. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Prob. 12PCh. 4 - Prob. 13PCh. 4 - Prob. 14PCh. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Prob. 19PCh. 4 - Prob. 20PCh. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - Prob. 23PCh. 4 - Prob. 24PCh. 4 - Prob. 25PCh. 4 - Prob. 26PCh. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - Prob. 30PCh. 4 - Prob. 31PCh. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - Prob. 34PCh. 4 - Prob. 35PCh. 4 - Prob. 36PCh. 4 - Prob. 37PCh. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - Prob. 40PCh. 4 - Prob. 41PCh. 4 - Prob. 42PCh. 4 - Prob. 43PCh. 4 - Prob. 44PCh. 4 - Prob. 45PCh. 4 - Prob. 46PCh. 4 - Prob. 47PCh. 4 - Prob. 48PCh. 4 - Prob. 49PCh. 4 - Prob. 50PCh. 4 - Prob. 51PCh. 4 - Prob. 52PCh. 4 - Prob. 53PCh. 4 - Prob. 54PCh. 4 - Prob. 55PCh. 4 - Prob. 56PCh. 4 - Prob. 57PCh. 4 - Prob. 58PCh. 4 - Prob. 59PCh. 4 - Prob. 60PCh. 4 - Prob. 61PCh. 4 - Prob. 62PCh. 4 - Prob. 63PCh. 4 - Prob. 64PCh. 4 - Prob. 65PCh. 4 - Prob. 66PCh. 4 - Prob. 67PCh. 4 - Prob. 68PCh. 4 - Prob. 69PCh. 4 - Prob. 70PCh. 4 - Prob. 71PCh. 4 - Prob. 72PCh. 4 - Prob. 73PCh. 4 - Prob. 74PCh. 4 - Prob. 75PCh. 4 - Prob. 76PCh. 4 - Prob. 77PCh. 4 - Prob. 78PCh. 4 - Prob. 79PCh. 4 - Prob. 80PCh. 4 - Prob. 81PCh. 4 - Prob. 82PCh. 4 - Prob. 83PCh. 4 - Prob. 84PCh. 4 - Prob. 85PCh. 4 - Prob. 86PCh. 4 - Prob. 87PCh. 4 - Prob. 88PCh. 4 - Prob. 89PCh. 4 - Prob. 90PCh. 4 - Prob. 91PCh. 4 - Prob. 92PCh. 4 - Prob. 93PCh. 4 - Prob. 94PCh. 4 - Prob. 95PCh. 4 - Prob. 96PCh. 4 - Prob. 97PCh. 4 - Prob. 98PCh. 4 - Prob. 99PCh. 4 - Prob. 100PCh. 4 - Prob. 101PCh. 4 - Prob. 102PCh. 4 - Prob. 103PCh. 4 - Prob. 104PCh. 4 - Prob. 105PCh. 4 - Prob. 106PCh. 4 - Prob. 107PCh. 4 - Prob. 108PCh. 4 - Prob. 109PCh. 4 - Prob. 110PCh. 4 - Prob. 111PCh. 4 - Prob. 112PCh. 4 - Prob. 113PCh. 4 - Prob. 114PCh. 4 - Prob. 115PCh. 4 - Prob. 116PCh. 4 - Prob. 117PCh. 4 - Prob. 118PCh. 4 - Prob. 119PCh. 4 - Prob. 120PCh. 4 - Prob. 121PCh. 4 - Prob. 122PCh. 4 - Prob. 123PCh. 4 - Prob. 124PCh. 4 - Prob. 125PCh. 4 - Prob. 126P
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