The first step in resolving engineering economics problems is to utilize math and economics techniques to properly understand potential favorable and unfavorable consequences that could result from various alternative courses of action. All engineering economics problems fall into one of three categories: fixed input, fixed output, or neither fixed input nor fixed output. Additionally, there are five major methods of comparing viable alternatives included: present worth, future worth, annual cost, the rate of return, and benefit-cost analysis.
Be sure to show all of your work with as much detail as possible when answering the following questions
- Jim’s 1998 mini-van is functional. He purchased it in 1998 for $11,000 from a bank which required he make a down payment of $2500 at a 3% annual interest rate. This was the bank’s original offer:
a) If, as an alternative, the bank decided to charge Jim at 2% every 6 months what would Jim’s nominal interest rate be?
b) What is the effective interest rate per period of this purchase?
- Jim decided to take the bank’s original offer at 3% interest. He paid for the vehicle once a month each month, paid $250 dollars each year in maintenance costs, and paid the car off in 5 years.
a) How much did Jim pay the bank each year?
b) How much did Jim pay in total for his mini-van?
c) Create a cash flow diagram that represents Jim’s purchase.
- Jim returned to his original purchase and an alternative he was considering. The alternative required a down payment of only $2000. He could use his mini-van to take his friends to school and they could pay him a total of $600 a year in gas money. With the alternative, he would only receive $550 a year because of the reduced amount of spacing. Based solely on the down payment and gas money:
a) Should Jim have purchased the alternative instead of his mini-van?
b) Provide a benefits-cost ratio to support your decision.
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- Compile a short biography of your career interests.
- Describe in a short but detailed example how engineering economics will or has played a part in your career decision. Be sure to include one or more of the following: Cash Flow Diagram, Benefit-Cost Analysis and/or a Breakeven Analysis.
- Optional: Attach a picture of yourself or add an audio (Links to an external site.) or video (Links to an external site.) introduction so the rest of us will know who we are communicating with during discussions.