Instructions:
• For full credit, begin each calculation with an appropriate formula, show accurate calculations and appropriate units, and clearly identify your answers. The submissions are recommended to be computer generated. You can write mathematical equations in MS Word and export them to pdf file. See
https://support.office.com/en-us/article/Write-insert-or-change-an-equation-1d01cabc-ceb1-458d-bc70-7f9737722702
• Please be sure your work is neat and legible, not scribbled or squeezed into the white spaces and margins of the assignment sheet.
• Answer all sub questions (if any) of a problem for full credit for that problem.
- What are the seven steps of engineering economic analysis as proposed in the textbook? In your opinion, which of the seven steps would be the most difficult? Explain your answer.
- Exercise 1.4 Tyler just had a fender bender accident with his new Nissan, and the accident was his fault. The owner of the other vehicle got two estimates for the repairs: one was for $803 and the other was for $852. Tyler is thinking of keeping the insurance companies out of this to keep his record “clean.” Tyler’s deductible on the comprehensive coverage insurance is $500, and he does not want his premium to increase because of the accident. In this regard, Tyler estimates that his semi-annual premium will rise by $60 if he files a claim against his insurance company. In view of the above information, Tyler’s initial decision is to write a personal check for $803 payable to the owner of the other vehicle. Did Tyler make the most economical decision? What other options should Tyler have explored? In your answer, be sure to state your assumptions and quantify your thinking. (Section 1.3)
- Exercise 1.6 What is an economic tradeoff? Give several tradeoffs that you make every day. (Section 1.2)
- Exercise 1.8 Studies have concluded that a college degree is a very good investment. Suppose that a college graduate earns about 75% more money per hour than a high school graduate. If the lifetime earnings of a high school graduate average $1,200,000, what is the expected value of earning a college degree? (Section 1.3)
- Exercise 1.10 Often it makes a lot of sense to spend some money now so you can save more money in the future. Consider filtered water. A high-tech water filter costs $60 and can filter 7,200 ounces of water. This will save you purchasing two 20-ounce bottles of filtered water every day, each costing $1.15. The filter will need replacing every 6 months. How much will this filter save you in a year’s time?
- Exercise 1.18 Owing to the rising cost of copper, in 1982, the U.S. Mint changed the composition of pennies from 95% copper (and 5 % zinc) to 2.5% copper (and 97.5% zinc) to save money. Your favorite aunt has a collection of 5,000 pennies minted before 1982, and she intends on gifting the collection to you.
(a) What is the collection’s value based on metal content alone? Copper sells for $3.50 per pound and zinc for $1 per pound. It takes approximately 130 pre-1982 pennies to add up to one pound of total weight.
(b) If it cost the U.S. Mint $0.017 to produce a penny in year 2012, is it time to eliminate pennies and round off all financial transactions to nearest 5 cents (nickel)? As a matter of interest, it cost the government almost 10 cents to produce a nickel in 2012. - 2.9 Suppose your wealthy aunt has given you a gift of $25,000. You have come up three options for spending (or investing) the money. First, you’d like (but do not need) a new car to brighten up your home and social life. Second, you can invest the money in a high-tech firm’s common stock. It is expected to increase in value by 20% per year, but this option is fairly risky. Third, you can put the money into a three-year certificate of deposit with a local bank and earn 6% per year. There is little risk in the third option. (Section 2.1)
(a) If you decide to purchase the new car, what is the opportunity cost of this choice? Explain your reasoning.
(b) If you invest in the high-tech common stock, what is the opportunity cost of this choice? Explain your reasoning.