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Questions and Answers of Economics

Annual maintenance costs for a particular section of highway pavement are $2000. The placement of a new surface would reduce the almual maintenance cost to $500 per year for the first 5 years and to
An investor is considering buying a 20-year corporate bond. The bond has a face value of $1000 and pays 6% interest per year in two semiannual payments. Thus the purchaser of the bond will receive
A road building contractor has received a major highway construction contract that will require 50,000 m3 of crushed stone each year for 5 years. The needed stone can be obtained from a quarry for
A new office building was constructed 5 years ago by a consulting engineering firm. At that time the firm obtained a bank loan for $100,000 with a 12% annual interest rate, compounded quarterly. The
IBP Inc. is considering establishing a new machine to automate a meat packing process. The machine will save $50,000 in labor annually. The machine can be purchased for $200,000 today and will be
Argentina is considering constructing a bridge across the Rio de la Plata to connect its northern coast to the southern coast of Uruguay. If this bridge is constructed, it will reduce the travel time
A student has a job that leaves her with $250 per month in disposable income. She decides that she will use the money to buy a car. Before looking for a car, she arranges a 100% loan whose terms are
The student in Problem 5-27 finds a car she likes and the dealer offers to arrange financing. His terms are 12% interest for 60 months and no down payment. The car's sticker price is $12,000. Can she
The student in Problem 5-28 really wants this particular car. She decides to try and negotiate a different interest rate. What is the highest interest rate that she can accept, given a 60-month term
We know a car costs 60 monthly payments of $199. The car dealer has set us a nominal interest rate of 4.5% compounded daily. What is the purchase price of the car?
A machine costs $980,000 to purchase and will provide $200,000 a year in benefits. The company plans to use the machine for 13 years and then will sell the machine for scrap, receiving $20,000. The
A corporate bond has a face value of $l 000 with maturity date 20 years from today. The bond pays interest manually at a rate of 8% per year based on the face value. The interest rate paid on
Calculate the present worth of a 4.5%, $5000 bond with interest paid semiannually. The bond matures in 10 years, and the investor desires to make 8% per year compounded quarterly on the investment.
A rather wealthy man decided he would like to arrange for his descendants to be well educated. He would like each child to have $60,000 for his or her education. He plans to set up a perpetual trust
A man who likes cherry blossoms very much would like to have an urn full of them put on his grave once each year forever after he dies. In his will, he intends to leave a certain sum of money in the
A home builder must construct a sewage treatment plant and deposit sufficient money in a perpetual trust fund to pay the $5000 per year operating cost and to replace the treatment plant every 40
The local botanical society wants to ensure that the gardens in the town park are properly cared for. They recently spent $100,000 to plant the gardens. They would like to set up a perpetual fund to
An elderly lady decided to distribute most of her considerable wealth to charity and to retain for herself only enough money to provide for her living. She feels that $1000 a month will amply provide
What amount of money deposited 50 years ago at 8% interest would provide a perpetual payment of $10,000 a year beginning this year?
A depositor puts $25,000 in a savings account that pays 5% interest, compounded semiannually. Equal annual withdrawals are to be made from the account, beginning one year from now and continuing
A trust fund is to be established for three purposes(1) To provide $750,000 for the construction and $250,000 for the initial equipment of a small engineering laboratory;(2) To pay the $150,000 per
The local Audubon Society has just put a new bird feeder in the park at a cost of $500. The feeder has a useful life of 5 years and an annual maintenance cost of $50. Our cat, Fred, was very
We want to donate a marble birdbath to the city park as a memorial to our cat, Fred, while he can still enjoy it. We also want to set up a perpetual care fund to cover future expenses "forever." The
Dr. Fog E. Professor is retiring and wants to endow a chair of engineering economics at his university. It is expected that he will need to cover an annual cost of $100,000 forever. What lump sum
Dr. Fog E. Professor is retiring and wants to endow a chair of engineering economics at his university. It is expected that he will need to cover an annual cost of $100,000 forever. What lump sum
A man had to have the muffler replaced on his 2-yearold car. The repairman offered two alternatives. For $50 he would install a muffler guaranteed for 2 years. But for $65 he would install a muffler
A consulting engineer has been engaged to advise a town how best to proceed with the construction of a 200,000 m3 water supply reservoir. Since only 120,000 m3 of storage will be required for the
If interest is computed at 4%, which construction plan is preferred?A weekly business magazine offers a 1-yearsubscripticor $58 and a 3-year subscription for $116. If you thought you would read the
Use an 8-year analysis period and a 10% interest rate to determine which alternative should be selected:
Telephone Mexico is expanding its facilities to serve a new manufacturing plant. The new plant will require 2000 telephone lines this year and another 2000 lines after expansion in 10 years. The
Dick Dickerson Construction Inc. has asked to you help them select a new backhoe. You have a choice between a wheel-mounted version, which costs $50,000 and has an expected life of 5 years and a
Walt Wallace Construction Enterprises is investigating the purchase of a new dump truck. Interest is 9%. The cash flows for two Likely models are as follows
Two different companies are offering a punch press for Company a charges $250,000 to deliver and install the device. Company A has estimated that the machine will have maintenance and operating costs
A battery manufacturing plant has been ordered to cease discharging acidic waste liquids containing mercury into the city sewer system. As a result, the form must now adjust the pH and remove the
A firm is considering three mutually exclusive alternatives as part of a production improvement program. The alternatives are:
A steam boiler is needed as part of the design of a new plant. The boiler can be fired by natural gas, fuel oil, or coal. A decision must be made on which fuel to use. An analysis of the costs shows
Austin General Hospital is evaluating new office equipment offered by three companies. In each case the interest rate is 15% and the useful life of the equipment is 4 years. Use NPW analysis to
The following costs are associated with three tomato-peeling machines being considered for use in a canning plant
A railroad branch line to a missile site is to be constructed. It is expected that the railroad line will be used for 15 years, after which the missile site will be removed and the land turned back
Consider A-E, five mutually exclusive alternatives: A
An investor has carefully studied a number of companies and their common stock. From his analysis, he has decided that the stocks of six firms are the best of the many he has examined. They represent
Six mutually exclusive alternatives, A-F (see Table P5-64), are being examined for an 8% interest rate, which alternative should be selected Each alternative has a six-year useful life.
The management of an electronics manufacturing firm believes it is desirable to automate its production facility. The automated equipment would have a l0-year life with no salvage value at the end of
A local symphony association offers memberships as follows:Continuing membership, per year $ 15Patron lifetime membership
Using capitalized cost determine which type of road surface is preferred on a particular section of highway Use 12% interest rate.
A city has developed a plan to provide for future municipal water needs. The plan proposes an aqueduct that passes through 500 feet of tunnel in a nearby mountain. Two alternatives are being
An engineer has received two bids for an elevator to be installed in a new building. The bids, plus his evaluation of the elevators, are shown in Table P5-69. The engineer will make a present worth
A building contractor obtained bids for some asphalt paving, based on a specification. Three paving subcontractors quoted the following prices and ten of payment:The building contractor uses a 12% no
Given the following data, use present worth analysis to find the best alternative, A, B, or CUse an analysis period of 1.2 years and 10% interest.
Consider the following four alternatives. Three are "do something" and one is "do nothingAt the end of the 5-year useful life of B, a replacement is not made. If a 10-year analysis period and a 10%
A cost analysis is to be made to determine what, if anything should be done in a situation offering three "do-something" and one "do-nothing" alternatives. Estimates of the cost and benefits are as
Assume monthly car payments of $500 per month for A 4 years and an interest rate of 1/2% per month. What - initial principal or PW will this repay?
Assume annual car payments of $6000 for 4 years and an interest rate of 6% per year. What initial principal or PW will this repay?
Assume annual car payments of $6000 for 4 years and an interest rate of 6.168% per year. What initial principal or PW will this repay?
Assume mortgage payments of $1000 per month for 30 years and an interest rate of 1/2% per month. What initial principal or PW will this repay?
Assume annual mortgage payments of $12,000 for A 30 years and an interest rate of 6% per year. What initial principal or PW will this repay?
Why do the values in Problems 5-78, 5-79, and .5-80 differ?
Maverick Enterprises is planning new product Annual sales unit costs, and unit revenues are as tabulated; the first cost of R&D and setting up the assembly line is $42,000. If i is 10%, what is the
Northern Engineering is analyzing a mining project. Annual production, unit costs, and unit' revenues are in the table. The first cost of the mine setup is $8 million. If is 15%, what is the PW?
Maverick Enterprises is planning a new product. Annual sales, unit costs, and unit revenues are as tabulated; the first cost of R&D and setting up the assembly line is $42,000. If is 10%, what is
Compute the value of C for the following diagram, based on a 10% interest rate.
Compute the value of B for the following diagram:
Compute the value of E:
If i = 6%, compute the value of D that is equivalent to the two disbursements shown.
For the diagram, compute the value of D:
What is C in the accompanying figure?
If interest is 10%, what is A?
As shown in the cash flow diagram, there is an annual disbursement of money that varies from year to year from $100 to $300 in a fixed pattern that repeats forever. If interest is 10%, compute the
On April 1 a man borrows $100. The loan is to be repaid in three equal semiannual (every 6 months) payments. If the annual interest rate is 7% compounded semiannually, how much is each payment?
An electronics firm invested $60,000 in a precision inspection device. It cost $4000 to operate and maintain in the first year and $3000 in each of the subsequent years. At the end of 4 years, the
A firm is about to begin pilot plant operation on a process it has developed. One item of optional equipment that could be obtained is a heat exchanger unit. The company finds that a unit now
The maintenance foreman of a plant in reviewing his records found that a large press had the following maintenance cost record:After consulting with a lubrication specialist, he changed the
A firm purchased some equipment at a very favorable price of $30,000. The equipment resulted in an annual net saving of $1000 per year during the 8 years it was used. At the end of 8 years, the
When he started work on his twenty-second birthday, D. B. Cooper decided to invest money each month with the objective of becoming a millionaire by the time he reaches age 65. If he expects his
Linda 0' Shay deposited $30,000 in a savings account as a perpetual trust. She believes the account will earn 7% annual interest during the first 10 years and 5% interest thereafter. The trust is to
A machine costs $20,000 and has a 5-year useful life. At the end of the 5 years, it can be sold for $4000. If annual interest is 8%, compounded semiannually, what is the equivalent uniform annual
The average age of engineering students at graduation is a little over 23 years. This means that the working career of most engineers is almost exactly 500 months. How much would an engineer need to
The Johnson Company pays $200 a month to a trucker to haul wastepaper and cardboard to the city dump. The material could be recycled if the company were to buy a $6000 hydraulic press bailer and
An engineer has a fluctuating future budget for the maintenance of a particular machine. During each 01 the first 5 years, $1000 per year will be budgeted. During the second 5 years, the annual
An engineer wishes to have $5 million by the time he retires in 40 years. Assuming 15% nominal interest, compounded continuously, what annual sum must he set aside?
Art Arfons, a K-State-educated engineer, has made a considerable fortune. He wishes to start a perpetual scholarship for engineering students at K State. The scholarship will provide a student with
Jenny McCarthy is an engineer for a municipal power plant. The plant uses natural gas, which is currently provided from an existing pipeline at an annual cost of $10,000 per year. Jenny is
A machine has a first cost of $150,000, an annual operation and, maintenance cost of $2500, a life of 10 years, and a salvage value of $30,000. At the end of years 4 and 8, it requires a major
Mr. Wiggley wants to buy a new house. It will cost $178,000. The bank will loan 90% of the purchase price at a nominal interest rate of 10.75% compounded weekly, and Mr. Wiggley will make monthly
Steve Lowe must pay his property taxes in two equal installments on December 1 and April 1. The two payments are for taxes for the fiscal year that begins on July I and ends the following June 30.
Claude James, a salesman, needs a new car for use in his business. He expects to be promoted to a supervisory job at the end of 3 years, and so his concern now is to have a car for the 3 years he
A motorcycle is for sale for $2600. The motorcycle dealer is willing to sell it on the following terms: No down payment; pay $44 at the end of each of the first 4 months; pay $84 at the end of each
When he purchased his home, AI Silva borrowed $80,000 at 10% interest to be repaid in 25 equal annual end-of-year payments. After making 10 payments, AI found he could refinance the balance due on
A company must decide whether to provide their salesmen with company-owned automobiles or to pay the salesmen a mileage allowance and have them drive their own automobiles. New automobiles would cost
Your company must make a $500,000 balloon payment on a lease 2 years and 9 months from today. You have been directed to deposit an amount of money quarterly, beginning today, to provide for the
A manufacturer is considering replacing a production machine tool. The new machine, costing $3700, would have a life of 4 years and no salvage value, but would save the firm $500 per year in direct
Two possible routes for a power line are under study. Data on the routes are as follows:If 7% interest is used, should the power line be routed around the lake or under the lake?
An oil refinery finds that it is now necessary to subject its waste liquids to a costly treating process before discharging them into a nearby stream. The engineering department estimates that the
Bill Anderson buys an automobile every 2 years at follows: initially he makes a down payment of $600C on a $15,000 car. The balance is paid in 24 equal monthly payments with annual interest at 12%.
Alice White has arranged to buy some home recording equipment. She estimates that it will have a 5-year useful life and no salvage value. The dealer, who is, friend, has offered Alice two alternative
Two mutually exclusive alternatives are being considered. One of the alternatives must be selected. Using a 15% nominal interest rate compounded continuously, determine which one. Solve by annual
A certain industrial firm desires an economic analysis to determine which of two different machines should be purchased. Each machine is capable of performing the same task in a given amount of time.
A suburban taxi company is considering buying taxis with diesel engines instead of gasoline engines. The cars average 50,000 km a year, with a useful life of 3 years for the taxi with the gas engine
A company must decide whether to buy Machine A or Machine B:At a 10% interest rate, which machine should be installed? Use an annual cash flow analysis in working this problem.
Consider the following alternatives: The analysis period is 10 years, but there will be replacement for Alternative B at the end of 5 years. Based on a 15% interest rate, determine which alternative

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