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Finance
A foundation was endowed with $10,000,000 in July 2000. In July 2004, $3,000,000 was expended for facilities, and it was decided to provide $250,000 at the end of each year forever to cover operating
Vidhi is investing in some rental property in Collegeville and is investigating her income from the investment. She knows the rental revenue will increase each year, but so will the maintenance
A project your firm is considering for implementation has these estimated costs and revenues: an investment cost of $50,000; maintenance costs that start at $5,000 at end-of-year (EOY) one and
In Problem 5-5, the projected savings in electricity bills rendered by the air conditioning system, which cost $100,000 to purchase and install, were calculated to be $30,000 per year. The system's
Determine the FW of the following engineering project when the MARR is 15% per year. Is the project acceptable? Proposal A Investment cost
What are the PW and FW of a 20-year geometric cash-flow progression increasing at 2% per year if the first year amount is $1,020 and the interest rate is 10% per year?
Fill in Table P5-23 below when P = $10,000, S = $2,000 (at the end of four years), and = 15% per year. Complete the accompanying table and show that the equivalent uniform CR amount equals $3,102.12.
Given that the purchase price of a machine is $1,000 and its market value at EOY four is $300, complete Table P5-24 below [values (a) through (f)], using an opportunity cost of 5% per year. Compute
A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000, and $100,000 additional
A 50-kilowatt gas turbine has an investment cost of $40,000. It costs another $14,000 for shipping, insurance, site preparation, fuel lines, and fuel storage tanks. The operation and maintenance
Anderson County has 35 older-model school buses that will be salvaged for $5,000 each. These buses cost $144,000 per year for fuel and maintenance. Now the county will purchase 35 new school buses
Josh Ritchey has just been hired as a cost engineer by a large airlines company. Josh's first idea is to quit giving complimentary cocktails, wine, and beer to the international flying public. He
Your sister just bought a new car having a sticker price (manufacturer's suggested retail price) of $36,000. She was crafty and was able to negotiate a sales price of $33,500 from the auto
An environmentally friendly green home (99% air tight) costs about 8% more to construct than a conventional home. Most green homes can save 115% per year on energy expenses to heat and cool the
Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual
Stan Moneymaker has been informed of a major automobile manufacturer's plan to conserve on gasoline consumption through improved engine design. The idea is called "engine displacement," and it works
The world's largest carpet maker has just completed a feasibility study of what to do with the 16,000 tons of overruns, rejects, and remnants it produces every year. The company's CEO launched the
Each year in the United States nearly 5 billion pounds of discarded carpet end up in landfills. In response to this situation, the carpet manufacturer in Problem 5-34 has decided to start a take-back
Manuel has the following investment planned: he is going to make a $12,000 deposit every year for the next 5 years, which means he plans to make the first deposit one year from now. One year after
A loan of $3,000 for a new, high-end laptop computer is to be repaid in 15 end-of-month payments (starting one month from now). The monthly payments are determined as follows. Loan principal
A person deposits $12,000 per year for 5 years, with the first deposit made one year from the present. One year after the last deposit, the person makes continuous withdrawals of $2,000 for the next
Evaluate a combined cycle power plant on the basis of the PW method when the MARR is 12% per year. Pertinent cost data are as follows: Power Plant (thousands of $) Investment cost
In July of 2012, Taylor purchased 2,000 shares of XYZ common stock for $75,000. He then sold 1,000 shares of XYZ in July of 2013 for $39 per share. The remaining 1,000 shares were finally sold for
Nowadays it is very important to reduce one's carbon "footprint" (how much carbon we produce in our daily lifestyles). Minimizing the use of fossil fuels and instead resorting to renewable sources of
Sergeant Jess Frugal has the problem of running out of money near the end of each month (he gets paid once a month). Near his army base there is a payday lender company, called Predatory Lenders,
A firm requires a crane which costs $80,000 and has an estimated salvage value of $10,000 at the end of a 6-year operating life. If the firm uses the rate of interest as 20% for the project
To purchase a used automobile, you borrow $8,000 from Loan Shark Enterprises. They tell you the interest rate being charged is 1% per month for 35 months. They also charge you $200 for a credit
Your boss has just presented you with the summary in the accompanying table of projected costs and annual receipts for a new product line. He asks you to calculate the IRR for this investment
A small company purchased now for $23,000 will lose $1,200 each year the first four years. An additional $8,000 invested in the company during the fourth year will result in a profit of $5,500 each
A company has the opportunity to take over a redevelopment project in an industrial area of a city. No immediate investment is required, but it must raze the existing buildings over a four-year
The prospective exploration for oil in the outer continental shelf by a small, independent drilling company has produced a rather curious pattern of cash flows, as follows:The $1,500,000 expense at
In this problem, we consider replacing an existing electrical water heater with an array of solar panels. The net installed investment cost of the panels is $1,400 ($2,000 less a 30% tax credit from
A lathe costs $10,000 and will incur $200 per year in fixed costs and $25 per hour in variable costs. The lathe will be operational for 1,200 hours per year for 5 years and then sold for $2,000. The
A computer call center is going to replace all of its incandescent lamps with more energy-efficient fluorescent lighting fixtures. The total energy savings are estimated to be $1,875 per year, and
A plasma arc furnace has an internal combustion temperature of 7,000°C and is being considered for the incineration of medical wastes at a local hospital. The initial investment is $300,000 and
Advanced Modular Technology (AMT) typically exhibits net annual revenues that increase over a fairly long period. In the long run, an AMT project may be profitable as measured by IRR, but it's simple
The American Pharmaceutical Company (APC) has a policy that all capital investments must have a four-year or less discounted payback period in order to be considered for funding. The MARR at APC is
The International Parcel Service has installed a new radio frequency identification system to help reduce the number of packages that are incorrectly delivered. The capital investment in the system
The Fischer-Tropsch (F-T) process was developed in Germany in 1923 to convert synthesis gas (i.e., a mixture of hydrogen and carbon monoxide) into liquid with some gaseous hydrocarbons.
An investment of $100,000 is required in an existing manufacturing concern, whose annual revenue is expected to be $40,000 for the next five years. Out of this revenue, the yearly expenditure on
A remotely situated fuel cell has an installed cost of $2,000 and will reduce existing surveillance expenses by $350 per year for eight years. The border security agency's MARR is 10% per year. a.
In your own words, explain to your grandmother why the values of various government bonds go up when interest rates in the U.S. economy drop.
A large induced-draft fan is needed for an upgraded industrial process. The motor to drive this fan is rated at 100 horsepower, and the motor will operate at full load for 8,760 hours per year. The
a. Calculate the IRR for each of the three cash-flow diagrams that follow. Use EOY zero for (i) and EOY four for (ii) and (iii) as the reference points in time. What can you conclude about "reference
A group of private investors borrowed $30 million to build 300 new luxury apartments near a large university. The money was borrowed at 6% annual interest, and the loan is to be repaid in equal
A hospital wants to buy a new MRI machine for $400,000. The annual revenue from the machine is estimated at $110,000 per year while maintenance costs per year are calculated to be $20,000. The
Extended Learning Exercise A company is producing a high-volume item that sells for $0.75 per unit. The variable production cost is $0.30 per unit. The company is able to produce and sell 10,000,000
Jane Roe's plan is to accumulate $250,000 in her personal savings account by the time she retires at 60. The longer she stalls on getting started, the tougher it will be to meet her objective. Jane
An investor has a principal amount of $P. If he desires a payout (return) of 0.1P each year, how many years will it take to deplete an account that earns 8% per year?0.1P = P(A / P,8%,N), so N
Refer to Example 5-13. Create a single spreadsheet that calculates PW, FW, AW, IRR, and ERR for the proposed investment. Assume that € = MARR = 20% per year. Does your recommendation change if the
A certain medical device will result in an estimated $15,000 reduction in hospital labor expenses during its first year of operation. Labor expenses (and thus savings) are projected to increase at a
Refer to Problem 5-61. Develop a spreadsheet to investigate the sensitivity of annual profit (loss) to changes in the occupancy rate and the annual rental fee. In problem 5-61 A group of private
Suppose that the industrial engineers are able to increase the average utilization rate of the CVD tool from 80% to 90%. What is the projected impact of this 10% increase on the PW of the project?
Suppose that the mechanical engineer in the plant has retrofitted the CVD tool so that it now produces 15 wafers per hour. What is the new breakeven point?
Suppose that the average utilization of the CVD tool increased to 90%; however, the operating hours of the fabrication plant were decreased from 168 hours to 150 hours. What are the corresponding
Doris Wade purchased a condominium for $50,000 in 1987. Her down payment was $20,000. She financed the remaining amount as a $30,000, 30-year mortgage at 7%, compounded monthly. Her monthly payments
Elin purchased a used car for $10,000. She wrote a check for $2,000 as a down payment for the car and financed the $8,000 balance. The annual percentage rate (APR) is 9% compounded monthly, and the
A specialized automatic machine costs $300,000 and is expected to save $111,837.50 per year while in operation. Using a 12% interest rate, what is the discounted payback period? (a) 4 (b) 5 (c) 6 (d)
What is the IRR for the following cash flow? (5.6)(a) 12.95%(b) 11.95%(c) 4.36%(d) 10.05%(e) 11.05%
A bond has a face value of $1,000, is redeemable in eight years, and pays interest of $100 at the end of each of the eight years. If the bond can be purchased for $981, what is the rate of return if
What is the equivalent AW of a two-year contract that pays $2,000 at the beginning of the first month and increases by $200 for each month thereafter? MARR = 12% compounded monthly. (a) $10,616 (b)
A new machine was bought for $9,000 with a life of six years and no salvage value. Its annual operating costs were as follows: $7,000, $7,350, $7,717.50,..., $8,933.97. If the MARR = 12%, what was
A town in Wyoming wants to drill a geo-thermal well to provide district heating steam and hot water for its businesses and residences. After government subsidies, the capital investment for the well
A 2,000 square foot house in New Jersey j costs $1,725 each winter to heat with its existing oil-burning furnace. For an investment of $5,000, a natural gas furnace can be installed, and the winter
Use the ERR method with ϵ = 8% per year to solve for a unique rate of return for the following cash-flow diagram. How many IRRs (the maximum) are suggested by Descartes' rule of signs?
Apply the ERR method with ϵ = 12% per year to the following series of cash flows. Is there a single, unique IRR for these cash flows? What is the maximum number of IRRs suggested by
Are there multiple IRRs for the following cash-flow sequence? How many are possible according to Descartes' rule of signs? If ϵ = 10% per year, what is the ERR for the cash flows of this project?
Buildings that are constructed to be environmentally responsible are referred to as "green buildings." They cut down on energy use, increase water efficiency, improve indoor air quality and use
A new six-speed automatic transmission for automobiles offers an estimated 4% improvement in fuel economy compared to traditional four-speed transmissions in front-wheel drive cars. If a four-speed
Three mutually exclusive alternatives are being evaluated, and their costs and revenues are listed in Table P6-1. (6.4)a. If the MARR is 20% per year and the analysis period is 10 years, use the PW
A steam generator is needed in the design of a new power plant. This generator can j be fired by three different fuels, A, B, or C, with the | following cost implications.If the study period is 20
Acme Semiconductor is expanding its facility and needs to add equipment. There are three process tools under consideration. You have been asked to perform an economic analysis to select the most
The following cash flow estimates have been developed for two mutually exclusive investment alternatives.a. Find the internal rate of return on the incremental cash flow (A2-A1). b. Calculate the
The alternatives for an engineering project to recover most of the energy presently being lost in the primary cooling stage of a chemical processing system have been reduced to three designs. The
Two parcels of land are being considered for a new office building. Both sites cost the same amount but differ mainly in their annual property tax assessments. The parcel in City A has a current
Consider the three mutually exclusive projects that follow. The firm's MARR is 10% per year.a. Calculate each project's PW. b. Determine the IRR of each project. c. Which project would you
A special-purpose 30-horsepower electric motor has an efficiency of 90%. Its purchase and installation price is $2,200. A second 30-horsepower high-efficiency motor can be purchased for $3,200, and
Refer to the situation in Problem 6-16. 2LL Most motors are operated at a fraction of their rated capacity (i.e., full load) in industrial applications. Suppose the average usage (load factor) of the
A solar energy research center requires specialized research equipment. For this purpose, four pieces of equipment and their associated cash flows (listed below) are under consideration. One piece of
Two mutually exclusive diesel generators are considered for purchase by a power generation company. Information relevant to compare the alternatives is summarized below:Use the IRR method to
A company is analyzing three project proposals. All the projects are mutually exclusive and the budget limit is $10,000,000. Each project's capital investment and annual operating expenses are shown
Insulated concrete forms (ICF) can be used as a substitute for traditional wood framing in building construction. Heating and cooling bills will be about 50% less than in a similar wood-frame home in
A movie theatre is considering the purchase of a new digital projection system (each showing is as perfect as when it was first filmed). The new ticket price per person would be $7.50, which is $1.00
Four mutually exclusive projects are being considered for a community gym. The life of equipment in the gym is expected to be 50 years, and the sponsoring agency's MARR is 15% per year. Annual income
In an oil refinery, an equipment is to be installed for the treatment of greenhouse gases and the reduction of emissions. The company requires installing the equipment due to pressure from the
Are you thinking of bypassing a gasoline-fueled car in favor of a hybrid (gasoline and electric) automobile? Let's take a look at the relative economics of your possible choice. The gasoline-fueled
A firm is considering the purchase of a new machine to increase the productivity of existing production process. All the alternatives have a life of 10 years and they have negligible market value
In the Rawhide Company (a leather products distributor), decisions regarding approval of proposals for capital investment are based upon a stipulated MARR of 18% per year. The five packaging devices
Refer to Problem 6-2. Solve this problem using the ERR method. Let ˆˆ = 12% per year.
A 50 horsepower motor is required to power a large capacity blower. Two motors A and B, mutually exclusive, have been proposed. Their cost data are given in the next page:The MARR is 5% per year.
Two electric motors are being considered to drive a centrifugal pump. One of the motors must be selected. Each motor is capable of delivering 60 horsepower (output) to the pumping operation. It is
At the Motorola plant in Mesa, Arizona, it is desired to determine whether one-inch-thick insulation or two-inch-thick insulation should be used to reduce heat loss from a long section of steam pipe.
The National Park Service is considering two plans for rejuvenating the forest and landscape of a large tract of public land. The study period is indefinitely long, and the Park Service's MARR is 10%
A new manufacturing facility will produce two products, each of which requires a drilling operation during processing. Two alternative types of drilling machines (Dl and D2) are being considered for
As the supervisor of a facilities engineering department, you consider mobile cranes to be critical equipment. The purchase of a new medium-sized, truck-mounted crane is being evaluated. The economic
Estimates for a proposed small public facility are as follows: Plan A has a first cost of $50,000, a life of 25 years, a $5,000 market value, and annual maintenance expenses of $1,200. Plan B has a
A manufacturing concern requires a drilling machine to drill an iron sheet of 30mm thickness. To address this need, two mutually exclusive drilling machines are being considered. Doing nothing is not
Your plant must add another boiler to its steam generating system. Bids have been obtained from two boiler manufacturers as follows:If the MARR is 10% per year, which boiler would you recommend? Use
Three mutually exclusive alternatives are being considered for the production equipment at a tissue paper factory. The estimated cash flows for each alternative are given here. (All costs are in
A firm is considering the purchase of one of two new machines. The data on each are given below:If perpetual service from the machine is assumed, which machine would you recommend? The MARR is 10%
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