engineering economics

Project Description:

1) a garment manufacturing company makes 380,000 articles per year. each article takes 95 minutes of direct
labor at the rate of $9.00 per hour. the overhead costs are $7.50 per direct labor hour. the average price of
the finished product is $80 per article. a new machine will reduce the direct labor hour by 15 minutes per
article. what is the maximum amount the company should pay for the new machine if it wants to break even
by the end of the first year?
2) the annual fixed cost for an inspecting and profiling web controller manufacturing company are $44,000,
and the variable costs are $38 per unit. if the selling price per unit is p = 495 - 0.57x, what is the company's
value of demand that maximizes profit, the maximized profit and the range of profitable demand?
3) an accounting and management consulting firm charge-out rate is $112 per hour. the maximum output is
214,000 hours per year. the fixed cost is $610,000 per year and the variable cost is $62 per standard service
hour. what is the breakeven point in percentage of total capacity?
4) a manufacturing plant is planning to replace outdated equipment with more energy-efficient and
environmental-friendly equipment. two models are under consideration. model a is sold for $159,000 and
can produce at an optimum speed of 78 unit/hour. model b is sold for the same price, but can produce at an
optimum speed of 76 unit/hour. model a requires 6 hours of maintenance for every 4300 units produced,
while model b requires 5 hours of maintenance for every 3300 units. the maintenance cost for both models
is $100 per hour. the variable operating cost is $340 per hour for model a and $290 per hour for model b.
due to obsolete parts, there is a sunk cost of $2700 for model a and $1900 for model b . if the price of the
product is $150 per unit and the company expects to sell 145,000 units each year, which model should be
5) a manufacturer of hard board and fiber cement sidings and panels purchased new equipment for its new
product line. three alternatives are under consideration. the costs associated with each alternative are
given below. which alternative is most economical to minimize total life cycle costs, if the life of the
equipment is estimated to be 7 years and the company operates on average 3800 hours per year? assume
negligible salvage value. ignore the time value of money for this problem.
alternative a b c
investment cost, $ 40,000 39,000 41,000
fixed cost, $/year 4700 4500 4800
variable cost, $/hour 240 235 243
16) an uninterruptible power system manufacturer is currently deciding between two processes for its new
automated assembly system. all defect-free units can be sold at $210 each, and all rejected units can be sold
at $11 for scrap. other related information for each model is given below.
process a b
output rate, units/hour 250 230
daily available
production time, hours
14 16
material cost, $/unit 25 25
variable operating cost,
45 49
variable overhead cost,
40 39
percent reject 40 38
which process should be adopted to maximize profit per day?
7) an industrial engineer, who was formerly a real estate developer, wants to estimate the construction costs of
an apartment complex that he recently acquired. he gathered the following information:
cost element percent
reference year
current year
studio units 5 46 69
one bedroom units 17 75 107
two bedroom units 30 150 192
three bedroom units 23 175 202
four bedroom units 21 170 198
central facilities and landscaping 4 100 120
if the total construction cost of the similar property was $2.5 million in the reference year, what is his
estimated construction cost in the current year?
8) the cost of construction for a hydrogen plant with a capacity of 7000 standard cubic feet per day (scfd) was
$10 million ten years ago, when the current construction cost index was 4535. if the index increased at an
average rate of 6.8% per year for the past ten years, what would a(n) 12,000-scfd plant with a similar design
be expected to cost now? use the cost-capacity exponent of 0.56.
9) an assembly task has a learning curve rate of 93% and reaches a steady state after 70 units with 15
man-hours per unit. what is the estimated number of man-hours required to complete the first and the fifth
210) the costs of manufacturing horizontal fixed-mount barcode scanners are as follows:
cost elements cost rate
direct labor $24.5 per hour
material $380 per 70 units
overhead costs 150% of direct labor
the production has a 89% learning curve applied to labor required, and the time to complete the first unit
was 37 direct labor hours. determine the unit selling price based on the estimated time to complete the 100
unit, if the company wants a profit margin of 10% based on total manufacturing costs.
11) a u.s. auto maker plans to build two more plants in china as it aims to harness continued growth in asia.
the company estimates that it must make annual investments of $40 million over a 8-year period. how
much would the company have to invest now at an interest rate of 3% per year to sufficiently provide for the
annual payments, if the first payment will begin 4 years from now?
12) find the 7 uniform annual deposits that can provide a single withdrawal of $38,500, 2 years after the last
deposit is made at an interest rate of 5% per year.
13) susan made 4 uniform annual deposits of $1800 in a savings account that earned an interest rate of 2% per
year. her last deposit was made 7 years ago. what is the future value of her savings 13 years from now, if
she leaves the account untouched?
14) volunteer pharmaceuticals (vp) wants to set aside money in the r&d fund to seek supplemental drug
applications of its two newly developed drugs. instead of putting away $780 million now, vp plans to set
aside $a each year from year 1 through 40. what should the value of a be if vp expects to earn 7% per year
for the first 5 years and 2% per year for the remaining years?
15) orlando international airport plans to extend passenger capacity of its existing terminal to accommodate its
forecasted growth. a new terminal would be needed once the state's busiest airport reached 40 million
passengers annually. based on current growth rates, orlando international should reach the 40 million mark
11 years from now. the expansion cost is expected to be $400 million. the airport service areas will also need
attention. these include passenger security checkpoints, ticketing lines, entering/exiting weaves, terminal
ramps, baggage claim, and baggage handling. improvements in these areas will cost an additional $240
million. how much does the airport need to set aside now to pay for these costs, if the company can earn
10% per year, compounded every 4 months.
16) find the equivalent of present worth (t = 0) of a uniform series of $4550 for 8 years, if the payment is made
every 12 months, starting 6 years from now. assume the interest rate is 12% per year, compound
317) oregon ducks, inc. is considering buying licenses for 12 megahertz of wireless spectrum in the 700 mhz
range, which is suitable for delivering television to mobile phones. the 700 mhz signals can travel long
distances and more easily penetrate walls and other obstacles. the acquisition cost is $250 million. in
addition, because networks that operate in the 700 mhz range are less expensive to build than those in other
portions of the spectrum, ducks estimates annual costs of $25 million over the next 7 years and no salvage
value. during the same period, the company expects to generate annual revenue of $30 million by offering
television and video to mobile-phone users. calculate the net present worth of this investment, and
determine the acceptability of the investment if the company's minimum attractive rate of return is 13% per
18) as part of a broad effort to invigorate its pipeline and move more aggressively into biotechnology,
gooddrugs inc. plans to set up a new division dedicated to developing biotherapeutic drugs and research
technologies. the company expects to pay $240 million for set up costs of its new division now and $12
million in operating costs each year for the next 13 years. the company estimates that the new division will
be able to generate annual revenue of $84 million 8 years from now. what is the net present worth of this
investment if the company's minimum attractive rate of return is 7% per year and the study period is 13
years? assume there is no salvage value. should they do the investment?
19) gobulls media is considering opening a new manufacturing facility to process and mail coupons to 660,000
households in the tampa bay area. the new facility will require an initial investment of $240,000 and an
annual operating cost of $22,000. it will have a $86,500 salvage value after 5 years. calculate the net present
worth of this investment if the company's minimum attractive rate of return is 5% per year, compounded
20) highjump inc. is considering partnering with fieldfeet to open "athlete heaven" stores in the united states
as it seeks to expand its own retail network to better control how its products are displayed and sold. one
particular store will require an initial investment of $220,000 and an annual operating cost of $59,000. the
buildings and equipment will have a $62,500 resale value after 10 years. highjump expects the store to
generate annual revenue of $69,000. calculate the future worth of the investment in this particular store at
the end of year 10, and determine the acceptability of the investment if the company's minimum attractive
rate of return is 8% per year.
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