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Questions and Answers of Economics

A paper mill is considering two types of pollution control equipment.The firm wants a 12% rate of return on any avoidable increments of investment. Which equipment should be purchased?
A stockbroker has proposed two investments in low rated corporate bonds paying high interest rates and selling below their stated value (in other words, junk bonds), Both bonds are rated as equally
Three mutually exclusive alternatives are being considered.Each alternative has a 20-year useful life with no salvage value. If the minimum attractive rate of return is 7%, which alternative should
A firm is considering the following alternatives, as well as a fifth choice: do nothing.Each alternative has a 5-year useful life. The firm's minimum attractive rate of return is 8%. Which
Find the best alternative using incremental IRR analysis.
Our cat Fred's summer kitty-cottage needs a new roof. He's considering the following two proposals and feels a 15-year analysis period is in line with his remaining lives. Which roof should he choose
Don Garlits is a landscaper. He is considering the purchase of a new commercial lawn mower, either, the Atlas or the Zippy. The minimum attractive rate of return is 8%, and the table provides all the
QZY, Inc. is evaluating new widget machines offered by three companies. The machines have the following characteristics:MARR = 15%. Using rate of return analysis, from which company, if any, should
The Croc Co. is considering a new milling machine from among three alternatives:All machines have a life of 10 years, and MARR = 15%. Using incremental rate of return analysis, which alternative, if
Wayward Airfreight, Inc. has asked you to recommend a new automatic parcel sorter. You have obtained the following bids:Using an MARR of 15% and a rate of return analysis, which alternative, if any,
A firm must decide which of three alternatives to adopt to expand its capacity. The firm wishes a minimum annual profit of 20% of the initial cost of each separable increment of investment.. Any
The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw materials. By adding the processing equipment, the firm can
Build a spreadsheet to find the EAC of each roof in Problem 8-28. Use the GOAL SEEK tool to Excel to find the IRR of the incremental investment to.Data from 8-28Our cat Fred's summer kitty-cottage
Build a spreadsheet to find the EAW of each lawn- mower in Problem 8-29. Use the GOAL SEEK tool of Excel to find the IRR of the incremental investment.Data from 8-29Don Garlits is a landscaper. He is
For a 12% interest rate, compute the value of F in the following diagram.
Compute F for the following diagram.
Compute F for the following diagram.
For the following diagram, compute F.
For the following diagram, compute F.
Calculate the present worth and the future worth of a series of 10 annual cash flows with the first cash flow equal to $15,000 and each successive cash flow increasing by $1,200. The interest rate is
The interest rate is 16%per year and there are 48 compounding periods per year. The principal is $50,000. What is the future worth in 5 years?
A 20-year-old student decided to set aside $100 on his 2pt birthday for investment. Each subsequent year through his 55th birthday, he plans to increase the sum for investment on a $100 arithmetic
You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you buy the property, you plan to hold it for 15 years and then sell it at a profit. During this period, you would have
An individual's salary is now $32,000 per year and he anticipates retiring in 30 years. If his salary is increased by $600 each year and he deposits 10% of his yearly salary into a fund that earns7%
Stamp collecting has become an increasingly popular-and expensive-hobby. One favorite method is to save plate blocks (usually four stamps with the printing plate numbering the margin) of each new
Sally deposited $100 a month in her savings account for 24 months. For the next 5 years she made no deposits. What is the future worth in Sally's savings account at the end of the 7 years, if the
In the early 1980s, planners were examining alternate sites for a new airport to serve London. In their economic analysis, they computed the value of the structures that would need to be removed from
Bill made a budget and planned to deposit $150 a month in a savings account, beginning September 1. He did this, but on the following January 1, he reduced the monthly deposits to $100 a month. In
A company deposits $1000 in a bank at the beginning of each year for 6 years. The account earns 8% interest, compounded every 6 months. What is the future worth of the account at the end of 6 years?
Don Ball is a 55-year-old engineer. According to mortality tables, a male at age 55 has an average life expectancy of 21 more years. In prior years, Don has accumulated $48,500 including interest,
Jean invests $100 in Year 1 and doubles the amount each year after that (so the investment is $100, 200, 400,800.) If she continues to do this for 10years, and the investment pays 10% annual
If you invested $2500 in a bank 24-month certificate of deposit paying 8.65%, compounded monthly, what is the future worth of the certificate of deposit when it matures in 2 years?
After receiving an inheritance of $25,000 on her 21st birthday, Ayn Rand deposited the inheritance” in a savings account with an effective annual interest rate of 6%. She decided that she would
The Association of General Contractors (AGe) wished to establish an endowment fund of $1 million in 10 years for the Construction Engineering Technology Program at Grambling State University in
On her birthday, a 25-year-old engineer is considering investing in an individual retirement account (IRA). After some research, she finds a mutual fund with an average return of 10% per year. What
IPS Corp. will upgrade its package-labeling machinery. It costs $150,000 to buy the machinery and have it installed. Operation and maintenance costs are $1500 per year for the first 3 years and
A company is considering buying a new bottle capping machine. The initial cost of the machine is $325,000 and it has a 1O-year life. Monthly maintenance costs are expected to be $1200 per month for
A family starts an education fund for their son Patrick when he is 8 years old, investing $150 on his eighth birthday increasing the yearly investment by $150 per year until Patrick is 18 years old.
A bank account pays 19.2% interest with monthly compounding. A series of deposits started with a deposit of $5000 on January 1, 1997. Deposits in the series were to occur each 6 months. Each deposit
Let's assume that a late-twentieth century college graduate got a good job and began a savings account. He is paid monthly and authorized the bank to automatically withdraw $75 each month. The bank
Bob, an engineer, decided to start a college fund for his son. Bob will deposit a series of equal, semiannual cash flows with each deposit equal to $1500. Bob made the first deposit on July 1, 1998
A business executive is offered a management job at Generous Electric Company, which offers him a 5-year contract that calls for a salary of $62,000 per year, plus 600 shares of GE stock at the end
A project will cost $50,000. The benefits at the end of the first year are estimated to be $10,000, increasing at a 10% uniform rate in subsequent years. Using an 8-year analysis period and a 10%
Each of the three alternatives shown has a 5-year useful life. If the MARR is 10%, which alternative should be selected? Solve the problem by benefit-cost ratio analysis.
Consider three alternatives, each with a 10-year useful life. If the MARR is 10%, which alternative should be selected? Solve the problem by benefit-cost ratio analysis.
An investor is considering buying some land for $100,000 and constructing an office building on it. Three different buildings are being analyzed.*Resale value to be considered a reduction in cost,
Using benefit-cost ratio analysis, determine which one of the three mutually exclusive alternatives should be selected.Each alternative has a 6-year useful life. Assume a 10% MARR
Consider four alternatives, each of which has an 8-year useful life;If the MARR is 8%, which alternative should be selected? Solve the problem by benefit-cost ratio analysis.
Using benefit-cost ratio analysis, a 5-yearusefullife, and a 15%MARR, determinewhic~of the following alternatives should be selected
Five mutually exclusive investment alternatives have been proposed. Based on benefit-cost ratio analysis, and a MARR of 15%, which alternative should be selected?
Able Plastics, an injection-molding firm, has negotiated a contract with a national chain of department stores. Plastic pencil boxes are to be produced for a 2-year period. Able Plastics has never
A cannery is considering installing an automatic case sealing machine to replace current hand methods. If they purchase the machine for $3800 in June, at the beginning of the canning season, they
A car dealer presently leases a small computer with software for $5000 per year. As an alternative he could purchase the computer for $7000 and lease the software for $3500 per year. Any time he
A large project requires an investment of $200 millions. The construction will take 3 years: $30 million will be spent during the first year, $100 million during the second year and $70 million
Two alternatives are being considered:Both alternatives provide an identical benefit.(a) Compute the payback period if Alt. B is purchased rather than Alt. A.(b) Use a MARR of 12% and benefit-cost
Tom Sewell has gathered data on the relative costs of a solar water heater system and a conventional electric water heater. The data are based on statistics for a mid-American city and assume that
Tom Sewell has gathered data on the relative costs of a solar water heater system and a conventional electric water heater. The data are based on statistics for a mid-American city and assume that
Consider four mutually exclusive alternatives:Each alternative has a 5-year useful life and no salvage value. The MARR is 10%. Which alternative should be selected, based on(a) Future worth
Consider three alternatives:*At the end of its useful life, an identical alternative (with the same cost, benefits, and useful life) may be installed.All the alternatives have no salvage value. If
Consider three mutually exclusive alternatives. The MARR is 10%.(a) For Alt. X, compute the benefit-cost ratio.(b) Based on the payback period, which alternative should be selected?(c) Determine the
The cash flows for three alternatives are as follows:(a) Based on payback period, which alternative should be selected?(b) Using future worth analysis, and a 12% interest rate, determine which
Three mutually exclusive alternatives are being considered:At the end of its useful life, an alternative is not replaced. If the MARR is 10%, which alternative should be selected:(a) Based on the
(a) Based on future worth analysis, which of the four alternatives is preferred at 6% interest?(b) Based on future worth analysis, which alternative is preferred at 15% interest?(c) Based on the
Tom Jackson is preparing to buy a new car. He knows it represents a large expenditure of money, so he wants to do an analysis to see which of two cars is more economical. Alternative A is an
A newspaper is considering purchasing locked vending machines to replace open newspaper racks for the sale of its newspapers in the downtown area. The newspaper vending machines cost $45 each. It is
Data for two alternatives are as follows:If the MARR is 12%, compute the value of X that makes the two alternatives equally desirable.
What is the cost of Alt. B that will make it at the breakeven point with Alt A assuming a 12% interest rate?
Consider two alternatives:Assume that Alt. B is not replaced at the end of its useful life. If the MARR is 10%, what must be the useful life of B to make Alternatives A and B equally desirable?
Jane Chang is making plans for a summer vacation. She will take $1000 with her in the form of traveler's checks. From the newspaper, she finds that if she purchases the checks by May 31, she will not
Fence posts for a particular job cost $10.50 each to install, including the labor cost. They will last 10 years. If the posts are treated with a wood preservative they can be expected to have a
A piece of property is purchased for $10,000 and yields a $1000 yearly net profit. The property is sold after 5 years. What is its minimum price to breakeven with interest at 1O%?
Rental equipment is for sale for $110,000. A prospective buyer estimates he would keep the equipment for 12 years and spend $6000 a year on maintaining the equipment. Estimated annual net receipts
A motor with a.200-horsepower output is needed in the factory for intermittent use A Graybar motor costs $7000, and has an electrical efficiency of 89%. A B1ueball motor costs $6000 and has an 85%
Plan A requires a $100,000 investment now. Plan B requires a~ $80,000 investment now and an additional $40,000 investment at a later time. At 8% interest, compute the breakeven point for the timing
A low-carbon-steel machine part, operating in a corrosive atmosphere, lasts 6 years, and costs $350 installed. If the part is treated for corrosion resistance it will cost $500 installed. How long
Neither of the following machines has any net salvage value.At what useful life are the machines equivalent if(a) 10% interest is used in the computations?(b) 0% interest is used in the computations?
A machine costs $5240 and produces benefits of $1000 at the end of each year for eight years. Assume continuous compounding and a nominal annual interest rate of 10%.(a) What is the payback period
Telephone poles exemplify items that have varying useful lives. Telephone poles, once installed in a location, remain in useful service until one of a variety of events occur.(a) Name three reasons
The purchase of a used pickup for $9000 is being considered. Records for other vehicles show that costs for oil, tires, and repairs about equal the cost for fuel. Fuel costs are $990 per year if the
A heat exchanger is being installed as part of a plant modernization program. It costs $80,000, including installation, and is expected to reduce the overall plant fuel cost by $20,000 per year.
For the data in Problem 10-2 assume that the 5000, 10,000, and 15,000 mileage values are, respectively, pessimistic, most likely, and optimistic estimates. Use a weighted estimate to calculate the
When a pair of dice is tossed, the results may be any whole number from 2 through 12. In the game of craps one can win by tossing either a 7 or an lion the first roll. What is the probability of
Annual savings due to an energy efficiency project have a most likely value of $30,000. The high estimate of $40,000 has a probability of 0.2, and the low estimate of $20,000 has a probability of
Over the last 10 years, the hurdle or discount rate for projects from the firm's research and development division has been 10% twice, 15% three times, and 20% the rest of the time. There is no
The construction time for a bridge depends on weather conditions. The project is expected to take 250 days if the weather is dry and the temperature is hot. If the weather is damp and cool, the
You recently had an auto accident that was your fault. If you have another accident or receive another moving violation within the next 3 years, you will become part of the "assigned risk" pool, and
Two instructors announced that they "grade on the curve," that is, give a fixed percentage of each of the various letter grades to each of their classes. Their curves are as follows:If a random
A man wants to determine whether or not to invest $1000 in a friend's speculative venture. He will do so if he thinks he can get his money back in one year. He believes the probabilities of the
The MSU football team has 10 games scheduled for next season. The business manager wishes to estimate how much money the team can be expected to have left over after paying the season's expenses,
In the New Jersey and Nevada gaming casinos, craps is a popular gambling game. One of the many bets available is the "Hard-way 8." A $1 bet in this fashion will win the player $4 if in the game the
If your interest rate is 8%, what is the expected value of the present worth of the "extra" insurance payments in Problem 1O-9?
A decision has been made to perform certain repairs on the outlet works of a small dam. For a particular 36-inch gate valve, there are three available alternatives:(a) Leave the valve as it is.(b)
A man went to Atlantic City with $500 and placed 100 bets of $5 each, one after another, on the same number on the roulette wheel. There are 38 numbers on the wheel and the gaming casino pays 35
A factory building is located in an area subject to occasional flooding by a nearby river. You have been brought in as a consultant to determine whether flood proofing of the building is economically
An industrial park is being planned for a tract of land near the river. To prevent flood damage to the industrial buildings that will be built on this low-lying land, an earthen embankment can be
Should the following project be undertaken if its life is 10 years and it has no salvage value? The firm uses an interest rate of 12% to evaluate engineering projects.
A robot has just been installed at a cost of $81,000. It will have no salvage value at the end of its useful life. Given the following estimates and probabilities for the yearly savings and useful
Five years ago a dam was constructed to impound irrigation water and to provide flood protection for the area below the dam. Last winter a 100-year flood caused extensive damage both to the dam and
A new product's chief uncertainty is its annual net revenue. So far, $35,000 has been spent on development, but an additional $30,000 is required finish development. The firm's interest rate is
(a) In Problem 10-22 how much is it worth to the firm to terminate the product after 1 year if the net revenues are negative?(b) How much does the ability to terminate early change the P (loss) and
Find the probability distribution and the expected PW to modify an assembly line. The first cost is $80,000, and its salvage value is $0. The firm’s interest rate is 9%. The savings shown in the

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