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Engineering economy 7th Edition Leland Blank, Anthony Tarquin - Solutions
It is anticipated that the needs for UPW (ultrapure water) at the new Angular Enterprises site will continue for a long time, as long as 50 years. This is the rationale for using capitalized cost as a basis for the economic decision between desalinated seawater (S) and purified groundwater (G).
Compare the alternatives shown on the basis of their capitalized costs using an interest rate of 10% peryear.
The cost of maintaining a certain permanent monument in Washington, DC occurs as periodic outlays of $1000 every year and $5000 every 4 years.Calculate the capitalized cost of the maintenance using an interest rate of 10% per year.
Because you are thankful for what you learned in engineering economy, you plan to start a permanent scholarship fund in the name of the professor who taught the course. You plan to deposit money now with the stipulation that the scholarships be awarded beginning 12 years from now (which happens to
A patriotic group of firefighters is raising money to erect a permanent (i.e., infinite life) monument in New York City to honor those killed in the line of duty. The initial cost of the monument will be $150,000, and the annual maintenance will cost $5000. There will be an additional one-time cost
The value of the future worth for alternative P at an interest rate of 8% per year is closest to:(a) FWP = $–88,036(b) FWP = $–86,026(c) FWP = $–81,274(d) FWP =$–70,178
The present worth of $50,000 now, $10,000 per year in years 1 through 15, and $20,000 per year in years 16 through infinity at 10% per year is closest to:(a) Less than $–169,000(b) $–169,580(c) $–173,940(d) $–195,730
A donor (you) wishes to start an endowment that will provide scholarship money of $40,000 per year beginning in year 5 and continuing indefinitely. If the university earns 10% per year on the endowment, the amount you must donate now is closest to:(a) $–225,470(b) $–248,360(c) $–273,200(d)
In comparing the machines on a present worth basis, the present worth of machine Y is closest to:(a) $–112,320(b) $–122,060(c) $–163,040(d) $–175,980The interest rate is 10% peryear.
The capitalized cost of $10,000 every 5 years forever, starting now at an interest rate of 10% per year, is closest to:(a) $–13,520(b) $–16,380(c) $–26,380(d) $–32,590The interest rate is 10% peryear.
At an interest rate of 10% per year, the capitalized cost of $10,000 in year 0, $5000 per year in years 1 through 5, and $1000 per year thereafter forever is closest to:(a) –$29,652(b) –$35,163(c) –$38,954(d) –$43,221The interest rate is 10% peryear.
Multiple Choice Questions1. One assumption inherent in the present worth method of analysis is that:(a) The alternatives will be used only through the life of the shortest-lived alternative.(b) The alternatives will be used only through the life of the longest-lived alternative.(c) The cash flows
When Sheryl graduated from Northeastern University in 2000 and went to work for BAE Systems, she did not pay much attention to the monthly payroll deduction for social security. It was a "necessary evil" that may be helpful in retirement years. However, this was so far in the future that she fully
List three assumptions that are inherent in the annual worth method of comparing alternatives.
James developed the two cash flow diagrams shown at the bottom of this page. The cash flows for alternative B represent two life cycles of A. Calculate the annual worth value of each over the respective life cycles to demonstrate that they are the same. Use an interest rate of 10% per year.
An asset with a first cost of $20,000 has an annual operating cost of $12,000 and a $4000 salvage value after its 4-year life. If the project will be needed for 6 years, what would the market (salvage) value of the 2-year-old asset have to be for the annual worth to be the same as it is for one
A sports mortgage is an innovative way to finance cash-strapped sports programs by allowing fans to sign up to pay a "mortgage" for the right to buy good seats at football games for several decades with season tickets locked in at current prices. At Notre Dame, the locked-in price period is 50
If a fan buys a sports mortgage to USC football games by paying $130,000 in 10 equal payments starting now , and then pays a fixed price of $290 per year for 50 years (starting 1 year from now) for season tickets, what is the AW in years 1 through 50 of the season tickets at 8% per yearinterest?
Eight years ago, Ohio Valley Trucking purchased a large-capacity dump truck for $115,000 to provide short-haul earthmoving services. The company sold it today for $45,000. Operating and maintenance costs averaged $10,500 per year. A complete overhaul at the end of year 4 cost an extra
A major repair on the suspension system of a 5-year-old car cost $2000 because the warranty expired after 3 years of ownership. The cost of periodic maintenance has been $800 every 2 years. If the owner donates the car to charity after 8 years of ownership, what is the equivalent annual cost of the
Ten years ago, Jacobson Recovery purchased a wrecker for $285,000 to move disabled 18-wheelers. He anticipated a salvage value of $50,000 after 10 years. During this time his average annual revenue totaled $52,000.(a) Did he recover his investment and a 12% per year return?(b) If the annual M&O
Sylvia has received a $500,000 inheritance from her favorite, recently deceased aunt in Hawaii. Sylvia is planning to purchase a condo in Hawaii in the same area where her aunt lived all her life and to rent it to vacationers. She hopes to make 8% per year on this purchase over an ownership period
Humana Hospital Corporation installed a new MRI machine at a cost of $750,000 this year in its medical professional clinic in Cedar Park. This state-of-the art system is expected to be used for 5 years and then sold for $75,000. Humana uses a return requirement of 24% per year for all of its
Polypropylene wall caps, used for covering exterior vents for kitchen cooktops, bathroom fans, dryers, and other building air exhausts, can be made by two different methods. Method X will have a first cost of $75,000, an operating cost of $32,000 per year, and a $9000 salvage value after 4 years.
Nissan's all-electric car, the Leaf, has a base price of $32,780 in the United States, but it is eligible for a $7500 federal tax credit. A consulting engineering company wants to evaluate the purchase or lease of one of the vehicles for use by its employees traveling to job sites in the local
A new structural design software package is available for analyzing and designing three-sided guyed towers and three- and four-sided self-supporting towers. A single-user license will cost $6000 per year. A site license has a one-time cost of $22,000. A structural engineering consulting company is
The city council in a certain southwestern city is considering whether to construct permanent restrooms in 22 of its smaller parks (i.e., parks of less than 12 acres) or pay for portable toilets on a year-round basis. The cost of constructing the 22 permanent restrooms will be $3.8 million. The 22
A remotely located air sampling station can be powered by solar cells or by running an above ground electric line to the site and using conventional power. Solar cells will cost $16,600 to install and will have a useful life of 5 years with no salvage value. Annual costs for inspection, cleaning,
The cash flows for two small raw water treatment systems are shown. Determine which should be selected on the basis of an annual worth analysis at 10% per yearinterest.
PGM Consulting is under contract to Montgomery County for evaluating alternatives that use a robotic, liquid-propelled "pig" to periodically inspect the interior of buried potable water pipes for leakage, corrosion, weld strength, movement over time, and a variety of other parameters. Two
TT Racing and Performance Motor Corporation wishes to evaluate two alternative CNC machines for NHRA engine building. Use the AW method at 10% per year to select the betteralternative.
The maintenance and operation (M&O) cost of front-end loaders working under harsh environmental conditions tends to increase by a constant $1200 per year for the first 5 years of operation. For a loader that has a first cost of $39,000 and first-year M&O cost of $17,000, compare the
You work for Midstates Solar Power. A manager asked you to determine which of the following two machines will have the lower(a) Capital recovery(b) Equivalent annual total cost.Machine Semi2 has a first cost of $80,000 and an operating cost of $21,000 in year 1, increasing by $500 per year through
The State of Chiapas, Mexico, decided to fund a program for literacy. The first cost is $200,000 now, and an update budget of $100,000 every 7 years forever is requested. Determine the perpetual equivalent annual cost at an interest rate of 10% per year.
Calculate the perpetual equivalent annual cost (years 1 through infinity) of $5 million in year 0, $2 million in year 10, and $100,000 in years 11 through infinity. Use an interest rate of 10% per year.
A Pennsylvania coal mining operation has installed an in-shaft monitoring system for oxygen tank and gear readiness for emergencies. Based on maintenance patterns for previous systems, there are no maintenance costs for the first 2 years, they increase for a time period, and then they level off.
Compare two alternatives for a security system surrounding a power distribution substation using annual worth analysis and an interest rate of 10% peryear.
A new bridge across the Allegheny River in Pittsburgh is expected to be permanent and will have an initial cost of $30 million. This bridge must be resurfaced every 5 years at a cost of $1 million. The annual inspection and operating costs are estimated to be $50,000. Determine its equivalent
For the cash flows shown, use an annual worth comparison and an interest rate of 10% per year.(a) Determine the alternative that is economically best.(b) Determine the first cost required for each of the two alternatives not selected in (a) so that all alternatives are equally acceptable. Use a
Blanton Agriculture of Santa Monica, California, offers different types and levels of irrigation water conservation systems for use in areas where groundwater depletion is a serious concern. A large farming corporation in India, where depletion is occurring at an alarming rate of 1.6 inches (4
The Pentagon asked a defense contractor to estimate the life-cycle cost for a proposed light-duty support vehicle. The list of items included the following categories: R&D costs (R&D), nonrecurring investment costs (NRI), recurring upgrade costs (RU), scheduled and unscheduled maintenance costs
A manufacturing software engineer at a major aerospace corporation has been assigned the management responsibility of a project to design, build, test, and implement AREMSS, a new- generation automated scheduling system for routine and expedited maintenance. Reports on the disposition of each
The U.S. Army received two proposals for a turnkey design-build project for barracks for infantry unit soldiers in training. Proposal A involves an off-the-shelf "bare-bones" design and standard grade construction of walls, windows, doors, and other features. With this option, heating and cooling
A medium-size municipality plans to develop a software system to assist in project selection during the next 10 years. A life-cycle cost approach has been used to categorize costs into development, programming, operating, and support costs for each alternative. There are three alternatives under
In calculating the external rate of return by the modified rate of return approach, it is necessary to use two different rates of return, the investment rate ii and the borrowing rate ib. When is each used?
In the modified rate of return approach for determining a single interest rate from net cash flows, state which interest rate is usually higher, the investment rate ii or the borrowing rate ib. State why.
The annual worth of vendor 2 cash flow estimates is closest to:(a) $–63,370(b) $43,370(c) $–43,370(d) $63,370
Estimates for one of two process upgrades are as follows: first cost of $40,000, annual cost of $5000 per year, market value that decreases by $2000 per year to the salvage value of $20,000 after the expected life of 10 years. If a 4-year study period is used for AW analysis at 15% per year, the
The perpetual annual worth of investing $50,000 now and $20,000 per year starting in year 16 and continuing forever at 12% per year is closest to:(a) $–4200(b) $–8650(c) $–9655(d) $–10,655
A recently issued industrial bond with a face value of $10,000 has a coupon rate of 8% per year, payable annually. The bond matures 20 years from now. Jeremy is interested in buying one bond. If he pays $10,000 for the bond and plans to hold it to maturity, Compute rate of return per year?
In the annual worth method of comparing alternatives that have different lives, why do you calculate the AW of the alternatives over their respective life cycles instead of over the least common multiple of their lives?
Multiple Choice Questions1. All of the following are fundamental assumptions for the annual worth method of analysis except:(a) The alternatives will be needed for only one life cycle.(b) The services provided are needed for at least the LCM of the lives of the alternatives.(c) The selected
Multiple Choice Questions1. Of the following three relations, the correct one or ones to calculate the annual worth of vendor 1 cash flow estimates is ( note : all dollar values are in thousands):Relation 1: AW1 = – 200(A/P, 6%, 10) + 70 + 25(A/F, 6%, 10)Relation 2: AW1 = [–200 –
Harry, owner of an automobile battery distributorship in Atlanta, Georgia, performed an economic analysis 3 years ago when he decided to place surge protectors in-line for all is major pieces of testing equipment. The estimates used and the annual worth analysis at MARR = 15% are summarized below.
Under what circumstances would the rate of return be? (a) –100%, (b) Infinite?
A shrewd investor loaned $1,000,000 to a start-up company at 10% per year interest for 3 years, but the terms of the agreement were such that interest would be charged on the principal rather than on the unpaid balance. How much extra interest did the company pay?
What is the nominal rate of return per year on an investment that increases in value by 8% every 3 months?
Assume you borrow $50,000 at 10% per year interest and you agree to repay the loan in five equal annual payments. What is the amount of the unrecovered balance immediately after you make the third payment?
International Potash got a $50 million loan amortized over a 10-year period at 10% per year interest. The loan agreement stipulates that the loan will be repaid in 10 equal annual payments with interest charged on the principal amount of the loan (not on the unrecovered balance).(a) What is the
In 2010, the city of Houston, Texas, collected $24,112,054 in fines from motorists because of traffic violations caught by red-light cameras. The cost of operating the system was $8,432,372. The net profit, that is, profit after operating costs, is split equally (that is, 50% each) between the city
P&G sold its prescription drug business to Warner-Chilcott, Ltd. for $3.1 billion. If income from product sales is $2 billion per year and net profit is 20% of sales, what rate of return will the company make over a 10-year planning horizon?
Water damage from a major flood in a Midwestern city resulted in damages estimated at $108 million. As a result of the claimant payouts, insurance companies raised homeowners' insurance rates by an average of $59 per year for each of the 160,000 households in the affected city. If a 20-year study
Determine the rate of return for the cash flows shown in the diagram. (If requested by your instructor, show both hand and spreadsheetsolutions.)
The Office of Naval Research sponsors a contest for college students to build underwater robots that can perform a series of tasks without human intervention.The University of Florida, with its Subju-Gator robot, won the $7000 first prize (and serious bragging rights) over 21 other universities. If
For the cash flows shown, determine the rate ofreturn.
In an effort to avoid foreclosure proceedings on struggling mortgage customers, Bank of America proposed an allowance that a jobless customer makes no payment on their mortgage for up to 9 months. If the customer did not find a job within that time period, they would have to sign over their house
The Closing the Gaps initiative by the Texas Higher Education Coordinating Board established the goal of increasing the number of students in higher education in Texas from 1,064,247 in 2000 to 1,694,247 in 2015. If the increase were to occur uniformly, what rate of increase would be required each
U.S. Census Bureau statistics show that the annual earnings for persons with a high school diploma are $35,220 versus $57,925 for someone with a bachelor's degree. If the cost of attending college is assumed to be $30,000 per year for 4 years and the forgone earnings during those years are assumed
The Ester Municipal Water Utility issued 20-year bonds in the amount of $53 million for several high-priority flood control improvement projects. The bonds carried a 5.38% dividend rate with the dividend payable annually. The U.S. economy was in a recession at that time, so as part of the federal
A contract between BF Goodrich and the Steelworkers Union of America called for the company to spend $100 million in capital investment to keep the facilities competitive. The contract also required the company to provide buyout packages for 400 workers. If the average buyout package is $100,000
Rubber sidewalks made from ground up tires are said to be environmentally friendly and easier on people's knees. Rubber sidewalks, Inc. of Gardena, California, manufactures the small rubberized squares that are being installed where tree roots, freezing weather, and snow removal have required
Efficient light jets (ELJs) are smaller aircraft that may revolutionize the way people travel by plane. They cost between $1.5 and $3 million, seat 5 to 7 people, and can fly up to 1100 miles at cruising speeds approaching 425 mph. Eclipse Aerospace was founded in 2009, and its sole business is
Betson Enterprises distributes and markets the Big Buck video game which allows players to "hunt" for elk, antelope, moose, and bucks without shivering outside in the cold. E-sports entertainment in New York City purchased five machines for $6000 each and took in an average of $600 total per week
A 473-foot, 7000-ton World War II troop carrier (once commissioned as the USS Excambion) was sunk in the Gulf of Mexico to serve as an underwater habitat and diving destination. The project took 10 years of planning and cost $4 million. Assume the $4 million was expended equally in years 1 through
What is meant by a nonconventional cash flow series?
Explain at least three types of projects in which large net cash flow changes may cause sign changes during the life of the project, thus indicating the possible presence of multiple ROR values.
According to Descartes' rule of signs, what is the maximum number of real-number values that will balance a rate of return equation?
According to Descartes' rule of signs, how many possible i* values are there for net cash flows that have the following signs? (a) + – + + + – +(b) – – – + + + + + (c) + + + + – – – + – – – + – + – – –
According to Norstrom's criterion, there are two requirements regarding the cumulative cash flows that must be satisfied to ensure that there is only one positive root in a rate of return equation. What are they?
According to Descartes' rule of signs, how many i* values are possible for the cash flowsshown?
For the cash flows shown, determine the sum of the cumulative cashflows.
Stan-Rite Corp of Manitowoc, Wisconsin, is a B to B company that manufactures many types of industrial products, including portable measuring arms with absolute encoders, designed to perform 3D inspections of industrial parts. If the company's cash flow (in millions) for one of its product
Julie received a $50 bill for her birthday at the end of January. At the end of February, she spent this $50 and an additional $150 to buy clothes. Her parents then gave her $50 and $125 at the end of March and April, respectively, as she prepared to go to summer school and needed the clothes. Her
Veggie Burger Boy sells franchises to individuals who want to start small in the sandwiches-for-vegeterians business and grow in net cash flow over the years. A franchisee in Mississippi provided the $5000 up-front money, but did very poorly the first year. He was allowed to borrow at the end of
In 2011, Vaught Industries closed its plant in Marionsville following labor, environmental, and safety problems. The plant was built in 2005 based on an older technology to produce meat products. It had positive NCF until 2010 and discontinued operation in 2011 due to labor and safety problems. In
Five years ago, VistaCare spent $5 million to develop and introduce a new service in home health care for people who require frequent blood dialysis treatments. The service was not well received after the first year and was removed from the market. When reintroduced 4 years after its initial launch
In calculating the external rate of return by the modified rate of return approach, it is necessary to use two different rates of return, the investment rate ii and the borrowing rate ib. When is each used? Discuss.
In the modified rate of return approach for determining a single interest rate from net cash flows, state which interest rate is usually higher, the investment rate ii or the borrowing rate ib. State why. Discuss.
Use the modified rate of return approach with an investment rate of 18% per year and a borrowing rate of 10% to find the external rate of return for the following cashflows.
Harley worked for many years to save enough money to start his own residential landscape design business.The cash flows shown are those he recorded for the first 6 years as his own boss. Find the external rate of return using the modified rate of return approach, an investment rate of 15% per year,
Samara, an engineer working for GE, invested her bonus money each year in company stock. Her bonus has been $8000 each year for the past 6 years (i.e., at the end of years 1 to 6). At the end of year 7, she sold the stock for $52,000 to buy a condo; she purchased no stock that year. In years 8 to
Swagelok Co. of Solon, Ohio, makes variable area flow meters (VAFs) that measure liquid and gas flow rates by means of a tapered tube and float. If tooling and setup costs were $400,000 in year 0 and an additional $190,000 in year 3, determine the external rate of return using the modified rate of
A company that makes clutch disks for race cars has the cash flows shown for one department.Year Cash Flow, $10000 .............. – 651 .............. 302 ..............
For the cash flow series below, calculate the external rate of return, using the return on invested capital approach with an investment rate of 14% per year.Year Cash Flow, $0 .......... 30001 ..........
Five years ago, a company made a $500,000 investment in a new high-temperature material. The product did poorly after only 1 year on the market. However, with a new name and advertising campaign 4 years later it did much better. New development funds have been expended this year (year 5) at a cost
What is the bond coupon rate on a $25,000 mortgage bond that has semiannual interest payments of $1250 and a 20-year maturity date?
An equipment trust bond with a face value of $10,000 has a bond coupon rate of 8% per year, payable quarterly. What are the amount and frequency of the dividend payments?
What is the face value of a municipal bond that matures in 20 years and has a bond coupon rate of 6% per year with semiannual payments of $900?
What is the present worth of a $50,000 debenture bond that has a bond coupon rate of 8% per year, payable quarterly? The bond matures in 15 years. The interest rate in the marketplace is 6% per year, compounded quarterly.
Best Buy issued collateral bonds 4 years ago that have a face value of $20,000 each and a coupon rate of 8% per year, payable semiannually. If the bond maturity date is 20 years from the date they were issued and the interest rate in the marketplace is now 12% per year, compounded semiannually,
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