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Engineering Economy 15th edition William G. Sullivan, Elin M. Wicks, C. Patrick Koelling - Solutions

Extended Learning Exercise The Fox River is bordered on the east by Illinois Route 25 and on the west by Illinois Route 31. Along one stretch of the river, there is a distance of 16 miles between adjacent crossings. An additional crossing in this area has been proposed, and three alternative bridge
What is the conventional B-C ratio for Truck X? (a) 1.048 (b) 0.87 (c) 1.64 (d) 1.10 (e) 1.15
Which fire truck should be purchased? (a) Neither Truck X nor Truck Y (b) Truck X (c) Truck Y (d) Both Truck X and Truck Y
A state government is considering construction of a flood control dike having a life span of 15 years. History indicates that a flood occurs every five years and causes $600,000 in damages, on average. If the state uses a MARR of 12% per year and expects every public-works project to have a B-C
What is the conventional B-C ratio for the flood control project? (a) 1.53 (b) 1.33 (c) 1.76 (d) 2.20 (e) 4.80 A flood control project with a life of 16 years will require an investment of $60,000 and annual maintenance costs of $5,000. The project will provide no benefits for the first two years
A proposal has been made for improving the downtown area of a small town. The plan calls for banning vehicular traffic on the main street and turning this street into a pedestrian mall with tree plantings and other beautification features. This plan will involve actual costs of $7,000,000 and,
What is the modified B-C ratio for the flood control project? (a) 1.53 (b) 1.33 (c) 1.76 (d) 2.20 (e) 4.80 A flood control project with a life of 16 years will require an investment of $60,000 and annual maintenance costs of $5,000. The project will provide no benefits for the first two years but
A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $120,000, and it will save an estimated 300,000 kilowatt-hours (kWh) of electric power each year over a six-year period. A kilowatt-hour of electricity costs $0.10, and
In Problem 10-4, what is the benefit-cost ratio of the project if the general inflation rate is 4% per year and the market value is negligible? The market interest rate (im) is 18% per year, and the annual savings are expressed in year-zero dollars.
A city is considering buying a piece of land for $500,000 and constructing an office complex on it. Their planning horizon is 20 years. Three mutually exclusive building designs (shown below) have been drawn up by an architectural firm. Use the modified benefit-cost ratio method and a MARR of 10%
A toll bridge across the Mississippi River is being considered as a replacement for the current 1-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B-C ratio method must be applied in the evaluation. Investment
Refer back to Problem 10-7. Suppose that the toll bridge can be redesigned such that it will have a (virtually) infinite life. MARR remains at 10% per year. Revised costs and revenues (benefits) are given as follows: Capital investment: $22,500,000 Annual operating and maintenance costs:
The government is planning a multiple-purpose hydroelectric project for a river basin. The estimated benefits and costs that are expected to be derived from the three alternatives under consideration are as follows:The interest rate is 8% and the life of each project is 40 years.a. Using
A wastewater treatment plant is expected to require an initial investment of $500,000 and annual maintenance expenses of $80,000. The benefits to the public are valued at $100,000 per year. This project can be assumed to have an infinite life. If MARR is 10% per year, determine whether the project
Three mutually exclusive projects are being considered for investment. Their costs and their estimated benefits are as follows:a. Which plan(s) should be adopted, if any, if the controlling board wishes to invest any amount required, provided that the B-C ratio on the required investment is at
The government is considering five mutually exclusive proposals for the improvement of the postal service. The annual equivalent costs and estimated benefits of alternatives are as follows:Which proposal, if any, should be adopted if the postal department wishes to invest if, and only if, the B-C
The civic amenities department of the federal government is planning on investing in the drainage system of a new township. Four mutually exclusive systems have been proposed, and their capital investment costs and net annual benefits are the following (salvage values are negligible):If the town's
A nonprofit government corporation is considering two alternatives for generating | power: Alternative A. Build a coal-powered generating [facility at a cost of $20,000,000. Annual power sales are 'expected to be $1,000,000 per year. Annual operating; and maintenance costs are $200,000 per year. A
A new storm drainage system must be constructed right away to reduce periodic flooding that occurs in a city that is in a valley. Five mutually exclusive designs have been proposed, and their present worth (in thousands of dollars) of costs and benefits are the following.a. Which system has the
Refer to Example 10-7. At a public hearing, someone argued that the market values cannot be adequately estimated 50 years into the future. How is the decision changed if the market values are treated as $0 for all three alternatives?
Consider the mutually exclusive alternatives in Table P10-16. Which alternative would be chosen according to these decision criteria? a. Maximum benefit b. Minimum cost c. Maximum benefits minus costs d. Largest investment having an incremental B-C ratio larger than one e. Largest B-C ratio Which
Three mutually exclusive projects are being considered for a new park. The life of the park is expected to be 100 years and the sponsoring agency's MARR is 10% per year. Annual benefits to the public have been estimated by a committee and are shown below. Use the B-C method (incrementally) to
The local council of a suburban community is considering three mutually exclusive projects. Their respective costs and benefits are given in the table below. Each of the projects has useful life of 60 years and the nominal rate of interest is 10% per year. Which of these three projects should be
A state-sponsored Forest Management Bureau is evaluating alternative routes for a new road into a formerly inaccessible region. Three mutually exclusive plans for routing the road provide different benefits, an economic life of 50 years, and MARR is 8% per year. Which route should be selected
A dam construction company has $2 billion available for investment. Project A yields an estimated $0.5 million per year in benefits to the public on an investment of $1.5 billion and annual maintenance expenses of $5 million. Project B requires $3 billion, with maintenance expenses of $8 million
The city of Oak Ridge is evaluating three mutually exclusive landscaping plans for refurbishing a public greenway. Benefits to the community have been estimated by a landscaping committee, and the costs of planting trees and shrubbery, as well as maintaining the greenway, are summarized below. The
An area on the Colorado River is subject to periodic flood damage that occurs, on the average, every two years and results in a $2,000,000 loss. It has been proposed that the river channel be straightened and deepened, at a cost of $2,500,000, to reduce the probable damage to not over $1,600,000
Ten years ago, the port of Secoma built a new pier containing a large amount of steel work, at a cost of $300,000, estimating that it would have a life of 50 years. The annual maintenance cost, much of it for painting and repair caused by environmental damage, has turned out to be unexpectedly
You have been requested to recommend one of the mutually exclusive industrial sanitation control systems that are given below. If MARR is 15% per year, which system would you select? Use the B-C method.
In the aftermath of Hurricane Thelma, the U.S. Army Corps of Engineers is considering [two alternative approaches to protect a freshwater wetland from the encroaching seawater during high tides. The first alternative, the construction of a 5-mile long, 20-foot-high levee, would have an investment
An electronics firm is planning to manufacture a new handheld gaming device for the preteen market.The data to the left have been estimated for the product. Assuming a negligible market (salvage) value for the equipment at the end of five years, determine the breakeven annual sales volume for this
A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 150-room motel (excluding furnishings) is $5 million. The firm uses a 15-year planning horizon to evaluate investments of this type. The furnishings for this motel must be replaced every five years
A large city in the mid-West needs to acquire a street-cleaning machine to keep its roads looking nice year round. A used cleaning vehicle will cost $75,000 and have a $20,000 market (salvage) value at the end of its five-year life. A new system with advanced features will cost $150,000 and have a
Refer to Problem 11-11. The best estimate for reduction of labor hours for the new system is 20% (compared with the used system). Investigate how sensitive the decision is to In Problem 11-11 A large city in the mid-West needs to acquire a street-cleaning machine to keep its roads looking nice
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 annual amounts over a 40-year period. Annual operating, maintenance, and insurance expenses are estimated
The managers of a company are considering an investment with the following estimated cash flows. MARR is 15% per year. Capital investment ............................. $ 30,000 Annual revenues ............................... $ 20,000 Annual expenses ............................... $ 5,000 Market
An industrial machine costing $10,000 will produce net cash savings of $4,000 per year. The machine has a five-year useful life but must be returned to the factory for major repairs after three years of operation. These repairs cost $5,000. The company's MARR is 10% per year. What IRR will be
You have decided to purchase a p3JLj new automobile with a hybrid-fueled engine and a six-speed transmission. After the trade-in of your present car, the purchase price of the new automobile is $30,000. This balance can be financed by the auto dealer at 2.9% APR (compounded monthly) and repaid over
Two traffic signal systems are being considered for an intersection. One system costs $32,000 for installation and has an efficiency rating of 178%, requires 28 kW power (output), incurs a user cost of $0.24 per vehicle, and has a life of 10 years. A second I system costs $45,000 to install, has an
An office building is considering converting from a coal-burning furnace to one that burns either fuel oil or natural gas. The cost of j converting to fuel oil is estimated to be $80,000 initially; annual operating expenses are estimated to be 54,000 less than that experienced when using the coal
Three different companies have made their own estimates for a proposed project, which are shown in the accompanying table:a. What is the AW for each of the three estimation conditions?b. It is thought that the most critical factors are useful life and net annual cash flow. Develop a table showing
Refer to Example 11-2. Assuming gasoline costs $3.50 per gallon, find the breakeven mileage per year between the hybrid vehicle and the gas-only vehicle. All other factors remain the same.
Abridge is to be constructed now as part of a new road. Engineers have determined that traffic density on the new road will justify a two-lane road and a bridge at the present time. Because of uncertainty regarding future use of the road, the time at which an extra two lanes will be required is
Two automobile manufacturers designed a car that runs on gasoline stored in a tank near the engine, which is located at the rear of the vehicle. Company A offers the car at $20,000 and it speeds up to 140 km per hour and can travel 18 km per liter of fuel. The car from company B costs $16,000 and
Consider these two alternatives for solid-waste removal.Alternative A: Build a solid-waste processing facility. Financial variables are as follows:Alternative B: Contract with vendors for solid-waste disposal after intermediate recovery. Financial variables are as follows: Related Data: a. How much
We know the standard means of cutting the high cost of driving our automobiles-slow down your speed, no jack rabbit starts, inflate tires properly, clean air filters regularly, and so on. Another way to reduce the cost of driving is to join every big-rigger in the United States and half of
It is desired to determine the most economical thickness of insulation for a large cold-storage room. Insulation is expected to cost $150 per 1,000 square feet of wall area per inch of thickness installed, and to require annual property taxes and insurance of 5% of the capital investment. It is
Suppose that, for an engineering project, the optimistic, most likely, and pessimistic estimates are as shown in the accompanying table.Develop a spreadsheet to determine the AW for each of the three estimate conditions. It is thought that the most critical elements are useful life and net annual
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 feasibility study by asking, Why pay someone to dig coal out of the ground and then pay someone else
Refer to Problem 6-8. Disposing of incandescent light bulbs is just like getting rid of and recycling glassware in general. However, this is not the case for CFLs. Disposing of CFLs is complicated by the fact that each lamp contains a small amount of mercury, which is a very environmentally
Refer to Problem 6-24. Set up a spread-sheet to answer various "what if" questions such as "How does the IRR vary as the cost of gasoline takes | on these values: $3.00 per gallon, $4 per gallon, and I $5.00 per gallon?" Also, how does IRR change when the 'ownership period changes across this
The Universal Postal Service is considering the possibility of fixing wind deflectors on the tops of 500 of their long-haul tractors. Three types of deflectors, with the following characteristics, are being considered (MARR = 10% per year):If 5% in drag reduction means 2% in fuel savings per mile,
A highway bridge is being considered for replacement. The new bridge would cost $X and would last for 20 years. Annual maintenance costs for the new bridge are estimated to be $24,000. People will be charged a toll of $0.25 per car to use the new bridge. Annual car traffic is estimated at 400,000
An analysis of accidents in a rural state indicates that widening a highway from 30 ft to 40 ft will decrease the annual accident rate from 1,250 to 710 per million vehicle-miles. Calculate the average daily number of vehicles that should use the highway to justify widening on the basis of the
What is the minimum number of loaves that must be sold per year to justify installing Machine A instead of buying the loaves from the supplier? (a) 7,713 (b) 22,076 (c) 37,529 (d) 75,059 (e) 15,637
What is the minimum number of loaves that must be sold per year to justify installing Machine B instead of buying the loaves from the supplier? (a) 37,529 (b) 14,373 (c) 22,076 (d) 75,059 (e) 7,506
If the demand for bread at this supermarket is 30,000 loaves per year, what strategy should be adopted for acquiring bread? Both Machine A and Machine B are capable of meeting annual demand. a. Continue buying from the supplier. b. Install Machine A. c. Install Machine B. d. Install both Machine A
In planning a small two-story office building, the architect has submitted two designs. The first provides foundation and structural details so that two additional stories can be added to the required initial two stories at a later date and without modifications to the original structure. This
Two electric motors are being economically evaluated for use in a submersible robotic device. Each is capable of delivering 90 horsepower to a necessary application that the device performs. Data for the mutually exclusive motors are as follows.The MARR is 12% per year. If the expected usage of the
Consider the following data on two pieces of equipment:a. Suppose that the capital investment on Equipment 1 is known with certainty. By how much would the estimate of capital investment on Equipment 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR
It is decided that a farm is going to be cultivated by a tractor. Two competitive tractors are being considered for purchase.The MARR is 10% per year and the diesel needed to fuel the tractor costs $0.2 per horse power. a. At what level of operation (hours per year) would you be indifferent between
Jackson has decided to invest some money and he has two plans in mind. Determine the range of investment for plan B (i.e. min. value
Four mutually exclusive projects are being considered for investment. The life of the projects is expected to be 80 years. The sponsoring agency's MARR is 12% per year. Data for the projects are as follows:Plot the AW of each alternative against MARR as the MARR varies across this range: 4%, 8%,
Your company operates a fleet of light trucks that are used to provide contract delivery services. As the engineering and technical manager, you are analyzing the purchase of 55 new trucks as an addition to the fleet. These trucks would be used for a new contract the sales staff is trying to
A large mudslide caused by heavy rains will cost Sabino County $1,000,000 per occurrence in lost property tax revenues. In any given year, there is one chance in 100 that a major mudslide will occur. A civil engineer has proposed constructing a culvert on a mountain where mudslides are likely. This
An energy conservation project is being evaluated. Four levels of performance are considered feasible. The estimated probabilities of each performance level and the estimated before-tax cost savings in the first year are shown in the following table:Assume the following: €¢ Initial
A new machine is purchased to be part of a manufacturing process in order to increase efficiency and the rate of production. The machine costs $500,000 and the estimated savings from using the machine are $200,000 per year. The useful life of the equipment in this application is uncertain. The
The tree diagram in Figure P12-12 describes the uncertain cash flows for an engineering project. The analysis period is two years, and MARR = 15% per year. Based on this information,a. What are the E(PW), V(PW), and SD(PW) of the project? b. What is the probability that PW > 0?
A potential project has an initial capital investment of $100,000. Net annual revenues minus expenses are estimated to be $40,000 (A$) in the first year and to increase at the rate of 6.48% per year. The useful life of the primary equipment, however, is uncertain, as shown in the following
A hospital administrator is faced with the problem of having a limited amount of funds available for capital projects. He has narrowed his choice down to two pieces of x-ray equipment, since the radiology department is his greatest producer of revenue. The first piece of equipment (Project A) is a
In a construction company, project completion time is considered to be normally distributed with mean completion time being 16 weeks. There is an 80% probability that a project will take between 14 to 18 weeks to reach completion. What is the variance of project completion time?
In the production of shafts, it is assumed that the diameters of the shafts produced are normally distributed, with mean = 50mm and variance = 8mm2. What is the probability that the diameter of a shaft will be at least 48 mm?
The use of three estimates (defined here as H = high, L = low, and M = most likely) for random variables is a practical technique for modeling uncertainty in some engineering economy studies. Assume that the mean and variance of the random variable, Xk, in this situation can be estimated by E(Xk) =
Two mutually exclusive investment alternatives are being considered. Alternative A requires an initial investment of $20,000 in a machine. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of $8,000 and a standard deviation of $600. The salvage value at
Two investment options are to be compared. The data below have been estimated by a committee of experts, and all the cash flows are assumed to be independent. Life is not a variable. With MARR = 15% per year, determine the mean and standard deviation of the incremental PW [i.e., ˆ†(B-A)].
A bridge is to be constructed now as part of a new road. An analysis has shown that traffic density on the new road will justify a two-lane bridge at the present time. Because of uncertainty regarding future use of the road, the time at which an extra two lanes will be required is currently being
The market value of an asset depends upon its useful life as follows:a. The asset requires a capital investment of $150,000 and MARR is 12% per year. Use Monte Carlo simulation and generate four trial outcomes to find its expected equivalent AW of each useful life is equally likely to occur. b.
A company that manufactures automobile parts is weighing the possibility of investing in an FMC (Flexible Manufacturing Cell). This is a separate investment and not a replacement of the existing facility. Management desires a good estimate of the distribution characteristics for the AW. There are
Simulation results are available for two mutually exclusive alternatives. A large number of trials have been run with a computer, with the results shown in Figure P12-22.Discuss the issues that may arise when attempting to decide between these two alternatives.
If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure P12-23?
Extended Learning Exercise The additional investment in a new computer system is a certain $300,000. It is likely to save an average of $100,000 per year compared to the old, outdated system. Because of uncertainty, this estimate is expected to be normally distributed, with a standard deviation of
A firm must decide between constructing a new facility or renting a comparable office space. There are two random outcomes for acquiring space, as shown in Figure PI 2-25. Each would accommodate the expected growth of this company over the next 10 years. The cost of rental space is expected to
Refer to Example 12-4. After additional research, the range of probable useful lives has been narrowed down to the following three possibilities: Useful Life, Years (W) p(N) 14 ....................................... 0.3 15 ....................................... 0.4 16
In Problem 12-2, perform an analysis to determine how sensitive the choice of a four-lane bridge built now versus a four-lane bridge that is constructed in two stages is to the interest rate. Will an interest rate of 15% per year reverse the initial decision? At what interest rate would
A machine requires a capital investment of $200,000 and operating expenses will be 20% of the revenue from the sale of the product produced using the machine. It is found that the machine is highly productive and produces 1,000,000 products per year. The probability of purchasing the machine is
The cost of the fuel (C) to run a vehicle is a function of the distance travelled (S) and fuel consumption rate (R); that is, C = R. S. It is desired to know the probability distribution of the random variable C when R and S have the following assumed probability mass functions (R and S are
A very important levee spans a distance of 10 miles on the outskirts of a large metropolitan area. Hurricanes have hit this area twice in the past 20 years, so there is concern over the structural integrity of this particular levee. City engineers have proposed reinforcing and increasing the height
A diesel generator is needed to provide auxiliary power in the event that the primary source of power is interrupted. Various generator designs are available, and more expensive generators tend to have higher reliabilities should they be called on to produce power. Estimates of reliabilities,
The owner of a ski resort is considering installing a new ski lift that will cost $900,000. Expenses for operating and maintaining the lift are estimated to be $1,500 per day when operating. The U.S. Weather Service estimates that there is a 60% probability of 80 days of skiing weather per year, a
Refer to Problem 12-8. Assume the following changes: the study period is eight years; the ski lift will be depreciated by using the MACRS Alternative Depreciation System (ADS); the ADS recovery period is seven years; MARR = 15% per year (after-tax); and the effective income tax rate (t) is 40%.
The Shakey Company can finance the purchase of a new building costing $2 million with a bond issue, for which it would pay $100,000 interest per year, and then repay the $2 million at the end of the life of the building. Instead of buying in this manner, the company can lease the building by paying
The Capitalpoor Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs and service. If the machine is purchased, a comparable repair and service contract can be obtained for
A firm is considering the development of several new products. The products under consideration are listed in the next table. Products in each group are mutually exclusive. At most, one product from each group will be selected. The firm has a MARR of 10% per year and a budget limitation on
Four proposals are under consideration by your company. Proposals A and C are mutually exclusive; proposals B and D are mutually exclusive and cannot be implemented unless proposal A or C has been selected. No more than $140,000 can be spent at time zero. The before-tax MARR is 15% per year. The
Three alternatives are being considered for an engineering project. Their cash-flow estimates are shown in the accompanying table. A and B are mutually exclusive, and C is an optional add-on feature to alternative A. Investment funds are limited to $5,000,000. Another constraint on this project is
Refer to the associated graph. Identify when the WACC approach to project acceptability agrees with the CAPM approach. When do recommendations of the two approaches differ? Explain why.
The price to earnings (P/E) ratio is an after-tax metric reflecting growth potential of the common stock of a corporation. P is the selling price (per share) of the common stock, and £ is the after-tax earnings per year of a share of stock. A high P/E ratio, for example, indicates that a firm is
Explain the various degrees of dependency among two or more projects. If one or more projects seem desirable and are complementary to a given project, should those complementary projects be included in a proposal package or kept separate for review by management?
A four-year-old truck has a present net realizable value of $6,000 and is now expected to have a market value of $1,800 after its remaining three-year life. Its operating disbursements are expected to be $720 per year. An equivalent truck can be leased for $0.40 per mile plus $30 a day for each day
Work Problem 13-7 by comparing after-tax equivalent PWs if the effective income tax rate is 40%, the present book value is $5,000, and the depreciation charge is $1,000 per year if the firm continues to own the truck. Any gains or losses on disposal of the old truck affect taxes at the full 40%

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