Questions and Answers of Contemporary Engineering Economics

Consider the following flyer that you just received. “We have good news. Eric Moon! Your credit history allows us to offer you a guaranteed check of $2,009.06. That’s right—a preapproved loan
Consider the two mutually exclusive investment projects in Table P5.42. For what range of MARR would you prefer project B? TABLE P5.42 12 0 1 2 Project's Cash
Consider the investment projects given in Table P7.10.(a) Classify each project as either simple or nonsimple.(b) Use the quadratic equation to compute i* for project A.(c) Obtain the rate(s) of
Federal Express (FedEx) is considering adding 18 used Boeing 757 jets by buying the twin engine planes to replace some of its oldest, least-efficient freighters. Boeing 727s. FedEx pays about $10
The U.S. Department of Interior is planning to build a dam and construct a hydroelectric power plant. In addition to producing electric power, this project will provide flood control. irrigation, and
A local county is considering purchasing some dump trucks for the trash pickups. Each truck will cost $55,000 and have an operating and maintenance cost that starts at $18,000 during the first year
The City of Boston is considering adding new buses for its current mass-transit system that links from the Hartsfield International Airport to major city destinations on nonstop basis. The total
A company is currently producing chemical compounds by a process installed 10 years ago at a cost of $100,000. It was assumed that the process would have a 20-year life with a zero salvage value. The
In September 2015. a 3.45 megawatt cooling, heating. and power (CHP) system was placed in into operation for Southeast Regional Hospital with 360 beds. The CHP system was pan of a new 20,000 sq. ft.
Consider the following the investment project.Calculate the net future worth of this investment at 12% and determine the acceptability of the investment.
What is the annual equivalent cost of purchasing a lift truck that has an initial cost of $65,000, an annual operating cost of $13,500, and an estimated salvage value of $23,000 after six years of
A machine now in use was purchased four years ago at a cost of $30,000. It has a book value of $9,369. It can be sold for $12.000. hut it could be used for three more years. at the end of which time,
On January 2, 2010. the Allen Flour Comp any purchased a new machine at a cost of $82,000. Installation costs for the machine were $3,000. The machine was expected to have a useful life of 10 years.
You sold an automobile at a price of $14,000. The automobile was purchased three years ago for $20,000. The car had been depreciated according to a five-year MACRS property class, and the book value
On March 17, 2013, the Wildcat Oil Company began operations at its Louisiana oil field. The oil field had been acquired several years earlier at a cost of $32.5 million. The field is estimated to
Compute the double-declining-balance (DDB) depreciation schedule for the following asset: Cost of the asset, I Useful life, N Salvage value, S $200,000 8 years $ 32,000
Compute the DDB depreciation schedule for the following asset:(a) What is the value of a?(b) What is the amount of depreciation for the second full year of use of the asset?(c) What is the book value
A diesel-powered generator with a cost of $68,000 is expected to have a useful operating life of 50,000 hours. The expected salvage value of this generator is $7,500. In its first operating year, the
The Collins Metal Shop purchased a stamping machine for $257,000 on March 1, 2015. The machine is expected to have a useful life of 10 years. a salvage value of $32,000. a production of 250,000
In 2016, you purchased a spindle machine (seven-year MACRS property) for $53,000, which you placed in service in January. Using the calendar year as your tax year. compute the depreciation allowances
Early in 2015, the Atlantic Mining Company began operation at its West Virginia mine. The mine had been acquired at a cost of $8,900,000 in 2013, and is expected to contain 4 million tons of silver
The Dow Ceramic Company purchased a glass molding machine in January 2010 for $180,000. The company has been depreciating the machine over an estimated useful life of 10 years. assuming no salvage
On January 2, 2013, the Hines Food Processing Company purchased a machine that dispenses a premeasured amount of tomato juice into a can. The machine cost $85,000. and its useful life was estimated
Sunrise, Inc., bought a machine for $80,000 on January 2, 2014. Management expects to use the machine for eight years. at the end of which time, it will have a $20000 salvage value. Consider the
Appliance makers are gearing up to push new energy-efficient systems in the wake of an energy bill that offers tax credits to homeowners who upgrade to electricity-saving appliances. In air
Enterprise Capital Leasing Company is in the business of leasing tractors o construction companies. The firm wants to set a three-year lease payment schedule for a tractor purchased at $53,000 from
You are considering purchasing industrial equipment to meet the peak demand which will last only two years. The equipment costs $I00,000 and has an estimated market value of $40,000 at the end of two
The current gasoline price is $3.50 per gallon, and it is projected to increase next year by 4% 6% the following year. and 8% the third year. What is the average inflation rate for the projected
The following data indicate the median price of unleaded gasoline during the last 15 years for California residents:Assuming that the base period (price index = 100) is 1999, compute the average
The following data indicate the price indexes of medical care services (base period 1982 = 100 between 2010 and 2014:(a) Assuming that the base period (price index = 100) is reset to the year 2010.
An annuity provides for 10 consecutive endo f-year payments of $72.000. The average general inflation rate is estimated to be 4% annually, and the market interest rate is 8’4 annually. What is the
A company is considering buying a CNC machine. In today’s dollars, it is estimated that the maintenance costs for the machine (paid a the end of each year) will be $25,000, $26,000, $28,000,
The following cash flows are in actual dollars:Convert to an equivalent cash flow in constant dollars if the base year is time 0. Keep cash flows at the same point in time—that is. years 0, 4, 5,
If the inflation rate is 6% per year and the market interest rate is known to be 11% per year. what is the implied real interest (inflation-free) rate in this inflationary economy?
A man is planning to retire in 20 years. Money can be deposited at 6% interest compounded monthly. and it is also estimated that the future general inflation (Ƒ̅) rate will be 4% compounded
Green Management Company is considering the acquisition of a new eighteen-wheeler.• The truck’s base price is $80,000. and it will cost another $20,000 to modify it for special use by the
The Wellington Construction Company is considering acquiring a new earthmover. The mover’s basic price is $90000. and it will cost another $18,000 to modify it for special use by the company. This
A firm is considering whether to market a new type of computer game during the upcoming Christmas season. The profit contribution of this computer game will depend on the extent of the demand θ.
A company is currently paying a sales representative $0.60 per mile to drive her car for company business. The company is considering supplying the representative with a car, which would involve the
Two alternative machines are being considered for a cost-reduction project. Machine A has a first cost of $60,000 and a salvage value (after tax) of $22.000 at the end of six years of service life.
Jay Olsen. a writer of novels, just has completed a new thriller novel. A movie company and a TV network both want exclusive rights to market his new title, if he signs with the network, he will
A machine shop specializing in industrial pumps is experiencing a substantial backlog, and the shop’s management is considering three courses of action:• Arrange for subcontracting (A)•
An acquisition editor is trying to decide whether or not to publish a highly technical manuscript he has received. In making a decision he feels that it is sufficient to imagine that there are just
What would be the price of a six-month European call option on a non-dividend-paying stock when the stock price is $120, the strike price is $150. and the risk-free interest rate is 6% per year?
A Silicon Valley start-up company faces an opportunity to invest in an R&D project that will revolutionize the way consumers use telephones. intern et and TV. Suppose a project has two phases.
What would be the price of a two-month European put option on a non-dividend-paying stock when the stock price is $68,50. the strike price is $70. and the risk-free interest rate is 5% per
You are given the following information. A call option’s premium is currently $4, the exercise price equals $52, the risk free rate is 5%, volatility is 40%, and the time to expiration is nine
A put-option premium is currently $4, with S0 $30, K = $32, and T = 6 months. Calculate the intrinsic value and time premium for (his put option. In addition, explain why the time to Contract
An investor has $10,000 that she wants to invest in Apple Corporation. She can either go long in Apple’s stock at a spot price of $100 per share on September 17, 2015 or purchase option contracts
A firm has decided to hedge itself through the use of strategic options. It has the option to choose among three strategies:• It has the option to contract 10% of its current operations at any time
Given the following the data:(a) Determine the economic service life of the asset if i = 12%.(b) Determine the economic service life of the asset if i = 20%.(c) Assume that i = 0 and determine the
Calculate the after-tax cost of debt under each of the following conditions:(a) Interest rate, 12%; tax rate. 25%(b) Interest rate, 14%; tax rate, 34%(c) Interest rate, 15%; tax rate, 40%
The Callaway Company’s cost of equity is 22%. Its before-tax cost of debt is 13%. and its marginal tax rate is 40%. The firm’s capital structure calls for a debt-to-equity ratio of 45%. Calculate
Consider the two mutually exclusive machines given in Table P 15.13.The initial investment will be financed with 70% equity and 30% debt. The before-tax debt interest rate, which combines both
A mining firm has the opportunity to purchase a license on a plot of land to mine for gold. Consider the following financial information:• The investment cost to mine is $140M.• It costs $1,115
You are considering an investment in a Christmas tree farm over three years. The farm already has trees planted a year ago. and these trees grow each year by the following factors.The price of the
Matsushita Machining (MPM) is considering acquiring a new precision cutting machine at a cost of $120,000. The need for this particular machine is expected to last only five years. after which the
Consider the following investment projects and their interdependencies:• Projects A and F are mutually exclusive.• Projects C and D are independent projects.• Project B is contingent on Project
Consider four investments with the sequences of cash flows given in Table P7.8.(a) Identify all the simple investments.(b) Identify all the nonsimple Investments.(c) Compute i for each investment.
What is the effective annual yield of 8.7% compounded continuously?
Suppose you deposit $500 at the end of each quarter for five years at an interest rate of 8% compounded monthly. What equal end-of-year deposit over the five years would accumulate the same amount at
Consider the cash flows from an investment project.(a) Compute the net present worth of the project at i = 10%.(b) Plot the present worth as a function of the interest rate (from 0% to 30%).
A newly constructed bridge costs S 15,000,000. The same bridge is estimated to need renovation every 15 years at a cost of $3,000,000. Annual repairs and maintenance are estimated to be $ 1,000,000
Calculate the equivalent annual worth of the following scheduled payments at an interest rate of 15%. $100 $150 $150 012 3 Figure P6.3 یرا $200 $200 $200 4 5 6 $100 $150 $150 $200 $200 $200 7 8 9
Consider the accompanying cash flow diagram. Compute the equivalent annual worth at i = 10%. $3,000 2 Figure P6.4 $3,000 3 $4,000 4 $5,000 $6,000 5 Years 6
Consider the accompanying cash flow diagram. Compute the equivalent annual worth at i = 12%. 0 $2,000 $4,500 1 $1,500 Figure P6.5 2 $1,000 3 Years 4 $2,000 $1,500 5 6
Consider the cash flows in Table P6.7 for the following investment projects (MARR = 15%).Determine the annual equivalent worth for each project at i = 15% and determine the acceptability of each
A manufacturing firm is considering the mutually exclusive alternatives given in Table P7.39. Determine which project is a better choice at a MARR = 15% based on the IRR criterion. TABLE
Consider the Iwo mutually exclusive investment alternatives given in Table P7.41.(a) Which project would be selected based on the rate of return decision criterion? (Assume that MARR = 10%.)(b)
Consider the two mutually exclusive alternatives given in Table P7.40.(a) Determine the IRR on the incremental investment in the amount of $2,000.(b) If the firm’s MARR is 10%, which alternative is
Yuma, Arizona resident Rosalind Setchfield won $I.3 million in an Arizona lottery drawing, to be paid in 20 annual installments of S65,277. However, her husband, a construction worker, suffered
What value of A makes the two annual cash flows equivalent at 15% interest compounded annually? 0 L 0 $100 $100 1 A 1 Figure P3.52 2 A 2 $120 $120 Years 3 A Years 3 4 A 4 $120 5 A 5
Consider the following cash flow. in computing F at the end of year 5 at an interest rate of 12 %, which of the following equations is incorrect? a. F= $1,000 (F/A, 12 %,5) - $ 500 (F/P, 12
From the following list. identify all the correct equations used in computing either the equivalent present worth (P) or future worth (F) for the cash flow shown at i = 10%.(a) P = R(P/A, 10%, 6)(b)
Anita Wu. an engineering junior, received two guaranteed line-of-credit applications from two different banks. Each bank offered a different annual fee and finance charge.Anita expects her average
You received a bill consolidation loan offer in the mail. Dear Larry Montgomery I’m delighted to inform you that you have been approved for a Homeowner Bill Consolidation Loan of up to
Suppose you have received a credit card offer from a bank that charges interest at 1.3% per month. compounded monthly. What is the nominal interest (annual percentage) rate for this credit card? What
If your credit card calculates interest based on 17.85% APR. compounded monthly: (a) What are your monthly interest rate and annual effective interest rate?(b) If your current outstanding
Student Emergency Financial Services. Inc.. which makes small loans to college students, offers to lend $550. The borrower is required to pay $42 at the end of each week for 16 weeks. Find the
If a bank advertises a savings account that pays a 6% nominal interest rate compounded continuously. what is the effective annual percentage rate?
You have three choices in placing your money in a bank account.(a) Bank A pays 6.12% compounded annually.(b) Bank B pays 6.00% compounded quarterly.(c) Bank C pays 5.90% compounded continuously.Which
The APR is stated as 6% compounded monthly. What is the continuously compounded rate? (In other words, what APR at continuous compounding has the same effect?)
Bank A offers a nominal annual interest rate of 5% compounded daily, while Bank B offers continuous compounding at a 4.6% nominal annual rate. If you deposit $3,000 with each bank, what will be the
How much will $5,000 be worth in 10 years with 6% interest compounded continuously?
How much money must you deposit now to have $5,000 in five years at 6% compounded continuously?
How much money will you have in five years if you deposit $5,000 in the bank at 9% interest compounded continuously?
How long will it take money to double with continuous compounding at 6% interest?
Republic Finance offers money at 2.32% per month compounded monthly.(a) What is the nominal interest rate?(b) What is the effective annual interest rate’?(c) How many years will it take an
Suppose your savings account pays 8% interest y compounded quarterly. If you deposit $15,000 for two years, how much will you have?
What will be the amount accumulated by each of these present investments?(a) $9,545 in 12 years at 8.2% compounded semiannually.(b) $6,500 in 10 years at 6% compounded quarterly.(c) $42,800 in 8
How many years will it take an investment to triple if the interest rate is 9% compounded at the given intervals?(a) Quarterly(b) Monthly(c) Continuously
A series of equal quarterly payments of $10.000 for 15 years is equivalent to what future worth amount at an interest rate of 6% compounded at the given intervals?(a) Quarterly(b) Monthly(c)
What is the future worth of an equal payment series of $7,500 at the end of each month for five years if the interest rate is 8% compounded continuously?
If the interest rate is 8.6% compounded continuously. what is the required quarterly payment to repay a loan of $10,000 in five years?
What will be the required monthly payment to repay a loan of $48,000 in five years if the interest rate is 9.75% compounded continuously?
An automobile loan of $20,000 at a nominal rate of 6% compounded monthly for 36 months requires equal end-of-month payments of $608,44. Complete Table P4.60 for the first six payments. as you would
A series of equal quarterly payments of $2,500 extends over a period of five years. What is the present worth of this quarterly payment series at 6.88% interest compounded continuously?
What is the future worth of the following series of payments?(a) $20,000 at the end of each six-month period for five years at 8% compounded semiannually.(b) $60,000 at the end of each quarter for 10
You have $15,345.36 in your savings account that has been paying at 6% compounded continuously. If you opened the account 10 years ago and made no deposits during any other years. how much was your
What is the present worth of the following series of payments?(a) $5,000 at the end of each six-month period for 12 years at 9% compounded semiannually.(b) $7,000 at the end of each quarter for 10

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