Questions and Answers of Engineering Economy

During the design and development stages of a remote meter reading system for residential electricity use, the two engineers working on the project for the City of Forest Ridge noted something
1. Assume you are the director of the State Department of Mining and Reclamation and were informed of the findings on the new samples versus the old samples. What actions would you direct your staff
Show that the following relationship is true:(A/P, i%, N) = i/[1−(P/F, i%, N)].
Three mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given next. The MARR is 20% per year. At the conclusion of the useful life, the
Consider the following cash flows for two mutually exclusive alternatives. Which one should be recommended? The MARR is 25% per year. Oval Re-Bar (O) Rectangular Re-Bar (R) EOY -$9,000 4,050 5,400
A new highway is to be constructed. Design A calls for a concrete pavement costing $90 per foot with a 20-year life; two paved ditches costing $3 per foot each; and three box culverts every mile,
Consider the following two mutually exclusive alternatives for reclaiming a deteriorating inner-city neighborhood (one of them must be chosen). Notice that the IRR for both alternatives is 27.19%.a.
In the design of a special-use structure, two mutually exclusive alternatives are under consideration. These design alternatives are as follows:If perpetual service from the structure is assumed,
What other cost factors might you include in such an economic analysis?The proposed small office building in Example 3-2 has 24,000 net square feet of area heated by a natural gas furnace. The owner
A “green” (environmentally friendly) office building costs as average of $3.50 per square foot each year to heat and cool. What is the total annual heating and cooling cost of an office building
Fill in the missing values for CFBT, D, TI, taxes, and CFAT in the following table. Depreciation amounts are based on the 3-year MACRS method and Teis 35%. Solve(a) By hand, and(b) By spreadsheet.
Estimate the CFAT for a company that has taxable income of $120,000, depreciation of $133,350, and an effective tax rate of 35%.
An assembly line robot arm with a first cost of $75,000 in 2001 had a cost of $89,750 in 2017. If the equipment cost index for robots was 307 in 1995 and the robot cost increased exactly in
The total cost for a production plant that supplies hydrogen to the refining industry is estimated at $55.4 million. The equipment is expected to cost $17.8 million.(a) What is the overall cost
Low, medium, and high cost estimates for a 30,000 ft2 apartment building in zip code 79912 are $3,111,750, $3,457,500, and 4,321,875, respectively.(a) What is the cost per square foot for the medium
When the market interest rate is less than the real interest rate, then:(a) The inflated interest rate is higher than the real interest rate(b) The real interest rate is zero(c) A deflationary
Aquatech Microsystems spent $183,000 for a communications protocol to achieve interoperability among its utility systems. The company uses a real interest rate of 15% per year on such investments and
Wastewater samples taken from an industrial discharge had the chemical oxygen demand (COD) concentrations below in mg/L. Determine the(a) Arithmetic mean (by hand and spreadsheet),(b) Median,(c)
Gillian has developed estimates for strengthening the undercarriage on a medium-use, 70-year-old bridge for which there is no budget to replace the bridge for the next 5 years. Estimates are P =
Jensen Systems purchases several parts for the instruments it makes via a fixed-price contract of $155,000 per year from a local supplier. The new president of Jensen wants to make the parts inhouse
A new anti-theft system incorporating MEMS technology is being economically evaluated separately by three engineers at Dragon Technologies. The first cost of the equipment will be $75,000, and the
A contractor who files as unmarried (single) to the IRS has an effective tax rate of 28%. His gross income is $155,000, other income is $4000, personal expenses are $45,000, and deductions and
In conducting an EVA analysis for year 2 for new equipment on its primary product line, Analogy, Inc., manufacturers of preassembled blower packages and other water treatment components, determined
Determine the required before-tax rate of return if an after-tax return of 9% per year is expected and the state and local tax rates total 6%. The effective federal tax rate is 35%.
Explain why minimizing PW of taxes is equivalent to maximizing PW of depreciation when corporate taxes are calculated.
Joyce and Vincent, both engineers, got married and raised three children over an 18-year period and the first one is now ready for college. There have been good and bad years financially; Joyce quit
The Johnson€™s had two children, both of them are married and now have their own families, call them Family A and Family B. They both file their U.S. income taxes as married, filing
If B = $400,000, n = 6 years, and S is estimated at 15% of B for a new pavement recycling machine, use the SYD method to determine(a) The book value after 3 years, and(b) The rate of depreciation and
Gisele is performing a make/buy study involving the retention or disposal of a 4-year-old machine that was to be in production for 8 years. It cost $500,000 originally. Without a market value
An 8-year recovery-period conveyor system for grading eggs is planned for DDB depreciation. The system had a first cost of $30,000 with a $9000 salvage value. The annual operating cost allocated to
A commercial generator with an unadjusted basis of $50,000 is straight line depreciated over a 5-year period. The asset will have an AOC of $35,000 and a salvage value of $10,000. The book value at
A relatively small privately-owned coal-mining company has the sales results summarized below. Determine the annual percentage depletion for the coal mine. Assume the company€™s taxable
When WTA, Inc. purchased rights to extract silver from a mine for a total price of $2.1 million 3 years ago, the estimated 350,000 ounces of silver was to be removed over the next 10 years. A total
What is the difference between depreciation and depletion?
Youngblood Shipbuilding Yard just purchased $1 million in capital equipment for ship repairing functions on dry-docked ships. Estimated salvage is $150,000 for any year after 5 years of use. Compare
Blackwater Spring and Metal utilizes the same computerized spring forming machinery in its U.S. and Malaysian plants. The first cost was $750,000 with S = $150,000 after n = 10 years. MACRS
Fairfield Properties owns real property that is MACRS depreciated with n = 39 years. They paid $3.4 million for an apartment complex and hope to sell it after 10 years of ownership for 50% more than
A company report stated that a $140,000 asset purchased 3 years ago has a current MACRS book value that is 57.6% of the asset’s basis.(a) Determine the recovery period used.(b) Determine the
An automated assembly robot that cost $400,000 has a depreciable life of 5 years with a $100,000 salvage value. The MACRS depreciation rates for years 1, 2, and 3 are 20.00%, 32.00%, and 19.20%,
Del Norte Brick Co. is located near the intersection of Texas, New Mexico, and Mexico. Improved access to the company’s property is via a small bridge across the Rio Grande. The cost of the bridge
(a) What is meant by half-year convention?(b) Where does it show up in the MACRS depreciation rate table? What is its effect?
For the MACRS method of depreciation, identify(a) The six standardized recovery periods for personal property,(b) The two recovery periods for real property,(c) The assumed salvage value for personal
New equipment to read 96-bit product codes that are replacing old bar codes has just been purchased by General Food Stores. As a trial, 1000 of the items will be initially purchased. For book
A video recording system was purchased 3 years ago at a cost of $40,000. A 5-year recovery period and DDB depreciation have been used to write off the basis. The system is to be replaced this year
If the salvage value of an asset is nil and it is depreciated by the double declining balance method, what percentage of the asset’s first cost will remain after its 5-year life?
If an asset is book-depreciated by the DDB method over a 5-year period, how long will it take to reach its salvage value if the estimated salvage is 25% of the first cost?
Determine the first cost of a machine that is used for making spill containment pallets if its book value in year 3 is $25,000. The machine has a 5-year life and the double declining balance method
Software and hardware for optimizing cell design of robotic picking lines have an installed cost of $78,000 with no residual value after 5 years. For years 2 and 4, use DDB book depreciation to
Halcrow Yolles purchased equipment for new highway construction in Manitoba, Canada, costing $500,000 Canadian. Estimated salvage at the end of the expected life of 5 years is $50,000. Various
Bristol-Myers-Squibb purchased a tablet-forming machine in 2010 for $750,000. The company planned to use the machine for 10 years and then sell it for $50,000; however, due to rapid obsolescence, it
A special-purpose digitizing system just acquired by Bzybee Consultants has B = $50,000 and a 4-year recovery period.(a) What is the accumulated depreciation after year 3 if the salvage value of the
An asset owned by Photon Environmental was book-depreciated by the straight line method over a 5-year period with book values of $296,000 and $224,000 in years 2 and 3, respectively. Determine(a) The
Kobi Technologies book-depreciated an asset at $27,500 per year for 4 years using the straight line method. If the book value at the end of year 2 was $65,000, determine the asset’s(a) Salvage
A company that manufactures pulse doppler insertion flow meters uses the straight line method for book depreciation purposes. Newly-acquired equipment has a first cost of $170,000 with a 3-year life
Goodson Healthcare purchased a new sonogram imaging unit for $300,000 and a truck body and chassis for an additional $100,000 to make the unit mobile. The unit-truck system will be depreciated as one
What is the depreciation rate dt each year t for an asset that has a 5-year recovery period and is straight line depreciated?
Quantum Electronic Services paid P = $40,000 for its networked computer system. Both tax and book depreciation accounts are maintained. The annual tax recovery rate is based on the previous
Jobe Concrete Products placed a new sand sifter into production 3 years ago. It had an installed cost of $100,000, a life of 5 years, and an anticipated salvage of $20,000. Book depreciation charges
Cyber Manufacturing purchased a complete video borescope system for applications that require work in places where eyes cannot see. The purchase price was $18,000, shipping and delivery was $300,
There are three different life (recovery period) values associated with a depreciable asset. Identify each by name and explain how it is correctly used.
Describe a condition under which they will have significantly different values.
What is meant by an asset’s unadjusted basis? Adjusted basis?
How does tax depreciation affect income taxes?
A possible disadvantage of the ABC method is:(a) It does not allocate costs to the way production work occurs(b) It is more expensive to operate than a traditional allocation system(c) It does not
The delivered equipment cost for setting up a production and assembly line for two-way floating ball valves is $650,000. If the direct cost and indirect cost factors are 1.82 and 0.31, respectively,
If a hospital cafeteria is the activity to receive indirect cost allocation for the year, cost driver(s) for the ABC method that seem reasonable may be:1 – Number of cafeteria employees2 – Number
If the cost of an imported high-speed assemblyline robot is $80,000 and the in-country cost for one with twice the capacity is $120,000, the value of the exponent in the cost-capacity equation is
The cost of an electrode position control system in an electric arc furnace was $16,000 when the applicable equipment cost index had a value of 1192. If the current index value is 1364 and the
The cost for a 200-horsepower pump with a VFD controller is $42,000. The cost estimate of a similar pump of 300 horsepower capacity, provided the exponent in the cost-capacity equation is 0.64, is
The cost for constructing a small building in 1999 was $700,000. The construction cost index was 6059 at that time. The estimated cost of a similar building when the index value is 10,000 is closest
The total mechanical and electrical unit costs for a library are listed as $40 per square foot, while total project cost is estimated at $119 per square foot. Based on these values, the percentage of
CarryALL, Inc., makes and sells small cargo trailers to individuals and small businesses. Since its opening in 1990, it has allocated indirect costs (IDC) to its three manufacturing plants based on
During a major expansion in 2004, Douwalla’s Import Company developed a new processing line for which the delivered equipment cost was $1.75 million. This year, the board of directors decided to
The delivered equipment cost for a fully equipped CNC machining system is $1.6 million. The direct cost factor is 1.52 and the indirect cost factor is 0.31. Estimate the total plant cost if the
The cost of equipment for manufacturing mineral products in a harsh environment is $2.3 million. If the overall cost factor for this type of facility is 2.25, what is the estimated total plant cost?
Estimate the cost in 2018 of a 1000-horsepower steam turbine air compressor if a 200-horsepower unit costs $160,000 in 1999. The exponent in the cost capacity equation is 0.35 and the equipment cost
Estimate the cost in 2011 of chemical processing equipment if the cost of a unit one-fourth its size was $60,000 in 2005. The exponent in the cost capacity equation is 0.24. Use the M&S equipment
The net annual operating cost (AOC) for a water treatment filtration plant for a semi-conductor fabrication line was estimated to be $1.5 million per year. The estimate was based on the $200,000 per
The cost for construction of a desulfurization system for flue gas from boilers at a 600 MW power plant was estimated to be $250 million. If a similar system for a smaller plant had a cost of $55
The estimated cost for a multitube cyclone system with a capacity of 60,000 cubic feet per minute is $450,000.(a) If the $200,000 actual cost for a 35,000 cubic feet per minute system was used in the
The cost of a high-quality 250-horsepower compressor was $14,000 when recently purchased. What would a 600-horsepower compressor be expected to cost?
What is the value of the exponent in the costcapacity equation if a pump half the size of a similar, but larger one, costs exactly half as much as the larger one?
Estimate the cost of a 0.75 million gallon per day (MGD) induced-draft packed tower for air-stripping trihalomethanes from drinking water if the cost for a 2-MGD tower is $153,200. The exponent in
What is the fundamental difference between estimating costs using a CER and a cost index?
In 2015, Mariam, an engineer with Total Petroleum, decided to invest in stocks of a corporation that concentrates on crude oil production and refined products, though the price of oil is a very
A quadrupole mass spectrometer can be purchased today for $85,000. The owner of a mineral analysis laboratory expects the cost to increase exactly by the specialty laboratory equipment cost index
A survey of total project construction costs for a wide range of buildings (hospitals, schools, banks, nursing homes, etc.) in 2006 found that the average cost was $13,136,431. The mechanical and
The Marshall and Swift (M&S) equipment cost index started with a base value of 100 in 1926. Determine the average (compound) percentage increase per year between 1926 and 2011 when the index
A consulting engineering firm is preparing a preliminary cost estimate for a 40-MW advanced combined cycle natural gas-fired power plant. The firm, which completed a similar project in 2012 with a
If the PCI editor at Chemical Engineering (CE) decides to update the Plant Cost Index so that the year 2010 has a base value of 100 instead of the current value of 550.8, determine the PCI values for
The cost of a piece of equipment was $67,900 when the relevant cost index was 1457.4. Determine the index value when the same equipment was estimated to cost $83,400?
In 2009, the Office of the Under Secretary of Defense projected that a critical International Defense Construction Cost Index would increase from its value then of 3423 to 4098 in 2016. If the actual
AB Jackson Industries installed a compressor and pump system in 2010 at a cost of $87,200. If the FRED equipment cost index applies, what will be the estimated cost now for a similar system when the
The FRED CPI Index (Table 15€“3) can be used to predict the price of household items over the years. In 2011, Sandy and Malcolm purchased a combo clothes washing machine and dryer for $800.
Equipment necessary to manufacture adjustable ball-lock pins for pulling two components together had a cost of $185,000 when the FRED Equipment Cost Index was 210.0. What was the estimated cost of a
Two people developed first-cut cost estimates to construct a new 130,000 square foot building on a university campus. Person A applied a generalpurpose per unit cost estimate of $180 per square foot
Oil spill cleanup costs for a nation or region can be estimated by taking the average cost for the specified region and multiplying it by various “modification factors” that are a function of oil
The Department of Defense uses area cost factors (ACFs) to compensate for differences in construction costs in different parts of the country (and world). The area cost factor for Waianae, Hawaii is
A labor crew for placing concrete consists of one labor foreman at $26.70 per hour, one cement finisher at $29.30 per hour, five laborers at $24.45 per hour each, and one equipment operator at $33.95
Estimate the total cost of a house (from purchasing a lot to furnishing it) using the following estimates: House Data Cost Data Purchasing a lot = $2.50/ft? Lot size = 100 × 150 ft Construction =

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