Questions and Answers of Engineering Economy

An area can be irrigated by pumping water from a nearby river. Two competing installations are being considered.The MARR is 12% per year and electric power for the pumps costs $0.06 per kWh. Recall
A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $65,000. This pump can be kept in service for an additional four years, or it can be sold for
Two mutually exclusive alternatives for office building refrigeration and air conditioning are being investigated. Their relevant costs and lives are summarized as follows:If the hurdle rate (MARR)
Work Problem 6-38 by using the internal rate of return (IRR) method. The MARR is 15% per year. Remember to think incrementally!Data from Problem 6-38:Two mutually exclusive alternatives for office
Use the CW method to determine which mutually exclusive bridge design (LorH) to recommend, based on the data provided in the accompanying table. The MARR is 15% per year. Bridge Design L Bridge
Three mutually exclusive electric-vehicle battery systems are being investigated by a large automobile manufacturer. Pertinent data are given below:a. Use the PW method to select the best battery
Use the ERR method incrementally to decide whether project A or B should be recommended. These are two mutually exclusive cost alternatives, and one of them must be selected. MARR = ˆˆ =
The following mutually exclusive investment alter-natives have been presented to you. (See Table P6-82.) The life of all alternatives is 10 years. Using a MARR of 15%, the PW of the investment in A
The following mutually exclusive investment alter-natives have been presented to you. (See Table P6-82.) The life of all alternatives is 10 years. The IRR for Alternative A is most nearly:(a) 30%(b)
Your company just purchased office furniture (asset class 00.11) for $100,000 and placed it in service on August 13, 2007. The cost basis for the furniture is $100,000, and it will be depreciated
A start-up biotech company is considering making an investment of $100,000 in a new filtration system. The associated estimates are summarized below:Straight-line depreciation will be used, and the
The following information is for a proposed project that will provide the capability to produce a specialized product estimated to have a short market(sales) life:•Capital investment is $1,000,000.
The Parkview Hospital is considering the purchase of a new autoclave. This equipment will cost $150,000. This asset will be depreciated using an MACRS (GDS) recovery period of three years. The
f the federal income tax rate is 35% and the state tax rate is 5% (and state taxes are deductible from federal taxes), the effective income tax rate is(a) 35%(b) 37.5%(c) 38.3%(d) 40%
Acme Manufacturing makes their preliminary economic studies using a before-tax MARR of 18%. More detailed studies are performed on an after-tax basis. If their effective tax rate is 40%, the
Your company is contemplating the purchase of a large stamping machine. The machine will cost $180,000. With additional transportation and installation costs of $5,000 and $10,000, respectively, the
Your company is contemplating the purchase of a large stamping machine. The machine will cost $180,000. With additional transportation and installation costs of $5,000 and $10,000, respectively, the
Your company is contemplating the purchase of a large stamping machine. The machine will cost $180,000. With additional transportation and installation costs of $5,000 and $10,000, respectively, the
Your company is contemplating the purchase of a large stamping machine. The machine will cost $180,000. With additional transportation and installation costs of $5,000 and $10,000, respectively, the
Gold has recently hit record high prices. When adjusted for inflation, gold remains below a 1980 peak price of $850 per troy ounce. Suppose this 1980 price equates to $2,400 per ounce in 2014
Jeff just received a refund of $2,178 from his family physician. This was an overpayment on his account, and it has been 3 years since the overpayment was due. Jeff is really frosted by this delay!
Re-work Problem 4-89 when the tuition increase for your sophomore year is 10%; for your junior year, 12%; and for your senior year, 8%. Your parents’ savings account earns 4% for the first two
Annual expenses for two alternatives have been estimated on different bases as follows:If the average general price inflation rate is expected to be 4% per year and the real rate of interest is 8%
The incredible shrinking $50 bill in 1957 was worth $50, but in 2007 it is worth only $6.58.a. What was the compounded average annual inflation rate (loss of purchasing power) during this period of
A recent college graduate has received the annual salaries shown in the following table over the past four years. During this time, the CPI has performed as indicated. Determine the annual salaries
Paul works for a government agency in southern California making $70,000 per year. He is now being transferred to a branch office in Tennessee. The salary reduction associated with this transfer is
A large corporation’s electricity bill amounts to $400 million. During the next 10 years, electricity usage is expected to increase by 65%, and the estimated electricity bill 10 years hence has
Your older brother is concerned more about investment safety than about investment performance. For example, he has invested $100,000 in safe 10-year corporate AAA bonds yielding an average of 6% per
Alfred Smith wants to purchase life insurance that will guarantee his family $50,000 (in R-dollars) per year in bond interest income forever. The interest rate (im) from corporate bonds is expected
In 2009, the average cost to construct a 150,000-barrel-a-day oil refinery was $2.4 billion (excluding any interest payments). This capital investment is spread uniformly over a five-year
Suppose it costs $18,000 per year (in early 2014 dollars) for tuition, room, board, and living expenses to attend a public university in the Southeastern United States.a. If inflation averages 8% per
Suppose natural gas experiences a 1.8% increase per year in real terms over the foresee-able future. The cost of a 1,000 cubic feet of natural gas is now $7.50.a. What will be the cost in real terms
The capital investment for a new highway paving machine is $950,000. The estimated annual expense, in year zero dollars, is $92,600. This expense is estimated to increase at the rate of 5.7% per
A hospital has two different medical devices it can purchase to perform a specific task. Both devices will perform an accurate analysis. Device A costs $100,000 initially, whereas device B(the deluxe
A health services firm is thinking about purchasing a large autoclave for $180,000. The autoclave is expected to generate $60,000 in its first year of operation. This amount will increase by 5% per
In a certain foreign country in 2009, the local currency (the ‘Real’) was pegged to the U.S. dollar at the rate of $1 U.S.=1 Real. The Real was then devalued over the next five years so that $1
A company requires a 26% internal rate of return (before taxes) in U.S. dollars on project investments in foreign countries.a. If the currency of Country A is projected to average an 8% annual
A gas-fired heating unit is expected to meet an annual demand for thermal energy of 500 million Btu, and the unit is 80% efficient. Assume that each 1,000 cubic feet of natural gas, if burned at 100%
A small heat pump, including the duct system, now costs $2,500 to purchase and in-stall. It has a useful life of 15 years and incurs annual maintenance expenses of $100 per year in real (year-zero)
A certain engine lathe can be purchased for $150,000 and depreciated over three years to a zero salvage value with the SL method. This machine will produce metal parts that will generate revenues of
A machine cost $2,550 on January 1, 2000, and $3,930 on January 1, 2004. The average inflation rate over these four years was 7% per year. What is the true percentage increase in the cost of the
If you want to receive a 7% inflation-free return on your investment and you expect inflation to be 9% per year, what actual interest rate must you earn?(a) 16%(b)−2%(c) 1%(d) 7%(e) 9%
A person just turned 21 years old. If inflation is expected to average 2.4% per year for the next 44 years, how much will $1 today be worth when this person retires at age 65?(a) $0.055(b) $0.35(c)
If the European euro is worth Canadian $1.60 and a Canadian dollar trades for U.S. $0.75, what is the exchange rate from U.S. dollars to European euros?(a) $2.13(b) $1.44(c) $1.20(d) $0.95
Light, sweet crude oil in the world market is U.S. dollar denominated. The price of oil is rising partially because the dollar is not worth what it used to be (i.e., the dollar is now worth less than
You own an old “water skiing” motor boat that is a real gas guzzler. It is 10-years old and can be sold now for $3,000 cash. Assume its market value (MV) in 2 years will be $500. The annual
The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for $8,000. If the crane is kept in service, it must be overhauled immediately
A special purpose NASA fuel cell requires an investment of $80,000 and has no MV at any time. Operating expenses in year k are given by Ck = $10,000+$6,000(k−1). Obsolescence is reflected in
A steam generation system at a biomass-fueled power plant uses an electrostatic precipitator (ESP) to clean its gaseous effluents. The power plant has consistently made use of the same type of ESP
A steel pedestrian overpass must either be reinforced or replaced. Reinforcement would cost $25,000 and would make the overpass adequate for an additional 6 years of service. If the overpass is torn
The corporate average fuel economy (CAFE) standard for mileage is currently 27.5 miles per gallon of gasoline (the defender) for passenger cars. To conserve fuel and reduce air pollution, suppose the
Four years ago, the Attaboy Lawn Mower Company purchased a piece of equipment. Because of increasing maintenance costs for this equipment, a new piece of machinery is being considered for the
A small high-speed commercial centrifuge has the following net cash flows and abandonment values over its useful life (see Table P9-15, p. 439). The firm€™s MARR is 10% per year. Determine
A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the
Machine A was purchased last year for $20,000 and had an estimated MV of $2,000 at the end of its six-year life. Annual operating costs are $2,000. The machine will perform satisfactorily over the
A company is considering replacing a machine that was bought six years ago for $50,000. The machine, however, can be repaired and its life extended by five more years. If the current machine is
Machine A was purchased three years ago for $10,000 and had an estimated MV of $1,000 at the end of its 10-year life. Annual operating costs are $1,000. The machine will perform satisfactorily for
Machine A was purchased three years ago for $10,000 and had an estimated MV of $1,000 at the end of its 10-year life. Annual operating costs are $1,000. The machine will perform satisfactorily for
The Adams Construction Company is bidding on a project to install a large flood drainage culvert from Dandridge to a distant lake. If they bid $2,000,000 for the job, what is the benefit-cost ratio
An environmentally friendly 2,800-square-foot green home (99% air tight) costs about 8% more to construct than a same-sized conventional home. Most green homes can save 15% per year on energy
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
Five independent projects consisting of reinforcing dams, levees, and embankments are available for funding by a certain public agency. The following tabulation shows the equivalent annual benefits
In the development of a publicly owned, commercial waterfront area, three possible independent plans are being considered. Their costs and estimated benefits are as follows: a. Which plan(s)
Five mutually exclusive alternatives are being considered for providing a sewage-treatment facility. The annual equivalent costs and estimated benefits of the alternatives are as follows:Which plan,
A town in northern Colorado is planning on investing in a water purification system. Three mutually exclusive systems have been proposed, and their capital investment costs and net annual benefits
There are two mutually exclusive proposals for a for a flood control project in Illinois. The first proposal involves an initial outlay of $1,350,000 and annual expenses of $110,000. This plan is
Four mutually exclusive projects are being considered for a new 2-mile jogging track. The life of the track is expected to be 80 years, and the sponsoring agency€™s MARR is 12% per year.
Two municipal cell tower designs are being considered by the city of Newton. If the city expects a modified benefit€“cost ratio of 1.0 or better, which design would you recommend based on
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
The city council of Morristown is considering the purchase of one new fire truck. The options are Truck X and Truck Y. The appropriate financial data are as follows:The purchase is to be financed by
You have been tasked with recommending one of the mutually exclusive industrial sanitation control systems summarized below. The life of both alternatives is 30 years, and residual salvage values are
The Metropolitan Transit Authority (MTA) has just opened a new subway line (the Orange Line) in its underground transportation network. The Orange Line had a capital investment of $20 million,
Consider these two alternatives.a. Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so
Consider the following two investment alter-natives. Determine the range of investment costs for Alternative B (i.e., min. value < X < max. value) that will convince an investor to select
The Ford Motor Company is considering three mutually exclusive electronic stability control systems for protection against rollover of its automobiles. The investment (study) period is four 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 $85,000 and have a $20,000 market (salvage) value
An industrial machine costing $14,000 will produce net cash savings of $5,000 per year. The machine has a five-year useful life but must be returned to the factory for major repairs after three years
Two traffic signal systems are being considered for an intersection. One system costs $32,000 for installation and has an efficiency rating of 78%, requires 28 kW power (output), incurs a user cost
An office building is considering converting from a coal-burning furnace to one that burns either fuel oil or natural gas. The cost of converting to fuel oil is estimated to be $80,000 initially;
A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread.Neither machine has a market value at the end of seven years,
A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread.Neither machine has a market value at the end of seven years,
A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread.Neither machine has a market value at the end of seven years,
A carpet manufacturer in Georgia plans to expand its plant for a capital investment of $500,000. The extra capacity will permit the company to produce 400,000 yards of carpet each year during the
A centrifuge is required in a chemical separation process. Two centrifuges (A and B) are available and summarized below. The net annual revenues for centrifuge B are not known. If the MARR is 10% per
A new snow making machine utilizes technology that permits snow to be produced in ambient temperature of 70 degrees Fahrenheit or below. The estimated cash flows for the ski resort contemplating this
Annual profit (P) is the product of total annual sales (S) and profit per unit sold (X); that is, P = X·S. It is desired to know the probability distribution of the random variable P when X
It costs $250,000 to drill a natural gas well. Operating expenses will be 10% of the revenue from the sale of natural gas from this particular well. If found, natural gas from a highly productive
The purchase of a new piece of electronic measuring equipment for use in a continuous metal-forming process is being considered. If this equipment were purchased, the capital cost would be $418,000,
In an industrial setting, process steam has been found to be normally distributed with an average value of 25,000 pounds per hour. There is an 80% probability that steam flow lies between 20,000 and
Suppose that a random variable (e.g., market value for a piece of equipment) is normally distributed, with mean = $175 and variance = 25$2. What is the probability that the actual market value is at
Two mutually exclusive investment alternatives are being considered, and one of them must be selected. Alternative A requires an initial investment of $13,000 in equipment. Annual operating and
Two investment alternatives are being considered. The data below have been estimated by a panel of experts, and all cash flows are assumed to be independent. Life is not a variable.With MARR = 15%
In 2015, a firm has receipts of $8 million and expenses (excluding depreciation) of $4 million. Its depreciation for 2015 amounts to $2 million. If the effective income tax rate is 40%, what is this
A firm is considering a capital investment. The risk premium is 0.04, and it is considered to be constant through time. Riskless investments may now be purchased to yield 0.06 (6%). If the
A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each year for three years and then have a market value of $10,000 at the end of the third year. The
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
Suppose state income taxes and local income taxes are treated as expenses for purposes of calculating federal taxable income and hence federal income taxes. Determine the effective income tax rate
A special-purpose machine is to be depreciated as a linear function of use (units-of-production method). It costs $35,000 and is expected to produce 150,000 units and then be sold for $5,000. Up to
A manufacturer of aerospace products purchased three flexible assembly cells for $500,000 each. Delivery and insurance charges were $35,000, and installation of the cells cost another $50,000.a.
A piece of construction equipment (asset class 15.0) was purchased by the Jones Construction Company. The cost basis was $300,000.a. Determine the GDS and ADS depreciation deductions for this

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