Basics Of Engineering Economy 3rd Edition Leland T. Blank, Anthony Tarquin - Solutions

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7-23. A blow molding machine can be purchased and installed for $100,000. It is in the seven-year GDS property class and is expected to be kept in service for eight years. It is believed that $12,000 can be obtained when the machine is disposed of at the end of year eight.The net annual value added
7-22. A company is considering the purchase of a capital asset for $135,000. Installation charges needed to make the asset serviceable will total $25,000. The asset will be depreciated over six years using the straight-line method and an estimated salvage value (SV6) of $10,000. The asset will be
7-21. A firm can purchase a centrifugal separator (5-year MACRS property) for $20,000. The estimated salvage value is $3,000 after a useful life of six years. Operating and maintenance (O&M) costs for the first year are expected to be $2,000. These O&M costs are projected to increase by $1,000 per
7-20. The Hitech Engineering Company is considering the purchase of a flow measuring device. Its purchase price is $12,000 and another $600 will be spent shipping and installing this device. Use of the device is expected to result in a $8,000 annual increase in revenue, and operating expenses are
7-19. A company purchases an industrial laser for$150,000. The device has a useful life of four years and a salvage value (market value) at the end of those four years of $50,000. The before-tax cash flow is estimated to be$80,000 per year. (7.4,7.9)a. You, of course, suggested applying the
7-18. A corporation in 2019 expects a gross income of $800,000, total operating expenses of $500,000, and capital investments of $25,000. In addition, the corporation is able to declare $70,000 of depreciation charges for the year. What is the expected taxable income and total federal income taxes
7-17. A bulldozer for demolition work has been purchased for $80,000, and it has an estimated SV of$8,000 at the end of its six-year life. Engineers have estimated that the following units of volume of crushed material (in m3) will be contracted over the next six years.EOY 1 2 3 4 5 6 m3 20,000
7-16. A special-purpose milling machine is to be depreciated as a linear function of use (units-of-production method). It costs $90,000 and is expected to produce 250,000 units and then be sold for $8,000. Up to the end of the third year, it had produced 80,000 units, and during the fourth year it
7-15. 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. (7.4, 7.8)a. Determine the cost basis of the three cells.b. What is the class life of the cells?c.
7-14. During its current tax year (year one), a construction company purchased a heavy-duty crane that had a fair market price of $150,000. It replaced an older, low capacity crane that had a BV of $20,000. Because a special promotion was underway, the old crane was used as trade-in for the new
7-13. 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 property. (7.4)b. Compute the difference in PW of the two sets of depreciation deductions in Part (a)
7-12. A bowling alley costs $500,000 and has an estimated life of 10 years (SV10 = $20,000).a. Determine the depreciation for years one through 10 using: (i) the straight-line method; (ii) the 200%declining balance method; and (iii) the MACRS method (ADR guideline period = 10 years). A table
7-11. A petroleum company has purchased an air cooler for offshore use (asset class 13.2). It has a cost basis of$400,000. With additional options costing $20,000, the cost basis for depreciation purposes is $420,000. Its MV at the end of five years is estimated as $80,000. Assume it will be
7-10. A car rental company has acquired a new luxury car for $240,000. The company calculates depreciation on this car on the basis of number of rentals per year, and the salvage value of the car at the end of its 12-year life is $24,000. If the car is rented an average of 180 days per year, what
7-9. A global positioning system (GPS) receiver is purchased for $5,000. The IRS informs the company that the useful (class) life of the system is five years. The expected market (salvage) value is $500 at the end of year five. (7.3, 7.4)a. Use the straight-line method to calculate depreciation in
7-8. An asset for drilling was purchased and placed in service by a petroleum production company. Its cost basis is $60,000, and it has an estimated MV of $12,000 at the end of an estimated useful life of 14 years. Compute the depreciation amount in the third year and the BV at the end of the fifth
7-7. You have a tax basis of $80,000 and a useful life of five years and no salvage value. Provide a depreciation schedule (dk for k = 1 to 5) for 200% declining balance with switchover to straight line. Specify the year to switchover. (7.3.3)
7-6. The “Sun-Star” Company has purchased new office furniture for their offices at a retail price of $100,000.An additional $12,000 has been charged for insurance, shipping, and handling. The company expects to use the furniture for 10 years (useful life = 10 years) and then sell it at a
7-5. A new scanning device has an installed cost basis of$28,000 and an estimated service life of eight years. It will have a zero salvage value at that time. The 200% declining balance method is used to depreciate this asset. (7.3)a. What will the depreciation charge be in year eight?b. What is
7-4. Explain how the cost basis of depreciable property is determined. (7.2)
7-3. Explain the difference between real and personal property. (7.2)
7-2. What conditions must a property satisfy to be considered depreciable? (7.2)
7-1. How are depreciation deductions different from other production or service expenses such as labor, material, and electricity? (7.2)
6-87. Consider the savings plans for two investors—we’ll call them Mary and Bill—who began investing 10 years apart. Both put the same amount of money aside ($100 per month for 20 years for a total of $24,000). Mary and Bill earned the same interest rate, which was 8%compounded monthly. Mary
6-86. Consider the mutually exclusive alternatives given in the table below. The MARR is 10% per year.Alternative X Y Z Capital $500,000 $250,000 $400,000 investment(thousands)Uniform annual $131,900 $40,690 $44,050 savings(thousands)Useful life 5 10 20 Assuming repeatability, which alternative
6-85. Using a MARR of 15%, the preferred Alternative is:(a) Do Nothing (b) Alternative A (c) Alternative B(d) Alternative C (e) Alternative D (f) Alternative E
6-84. The IRR for Alternative A is most nearly:(a) 30% (b) 15% (c) 36%(d) 10% (e) 20%
6-83. Using a MARR of 15%, the PW of the investment in A when compared incrementally to B is most nearly:(a) −$69,000 (b) −$21,000 (c) $20,000(d) $61,000 (e) $53,000
6-82. After the base alternative has been identified, the first comparison to be made in an incremental analysis should be which of the following?(a) C →B (b) A→B (c) D→E(d) C →D (e) D→C
6-81. For the following table, assume a MARR of 15%per year and a useful life for each alternative of eight years which equals the study period. The rank-order of alternatives from least capital investment to greatest capital investment is Z → Y → W → X. Complete the incremental analysis by
6-80. For the following table, assume a MARR of 10%per year and a useful life for each alternative of six years that equals the study period. The rank-order of alternatives from least capital investment to greatest capital investment is Do Nothing → A → C → B.Complete the IRR analysis by
6-79. The Ford Motor Company is considering three mutually exclusive electronic stability control systems for protection against rollover of its automobiles.The investment period is four years (equal lives), and the MARR is 12% per year. Data for fixturing costs of the systems are given
6-78. Complete the following analysis of cost alternatives and select the preferred alternative. The study period is 10 years and the MARR = 12% per year. “Do Nothing” is not an option. (6.4)A B C D Capital $15,000 $16,000 $13,000 $18,000 investment Annual costs 250 300 500 100 Market value
6-77. Complete the following analysis of investment alternatives and select the preferred alternative. The study period is three years and theMARR = 15% per year. (6.4)Alternative Alternative Alternative A B C Capital $11,000 $16,000 $13,000 investment Annual 4,000 6,000 5,540 revenues Annual costs
6-76. The Tree Top Airline (TTA) is a small feeder-freight line started with very limited capital to serve the independent petroleum operators in the arid Southwest.All of its planes are identical, although they are painted different colors. TTA has been contracting its overhaul work to Alamo
6-75. You can earn thousands of dollars more from your mutual funds. The secret is to purchase no-load (no front-end commission) funds directly from companies specializing in this area. You can save 5.75% commission compared to “loaded” mutual funds when you buy no-load funds. That means you
6-74. Go to your local grocery store to obtain the price of ice cream packaged in different-sized containers. Use this information (along with additional assumptions you feel necessary) to make a recommendation. (6.7)
6-73. Would the recommendation change if landfill costs double to $40 per cubic yard? (6.7)
6-72. What other factors might you include in such an analysis? Should projected revenues be included in the analysis? (6.7)
6-71. Using the data from Problem 6-7, create a spreadsheet to identify the best design using an IRR analysis. (6.4)
6-70. Create a spreadsheet to solve Example 6-11. What would the capital investment amount for pump SP240 have to be such that the firm would be indifferent as to which pump model is selected? (6.5)
6-69. Wilbur is a college student who desires to establish a long-term Roth IRA account with $4,000 that his grandmother gifted to him. He intends to invest the money in a mutual fund that earns an expected 5%per year on his account (this is a very conservative estimate). The sales agent says,
6-68. Refer to Example 6-3. Re-evaluate the recommended alternative if (a) the MARR = 15% per year;(b) the selling price is $0.50 per good unit; and (c)rejected units can be sold as scrap for $0.10 per unit.Evaluate each change individually. (d) What is the recommended alternative if all three of
4. 14.15 If attributes of first cost, safety, and environmental concerns had importance scores of 100, 75, and 50, respectively, the weight for environmental concerns is closest to: 1. 0.44 2. 0.33 3. 0.22 4. 0.11
3. 14.14 All of the following are excellent attribute identification approaches, except 1. Employing small group discussions 2. Using the same attributes that competing entities use 3. Getting input from experts with relevant experience 4. Surveying the stakeholdersPage 434
2. 14.13 For eight attributes rank ordered in terms of increasing importance, the weighting of the 6th attribute is closest to: 1. 0.17 2. 0.14 3. 0.08 4. 0.03
1. 14.12 The importance values (0 to 100) for five attributes are shown below. The weight to assign to attribute 1 is: 1. 0.16 2. 0.20 3. 0.22 4. 0.25 Table Summary: Table divided into 2 columns shows attributes from 1 to 5 in column 1 and importance scores given to each attribute in column 2.
2. Weighted evaluation of the team supervisor 3. Present worth
3. 14.11 An airport baggage handling department has evaluated two proposals for baggage delivery conveyor systems. A present worth analysis at i = 15% per year of estimated revenues and costs resulted in PWA = $460,000 and PWB = $395,000. In addition to this economic measure, three more attributes
2. 14.10 Thomas used the online chat function for two retailers, Better Buy (BB) and Quick Serv (QS). He had developed four attributes and predetermined weights to evaluate his online experience. He then used a 0 to 5 (5 is highest) scale to assign value ratings to each retailer. Use his data to
1. 14.9 A new restaurant has opened with the expressed goals of providing reasonably priced food and great customer service. Using an integer scale of −2 to +2, the manager has “value rated” his view of how they are meeting these two goals, plus three other attributes: food taste, food
5. 14.8 Carol and Larry are arranging a birthday party for their to-be 10- year-old daughter, Yvonne. They asked Yvonne to help design the event by stating her preferences about several key aspects (attributes) of the party. Use her responses to apply importance scores from 0 to 100 to each aspect,
4. 14.7 A committee of four people submitted the following statements about the attributes to be used in a weighted attribute evaluation. Use the .statements to determine the normalized weights of each attribute, if scores are assigned between 0 and 10, with 10 indicating the most important factor.
3. 14.6 Jill rank ordered 10 attributes in increasing importance and identified them as A, B, …, J, with a value of 1 assigned to A, 2 to B, etc. (a) Determine the sum of the scores. (b) Calculate the weight for attribute D. (c) Answer the two questions above if Jill decides that attribute D has
2. 14.5 A consultant asked the president of Toyota to assign importance values from 0 to 100 to five attributes that will be included in a multiple-attribute evaluation of a newly-designed steering mechanism for all Lexus cars. Determine the weight of each attribute using the president’s
1. 14.4 Three alternatives are being evaluated based on six different attributes, all of which are considered of equal importance. Determine the weight to assign to each attribute.
3. 14.3 Why is a public sector project a good example of multiple-attribute evaluation?Page 432
2. 14.2 Write 3 or 4 key attributes that you used to determine which major to pursue in college. If you switched majors one or more times, include an attribute that helped in making your final choice
1. 14.1 St. Mark’s Hospital administrators want to understand the level of satisfaction of the experience that patients had during their stay in the hospital. The results of several small group discussions with outgoing patients will be used to identify key attributes for a full-fledged online
4. Determine a single-value evaluation measure to decide on one project or select one from several alternatives. Selection
3. Understand value rating of an alternative by attribute using a specific scale. Value rating
2. Determine the importance and weight for each key attribute. Importance and weight
1. Identify the stages of multiple attribute evaluation and explain the term key attribute. Key attributes
11. 13.66 The Wilkins Company has maintained a 50-50 D-E mix for capital investments. Equity capital costs 11%; however, debt capital that historically costs 9% has now increased by 20%. If Wilkins does not want to exceed its past weighted average cost of capital (WACC) and it is forced to go to a
10. 13.65 An asset purchased for $100,000 with S = $2,000 after 5 years was depreciated using the 5-year MACRS rates. Expenses average $18,000 per year and the effective tax rate is 30%. The asset is actually sold after 5 years of service for $22,000. MACRS rates in years 5 and 6 are 11.52% and
9. 13.64 A small manufacturing company with a gross income of $360,000 has the following expenses: M&O $76,000, insurance $7000, labor $110,000, utilities $29,000. If debt service is $37,000 and taxes are $9000, the net operating income is closest to: 1. $92,000 2. $101,000 3. $138,000 4. $174,000
8. 13.63 Pennington Oil is in the 28% effective tax bracket. It had gross income of $470 million in each of the last two years. Total deductions were $160 million and $120 million for years 1 and 2, respectively. The difference in income taxes in the two years was closest to: 1. $11 million 2. $20
7. 13.62 If all values carry a + sign, cash flow before taxes (CFBT) is represented by the equation: 1. gross income − operating expenses − depreciation − initial investment + salvage value 2. gross income − operating expenses − depreciation + salvage value 3. gross income − operating
6. 13.61 If the federal tax rate is 21% and the state tax rate is 7%, the effective tax rate is closest to: 1. 31.5% 2. 29.5% 3. 27.4% 4. 26.5%
5. 13.60 If the after-tax ROR for a cash flow series is 11.2% and the corporate effective tax rate is 25%, the approximated before-tax ROR is closest to: 1. 6.8% 2. 14.9% 3. 18.4% 4. 28.7%
4. 13.59 The after-tax analysis for a $60,000 investment with associated GI − E is shown for the first 2 years only. If the effective tax rate is 24%, the value for taxable income (TI) for year 1 is closest to: 1. $11,750 2. $16,670 3. $27,750 4. $36,742 Table Summary: Table divided into six
3. 13.58 Ric and Mariam (R&M) file taxes as “married filing jointly.” Their total income for one year was $185,000. Harold and Jan (H&J) file as “single.” Their total incomes were $90,000 and $95,000, respectively. Standard deductions of $12,000 for singles and $24,000 for married applied.
2. 13.57 Charlotte has an effective tax rate of 22%. This year she reported the following: salary of $175,000, investment income of $4000, expenses of $15,000, and a standard deduction of $12,000. Approximate federal income taxes are closest to: 1. $11,750 2. $27,750 3. $33,450 4. $36,740
1. 13.56 A graduated income tax system means: 1. only taxable incomes above a certain level pay any taxes 2. a higher flat rate goes with all of the taxable income 3. higher tax rates go with higher taxable incomes 4. rates are indexed each year to keep up with inflation
5. 13.55 (Spreadsheet exercise) Triple Play Innovators Corporation (TPIC) plans to offer IPTV (Internet Protocol TV) service to North American customers. Perform an AW analysis of the EVA series for the two alternative suppliers that bid for hardware and software contracts. Let Te = 30% and
4. 13.54 (Spreadsheet exercise) Cardenas and Moreno Engineering is evaluating a large flood control program for several southern cities. One component is a 4-year project for a special-purpose transport ship crane for use in building permanent storm-surge protection against hurricanes on the East
3. 13.53 In conducting an EVA analysis for year 2 for a newly introduced product line, Bethune, Inc., which manufactures preassembled blower packages and other water treatment components, determined the EVA to be $28,000. The company uses an after-tax interest rate of 14% and a Te of 24%. The
2. 13.52 An asset with a first cost of $300,000 is depreciated by the MACRS method using a 5-year recovery period. Determine the monetary value added to the corporation by the asset in year 2 of its service if NOPAT is $70,000 and the company uses an after-tax interest rate of 9%. The MACRS
1. 13.51 While an engineering manager may prefer to use CFAT estimates to evaluate the AW of a project, a financial manager may select AW of EVA estimates. Why are these preferences predictable?
2. 13.50 Beto has a son, Jaime, a senior in engineering, who is considering a new car that costs $40,000, with $35,000 of the purchase cost provided as a car loan at 9% per year compounded monthly for 5 years. If the estimated trade-in 8 years from now is $5000, and money is currently earning 12%
1. 13.49 Use the template in Example 13.12 to accept or reject the following proposal developed by Mighty Foundation, Inc. (a) Use the information below. (b) Change the inflation rate to 5% per year. All other parameters remain the same. Table Summary: Table divided into four columns shows data to
9. 13.48 Brad and Zack are twin brothers in many ways, but not identical in their personal financial management. They both decided to buy the same new car and had to provide some financial information to qualify for a $30,000 car loan. Here is a snapshot of their situations. Table Summary: Table
8. 13.47 Assume you are reviewing your investment portfolio. One public corporation in which you own common stock reported a before-tax WACC of 11.1% for the year in its report to stockholders. The common stock that you own has averaged a total return of 7% per year over the last three years. The
7. 13.46 Midac Corporation wants to arrange for $37.5 million in capital to finance manufacturing a new consumer product. The current plan is 60% equity capital and 40% debt financing. Calculate (a) the WACC, and (b) MARR for the following scenario: Equity capital: 60%, or $22.5 million, via common
6. 13.45 Gerald Factories manufactures tri-axial accelerometers for spacerestricted applications. The financing profile, with interest rates, is as follows: $3 million in stock sales at 15% per year, $4 million in bonds at 9%, and $6 million in retained earnings at 7% per year. Determine the
5. 13.44 Forest Products, Inc. invested $50 million. The company’s overall D-E mix is 60-40. What is the return on the company’s equity capital if the net income is $5 million on a revenue base of $6 million?
4. 13.43 Two public corporations, First Engineering and Midwest Development, each show capitalization of $175 million in their annual reports. The balance sheet for First Engineering indicates total debt of $87 million, and that of Midwest indicates net worth of $62 million. Determine the D-E mix
3. 13.42 Business and engineering seniors are comparing methods of financing their college education during their senior year. The business student has $30,000 in student loans that comes due at graduation. Interest is an effective 4% per year. The engineering senior owes $50,000: 50% from his
2. 13.41 Determine the debt-to-equity mix when Applied Technology bought out Southwest Semiconductor using financing as follows: $12 million from mortgages, $5 million from retained earnings, $10 million from cash on hand, and $20 million from bonds.
1. 13.40 Electrical generators produce not only electricity, but also heat from conductor resistance and from friction losses in bearings. A company that manufactures generator coolers for nuclear and gas turbine power plants undertook a plant expansion through financing that had a debt-equity mix
4. You believe you can find a way to use the perceived capital loss (market value − offered trade-in) on the current car to a full tax advantage if the new car option is chosen with a 5-year retention period. You have an effective 22% tax rate. Table Summary: Table divided into three columns
3. You want to know the maximum cost of a new car that will make the alternatives economically break even in 5 years.Page 420
2. You may get the “new car bug” and decide to trade again in 5 years, but you are not concerned about possible future trade-in values on the new car in this analysis.
1. You are serious about retaining the new car 10 years.
6. 13.39 You provide consulting services as a sole proprietor business owner. You know it is economically difficult to justify the purchase of a new car when your currently owned vehicle is operating okay; however, you decide to try, anyway. The information you collected about your current,
5. 13.38 Apple Crisp Foods signed a contract some years ago for maintenance services on its fleet of trucks and cars. The contract is up for renewal now for a period of 1 year or 2 years only. The contract quote is $300,000 per year if taken for 1 year and $240,000 per year if taken for 2 years.
4. 13.37 The information for a defender and challenger is shown below. All monetary values are in $1000 units. Assume the assets will be salvaged at their original salvage estimates. Since no revenues are estimated, all taxes are negative and considered “savings” in the cash flow computations.
3. 13.36 The market value of a presently-owned machine in a wind turbine manufacturing plant is $130,000. It has annual operating costs of $70,000 with no salvage value after its remaining life of 3 years. The depreciation for the next 3 years will be $69,960, $49,960, and $35,720. Assume the
2. 13.35 In an after-tax replacement study of cost alternatives involving one challenger and one defender, how will a capital loss affect the AW of each alternative when selling the defender?
1. 13.34 Page 419In a replacement study between a defender and a challenger, there may be a capital gain or loss when the defender asset is sold. (a) How is the gain or loss calculated, and (b) how does the gain or loss affect the AW values?

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Basics Of Engineering Economy 3rd Edition Leland T. Blank, Anthony Tarquin - Solutions

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