Questions and Answers of Engineering Economy

What is the depreciation deduction, using each of the following methods, for the second year for an asset that costs $35,000 and has an estimated MV of $7,000 at the end of its seven-year useful
The “Big-Deal” Company has purchased new furniture for their offices at a retail price of $125,000.An additional $20,000 has been charged for insurance,shipping, and handling. The company expects
An asset purchased for $50,000 has a depreciable life of 5 years, and it has a terminal book (salvage) value of $5,000 at the end of its depreciable life. With the straight-line method of
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
Consider the mutually exclusive alternatives given in the table below. The MARR is 10% per year.Assuming repeatability, which alternative should the company select?(a) Alternative X(b) Alternative
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 preferred Alter-native
The following mutually exclusive investment alter-natives have been presented to you. (See Table P6-82.) The life of all alternatives is 10 years. After the base alternative has been identified, the
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
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
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
Complete the following analysis of cost alternatives and select the preferred alternative. The study period is 10 years and the MARR = 12% per year. €œDo Nothing€ is not an
Complete the following analysis of investment alternatives and select the preferred alternative. The study period is three years and the MARR = 15% per year.(a) Do Nothing(b) Alternative A(c)
Would the recommendation change if landfill costs double to $40 per cubic yard?Three mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are
Using the data from Problem 6-7, create a spreadsheet to identify the best design using an IRR analysis.Data from Problem 6-7:Three mutually exclusive design alternatives are being considered. The
Your university advertises that next year’s “discounted” tuition is $18,000 and can be paid in full by July 1. The other option is to pay the first semester’s tuition of $9,500 by July 1,
Your brother has decided to purchase a new automobile with a hybrid-fueled engine and a six-speed transmission. After the trade-in of his present car, the purchase price of the new automobile is
A telecommunications firm is considering a product expansion of a popular cell phone. Two alternatives for the cell phone expansion are summarized below. The company uses a MARR of 8% per year for
A pump for a reservoir must be operated continuously (8,760 hours per year). In the event of a large storm, the electricity from the local utility€™s power grid may be interrupted for an
A single-stage centrifugal blower is to be selected for an engineering design application. Suppliers have been consulted, and the choice has been narrowed down to two new models, both made by the
You do not start saving money until age 46. On your 46th birthday you dutifully invest $10,000 each year until you finish your deposits when you reach the age of 65. The annual interest rate is 8%
A new municipal refuse collection vehicle can be purchased for $84,000. Its expected useful life is 6 years, at which time the market value and book value will be zero. Before-tax cash flow (BTCF)
An injection molding machine can be purchased and installed for $90,000. It is in the seven-year GDS property class and is expected to be kept in service for eight years. It is believed that $10,000
An office supply company has purchased a light-duty delivery truck for $18,000. The truck will be depreciated under the MACRS with a property class of 5 years. The truck’s MV is expected to
A high-pressure reactor vessel in a pharmaceutical company was purchased for $200,000. It has a useful life of 10 years, and the vessel can be sold for $30,000 at that time. The vessel will be
Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual
The expected annual maintenance expense for a new piece of equipment is $10,000. This is Alternative A. Alternatively, it is possible to perform the maintenance every fifth year at a cost of $50,000
A firm must decide between two silicon layer chip designs from Intel. Their effective income tax rate is 40%, and MACRS depreciation is used. If the desired after-tax return on investment is 10% per
Alternative Methods I and II are proposed for a security operation. The following is comparative information:Determine which is the better alternative based on an after-tax annual cost analysis with
A biotech company has an effective income tax rate of 40%. Recaptured depreciation is also taxed at the rate of 40%. The company must choose one of the following mutually exclusive cryogenic freezers
Suppose that you invest $200 per month (before taxes) for 30 years (360 payments) and the annual interest rate (APR) is 8%, compounded monthly. If your income tax bracket is 28%, what lump sum,
A $5,000 balance in a tax-deferred savings plan will grow to $50,313.50 in 30 years at an 8% per year interest rate. What would be the future worth if the $5,000 had been subject to a 28% income tax
The income tax-free yield on a certain municipal bond is 7% per year. This translates into approximately a 5% annual yield if the municipal bond’s interest had been taxable in the 28% income tax
Create a spreadsheet to solve Problem 7-24. What would the MV of M1 have to be (at the end of year five) for the firm to select M1?Data from Problem 7-24:Refer to Example 6-10. Work this problem on
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 BV at
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. If the
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new
A small pump costs $16,000 and has a life of eight years and a $2,000 SV at that time. If the 200% DB method is used to depreciate the pump, the BV at the end of year four is(a) $9,000(b) $8,000(c)
Air handling equipment that costs $12,000 has a life of eight years with a $2,000 SV. What is the SL depreciation amount for each year?(a) $1,500(b) $1,000(c) $1,200(d) $1,250
The air handling equipment just described is to be depreciated, using the MACRS with a GDS recovery period of seven years. The BV of the equipment at the end of (including) year four is most
Your company just purchased a bar-code system for $70,000. It has a five-year MACRS class life. The expected market value of the bar-code system in 3 years is $32,000. What is the gain (or loss) when
Suppose for some year the income of a small company is $110,000; the expenses are $65,000; the depreciation is $25,000; and the effective income tax rate = 40%. For this year, the ATCF is most
A piece of production equipment is to be replaced immediately because it no longer meets quality requirements for the end product. The two best alternatives are a used piece of equipment (E1) and a
Three mutually exclusive earth-moving pieces of equipment are being considered for several large building projects in India over the next five years. The estimated cash flows for each alternative are
IBM is considering an environmentally conscious green building at one of its new production facilities. The company will decide among three different green designs for the facility, and each of the
Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. The estimated cash flows for
Your plant must add another boiler to its steam generating system. Bids have been obtained from two boiler manufacturers as follows:If the MARR is 10% per year, which boiler would you recommend? Use
Potable water is in short supply in many countries. To address this need, two mutually exclusive water purification systems are being considered for implementation in China. Doing nothing is not an
Two electric motors are being considered to drive a centrifugal pump. One of the motors must be selected. Each motor is capable of delivering 60 horsepower (output) to the pumping operation. It is
Consider the following EOY cash flows for two mutually exclusive alternatives (one must be chosen):The MARR is 5% per year.a. Determine which alternative should be selected if the repeatability
Refer to Problem 6-2. Solve this problem using the ERR method. Let ˆˆ = 10% per year.Data from Problem 6-2:The Consolidated Oil Company must install antipollution equipment in a new
A municipal police department has decided to acquire an unmanned drone for aerial surveillance of a high-crime region of their city. Three mutually exclusive drones are being studied and their data
Environmentally conscious companies are looking for ways to be less damaging to the environment while saving money with innovative investments in capital equipment. DuPont is sponsoring a project to
Two flight guidance systems are being evaluated for a backup control tower at a local airport. One system utilizes conventional radar, and the second uses a global positioning system (GPS). The life
A movie theatre is considering the purchase of a new three-dimensional (3D) digital projection system. The new ticket price for a 3D movie will be $15 per person, which is $2.00 higher than for the
A stem cell research project requires expensive specialized laboratory equipment. For this purpose, three pieces of equipment and their associated cash flows (listed below) are under consideration.
Acme Semiconductor is expanding its facility and needs to add equipment. There are three process tools under consideration. You have been asked to perform an economic analysis to select the most
Three mutually exclusive design alternatives are being considered. The estimated sales and cost data foreach alternative are given on p. 292. The MARR is 20% per year. Annual revenues are based on
Which mutually exclusive project below would you recommend? Explain your answer. Project PW (12%) IRR $45,252 $42,591 15% R15 S19 18%
The Consolidated Oil Company must install antipollution equipment in a new refinery to meet federal clean-air standards. Four design alternatives are being considered, which will have capital
A foundation was endowed with $15,000,000 in July 2010. In July 2014, $5,000,000 was expended for facilities, and it was decided to provide $250,000 at the end of each year forever to cover operating
Bill Mitselfik borrowed $10,000 to be repaid in quarterly installments over the next five years. The interest rate he is being charged is 12% per year compounded quarterly. What is his quarterly
Your monthly mortgage payment (principal plus interest) is $1,500. If you have a 30-year loan with a fixed interest rate of 0.5% per month, how much did you borrow from the bank to purchase your
When you were born, your grandfather established a trust fund for you in the Cayman Islands. The account has been earning interest at the rate of 10% per year. If this account will be worth $100,000
An amount, P, must be invested now to allow withdrawals of $1,000 per year for the next 15 years and to permit $300 to be withdrawn starting at the end of year 6 and continuing over the remainder of
An electronic device is available that will reduce this year’s labor costs by $8,000. The equipment is expected to last for 10 years. Labor costs increase at a rate of 5% per year and the interest
Amy Parker, a 22-year-old and newly hired marine biologist, is quick to admit that she does not plan to keep close tabs on how her 401(k) retirement plan will grow with time. This sort of thing does
It is likely that your college tuition will in-crease an average of 8% per year for the next 4 years. The annual cost of tuition at the beginning of your freshman year in college will be $12,000
Rework Problem 4-47 assuming the construction bonds had been retired as an annuity (i.e., equal uni-form annual payments had been made to repay the $35 million).Data from Problem 4-47:A piece of
A piece of airport baggage handling equipment can be purchased for $80,000 cash or for $84,000 to be financed over 60 months at 0% interest. This special offer is good for only the next two days. The
A manufacturing company leases a building for $100,000 per year for its manufacturing facilities. In addition, the machinery in this building is being paid for in installments of $20,000 per year.
In a building construction project, 7,500 feet of insulated ductwork is required. The ductwork is made from 14-gauge steel costing $8.50 per pound. The 24-inch-diameter duct weighs 15 pounds per
The interest rate on short-term German bonds is −0.1%. Explain how this is possible and what it means.
Jonathan borrowed $10,000 at 6% annual compound interest. He agreed to repay the loan with five equal annual payments at end-of-years 1–5. How much of the annual payment is interest, and how much
You just inherited $10,000. While you plan to squander some of it away, how much should you deposit in an account earning 5% interest per year if you’d like to have $10,000 in the account in 10
The value of an investment comes from its cash flows. Let’s say you are intent on receiving $45,000 per year, starting at the end of year one and continuing over 10 years. A lump-sum of $380,000
A geothermal heat pump can save up to 80% of the annual heating and cooling bills of a certain home in the northeastern U.S. In this region, the yearly cost of conventionally heating and cooling a
An individual makes five annual deposits of $2,000 in a savings account that pays interest at a rate of 4% per year. One year after making the last deposit, the interest rate changes to 6% per year.
A person has made an arrangement to borrow $1,000 now and another $1,000 two years hence. The entire obligation is to be repaid at the end of four years. If the projected interest rates in years one,
Suppose that you have a money market certificate earning an annual rate of interest, which varies over time as follows:If you invest $10,000 in this certificate at the beginning of year one and do
Determine the present equivalent value of the cash-flow diagram of Figure P4-97 (p. 180) when the annual interest rate,ik, varies as indicated.Picture P4-97: P = ? $2,000 $2,000 $1,000 $1,000 ! = 8%
a. What is the effective annual interest rate when a nominal rate of 12% per year is compounded monthly?b. How many months does it take for a present sum of money to double if the nominal interest
An APR of 3.75% produces an effective annual interest rate of 3.82% What is the compounding frequency (M) in this situation?
Compute the effective annual interest rate in each of the following situations.a. 5.75% nominal interest, compounded quarterly.b. 5.75% nominal interest, compounded daily.
To pay off $50,000,000 worth of new construction bonds when they come due in 20 years, a water municipality must deposit money into a sinking fund. Payments to the fund will be made quarterly,
An automobile salesperson states that his company will pay the interest for the first 12 months of your automobile loan if you buy the vehicle today. Suppose you go ahead and purchase a car for
Many people get ready for retirement by depositing money into a monthly or annual savings plan.a. If $300 per month is deposited in a bank account paying a 6% APR compounded monthly, how much will be
The average college graduate owes $22,500 in loans incurred over his/her college career. Now that it is so difficult to land a job after graduation, an option for the graduate seeking relief is to
Suppose you owe $1,100 on your credit card. The annual percentage rate (APR) is 18%, compounded monthly. The credit card company says your minimum monthly payment is $19.80.(4.15)a. If you make only
Determine the annual equivalent amount over 4 years for the following cash flow (CF) pattern. The nominal interest rate is 10%, and it is compounded monthly. ΕΟΥ CF -$7,500 -$2,000 $14,000 $18,000
A nominal interest rate of 11.333%, continuously compounded, yields an effective annual interest rate of how much?
College students are now graduating with loan debts averaging $24,000.a. If students repay their loan of $24,000 over 10 years with an annual effective interest rate of 8.3%, what will their annual
Juan deposits $5,000 into a savings account that pays 7.2% per year, continuously compounded. What is the effective annual interest rate? Determine the value of his account at the end of two years.
A man deposited $10,000 in a savings account when his son was born. The nominal interest rate was 8% per year, compounded continuously. On the son’s 18th birthday, the accumulated sum is withdrawn

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