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engineering economy
Basics Of Engineering Economy 2nd Edition Leland T. Blank, Anthony Tarquin - Solutions
An engineer planning for her son’s college education made deposits into a separate brokerage account every time she earned extra money from side consulting jobs. The amounts and timing of the deposits are shown below.Year Amount, $0 5,000 3 8,000 4 9,000 7 15,000 11 16,000 17 20,000 If the
Explain the difference between a future worth amount calculated using case 1 and case 2 if the inflation-adjusted interest rate if and inflation rate f are the same for both computations.
How much can the manufacturer of superconducting magnetic energy storage systems afford to spend now on new equipment in lieu of spending$75,000 four years from now? The company’s real MARR is 12% per year and the inflation rate is 3% per year.Future Worth Calculations with Inflation
A salesman from vendor A, who is trying to get his foot in the door at Filerbee, Inc., offered water desalting equipment for $2.1 million. This is $400,000 more than the price that a saleswoman from vendor B offered, if purchased and paid for now. However, as a special offer, vendor A said Filerbee
The president of a medium-sized oil company wants to buy a private plane to reduce the total travel time between cities where refineries are located.The company can buy a used Lear jet now or wait for a new very light jet (VLJ) that will be available 3 years from now. The cost of the VLJ will be
A very generous grandfather is planning to leave his only granddaughter well off when she reaches the age of 25. He plans to deposit a lump sum now, which is her 2nd birthday, such that she will have enough money to live comfortably without working for a salary. He wants her to receive an amount
Find the present worth of a piece of equipment that has a first cost of $150,000, an annual operating cost of $60,000, and a salvage value of 20% of the first cost after 5 years. Assume that the real interest rate is 10% per year, that the inflation rate is 7% per year, and that inflation is to be
The company you work for is considering a new product line that is projected to have the net cash flows below (in $1000). The values are in future dollars which have been inflated by 5% per year.The plant manager isn’t sure about how the present worth of the cash flows should be calculated, so he
Find the present worth of the following estimated cash flows. As indicated, some are expressed in then-current (future) terms and others in today’s dollars. Use a real interest rate of 10% per year and an inflation rate of 6% per year.Year Cash Flow, $ Expressed as 0 16,000 Today’s 3 40,000
For a nominal inflation-adjusted interest rate of 24% per year compounded monthly, calculate the real interest rate per month when the inflation rate is 0.5% per month.
The CEO of a high-tech incubator company wants to entice venture capitalists by promising a growth rate of 40% per year for at least 3 years. Therefore, the company’s MARR was set at 40%. If the company did get a 40% ROR over that time period, but it didn’t account for the 8% per year inflation
For a young, growing company that has a required ROR of a real 25% per year, what is the inflationadjusted ROR for an inflation rate of 5% per year?
In 2012, every dollar (100¢) spent on grocery items was broken down as follows:Labor 38.5¢Farm value of food products 19.5¢Advertising and packaging 12¢Transportation 7.5¢Rent and insurance 7¢Taxes 6¢Depreciation and repairs 5¢Profit 4.5¢Assume the transportation cost
An engineer who is now 65 years old began planning for retirement 40 years ago. At that time, he thought that if he had $1 million when he retired, he would have more than enough money to live his remaining life in luxury. Use an average inflation rate of 4% per year over the 40-year time
The inflation rate over a 10-year period for an item that now costs $1000 is shown in the following table. (a) What will be the cost at the end of year 10? (b) Do you get the same cost using an average inflation rate of 5% per year through the 10-year period? Why?Year Inflation Rate 1 10%2 0%3 10%4
According to data from the National Association of Colleges and Employers (NACE), engineering graduates’ average salaries of $61,872 were among the highest of the class of 2011. What will the average starting amount be in 2017, if salaries increase at a rate of (a) 2% per year, and (b) twice the
When the inflation rate is 4% per year, how many inflated dollars will be required 20 years from now to buy the same things that $10,000 buys now?
gigatons(giga 109) in 2011, a 3.2% increase over 2010.The International Energy Agency said this further reduces the chance that the world can avoid a dangerous rise in global average temperature by 2020.(a) If the discharge increase continues at the same 3.2% rate per year for the next 9 years,
Emissions of heat-trapping carbon dioxide (CO2)reached an all-time high of
Midstate Independent School District signed an agreement with a local law firm that increased the firm’s hourly billing rate of $185 per hour, established in 2008, to $225 per hour beginning in April of 2013. What was the percent increase per year in the hourly billing rate?
For 2012, the USDA determined that “The Twelve Days of Christmas” cost index was $101,120, based on prices of the 364 items listed in the classic carol. If the “True Cost of Christmas” index rose by 4.4%, (a) what was the value of the index in 2011, and (b) if seven swans-a-swimming
The Pell Grant program of the federal government provides financial aid to needy college students. A supplemental grant of $690 per recipient in the 2012–2013 school year (toward the maximum total of $5550) will increase annually until 2017 to account for inflation. Beginning in 2018, grants will
For many years, college cost increases have been about twice the inflation rate, averaging 5% to 8%per year. According to the College Board’s Trends in College Pricing, the 2011–2012 average annual total costs (including tuition, fees, room and board) were $17,131 for students attending
In an inflationary period for a dollar-based currency, what is the difference between (a) inflated dollars and “then-current” dollars, and (b) “thencurrent”(future) dollars and constant-value dollars?
Find the inflation rate necessary for something to cost exactly twice as much as it did 10 years earlier.
How do you convert inflated dollars into constantvalue dollars?
In trying to decide whether or not to replace a sorting/baling machine in a solid waste recycling operation, an engineer calculated the annual worth values for the in-place machine and a challenger.On the basis of these costs, the defender should be replaced:a. now.b. 1 year from now.c. 2 years
At an interest rate of 10% per year, the economic service life of an asset that has a current market value of $15,000 and the expected cash flows shown is:a. 1 yearb. 2 yearsc. 3 yearsd. 4 years
An industrial engineer with an MBA degree is trying to get the company’s stock to rise by cutting costs. He determined that the equivalent annual worth of an existing machine over its remaining useful life of 1 or 2 years will be $74,000. The IE also determined that the machine can be replaced
A milling machine with enhanced CNC controls that allow for high-speed machining of free-form parts was purchased two years ago for $195,000.The company wants to purchase a recently available faster model with 8-axis control for $240,000.The presently owned machine can be sold today for$105,000.
For the data shown, the economic service life of the challenger is:a. 2 yearsb. 3 yearsc. 4 yearsd. 5 years Years AW of AW of Retained Defender, $ Challenger, $1 145,000 136,000 2 96,429 126,000 3 63,317 92,000 4 39,321 53,000 5 49,570 38,000
In a one-year-later replacement analysis, if all estimates are still current and the year is nD, the action that should be taken is:a. keep the defender one more year.b. replace the defender with the challenger.c. look for a new challenger and calculate its AW.d. keep the defender until its market
In a replacement study, the correct value for the first cost of the challenger is:a. the cost when it is purchased.b. the first cost minus the trade-in value of the defender.c. its first cost plus the trade-in value of the defender.d. the book value of the defender.
Excelon is looking for cost-cutting measures. One of the engineers determined that the equivalent annual worth of an existing machine over its remaining useful life of 1 or 2 years will be$70,000 per year. The engineer also determined that used machines like the one currently in use are no longer
Two processes can be used for producing a polymer that reduces friction loss in engines. Process K will use a presently owned machine that has a current market value of $160,000, an operating cost of$7000 per month, and a salvage value of $50,000 after 1 year and $40,000 after its maximum 2-year
A machine purchased 3 years ago for $140,000 is now too slow to satisfy increased demand. The machine can be upgraded now for $70,000 or sold to a smaller company for $40,000. The current machine will have an annual operating cost of$85,000 per year and a $30,000 salvage value in 3 years. If
An engineer at a fiber optic manufacturing company is considering two robots to reduce costs in a production line. In-place robot X has a current market value of $82,000, annual maintenance and operation (M&O) costs of $30,000, and salvage values of $50,000, $42,000, and $35,000 if retained 1, 2,
The market values and M&O costs associated with a presently owned machine and a possible replacement are shown below. The plant manager has told you that he is interested only in what happens over the next three years and that if the defender is to be replaced, it must be replaced now or kept for
Machine A was purchased 5 years ago for$90,000. Its operating cost is higher than expected, so it will be used for only 4 more years. Its operating cost this year will be $40,000, increasing by $2000 per year through the end of its useful life. The challenger, machine B, will cost$150,000 with a
Hydrochloric acid, which fumes at room temperatures, creates a very corrosive work environment.A mixing machine, working in this environment, is deteriorating fast and can be used for only one more year, at which time it will be scrapped. It was purchased 3 years ago for $88,000 and its operating
A company that makes micro motion compact coriolis meters purchased a new packaging system for $600,000. The estimated salvage value was$28,000 after 10 years. Currently the expected remaining life is 7 years with an AOC of $27,000 per year and an estimated salvage value of $40,000.The company is
From the data shown below, determine the trade-in value of machine X that will render its AW the same as that of machine Y. Use an interest rate of 8% per year.Machine X Machine Y Market value, $ ? 80,000 Annual cost, 60,000 40,000 year 1,$ per year increasing by 2000 per year thereafter Salvage
A biotech company planning a plant expansion is trying to determine whether it should upgrade the existing controlled-environment rooms or purchase new ones. The presently owned rooms were purchased 4 years ago for $250,000. They have a current “quick sale” value of $30,000. However, for an
A critical machine in the Freeport copper refining operation was purchased 7 years ago for $160,000.Last year a replacement study was performed with the decision to retain for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if “scavenged” for parts
A small company that manufactures vibration isolation platforms is trying to decide whether it should immediately upgrade the current assembly system D, which is rather labor-intensive, with the more highly automated system C one year from now. Some components of the current system can be sold now
The plant manager asked you to do a cost analysis to determine when currently owned equipment should be replaced. The manager stated that under no circumstances will the existing equipment be retained longer than two more years It can be replaced any year with an outside contractor at a cost of
A piece of imaging equipment was purchased two years ago for $50,000 with an expected useful life of 5 years and a $5000 salvage value. Since its installation performance was poor, it was upgraded for $20,000 one year ago. Increased demand now requires another upgrade for an additional $22,000 so
A presently owned machine can last for three more years, if properly maintained at a cost of $15,000 per year. Its operating cost will be $31,000 per year. After three years, it can be sold for an estimated$9000. A replacement costs $80,000 with a$10,000 salvage value after three years and an
An engineer with Haliburton calculated the AW values shown for retaining a presently owned machine additional years. A challenger has an economic service life of 7 years with AW $86,000 per year. Assuming all future costs remain as estimated for the analysis, (a) when should the company replace
Cetec Aviation Services has cost estimates associated with operating and maintaining the currently owned filter analysis system as shown below. It is considering the acquisition of a replacement system that can identify residual particles in industrial filters, report its findings, and archive
A construction company bought a 180,000 metric ton earth sifter at a cost of $65,000. The company expects to keep the equipment a maximum of 7 years. The operating cost is expected to follow the series described by 40,000 10,000k, where k is the number of years since it was purchased(k 1,. . . ,
A general manager wants to know the economic service life of currently owned machines. The market value of the machines is $30,000, but this value is expected to decrease as shown in the table below. The maintenance and operating cost associated with each additional year of retention is also shown.
In trying to determine the economic service life of a new piece of equipment, an engineer made the calculations shown below. She forgot to enter the annual worth of the salvage value for two years of retention. Determine the following to make the ESL equal two years: (a) minimum AW of the salvage
From the data shown, determine the economic service life of the asset.AW of AW of AW of Years First Cost, Operating Cost, Salvage Value, Retained $ $ $1 165,000 36,000 99,000 2 86,429 36,000 38,095 3 60,317 42,000 18,127 4 47,321 43,000 6,464 5 39,570 48,000 3,276
From the data shown, determine the ESL of the defender and challenger.Years AW of AW of Retained Defender, $ Challenger, $1 145,000 136,000 2 96,429 126,000 3 63,317 92,000 4 39,321 53,000 5 49,570 38,000
To improve package tracking at a UPS transfer facility, conveyor equipment was upgraded with RFID sensors at a cost of $345,000. The operating cost is expected to be $148,000 per year for the first 3 years and $210,000 for the next 3 years. The salvage value of the equipment is expected to
The AW values for retaining a presently owned machine for additional years are shown in the table. (Note that the values are the AW amount per each of the n years that the asset is kept.) A challenger has an economic service life of 7 years with an AWC $86,000 per year. Assuming future costs
A machine tool purchased two years ago for$40,000 has a market value that can be described by the relation $40,000 3000k, where k is the number of years from time of purchase.Experience with this type of asset has shown that its annual operating cost is described by the relation $30,000 1000k.
A mechanical engineer who designs and sells equipment that automates manual labor processes is offering a machine/robot combination that will significantly reduce labor costs associated with manufacturing garage-door opener transmitters.The equipment has a first cost of $170,000, an estimated
An entrepreneurial civil engineer who owns his own design/build company purchased a small crane 2 years ago at a cost of $71,000. At that time, it was expected to be used for 10 years and then traded in for its salvage value of $10,000.Due to increased construction activities, the company would
In conducting a replacement study of assets with different lives, can the annual worth values over the asset’s own life cycle be used in the comparison, if the study period is (a) unlimited, (b) limited and the study period is not an even multiple of asset lives, and (c) limited wherein the
List three reasons why a replacement study might be needed.
Briefly explain what is meant by the defender/challenger concept.
If no one of the strategies is more likely than any other strategy, the alternative to select is:a. 2b. 1 and 2 are equally acceptablec. 1d. 3
The best alternative to select under the stated condition is:a. pessimistic: select alternative 2b. optimistic: select alternative 2c. pessimistic: select alternative 1d. optimistic: select alternative 4
The sensitivity of two parameters (P and n) for one project is evaluated by graphing the AW values versus percentage variation from the most likely estimates. The curve for n has a slope very close to zero, while the P curve has a significant negative slope. One good conclusion from the graph is
To make an item inhouse, equipment costing$250,000 must be purchased. It will have a life of 4 years, an annual cost of $80,000, and each unit will cost $40 to manufacture. Buying the item externally will cost $100 per unit. At i 15% per year, it is cheaper to make the item inhouse if the number
For these two AW relations, the breakeven point QBE in miles per year is closest to:AW123,000(AP,10%,10) 4000(AF,10%, 10) 5000 4QBE AW28000(AP,10%,4) 2000 6QBEa. 1984b. 1224c. 1090d. 655
The profit relation for the following estimates at a quantity that is 10% above breakeven is:Fixed cost $500,000 per year Cost per unit $200 Revenue per unit $250a. Profit 200(11,000) 250(11,000) 500,000b. Profit 250(11,000) 500,000 200(11,000)c. Profit 250(11,000) 200(11,000)
When the variable cost is reduced for linear total cost and revenue lines, the breakeven point decreases.This is an economic advantage because:a. the revenue per unit will increase.b. the two lines will now cross at zero.c. the profit will increase for the same revenue per unit.d. the total cost
A process for making a laboratory-grade sodium phosphate will have a first cost of $320,000 with annual costs of $40,000 and revenue of $98,000 per year. At a return requirement of 20% per year, the payback period is closest to:a. 3 yearsb. 5 yearsc. 7 years d.; it will never pay off
When conducting a sensitivity analysis using multiple estimates, the three estimates are usually:a. probabilistic, authentic, most likelyb. deterministic, most likely, optimisticc. pessimistic, strategic, realisticd. optimistic, pessimistic, most likely
In conducting a sensitivity analysis, the only parameter that represents a measure of worth is:a. the future worth.b. the breakeven point.c. a cost index.d. a sinking fund equation.
The price of a car that you want is $70,000 today.Its price is expected to increase by $3300 per year.You now have $35,000 in an investment which is earning 15% per year. The number of years before you have enough to buy the car without borrowing any money is closest to:a. 3 yearsb. 5 yearsc. 7
A company is considering two alternatives for automating a certain process. Alternative A will have fixed costs of $42,000 per year and will require 2 laborers at $48 per day each. Together, these laborers can generate 100 units of product. Alternative B will have fixed costs of $56,000 per year,
A process can be completed using either Alternative X or Y, where Y is an automated version of X. Alternative X has fixed costs of $10,000 per year with a variable cost of $50 per unit. If the process is automated, the fixed cost for Y will be$5,000 per year and its variable cost will be only$30
In linear breakeven analysis, if a company expects to operate at a point below the breakeven point, the alternative to select is:a. the one with the lower fixed cost.b. the one with the higher fixed cost.c. the one with the lower variable cost.d. the one with the higher variable cost.
Of the evaluations above, which is the correct method upon which to base the final economic decision? Why is this method the only correct one?
on ROR.)
and
Finally, Darrell decided to calculate the rate of return for the cash flows of each process over its respective life. (a) Which process does this analysis indicate is better? (b) Explain the fundamental assumptions and errors made when this approach is used. (Hint: Before answering, review Sections
Next Darrell decided to use the AW method at the corporate MARR of 12% per year that he used previously on another evaluation. Now what process will he select?
Darrell first decided to use no-return payback to select the process, because his boss told him most investments at TAGHeuer must pay back in 3 to 4 years. Determine which process Darrell will select.
Fidelity Life Insurance has a document imaging system that needs replacement. A local salesperson quoted a cost of $10,000 with an estimated salvage of $900 after 5 or more years. If the system is expected to save $1700 per year in clerical time, find the payback time at 8% per year. As a practice,
CMS Express has historically owned and maintained its own delivery trucks. Leasing is an option being seriously considered because costs for maintenance, fuel, insurance, and some liability issues will be transferred to United Leasing, the truck leasing company. The study period is no more than 24
Ellis Equipment sold a used Massey Ferguson tractor for $55,000 to a South Kansas farmer 10 years ago. (a) What is the uniform net cash flow that the farmer had to receive each year to realize payback and a return of 5% per year on his investment over a period of 3 years? 5 years?8 years? All 10
In desalting groundwaters that contain a significant amount of sulfates, the concentrate that is generated during the desalting process can sometimes be treated with lime to recover gypsum and other salts. Because the high pH process is tough on equipment, the equipment’s useful life is
A company that manufactures diaphragm seals has identified the cash flows shown below with a certain part of the manufacturing and sales functions.Determine the no-return payback period.First cost of equipment, $ 130,000 Annual expenses, $/year 45,000 Annual revenue, $/year 75,000
2 28 105
Laura’s grandparents helped her purchase a small self-serve laundry business to make extra money during her five college years. When she completed her electrical engineering degree, she sold the business and her grandparents told her to keep the money as a graduation present. For the net cash
Two machines can be used to produce an aircraft part from titanium. The costs and other cash flows associated with each alternative are shown. The salvage values are zero regardless of when the machines are replaced. Use the estimates to preliminarily determine which alternative(s) should be
The process for producing a fruit-tree pesticide has a first cost of $200,000 with annual costs of$50,000 and revenue of $90,000 per year. What is the payback period at (a) i 0%, and (b) i 12%per year?
State why payback analysis is best used as a supplemental analysis tool when an economic study is performed.
In evaluating two environmental chambers at Holly Farms, the AW of the 409G model is determined to be $135,143 with a high degree of certainty. The cost estimates for the D103 model are less certain. The manager requested a “worst case” analysis with three estimates for P and n as shown on the
When the country’s economy is expanding, AB Investment Company is optimistic and expects a MARR of 15% for new investments. However, in a receding economy the expected return is 8%.Normally a 10% return is required. An expanding economy causes the estimates of asset life to go down about 50%, and
A civil engineer involved in construction management must decide between two ways to pump concrete up to the top floors of a seven-story office building under construction. Plan 1 requires the purchase of equipment for $6000 which costs between$0.40 and $0.75 per metric ton to operate, with a most
Titan manufactures and sells gas-powered electricity generators. It can purchase a new line of fuel injectors from either of two companies. Cost and savings estimates are available, but the savings estimates are unreliable at this time. Use an AW analysis at MARR 10% per year to determine if the
Determine if the selection of system 1 or 2 is sensitive to variation in the return required by management.The corporate MARR ranges from 8% to 16% per year on different projects. Use tabulated factors or a spreadsheet, as requested by your instructor.System 1 System 2 First cost, $ 50,000
Ned Thompson Labs performs tests on superalloys, titanium, aluminum, and most metals. Tests on metal composites that rely upon scanning electron microscope results can be subcontracted or the labs can purchase new equipment. Evaluate the sensitivity of the economic decision to purchase the
Consider the two air conditioning systems detailed below.System 1 System 2 First cost, $ 10,000 17,000 Annual operating cost, $/year 600 150 Salvage (disposal) value, $ 100 300 New compressor and motor cost at midlife, $ 1,750 3,000 Life, years 8 12 Use AW analysis to determine the
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