Questions and Answers of Engineering Economy

The cost for 4′′ diameter auger holes in earth is $18.85 per linear foot, but if they are cased, the cost is $69.18 per linear foot. What is the estimated cost for a 570-foot cased 4′′ boring?
The preliminary cost for a 50,000 ft2 aircraft hangar must be estimated. (a) The first unit estimate was $98.23 per square foot. Estimate the cost of the hangar.(b) The budget limit came in at
When competition is the dominant factor in pricing a product or service, what is the best cost estimation strategy to adopt?
Assume you save $6000 each year starting this year until your planned retirement 40 years from now. The buying power of the money in terms of today’s dollars at the market interest rate of 10% per
An industrial robot with a controller, teach pendants, and job-specific peripherals has an initial cost of $85,000 now, and the future cost will increase exactly by the inflation rate. The cost of a
For a real interest rate of 1% per month and an inflation rate of 1% per month, the nominal inflated interest rate per year is closest to:(a) 1%(b) 2%(c) 24%(d ) 24.12%
An investment of $1000 was made 25 years ago. The amount available 10 years from now at the market interest rate of 5% per year and an inflation rate of 2% per year is closest to:(a) $3085(b)
If the market interest rate is 12% per year and the inflation rate is 5% per year, the number of future dollars in year 7 that will be equivalent to $2000 now is best represented by the equation:(a)
The cost of a well-equipped F-150 truck was $29,350 three years ago. If the cost increased only by the inflation rate and the price today is $33,015, the inflation rate over the 3-year period was
In order to convert inflated dollars into constant value dollars, it is necessary to:(a) Divide by (1 + if )n(b) Divide by (1 + f )n(c) Divide by (1 + i)n(d ) Multiply by (1 + f)n
When all future cash flows are expressed in thencurrent dollars, the rate that should be used to find the present worth is the:(a) Real MARR(b) Inflation rate(c) Inflated interest rate(d) Real
For a real interest rate of 12% per year and an inflation rate of 7% per year, the market interest rate per year is closest to:(a) 5.7%(b) 7%(c) 12%(d) 19.8%
The two machines shown are being considered for a chip manufacturing operation. Assume the MARR is a real return of 12% per year and that the inflation rate is 7% per year. Which machine should be
(a) Calculate the perpetual equivalent annual worth in future dollars for years 1 through ∞ for income of $50,000 now and $5000 per year thereafter. Assume the market interest rate is 8% per year
A multinational security software company is planning an overseas expansion that will cost $50 million of today’s dollars 3 years from now. Due to a robust economy in Europe, the cost is expected
A DSL company has made an equipment investment of $40 million with the expectation that it will be recovered in 10 years. The company has a MARR based on a real rate of return of 12% per year. If
An offshore services company is considering the purchase of equipment that has a cost today of $96,000. Inflation is a concern. The manufacturer plans to raise the price exactly in accordance with
The Nobel Prize is administered by The Nobel Foundation, a private institution that was founded in 1900 based on the will of Alfred Nobel, the inventor of dynamite. In part, his will stated: “The
An engineer deposits $10,000 into an account when the market interest rate is 10% per year and the inflation rate is 5% per year. If the account is left undisturbed for 5 years,(a) How much money
The cost of constructing a roundabout (R/A) in a low-traffic residential neighborhood 5 years ago was $625,000. A civil engineer designing another R/A that is almost the same design estimates the
Compare the alternatives below on the basis of their capitalized costs with adjustments made for inflation. Use i =12% per year and f = 3% per year. Alternative First cost, $ AOC, $ per year Salvage
Cellgene Biometrics, a small biotech company, uses a MARR of 40% per year when evaluating new investments. If the inflation rate is 9% per year, what will the real rate of return be, provided it
A land development company is considering the purchase of earth moving equipment. This equipment will have an estimated first cost of $190,000, a salvage value of $70,000, a life of 10 years, a
A company that manufactures automatic blowdown control valves (for applications where boilers are operated unsupervised for 24 to 36 hours) has fixed cost of $160,000 per year and variable cost of
A professional photographer who specializes in wedding-related activities paid $48,000 for equipment that will have a $2000 salvage value after 5 years. He estimates that his costs associated with
Listed below are bundles, each comprised of three independent proposals for which the PW has been estimated. For a capital investment limit of $45,000 and a MARR of 9% per year, the bundle selected
The chief engineer at Clean Water Engineering has established a capital investment limit of $710,000 for next year for projects related to concentrate management.(a) Select any or all of the
The capital fund for new investment at Systems Corporation is limited to $75,000 for next year. You have been asked to recommend one or more of three projects as economically acceptable for
The CFO for Woodsome Appliance Company Plant #A14 in Mexico City has five independent projects she can fund this year to improve surface durability on stainless steel products. The project
With the estimates shown below, Sarah needs to determine the trade in (replacement) value of machine X that will render its AW equal to that of machine Y at an interest rate of 8% per year. Determine
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
If a company finances an expansion in its production facilities by issuing $6 million in preferred stock, using $3.5 million in retained earnings, and obtaining $15 million via a secured loan, it
Three alternatives are being evaluated based on six different attributes, all of which are considered of equal importance.(a) Determine the weight to assign to each attribute.(b) Write the equation
In order to finance a new project, a company borrowed $4,000,000 at 8% per year with the stipulation that the company would repay the loan plus all interest at the end of one year. Assume the
A recently graduated mechanical engineer wants to build a reserve fund as a safety net to pay his expenses in the unlikely event that an unexpected emergency arises. His aim is to have $45,000
For a present sum of $750,000, what is the annual worth (in then-current dollars) in years 1 through 5 if the market interest rate is 10% per year and the inflation rate is 5% per year?
In wisely planning for your retirement, you invest $12,000 per year for 20 years into a 401-k investment account.(a) How much can you withdraw each year for 10 years, starting 1 year after your last
A European-based cattle genetics engineering research lab is planning for a major expenditure on research equipment. The lab needs $5 million of today’s dollars so that it can make the acquisition
A company has been invited to invest $1 million in a partnership and receive a guaranteed total of $2.5 million after 4 years. By corporate policy, the MARR is always established at 4% above the real
Well-managed companies set aside money to pay for emergencies that inevitably arise in the course of doing business. A commercial solid waste recycling and disposal company in Mexico City puts 0.5%
A top-of-the-line 3D printer costs $40,000 today. The manufacturer plans to raise the price so that a real rate of return of 5% per year is realized. In a period of 4% per year inflation, how much
You just made an investment in an insurance policy that is guaranteed to pay you $1.8 million 20 years from now provided you live that long. What will be the purchasing power of that amount with
To retire at a decent age and move to Hawaii, an engineer plans to trust her account to an investment firm that promises to make a real rate of return of 10% per year when the inflation rate is 4%
An engineer planning for her son€™s college education made deposits into a separate high-risk brokerage account every time she earned extra money from side consulting jobs. The deposits and
A plant manager is not sure whether he will get the approval to buy new equipment for automating an engine assembly line now or at some future time within the next 3 years. In order to have the money
The company you work for signed a contract with a security firm to control access to company grounds and corporate offices. The contract amount was for $140,000 for the first year, renewable each
As an innovative way to pay for various software packages that your company sells, a high-tech service company has offered to pay your company in any one of three ways:(1) P$450,000 now;(2) Pay $1.1
A salesman from Industrial Water Services (IWS), who is trying to get his foot in the door of Westco Refining, offered electro-dialysis equipment for $2.5 million. This is $800,000 more than the
A doctor is on contract to a medium-sized oil company to provide medical services at remotely located, widely separated refineries. The doctor is considering the purchase of a private plane to reduce
A 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 second birthday, such that she will have enough
Joan, the project manager, asks you to evaluate alternatives A and B on the basis of their PW values using a real interest rate of 10% per year and an inflation rate of 3% per year(a) Without any
The company you work for is considering a new product line projected to have the net cash flows (NCF) shown. The values are in future dollars, which have been inflated by 5% per year. Because the
Some of the following future cash flows have been expressed in then current (future) dollars and others in CV dollars. Use an interest rate of 10% per year and an inflation rate of 6% per year.(a)
Find the present worth of earthmoving equipment that has a first cost today of $150,000, an annual operating cost of $60,000, and a salvage value of 20% of the first cost after 5 years; these
Because retail supermarket corporations operate on a low ROR, it is common to use a market MARR of about 3% per year. What real return rate is implied from a market interest rate of 3% per year when
Calculate the inflation-adjusted interest rate when the annualized inflation rate is 7% per year and the real interest rate is 4% per year.
The new 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
α-β, Inc., a high-tech company in San Diego, whose stock trades on the NYSE exchange, uses a MARR of 25% per year. If the chief financial officer (CFO) said the company expects to make a real rate
For years, Jake has practiced the “buy now, pay later ” philosophy of money management. For example, he purchased a car 3 years ago with a 6-year (72 month) loan at 7% per year interest. He has
During periods of hyperinflation, prices increase rapidly over short periods of time. One of the worst cases of hyperinflation in history occurred in Zimbabwe in 2008 where prices doubled every day.
In 2015, a retired person in the United States who received maximum social security benefits got $2699 per month, which represented a 1.7% cost of living adjustment (COLA) over 2014.(a) Determine the
Emissions of heat-trapping carbon dioxide (CO2) reached an all-time high of 36.9 gigatons in 2014, a 2.5% increase over 2013. The International Energy Agency said this further reduces the chance that
The Bank of England has an inflation calculator website that uses the UK price index to show how the cost of goods and services has changed since 1750. The website reveals that something that cost
The Bureau of Labor Statistics has a website (www.bls.gov) that contains a Consumer Price Index inflation calculator that uses the average CPI to adjust the purchasing power of money over different
Jack has tracked the annual inflation rate (shown below) for a top-rated sportsman-level fishing outfit that he has always hoped to own. It cost $1000 ten years ago, but he could not afford it over
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
A UK-based life insurance company will pay a cash-value sum of £500,000 when the insured reaches the age of 65. The insured will be 65 years old 27 years from today.(a) Determine the cash value of
According to NACE’s April 2014 Salary Survey, engineering majors held 8 of the top 10 spots on the list of top-paid majors for the Class of 2014 bachelor’s degree graduates. Graduates in
The federal-level Pell Grant program provides financial aid to needy college students. The grant increases annually to account for inflation. The maximum total Pell Grant award increased from $5550
For many years, college cost (including tuition, fees, room, and board) increases have been higher than the inflation rate, averaging 5% to 8% per year. According to the College Board’s Trends in
The lease cost for a specialized highway design software package is estimated to be $13,000 for each of years 1, 2, and 3 (future dollars).(a) Calculate the CV amount today (year 0) of each future
In an effort to reduce pipe breakage, water hammer, and product agitation, a French chemical company plans to install several chemically resistant pulsation dampeners. The cost of the dampeners today
Determine today’s purchasing power of $1,000,000 thirty years in the future, if if = 15% per year and f = 5% per year.
How many future dollars 10 years from now will have the same buying power as $10,000 today? The market interest rate is 12% per year and the inflation rate is 7% per year.
In an inflationary period, what is the difference between(a) Inflated dollars and “then-current” future dollars, and(b) “Then-current” future dollars and constant-value future dollars?
If a 3D printer increased in cost at exactly the inflation rate, what was the inflation rate if the printer costs exactly twice as much now as it did 10 years ago?
How do you convert a unit of inflated currency (e.g., a dollar) into a constant-value currency statement?
The cost of equipment to apply epoxy paint to a warehouse floor is $1400. Materials and supplies (masking tape, surface repair material, solvents, cleanup supplies, etc.) will cost $2.03 per ft2.
A mixing process for laboratory-grade sodium phosphate has an estimated first cost of $320,000 with annual costs of $40,000. Income is expected to be $98,000 per year. At a MARR of 20% per year, the
A wireless monitored process has fixed cost of $40,000 per year and variable cost of $30 per unit. An IoT-based process using “Internet of Things” technology has fixed costs of $80,000 per year.
A jalapeno canning company is faced with a make/ buy decision. Cardboard shipping cartons can be purchased for $0.60 each or made in-house. If manufactured, two machines will be required. Machine X
The pieces of equipment required to place 160 cubic yards of concrete in 1 day by experienced workmen are two gasoline engine vibrators and one concrete pump. If the vibrators cost $76 per day and
You saw that there was a gasoline price war going on in a small town 27 miles from where you live (54 miles round trip), so you are thinking about driving there to fill the tank in your pick-up
An automobile leasing company has a contract with a new car dealer to do major repairs for $720 per car. The leasing company estimates that for $400,000, it could buy equipment to service their own
In linear breakeven analysis, if process A has a variable cost of $45 per unit and process B has a variable cost of $31 per unit, which alternative would be preferred if the breakeven point is 7400
The National Potato Cooperative purchased a deskinning machine last year for $150,000. Revenue for the first year was $50,000. Over the total estimated life of 8 years, use a spreadsheet to estimate
A window frame manufacturer is searching for ways to improve revenue from its triple-insulated sliding windows, sold primarily in the far northern areas of the United States. Alternative A is an
A multinational engineering consulting firm that wants to provide resort accommodations to special clients is considering the purchase of a three bedroom lodge in upper Montana that will cost
In desalting groundwater that contains a significant amount of sulfates, the concentrate that is generated during the desalting process can sometimes be tough on equipment, so the equipment’s
A manufacturer of diaphragm seals has identified the cash flows shown for manufacturing and sales functions. Determine the no-return payback period.First cost of equipment,....................$
Two machines can be used to produce a part from titanium. The costs and other cash flows associated with each alternative are estimated. The salvage values are constant regardless of when the
A process for producing the mosquito repellant Deet has an initial investment of $200,000 with annual costs of $50,000. Income is expected to be $90,000 per year.(a) What is the payback period at i
The price of a car you want is $42,000 today. Its price is expected to increase by $1000 each year. You now have $25,000 in an investment account, which is earning 10% per year. How many years will
(a) What is the approximate number of years you would have to sell a mobile phone app to break even if income is estimated to be $50,000 per year, expense is $15,000 per year, your initial investment
Accusoft Systems is offering small business owners a software package that keeps track of many accounting functions from bank transactions to sales invoices. The site license will cost $39,000 to
(a) How long would it take to recover an investment of $245,000 in enhanced CNC controls that include axis control to eight axes on the milling model, if the associated income is $92,000 per year,
Darnell Enterprises constructed an addition to its building at a cost of $70,000. Extra annual expenses are expected to be $1850, but extra income will be $14,000 per year. How long will it take for
State why payback analysis should be used only as a supplemental analysis tool when an economic study is performed.
Claris Water Company makes and sells filters for water drinking fountains for the public. The filter sells for $50. Recently a make/buy analysis was done based on the need for new manufacturing
The Ecology Group wishes to purchase a piece of equipment for recycling of various metals. Machine 1 costs $123,000, has a life of 10 years, an annual cost of $5000, and requires one operator at a

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