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

3. Write the equation for the profitability index and use it to evaluate a project.Profitability index
2. Use the benefit/cost ratio to evaluate a single project.B/C for single project
1. Identify fundamental differences between public and private sector alternatives; understand ethical aspects of the public sector.Public sector
16. 6.73 Assuming there are two i* values determined when an ROR analysis of a nonconventional cash flow series is performed, one guideline for retaining and discarding i* values is:1. Take the average of the two i* values as the ROR 2. Retain the i* > 0, if one is positive and one is negative 3.
15. 6.72 If during an ROR evaluation of two mutually exclusive alternatives, multiple i* values are indicated by the rule of signs and the determination of the exact ROR value is not necessary, a way to avoid extra ROR computations is to use the MARR and calculate the:1. PW 2. AW 3. FW 4. Any of
14. 6.71 The net cash flows associated with the manufacture and sale of stabilizer parts for Stratolaunch, the world’s largest airplane with a 385-foot wingspan (longer than an American football field), are shown.The NCF series indicates the possibility of more than one i* value. If the borrowing
13. 6.70 For the cash flows shown, the correct equation for F2 using the ROIC method at the reinvestment rate of 20% per year is:1. F2 = [10,000(1 + i′′) + 6000](1.20) − 8000 2. F2 = [10,000(1.20) + 6000(1 + i′′)](1.20) − 8000 3. F2 = [10,000(1.20) + 6000](1.20) − 8000 4. F2 =
12. 6.69 Jewel-Osco is evaluating three biometric systems that identify customers by a finger scan and immediately deduct the amount of the bill directly from their checking accounts. The alternatives were ranked according to increasing initial investment and identified as alternatives A, B, and C.
11. 6.68 EPC, Inc. uses a MARR of 12% per year compounded semiannually. The company is evaluating two new processes for expanding its epoxy resin operations. The cash flows associated with each process are shown below. In evaluating the processes on the basis of an ROR analysis, the incremental
10. 6.67 Alternative G has a first cost of $250,000 and annual costs of$73,000. Alternative H has a first cost of $350,000 and annual costs of$48,000. If the alternatives are considered to last indefinitely, the rate of return on the increment of investment is closest to:1. 25%/year 2. 20%/year 3.
9. 6.66 The four alternatives described below are being evaluated by the rate of return method. If the alternatives are mutually exclusive, the selected alternative at a MARR of 14.5% per year is:1. A 2. B 3. C 4. D Table Summary: Table divided into 4 main columns with the headings marked as:
8. 6.65 A total of $200,000 was invested in two projects identified as X1 and X2. If the overall rate of return on the $200,000 was 26% and the overall rate of return on the $40,000 invested in X2 was 14%, the overall rate of return on X1 was closest to:1. >30%2. 29%3. 27%4. 25%
7. 6.64 If a 6-year study period is used for an ROR evaluation, the incremental cash flow between machines B and A in year 3 is closest to:1. $1200 2. $4200 3. $12,000 4. $13,200 Table Summary: Table divided into 2 columns with the first column showing the items and the second column, Machine,
6. 6.63 A small engineering firm borrows $300,000 at 0.7% per month interest. If the firm makes a payment of $50,000 at the end of the first month, the unrecovered loan balance immediately after the payment is made is closest to:1. $187,900 2. $198,300 3. $224,600 4. $252,100
5. 6.62 For the cash flows shown, the sum of the incremental cash flows(B − A) is 1. $2500 2. $3500 3. $6000 4. $8000 Table Summary: Table divided into 3 columns with the headings marked as: Year; A;and B.Year A B 0 −10,000 −14,000 1 +2,500 +4,000 2 +2,500 +4,000 3 +2,500 +4,000 4 +2,500
4. 6.61 Scientific Instruments, Inc. uses a MARR of 8% per year. The company is evaluating a new process to reduce water effluents from its manufacturing processes. The estimates associated with the process follow. In evaluating the process on the basis of a rate of return analysis, the correct
3. 6.60 For the net cash flows and cumulative net cash flows shown below, the value of x is nearest:1. $−8,000 2. $−16,000 3. $16,000 4. $41,000 Year 1 2 3 4 5 Net cash flow, $ +13,000 −29,000 −25,000 +50,000 x Cumulative NCF, $ +13,000 −16,000 −41,000 +9,000 +1,000 Page 194
2. 6.59 When using the modified ROR method to remove multiple ROR values, an additional estimate needed besides the cash flows and their timings is the:1. ROIC value 2. external rate of return 3. reinvestment rate 4. internal rate of return
1. 6.58 According to Descartes’ rule of signs, the possible number of i*values for the following net cash flow series is: ++++------+-+---++1. 2 2. 4 3. 6 4. 8
8. 6.57 Your friend owns a company that makes clutch disks for race cars.He had the net cash flows shown for one department over a 4-year period after making an improvement investment of $65,000.1. Apply the two sign rules first, then calculate the internal rate of return.2. Calculate the external
7. 6.56 Harley worked for many years to save enough money to start his own residential landscape design business. The net cash flows shown are those he recorded for the first 6 years as his own boss. Find the external rate of return using the modified rate of return approach with a reinvestment
6. 6.55 For the cash flows shown, determine:1. the number of possible i* values.2. the i* value displayed by the IRR function.3. the external rate of return using the MIRR method if ir = 18% per year and ib = 10% per year. Verify your answer with the spreadsheet function.Year 0 1 2 3 4 Revenues, $
5. 6.54 The net cash flows series shown may have multiple i* values. If the reinvestment rate is 18% per year and the borrowing rate is 10%, find the ERR using (a) the manual MIRR approach coupled with the RATE function, and (b) the MIRR spreadsheet function.Year 0 1 2 3 Net cash flow, $ +16,000
4. 6.53 For the net cash flows shown, find the external rate of return with a reinvestment rate of 15% per year, using (a) the manual ROIC method and (b) a spreadsheet to verify the answer.Page 193 Table Summary: Table divided into 2 columns with the headings marked as: Year and Net Cash Flow in
3. 6.52 For the cash flow series shown (a) determine the number and type of possible i* values using the two sign tests, (b) find the ERR using the MIRR method and Equation [6.4] with a reinvestment rate of 20% per year and a borrowing rate of 10% per year, and (c) use the MIRR function to find the
2. 6.51 Explain why it is not a good practice to set the reinvestment rate on excess funds and the borrowing rate for negative NCF years equal to each other when the external rate of return (ERR) is to be determined.
1. 6.50 State a fundamental reason why the internal rate of return (IRR)and the external rate of return (ERR) will have different values when the cash flow series is nonconventional and multiple i* values are indicated.
6. 6.49 Five years ago, Logocom made a $5 million investment in a new high-temperature material. The product was not well accepted after the first year on the market. However, when it was reintroduced 4 years later, it did sell well during the year. Major research funding to broaden the
5. 6.48 Arc-bot Technologies, manufacturers of six-axis, electric servodriven robots, has experienced annual expenses and savings in its shipping department through improved supply-chain software applications. (a) Determine the number of possible rate of return values.(b) Find all i* values between
4. 6.47 Hitec Home Services manufactures a ventilation controller designed for monitoring and controlling carbon monoxide in parking garages, boiler rooms, tunnels, etc. The net cash flows associated with one phase of the operation are shown below.1. How many possible rate of return values are
3. 6.46 A manufacturer of heavy-tow carbon fibers (used for sporting goods, thermoplastic compounds, windmill blades, etc.) reported the net cash flows shown.1. Determine the number of possible i* values.2. (Spreadsheet exercises) Apply Norstrom’s criterion, then write the PW-based ROR relation
2. 6.45 Charles owns a home with solar panels on the roof. His utility company has a “buy-back” program that charges homeowners for the net energy used each quarter. He listed the quarterly charges and buy-back dollars for the 2 years he has been in the program. (a) Use Descartes’rule to
1. 6.44 According to Descartes’ rule of signs, how many possible i*values are there for net cash flow series that have the following signs:1. -+++-+++-2. --++3. +------+-+---4. ----+++-----+
17. 6.43 Caroline received the analysis below from an employee concerning four revenue proposals.1. If the proposals are independent, which one(s) should she select at MARR = 15.5% per year?2. If the proposals are mutually exclusive, which one should she select at MARR = 10% per year?3. If the
16. 6.42 Allstate Insurance Company is considering the installation of one of five fraud detection systems, all of which can be considered to last indefinitely. If the company’s MARR is 14% per year, determine which one should be selected on the basis of a rate of return analysis using the
15. 6.41 Spectrum Imaging Systems is considering the purchase of a new printer based on recent contracts it received for printing weekly magazines and mail-out advertising materials. The operating costs and revenues generated are related to a large extent to the speed and other capabilities of the
14. 6.40 Leenflow, Inc., a company that sells a mobile marketing platform that helps businesses improve engagement with customers in a personalized way, wants to expand its operation by adding new products. Any or all of the products shown below can be added. If the company uses a MARR of 15% per
13. 6.39 The four proposals described below are being evaluated to serve as patients’ records security systems in North American, European, and Asian hospitals operated by AMD Health Corp.1. If the proposals are independent, which one(s) should be selected at a MARR of 17% per year?2. If the
12. 6.38 You are considering five projects, all of which can be considered to last indefinitely. If the MARR is 15% per year, determine which should be selected if they are (a) independent projects, and (b) mutually exclusive alternatives.Table Summary: Table divided into 4 columns with the
11. 6.37 Terry, an engineering technology graduate who is very entrepreneurial, wants to start an excavation and foundation business in Orlando by investing his own savings to fund part of the start-up. A primary decision is the size of a used dump truck to purchase. He knows that as the bed size
10. 6.36 Old Southwest Canning Co. has determined that any one of four sterilizing machines can be used in its chili-canning operation. The costs of the machines are estimated; all machines have a 5-year useful life. (a) If the MARR is 25% per year, determine which machine should be selected on the
9. 6.35 A metal plating company on government contract is considering four different methods for recovering by-product heavy metals from a processing site’s liquid waste. The investment costs and annual net incomes associated with each method have been estimated. All methods have an 8-year life;
8. 6.34 Poly-Chem Plastics is considering two types of injection molding machines: hydraulic and electric. The hydraulic press (HP) will have a first cost of $600,000, annual costs of $200,000, and a salvage value of$70,000 after 5 years. Electric machine technology (EMT) will have a first cost of
7. 6.33 As project manager, you received from the purchasing department a listing of estimated annual cash flow differences between two electrode setups you want to install. The MARR is 12% per year and alternative Dryloc requires the larger initial investment compared to NPT. Only one can be
6. 6.32 A biotech company is considering two processes for isolating DNA material. The incremental cash flows between the two alternatives, J and S, have an incremental rate of return that is less than 40%, which is the MARR of the company. However, the company CEO prefers the more expensive
5. 6.31 The manager of Liquid Sleeve, Inc., a company that makes a sealing solution for machine shaft surfaces that have been compromised by abrasion, high pressures, or inadequate lubrication, is considering adding Al or Fe nanoparticles to its solution to increase the product’s performance at
4. 6.30 The Texas Department of Transportation (TxDOT) is considering two designs for crash barriers along a reconstructed portion of I-10.Design 2B will cost $3 million to install and $135,000 per year to maintain. Design 4R will cost $3.7 million to install and $70,000 per year to maintain.
3. 6.29 Harold and Mavone plan to purchase furniture, appliances, some heirloom artifacts, as well as new woodworking and pottery-making equipment to furnish a renovated heritage home in Brazos de Dios, Texas, that they have recently purchased. The hobby equipment is a questionable purchase
2. 6.28 As groundwater wells age, they sometimes begin to pump sand(and they become known as “sanders”) and this can cause damage to downstream desalting equipment. This situation can be dealt with by drilling a new well at a cost of $1,000,000 or by installing a tank and self-cleaning screen
1. 6.27 Specialty Gases & Chemicals manufactures nitrogen trifluoride, a highly specialized gas used as an industrial cleansing agent for flat panels installed in laptop computers, televisions, and desktop monitors.The incremental cash flow associated with two alternatives for chemical storage and
8. 6.26 The tabulation of the incremental cash flows between alternatives A and B is shown. Alternative A has a 3-year life and alternative B a 6-year life. If neither alternative has a salvage value, what is the (a) first cost of alternative A and (b) first cost of alternative B?Table Summary:
7. 6.25 Two options are available for setting up a wireless meter scanner and controller. A simple setup is good for 2 years and has an initial cost of $12,000, no salvage value, and an AOC of $27,000 per year. A more permanent system has a higher first cost of $73,000, but it has an estimated life
6. 6.24 For the alternatives shown, determine the sum of the incremental cash flows for Q − P for the LCM of years.Table Summary: Table divided into 3 columns summarizes cost estimate for two alternatives P and Q. The first column shows the items and the second column divided into 2 sub columns,
5. 6.23 A total of $50,000 was invested in projects to reduce insider theft in an appliance warehouse. The two projects, identified as Y and Z, were implemented for 1 year each. Based on the significantly reduced losses, the overall rate of return on the $50,000 was determined to be 40%, with the
4. 6.22 Assume you are the CIO (chief investment officer) for Dragon Industries, LLP (LLP stands for Limited Liability Partnership). There is$1,000,000 set aside in a reserve fund to purchase new equipment. If$300,000 is invested at 30%, $200,000 at 25%, and the remaining$500,000 at 20% per year,
3. 6.21 For each of the following scenarios, state whether an incremental investment analysis is required to select alternative X or Y, and state why or why not. Assume that alternative Y requires a higher initial investment than X and that the MARR is 19% per year.1. X has an ROR of 28% per year
2. 6.20 Determine the overall rate of return on a $150,000 investment that returns 15% on the first $50,000 and 25% on the remaining $100,000.
1. 6.19 When evaluating two alternatives by the rate of return method, if alternative A has a rate of return of 10% and alternative B has a rate of return of 18%, what is known about the rate of return on the increment between A and B if the investment required in B is (a) larger than that required
18. 6.18 EV Box is a manufacturer of electric vehicle charging stations and charging software. The initial cost of one part of their manufacturing process was $130,000 with annual costs of $49,000. Revenues were$78,000 in year 1, increasing by $1000 per year. A salvage value of$23,000 was realized
17. 6.17 On the advice of your uncle, you purchased 10 shares of a wellestablished U.S.-based corporate stock for $20.50 per share. After 1 quarter, you received $0.25 per share dividends each quarter for 2 years. At that point, the stock price had gone down in a short-term recession, so you
16. 6.16 Techstreet.com is a small web design business that provides services for two main types of websites: brochure sites and ecommerce sites. One package involves an up-front payment of $90,000 and monthly payments of 1.4¢ per “hit.” Kathy Cutler has a new eBay franchise and is considering
15. 6.15 Steel cable barriers in highway medians are a low-cost way to improve traffic safety without busting state department of transportation budgets. Cable barriers cost $44,000 per mile, compared with $72,000 per mile for guardrail and $419,000 per mile for concrete barriers.Furthermore, cable
14. 6.14 A 473-foot, 7000-ton World War II troop carrier (once commissioned as the SS Excambion) was sunk in the Gulf of Mexico to serve as an underwater habitat and diving destination. The project took 10 years of planning and cost $4 million, which was spent equally at$400,000 in years 1 through
13. 6.13 PPG manufactures an epoxy amine that is used to protect the contents of polyethylene terephthalate (PET) containers from reacting with oxygen. The cash flows (in $ millions) associated with the process are shown below. Determine the rate of return using (a) tabulated factors, and (b) a
12. 6.12 A graduate of NMSU who started a successful business wanted to start an endowment in her name that would provide scholarships to students with entrepreneurial interests. She wanted the scholarships to amount to $10,000 per year and she wanted the first one to be given on the day she made
11. 6.11 Chemco Enterprises is the manufacturer of Ultra-Dry, a hydrophobic coating that will waterproof anything. Over a 5-year period, the costs associated with the pilot test product line were as follows: first cost of $30,000 and annual costs of $18,000. Annual revenue was $27,000 and used
10. 6.10 Determine the rate of return per year for the cash flows shown below. Use (a) tabulated factors, and (b) a spreadsheet.Year 0 1 2 3 Cash Flow, $ −125,000 −7,500 84,000 78,000 Page 186
9. 6.9 Xavier looked at his company’s cash flows for the recent past on a newly offered home delivery service of pet food and supplies. He wants to know the rate of return per month if $149,333 was invested in a project with monthly costs of $28,500 and income of $34,500 over a 2½ − year
8. 6.8 (a) Use tabulated factors and a spreadsheet function to determine the interest rate per period for the following rate of return equation. (b) Is it possible to use the RATE function to find i*? Why?0 = −35,000 + 9000(P/A,i*,5) + 8000(P/F,i*,8).
7. 6.7 A powerful set of “glasses,” called eSight, can give sight to the legally blind by using high-definition video, magnification, contrast, and propriety algorithms to enhance imagery into something they can see.The cost of the device is $9995. If the company that makes the device spent
6. 6.6 At the International Conference on Robotics and Automation, a robot was unveiled by a team of young engineers that would help people who needed daily physical assistance getting dressed. The team used haptics as the sensorial method for training the robot. In order to improve its
5. 6.5 You and three college buddies have formed a company, Right For You, Inc., that will customize off-the-shelf marketing software locally rather than contracting with the original development company or a large, nationally based customizer. The target clients are bricks-andmortar merchants and
4. 6.4 Spectra Scientific of Santa Clara, California, manufactures Qswitched solid-state industrial lasers for LED substrate scribing and silicon wafer dicing. The company got a $60 million loan, amortized over a 5-year period at 8% per year interest. What is the amount of the unrecovered balance
3. 6.3 A-1 Mortgage makes loans with the interest charged on the loan principal rather than on the unpaid balance. For a 4-year loan of$10,000 at 10% per year, what equal annual payment would be required to complete repayment of the loan in 4 years, if interest is charged on(a) the principal and
2. 6.2 A $10,000 loan amortized over 5 years at an interest rate of 10%per year would require payments of $2638 to completely extinguish the loan when interest is charged on the unrecovered balance. If interest is charged on the principal instead of the unrecovered balance, what would be the
1. 6.1 What does a rate of return of −100% mean?
8. Use a spreadsheet to perform ROR analysis of one or more alternatives.Spreadsheets
7. Calculate the external rate of return using reinvestment and/or borrowing rates.External ROR
6. Determine the maximum number of possible ROR values and their values for a cash flow series.Multiple RORs
5. Select the best of multiple alternatives using an incremental ROR analysis.Alternative selection
4. Tabulate incremental cash flows and interpret ROR on the incremental investment.Incremental analysis
3. Understand the difficulties of using the ROR method, relative to PW, AW, and FW methods.Cautions about ROR
2. Calculate the rate of return using a present worth, annual worth, or future worth equation.ROR using PW, AW, or FW
1. State the meaning of rate of return.Definition of ROR
9. 5.41 At a return of 10% per year, the amount you must deposit into your retirement account each year for 10 years, starting now (years 0−9), if you want to withdraw $50,000 per year forever beginning 30 years from now is closest to:1. $4239 2. $4660 3. $4974 4. $5471
8. 5.40 An alumnus of West Virginia University wishes to start an endowment that will provide scholarship money of $40,000 per year beginning in year 5 and continuing indefinitely. The donor plans to give money now and for each of the next 2 years. If the size of each donation is exactly the same,
7. 5.39 The annual worth equivalent of a long-life project which has estimated revenues of $50,000 now, $10,000 per year in years 1 to 15, and $20,000 per year in years 16 through infinity at 10% per year is closest to:1. Less than $16,900 2. $16,950 3. $17,390 4. $19,570
6. 5.38 The annual worth of Alternative Z is closest to:1. $−78,000 2. $−90,000 3. $−98,000 4. $−116,394
5. 5.37 The annual worth of Alternative Y is closest to:1. $−102,736 2. $−109,484 3. $−116,958 4. $−121,394
4. 5.36 The annual worth of perpetual service for alternative X is closest to:1. $−76,724 2. $−78,000 3. $−109,484 4. $−129,573
3. 5.35 In comparing the alternatives by the annual worth method, the annual worth of alternative X is closest to:1. $−109,484 2. $−116,958 3. $−121,394 4. $−129,573
2. 5.34 The annual worth of costs for four independent projects is shown below. On the basis of the results, the project(s) to select are:Table Summary: A table divided into 5 columns shows the annual worth of 4 projects. The column headers are marked as: Project;A; B; C; and D.Project A B C D AW,
1. 5.33 A systems engineer is trying to determine which components to include in the sidewalk design of a smart city project that will have robots that roam underground doing routine chores like delivering mail.Design X will have a first cost of $48,350, M&O costs of $19,500 per year, and an
10. 5.32 At 20 years old, Josh is an avid saver. He wants to invest an equal amount each year from age 21 to 50 (30 years) such that starting at age 65 he can make a guaranteed annual withdrawal of $50,000 forever without touching the corpus (principal), which will be the inheritance money for his
9. 5.31 The cost associated with maintaining rural highways follows a predictable pattern. There are usually no costs for the first 3 years, but thereafter maintenance is required for re-striping, weed control, light replacement, shoulder repairs, and more. For one section of state highway S102,
8. 5.30 For the cash flows shown, use an annual worth comparison and a MARR of 10% per year to determine the following:1. The alternative that is economically best.2. (Spreadsheet exercise) The first cost required for each of the two alternatives not selected in (a) so that all alternatives are
7. 5.29 A West Virginia coal mining operation has installed an in-shaft monitoring system for oxygen tank and gear readiness for emergencies.Based on maintenance patterns for previous systems, costs are minimal for the first few years, then they increase for a time period, and then level off.
6. 5.28 A major repair on the transmission of Judy’s 3-year old car cost her$2000 because the warranty expired after 2 years of ownership. Based on this experience, she will plan on additional $2000 expenses every 3 years henceforth. Also, she spends $800 every 2 years for regular maintenance.
5. 5.27 A new bridge across the Allegheny River in Pittsburgh is expected to be permanent and will have an initial cost of $30 million. This bridge must be resurfaced every five years at a cost of $1 million. The annual inspection and operating costs are estimated to be $50,000. Determine its
4. 5.26 Compare two alternatives for a physical security system surrounding a power distribution substation using annual worth analysis and a MARR of 10% per year.Table Summary: A table divided into 3 columns summarizes cost estimate of alternatives for a physical security system.The column headers

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