Questions and Answers of Engineering Economy

Process X is estimated to have a fixed cost of $40,000 per year and a variable cost of $60 per unit in year 1, decreasing by $5 per unit per year thereafter. Process Y will have a fixed cost of
Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an
James, the plant manager at Global Foundries (GF), received estimates from two contractors to improve traffic flow and repave the parking areas at his production facility. Proposal A includes new
An online commercial directory service must decide between composing the ads for its clients inhouse or paying a production company to compose them. To develop the ads in-house, the company will have
Three methods can be used for producing heat sensors for high temperature furnaces. The interest rate for the economic evaluation is 10% per year.Method A: Fixed cost of $140,000 per yearProduction
Microsurfacing is part of a pavement restoration and maintenance program that seals the surface of a street that has minor cracking to prevent water from penetrating into the base material. The
There are a number of reasons for not paving a rural road, including low traffic volume, property owners who do not want it paved, speed control, and political issues. On the other hand, paved roads
Process A has a fixed cost of $160,000 per year and a variable cost of $50 per unit. For Process B, 10 units can be produced in 1 day at a cost of $200. If the company’s MARR is 10% per year, what
A construction company can purchase a used backhoe for $90,000 and spend $450 per day in operating costs. The equipment will have a 5 year life with no salvage value. Alternatively, the company can
Pure gasoline has an energy density of 115,600 BTU per gallon while ethanol has an energy density of 75,670 BTU per gallon. If gasoline costs $3.50 per gallon,(a) what would the cost of pure ethanol
A two-lane road surface can be finished with concrete or asphalt. Concrete will cost $2.3 million per mile (excluding right-of-way, environmental mitigation, or soil and site conditions) and will
A rotational molding operation has fixed costs of $10,000 per year and variable costs of $50 per unit. If the process is automated via conveyor, its fixed cost will be $22,800 per year but its
An automobile company is investigating the advisability of converting a plant that manufactures economy cars into one that will make retro sports cars. The initial cost for equipment conversion will
You work for Bellevue Window Products. While performing an analysis for a new window product, you found a report from last year that provided the following information regarding the manufacture of a
A financial services consulting company bought an office building for $900,000. The company has 10 professional staff members. Monthly expenses for salaries, utilities, grounds maintenance, etc. are
The landfill for Wellsburg has an area of 30 acres available for receiving waste from the city of 40,000 people who generate 25,000 tons of municipal solid waste (MSW) per year. If the fixed cost of
If the cost of gasoline is $2.50 per gallon, how far out of your way (one way) could you afford to drive (in miles) to a service station that has gasoline at $2.25 per gallon if your vehicle gets 30
Freeport McMoRan engineers estimated that the capital investment necessary for recovering valuable metals (nickel, silver, gold, etc.) from a copper refinery’s wastewater would be $150 million. The
The costs and revenue projections for a new product are estimated. What is the estimated profit at a production rate of 20% above breakeven?Fixed cost = $500,000 per yearProduction cost per unit =
Handheld fiber optic meters with white light polarization interferometry are useful for measuring temperature, pressure, and strain in electrically noisy environments. The fixed costs associated with
An independent over-the-road (OTR) truck driverowner paid $68,000 for a used tractor-trailer. The salvage value of the rig after 5 more years of use is expected to be $36,000. The operating cost is
A manufacturing process at Simplicity XP has a fixed cost of $40,000 per month. A total of 100 units can be produced in 1 day at a cost of $3000 for materials and labor for the day. If the
The fixed cost at Harley Motors is $5 million annually. The main product has revenue of $89 per unit and $45 variable cost. Estimate the following:(a) Breakeven quantity per year;(b) Annual profit if
From the five independent projects shown below, the one(s) to select with a capital limitation of $35,000 is/are:(a) P(b) PT(c) T(d) Q Initlal PW at 12% Investment $, Life, Years per Year, $ Project
The profitability index at 10% per year for a project that has an initial investment of $400,000, an AOC of $80,000 per year, revenue of $170,000 per year, and a salvage value of $60,000 after its
A dependent project is one whose acceptance or rejection is based on:(a) Its rate of return with respect to the MARR(b) The amount of capital available for investment(c) A decision about another
There are five independent projects that must be evaluated on the basis of the profitability index.(a) Given an investment limit of $35 million and a MARR of 10% per year, select from the
Determine the IROR and profitability index at 12% per year for an industrial smart-grid system that has a first cost of $400,000, an AOC of $75,000 per year, estimated annual savings of $192,000, and
The Board of Directors at Senico Systems is considering investment in five independent projects, all of which can be considered to last indefinitely. The MARR is 12% per year.(a) Determine which
Rincon, LLC is considering a project that will require an initial investment of $750,000 with estimated net income of $135,000 per year for 10 years.(a) Determine the IROR, PI, and PW values at MARR
Use repeated spreadsheet solutions of the capital budgeting problem with investment limits ranging from $0.5 million to $2.5 million (in $0.25 million increments, i.e., $250 increments since all
Develop the linear programming model and use a spreadsheet to select the vendor(s) that offer the best opportunity economically. The city’s MARR is 5% per year and the investment limit is
Use linear programming, a spreadsheet, and the Solver tool to select from the independent, unequal life projects in Problem 12.18.Data from problem 12.18 Project Cost, $ Millions Life, Years NCF, $
Using a spreadsheet,(a) Work Problem 12.19 as stated,(b) Expand the bundles to allow up to three projects and no more than $25,000 invested.Data from problem 12.19 4 Project Investment, $ -5000 -7000
The PW of five independent projects have been calculated at an MARR of 12% per year. Select the best combination at a capital investment limit of (a) $25,000,(b) $49,000, and(c) Unlimited.
Feng Seawater Desalination Systems has established a capital investment limit of $800,000 for next year for projects that target improved recovery of highly brackish groundwater. All projects have a
Abel and Family Perfumes wants to add one or more of four new products to its current line of colognes. Historically, Abel has used a 5 year project recovery period and a MARR of 20% per year.(a)
An engineer at Suncore Micro, LLC calculated the present worth of mutually exclusive bundles, each comprised of one or more independent projects.(a) Select the acceptable bundle if the capital
Develop all(a) Acceptable,(b) Nonacceptable mutually exclusive bundles for four independent projects if the investment limit is $350 and the following project selection restriction applies: Project 2
Develop all of the mutually exclusive bundles from independent projects identified as A, B, and C.
How many mutually exclusive bundles can be formed from the following number of different independent projects:(a) 5;(b) 8;(c) 13?(d) By what amount is each total reduced if the DN project is not an
State the difference between a contingent project and a dependent project.
List at least three characteristics of a capital budgeting study.
The cost characteristics of a CO testing machine that was purchased 5 years ago for $100,000 are shown below. The equation to determine the AW of retaining the tester one more year and then replacing
A presently owned machine has the projected market value and M&O costs shown below. At an interest rate of 10% per year, the AW for keeping the machine 2 more years is closest to:(a) $29,650(b)
Assume the MARR is 10% per year for this analysis. A presently owned machine that was purchased 8 years ago for $450,000 is under consideration for replacement. It has an annual operating cost of
From the data shown below, the economic service life of the asset is:(a) 2 years(b) 3 years(c) 4 years(d ) 5 years AW of AW of AW of Years Retained First Cost, $ Operating Cost, $ Salvage Value, $ -
A milling machine with enhanced CNC controls that allow for high speed machining of free-form parts was purchased 2 years ago for $195,000. The company wants to purchase a recently available faster
The economic service life of an asset is:(a) The length of time required to recover the first cost of the asset(b) The time when the operating cost is at a minimum(c) The time when the salvage value
A replacement analysis is most objectively conducted from the viewpoint of:(a) An outsider(b) A consultant(c) A nonowner(d) Any of the above
In a replacement study, the correct value to use when determining the purchase price of the challenger is:(a) Its first cost when it was purchased(b) Its first cost minus the trade-in value of the
First, develop the spreadsheet to confirm the replacement study decision conducted for Randall- Rico Consultants in Problem 11.31. Then answer the questions below posed by Mr. Randall in a meeting
Halcrow, Inc. expects to replace a downtime tracking system currently installed on CNC machines. The challenger system has a first cost of $70,000, an estimated AOC of $20,000 the first year
Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine, working in that environment, is deteriorating fast and can be used for only 1 more year,
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
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
Huntington Medical Center purchased a used lowfield MRI scanner 2 years ago for $445,000. Its operating cost is $272,000 per year and it can be sold for $150,000 anytime in the next 3 years. The
In order to replace an old process for producing a polymer that reduces friction loss in engines, two current-technology machines have been identified. Process K will have a first cost of $160,000,
A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of customers. It can be upgraded now for $79,000 or sold to a smaller company internationally for $40,000. The
An electric company must decide between two options for managing the blowdown water from its cooling tower. Option 1 is to continue the lease on 50 acres of land for another 5-year period and dispose
The estimated future market values and M&O costs for an in-place backup generator at MediCare Hospital and a possible replacement are shown below. Mrs. Jamison, Hospital Director, told you that
A textile processing company is evaluating whether it should retain the current bleaching process that uses chlorine dioxide or replace it with a proprietary oxypure process. The relevant information
A small company that manufactures vibration isolation platforms is trying to decide whether it should replace the current assembly system (D), which is rather labor intensive, now or 1 year from now
The plant manager has 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
State-of-the-art digital imaging equipment purchased 2 years ago for $50,000 had an expected useful life of 5 years and a $5000 salvage value. After its installation the performance was poor, and it
A presently owned machine can last 3 more years, if properly maintained at a cost of $15,000 per year. Its AOC is $31,000 per year. After 3 years, it can be sold for an estimated $9000. A replacement
State what is meant by the cash flow approach and list two of its limitations in a replacement study.
What is meant by the opportunity-cost approach for a replacement study?
If a replacement study is performed and the defender is selected for retention for nD years, explain what should be done 1 year later if a new challenger is identified.
What is the fundamental difference between the AW analysis that you learned in Chapter 6 and the AW-based replacement analysis that you are learning in this chapter?
An injection molding system has a first cost of $180,000, and an annual operating cost of $84,000 in years 1 and 2, increasing by $5000 per year thereafter. The salvage value of the system is 25% of
A piece of onboard equipment has a first cost of $600,000, an annual cost of $92,000, and a salvage value that decreases to zero by $150,000 each year of the equipment’s maximum useful life of 5
When determining the economic service life of a new piece of equipment, an engineer made the calculations below; however, the annual worth of the salvage value for 2 years of retention was omitted.
From the data shown, determine the ESL of the asset. Values in the table are AW values, not individual year-end values. AW of Years AW of AW of First Cost, $ Operating Cost, $ Salvage Value, $
From the data shown, determine the economic service lives of the defender and challenger. Values in the table are AW values, not individual year-end values. AW of Defender, $ AW of Challenger, $
The AW values for retaining a presently owned machine for additional years are shown in the table. Note that the values represent the AW amount for each of the n years that the asset is kept, that
A machine tool purchased 2 years ago for $40,000 has a market value best described by the relation $40,000 − 3000k, where k is the number of years from time of purchase. Experience with this type
A machine purchased 1 year ago for $85,000 costs more to operate than anticipated. When purchased, the machine was expected to be used for 10 years with annual maintenance costs of $22,000 and a
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)
You, an engineer, and an attorney friend, Rob, started a small business 3 years ago to do energy audits for small businesses. A piece of equipment that costs $25,000 then has become prematurely
In a replacement analysis, what number should be used as the first cost for the currently owned asset? How is this value best obtained?
List three reasons why a replacement study might be needed.
Briefly explain what is meant by the defender/ challenger concept.
Ten noneconomic attributes are identified as A, B, C, ..., J. If they are rank ordered in terms of decreasing importance with a value of 10 assigned to A, 9 to B, etc., the weighting of attribute B
Alternative locations for an advanced wastewater recycling plant are being evaluated using four attributes identified as attributes 1, 2, 3, and 4 with weights of 0.4, 0.3, 0.2, and 0.1,
Three attributes are first cost, safety, and environmental concerns. Assigned importance scores are 100, 75, and 50, respectively. The weight for environmental concerns is closest to:(a) 0.44(b)
All of the following are acceptable attribute identification approaches, except:(a) Employing small group discussions(b) Using the same attributes that competing entities use(c) Getting input from
All of the following are factors that affect the effective MARR of a project, except:(a) Project risk(b) Product selling price(c) Availability of capital(d ) Attractiveness of other investment
For a 60–40 D-E mix of investment capital, the maximum cost for debt capital that would yield a WACC of 10% when the cost of equity capital is 4% is closest to:(a) 8%(b) 12%(c) 14%(d ) 16%
All of the following are examples of debt capital, except:(a) Mortgage on equipment(b) Long-term bonds(c) Short-term loan from a bank(d) Preferred stock
To work this problem via spreadsheet, please refer to the data in Problem 10.50.(a) Determine which proposal, A or B, to select using the weighted attribute method and the importance scores for the
An airport Baggage Handing 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=
In problem 9.38, Mosaic Software could invest $10,000,000 over a 6 year period with a net cash flow estimate of $1,115,000 per year. The equity portion of the investment will cost 9.25% per year;
Financing plans for a project are summarized below for Encore Productions.(a) Plot the WACC and indicate the D-E mix with the lowest WACC.(b) Yesterday, the president of Angkor Bank, the bank that
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) What is the sum of the scores?(b) What is the weight for
Deavyanne Johnston, the engineering manager at TZO Chemicals, is conducting an evaluation of alternatives based on ROR. She was given the following data and told that due to the unusually large
Mrs. McKay€™s Nutrition Products has different methods by which a $600,000 project can be funded using debt and equity capital. A net cash flow of $90,000 per year is estimated for 7
Halifax Technologies primarily relies on 100% equity financing to fund projects. A good opportunity is available that will require $250,000 in capital. The Halifax owner can supply the money from
Mosaic Software has an opportunity to invest $10,000,000 in a new engineering remote-control system for offshore drilling platforms in partnership with two other companies. Financing for Mosaic will
Common stock issued by Meggitt Sensing Systems paid stockholders an initial dividend of $0.93 per share on an average price of $18.80 last year. The company expects to grow the dividend rate at a

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