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engineering economy
Engineering Economy 8th edition Leland T. Blank, Anthony Tarquin - Solutions
Bristol-Myers-Squibb purchased a tablet-forming machine in 2010 for $750,000. The company planned to use the machine for 10 years and then sell it for $50,000; however, due to rapid obsolescence, it will be retired after only 6 years in 2016.(a) Determine the capital investment remaining when the
A special-purpose digitizing system just acquired by Bzybee Consultants has B = $50,000 and a 4-year recovery period.(a) What is the accumulated depreciation after year 3 if the salvage value of the system is $5000?(b) What is the total amount of depreciation remaining?
An asset owned by Photon Environmental was book-depreciated by the straight line method over a 5-year period with book values of $296,000 and $224,000 in years 2 and 3, respectively. Determine(a) The salvage value S used in the calculation,(b) The unadjusted basis B.
Kobi Technologies book-depreciated an asset at $27,500 per year for 4 years using the straight line method. If the book value at the end of year 2 was $65,000, determine the asset’s(a) Salvage value,(b) First cost.
A company that manufactures pulse doppler insertion flow meters uses the straight line method for book depreciation purposes. Newly-acquired equipment has a first cost of $170,000 with a 3-year life and $20,000 salvage value. Determine the depreciation charge and book value for year 2.
Goodson Healthcare purchased a new sonogram imaging unit for $300,000 and a truck body and chassis for an additional $100,000 to make the unit mobile. The unit-truck system will be depreciated as one asset. The functional life is 8 years, and the salvage is estimated to be 10% of the purchase price
What is the depreciation rate dt each year t for an asset that has a 5-year recovery period and is straight line depreciated?
Quantum Electronic Services paid P = $40,000 for its networked computer system. Both tax and book depreciation accounts are maintained. The annual tax recovery rate is based on the previous year€™s book value (BV), while the book depreciation rate is based on the original first cost (P).
Jobe Concrete Products placed a new sand sifter into production 3 years ago. It had an installed cost of $100,000, a life of 5 years, and an anticipated salvage of $20,000. Book depreciation charges for the 3 years are $40,000, $24,000, and $14,000, respectively.(a) Determine the book value after 2
Cyber Manufacturing purchased a complete video borescope system for applications that require work in places where eyes cannot see. The purchase price was $18,000, shipping and delivery was $300, installation cost was $1200, tax recovery period was 7 years, estimated useful life was 10 years,
There are three different life (recovery period) values associated with a depreciable asset. Identify each by name and explain how it is correctly used.
Describe a condition under which they will have significantly different values.
What is meant by an asset’s unadjusted basis? Adjusted basis?
How does tax depreciation affect income taxes?
A possible disadvantage of the ABC method is:(a) It does not allocate costs to the way production work occurs(b) It is more expensive to operate than a traditional allocation system(c) It does not help understand the economic impact of management decisions(d) It cannot identify wasteful products
The delivered equipment cost for setting up a production and assembly line for two-way floating ball valves is $650,000. If the direct cost and indirect cost factors are 1.82 and 0.31, respectively, and only the direct cost factor applies to delivered equipment cost, the total plant cost estimate
If a hospital cafeteria is the activity to receive indirect cost allocation for the year, cost driver(s) for the ABC method that seem reasonable may be:1 – Number of cafeteria employees2 – Number of meals3 – Hospital patient volume(a) 1(b) 2(c) 3(d) 1 and 2
If the cost of an imported high-speed assemblyline robot is $80,000 and the in-country cost for one with twice the capacity is $120,000, the value of the exponent in the cost-capacity equation is closest to:(a) 0.51(b) 0.58(c) 0.62(d) 0.69
The cost of an electrode position control system in an electric arc furnace was $16,000 when the applicable equipment cost index had a value of 1192. If the current index value is 1364 and the exponent in the cost-capacity equation has a value of 0.65, the estimated cost now of a similar system
The cost for a 200-horsepower pump with a VFD controller is $42,000. The cost estimate of a similar pump of 300 horsepower capacity, provided the exponent in the cost-capacity equation is 0.64, is closest to:(a) $47,240(b) $48,520(c) $53,780(d) $54,440
The cost for constructing a small building in 1999 was $700,000. The construction cost index was 6059 at that time. The estimated cost of a similar building when the index value is 10,000 is closest to:(a) $424,130(b) $1,155,300(c) $1,347,200(d) $1,384,500
The total mechanical and electrical unit costs for a library are listed as $40 per square foot, while total project cost is estimated at $119 per square foot. Based on these values, the percentage of total costs represented by mechanical and electrical costs is closest to:(a) 21%(b) 29%(c) 34%(d)
CarryALL, Inc., makes and sells small cargo trailers to individuals and small businesses. Since its opening in 1990, it has allocated indirect costs (IDC) to its three manufacturing plants based on direct materials cost per unit. Each plant builds different models and sizes. Because of advances in
During a major expansion in 2004, Douwalla’s Import Company developed a new processing line for which the delivered equipment cost was $1.75 million. This year, the board of directors decided to expand into new markets and expects to build the current version of the same line. Estimate the cost
The delivered equipment cost for a fully equipped CNC machining system is $1.6 million. The direct cost factor is 1.52 and the indirect cost factor is 0.31. Estimate the total plant cost if the indirect cost factor applies to(a) The delivered equipment cost only,(b) The total direct cost.
The cost of equipment for manufacturing mineral products in a harsh environment is $2.3 million. If the overall cost factor for this type of facility is 2.25, what is the estimated total plant cost?
Estimate the cost in 2018 of a 1000-horsepower steam turbine air compressor if a 200-horsepower unit costs $160,000 in 1999. The exponent in the cost capacity equation is 0.35 and the equipment cost index increased by 35% over that time period.
Estimate the cost in 2011 of chemical processing equipment if the cost of a unit one-fourth its size was $60,000 in 2005. The exponent in the cost capacity equation is 0.24. Use the M&S equipment cost index to update the cost.
The net annual operating cost (AOC) for a water treatment filtration plant for a semi-conductor fabrication line was estimated to be $1.5 million per year. The estimate was based on the $200,000 per year cost of a 1-MGD plant. The exponent in the cost-capacity equation is 0.80. (a) What was
The cost for construction of a desulfurization system for flue gas from boilers at a 600 MW power plant was estimated to be $250 million. If a similar system for a smaller plant had a cost of $55 million and the exponent in the cost-capacity equation is 0.67, what is the size of the smaller plant
The estimated cost for a multitube cyclone system with a capacity of 60,000 cubic feet per minute is $450,000.(a) If the $200,000 actual cost for a 35,000 cubic feet per minute system was used in the cost-capacity equation, what was the value of the exponent?(b) What can be concluded about the
The cost of a high-quality 250-horsepower compressor was $14,000 when recently purchased. What would a 600-horsepower compressor be expected to cost?
What is the value of the exponent in the costcapacity equation if a pump half the size of a similar, but larger one, costs exactly half as much as the larger one?
Estimate the cost of a 0.75 million gallon per day (MGD) induced-draft packed tower for air-stripping trihalomethanes from drinking water if the cost for a 2-MGD tower is $153,200. The exponent in the cost capacity equation is 0.58.
What is the fundamental difference between estimating costs using a CER and a cost index?
In 2015, Mariam, an engineer with Total Petroleum, decided to invest in stocks of a corporation that concentrates on crude oil production and refined products, though the price of oil is a very volatile commodity during recent years. She found the Global Crude Oil Index (GCO Index as shown in Table
A quadrupole mass spectrometer can be purchased today for $85,000. The owner of a mineral analysis laboratory expects the cost to increase exactly by the specialty laboratory equipment cost index over the next 10 years.(a) If the specialty equipment inflation rate is estimated to be 2% per year for
A survey of total project construction costs for a wide range of buildings (hospitals, schools, banks, nursing homes, etc.) in 2006 found that the average cost was $13,136,431. The mechanical and electrical portions of that cost were $2,511,893 and $1,585,384, respectively. If the total project
The Marshall and Swift (M&S) equipment cost index started with a base value of 100 in 1926. Determine the average (compound) percentage increase per year between 1926 and 2011 when the index value was 1490.2.
A consulting engineering firm is preparing a preliminary cost estimate for a 40-MW advanced combined cycle natural gas-fired power plant. The firm, which completed a similar project in 2012 with a total cost (construction and equipment) of $809.2 million, wants to use a construction cost index to
If the PCI editor at Chemical Engineering (CE) decides to update the Plant Cost Index so that the year 2010 has a base value of 100 instead of the current value of 550.8, determine the PCI values for 2014 and for 2015. Use Table 15€“3 as a reference point.Table 15-3 Pumps, Compressors,
The cost of a piece of equipment was $67,900 when the relevant cost index was 1457.4. Determine the index value when the same equipment was estimated to cost $83,400?
In 2009, the Office of the Under Secretary of Defense projected that a critical International Defense Construction Cost Index would increase from its value then of 3423 to 4098 in 2016. If the actual value in 2016 was 5167,(a) What was the actual building cost inflation rate between 2009 and
AB Jackson Industries installed a compressor and pump system in 2010 at a cost of $87,200. If the FRED equipment cost index applies, what will be the estimated cost now for a similar system when the index value is 273?
The FRED CPI Index (Table 15€“3) can be used to predict the price of household items over the years. In 2011, Sandy and Malcolm purchased a combo clothes washing machine and dryer for $800. Assume it is now 2018 and the combo system has experienced a serious failure and must be replaced
Equipment necessary to manufacture adjustable ball-lock pins for pulling two components together had a cost of $185,000 when the FRED Equipment Cost Index was 210.0. What was the estimated cost of a similar system in 2015 when the index value was 245.9?
Two people developed first-cut cost estimates to construct a new 130,000 square foot building on a university campus. Person A applied a generalpurpose per unit cost estimate of $180 per square foot for the estimate. Individual B was more specific: she used the area estimates and per unit cost
Oil spill cleanup costs for a nation or region can be estimated by taking the average cost for the specified region and multiplying it by various “modification factors” that are a function of oil type (light crude, heavy crude, No. 4 fuel, etc.), spill size (<34 tons, 34–340 tons, etc.),
The Department of Defense uses area cost factors (ACFs) to compensate for differences in construction costs in different parts of the country (and world). The area cost factor for Waianae, Hawaii is 2.19 and for Moody, Alabama is 0.83. If a cold-storage processing warehouse will cost $1,350,000 in
A labor crew for placing concrete consists of one labor foreman at $26.70 per hour, one cement finisher at $29.30 per hour, five laborers at $24.45 per hour each, and one equipment operator at $33.95 per hour. Such a crew, called a C20 crew, can place 165 cubic yards of concrete per 8-hour day.
Estimate the total cost of a house (from purchasing a lot to furnishing it) using the following estimates: House Data Cost Data Purchasing a lot = $2.50/ft? Lot size = 100 × 150 ft Construction = $125/ ft² House size = 50 x 46, of livable space Furnishings = $3000 per room with 75% livable Number
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 $4 million. Perform two analyses: determine the maximum allowed size to be within budget at the first
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 year and inflation rate of 5% per year is closest to:(a) $377,200(b) $605,350(c) $1,318,150(d)
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 similar robot 3 years from now at a market interest rate of 10% per year and inflation rate of 4%
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) $5430(c) $5516(d) $35,000
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) Future dollar amount = 2000(1 + 0.198)7(b) Future dollar amount = 2000/(1.198)7(c) Future dollar
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 closest to:(a) 3%(b) 4%(c) 5%(d) 6%
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 interest rate
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 selected on the basis of an annual worth analysis if the estimates are in(a) Constant-value
(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 and inflation averages 4% per year. All amounts are quoted as future dollars.(b) If the amounts had
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 to increase by 15% per year in each of the next 3 years. Assuming the inflation rate is 4% per year,
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 inflation is 7% per year, how much must the company make each year(a) in constant-value dollars,(b) in
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 inflation rate that may be somewhere between 1% and 8% per year. Develop a graph of how much the
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 capital shall be invested by my executors in safe securities and shall constitute a fund, 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 will be in the account?(b) What will be the purchasing power in terms of today’s dollars?(c) What is
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 cost today will be $740,000. If the cost had increased only by the inflation rate over the 5 years,
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 value, $ х - 18,500,000 -9,000,000 -25,000 -10,000 105,000 82,000 Life, years 10
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 realizes its optimistic MARR objective?
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 maintenance cost of $40,000 per year, and an operating cost of $260 per day. Alternatively, the company
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 $400 per valve. If the company expects to sell 12,000 valves per year, determine the selling price in
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 each event amount to $65 per day. If he charges $300 per day for his services, how many days per year
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 is:(a) 1(b) 2(c) 3(d) 4 PW at 9%, Investment, for Bundle, $ Bundle -18,000 -1,400 -26,000 8,500
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 following independent projects, using a MARR of 10% per year.(b) Use a spreadsheet to determine the minimum
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 investment at the corporate MARR of 15% per year. Perform the analysis in two ways:(a) By hand,(b) Using NPV
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 investments and 18% per-year PW values are as shown. What projects should be accepted if the investment limit
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 the RV (a) By hand solution,(b) Using a spreadsheet. Machine X Machine Y Market value, $
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
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 will have a D-E mix closest to:(a) 60 –40(b) 50 –50(c) 40 –60(d ) 30 –70
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 used to calculate the weighted attribute measure Rj for each alternative.
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 company’s effective tax rate is 39%. What was the company’s cost of debt capital(a) Before taxes,(b)
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 developed over the next 3 years, with the proviso that the amount must have the same purchasing power as
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 deposit, if you want a real return of 10% per year when the inflation rate averages 2.8% per
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 4 years from now. The inflation rate is steady at 5% per year.(a) How many future dollars will be
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 cost of capital. The real interest rate paid on capital is currently 10% per year and the inflation
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% of its after-tax income into such an account.(a) How much will the company have after 7 years if
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 will the printer cost 3 years from now in terms of CV dollars?
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 respect to today’s dollars if the market interest rate is 8% per year and the inflation rate stays at
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% per year. If the account currently is valued at $422,000 and she wants to retire in 15 years, how much
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 their timings are as follows: Year
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 whenever he is given the go-ahead, he has asked you to tell him what the equipment is likely to
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 year for up to a total of 5 years at the same cost plus a percentage increase equal to the inflation
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 million 5 years from now;(3) Pay $200,000 now and $400,000 two years from now.You want to earn a
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 price offered by a competing saleswoman from AG Enterprises. However, IWS said Westco won’t have to
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 the total travel time between refineries. The doctor can buy a used Learjet 31A now for $1.1
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