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engineering economy
Engineering Economy 8th edition Leland T. Blank, Anthony Tarquin - Solutions
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 defender(c) Its first cost plus the trade-in value of the defender(d) The book value of the defender
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 when he was informed of the results of the replacement study.(a) I want to buy the new graphical
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 increasing by 20% per year thereafter, a maximum useful life of 10 years, and a $10,000 market value after 1
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, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88,000;
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
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
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 Center’s director is considering replacing the presently owned MRI scanner with a state-of-the-art 3
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, an operating cost of $7000 per month, and a salvage value of $50,000 after 1 year and $40,000 after
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 upgraded machine will have an annual operating cost of $85,000 per year and a $30,000 salvage value in 3
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 of the water by spray irrigation. The landowner will move the pipe around as necessary and maintain
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 she is interested only in what happens over the next 3 years. If the current generator is to be
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 for each process is shown. Use an interest rate of 15% per year to perform the replacement study.
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 with a system that is more automated (C). Some components of the current system can be sold
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 retained longer than two more years and that once it is replaced, a contractor will provide the same
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 was upgraded for $20,000 one year ago. Increased demand now requires another upgrade for an
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 costs $80,000 with a $10,000 salvage value after 3 years and an operating cost of $19,000 per year.
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 the first cost regardless of when the system is retired within its maximum useful life of 5 years.
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 years. Assume the company’s MARR is 10% per year.(a) Determine the ESL by hand.(b) Use a spreadsheet
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. Complete the analysis by determining the following to make the ESL equal 2 years:(a) Minimum AW of
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, $ Retained -165,000 -36,000 99,000 1 2 -86,429 -36,000 38,095 -42,000 3 -60,317 18,127 4 -47,321 -43,000
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, $ Years Retalned 1 -145,000 -96,429 -136,000 -126,000 -92,000 3 -63,317 -39,321 4 -53,000 -49,570 -38,000
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 is, if it is kept 5 more years, the annual worth is $95,000 for each of the 5 years. Assume 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 of asset has shown that its annual operating cost is described by the relation $30,000 + 1000k. The
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 $10,000 salvage value. However, last year, it cost the company $35,000 to maintain it, and these costs
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,(c) Limited wherein the period is a
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 obsolete and needs to be replaced with a solid state version that has a purchase price of $20,000 and the
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 is closest to:(a) 0.24(b) 0.17(c) 0.08(d) 0.04
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, respectively. If the value rating scale is from 1 to 10, and the ratings are 3, 7, 2, and 10 for attributes 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) 0.33(c) 0.22(d) 0.11
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 experts with relevant experience(d ) Surveying the stakeholders
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 opportunities
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 manager and the supervisor.(b) You have given proposal B a very low rating, Vij, for safety, only
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= $460,000 and PWB= $395,000. In addition to this economic measure, three more attributes were
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; however, the debt portion can vary from 20% to 80% of the total amount, and the required loan rate may
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 usually makes loans to Encore, informed the CFO that interest rates on all loans will increase by 1%
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 attribute D?(c) Answer the two questions above if Jill decides that attribute D has the same
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 number of investment opportunities the company now has, all future projects must have a ROR that is at
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 years.Determine the rate of return for each plan, and identify the ones that are economically acceptable
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 personal investments that currently earn an average of 8.5% per year. The annual net cash flow from the
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 be split between common stock sales ($5,000,000) and a loan with an 8% per year interest rate.
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 maximum of 1.5% per year. The stock volatility is 1.19, and other stocks in the same industry are
When the risk-free return is 3.5%, what is the cost of equity capital for a company whose stock has a historical beta factor of 0.92 and the security market indicates that the premium above the risk-free rate is 5%?
What dividend growth rate would be required to produce a cost of equity capital of 8% when the common stock price is $140 per share and the dividend is $4.76 per share?
BBK Industries plans to sell 2 million shares of its common stock for $80 per share, with an annual dividend of $1.90 per share. Determine the lower cost of equity capital under the following conditions:(a) The company expects a dividend growth rate of 3% per year,(b) A 5% discount is offered to
Harris International currently pays a dividend of $3.24 per share on its preferred stock that sells for $54 per share. In order to raise capital to purchase a smaller competitor, the company plans to issue 2.7 million shares of preferred stock at a 10% discount to its current price. Determine(a)
Which form of financing has the lower after-tax cost, debt or equity? Why?
An international pharmaceutical company is initiating a new project that requires $2.5 million in debt capital. The current plan is to sell 20 year bonds that pay 4.2% per year, payable quarterly, at a 3% discount on the face value. The company has an effective tax rate of 35% per year.
Engineers at a semiconductor company developed an improved front end-of-line (FEOL) formulation process that requires an investment of $6 million. The company plans to issue $6 million worth of 10-year bonds that will pay interest of 6% per year, payable annually. If the company’s effective tax
To understand the advantage of debt capital from a tax perspective in the United States, determine the beforetax and approximated after-tax weighted average costs of capital if a project is funded 40%–60% with debt capital borrowed at 9% per year. A recent study indicates that corporate equity
Determine the WACC for Delta Corporation, which manufactures miniature triaxial accelerometers for space-restricted applications. The financing profile, with interest rates, is as follows: $3 million in stock sales at 8% per year, $4 million in bonds at 9%, and $6 million in retained earnings at
Alpha Engineering invested $30 million using a D-E mix of 65%–35% for the development, marketing, and delivery of a web-based training program for project management. Determine the return on the company’s equity if the net income from the sale of the program for the first year was $4 million
A public corporation in which you own common stock reported a WACC of 10.7% for the year in its annual report to stockholders. The common stock that you own has averaged a total return of 6% per year over the last 3 years. The annual report also mentions that projects within the corporation are
Seven different financing plans with their D-E mixes and costs of debt and equity capital for a new innovations project are summarized below. Use the data to determine what mix of debt and equity capital will result in the lowest WACC. Debt Capltal Equity Capital Plan Percentage Rate, % Percentage
Tiffany Baking Co. wants to arrange for $37.5 million in capital for manufacturing a new baked potato chip product line. The current financing plan is 60% equity and 40% debt capital. Calculate the expected WACC for the following financing scenario:Equity capital: 60%, or $22.5 million, via common
Nano-Technologies bought out RT-Micro using financing as follows: $16 million from mortgages, $4 million from retained earnings, $12 million from cash on hand, and $30 million from bonds. Determine the debt-to equity mix.
Nucor Corp. manufactures generator coolers for nuclear and gas turbine power plants. The company completed a plant expansion through financing that had a debt/equity mix of 40%–60%. If $15 million came from mortgages and bond sales, what was the total amount of the financing?
A new cross-country, trans-mountain water pipeline needs to be built at an estimated first cost of $200,000,000. The consortium of cooperating companies has not fully decided the financial arrangements of this adventurous project. The WACC for similar projects has averaged 10% per year.(a) Two
Five independent projects were ranked in decreasing order by two measures€”rate of return (ROR) and present worth (PW)€”to determine which should be funded with the total initial investment not to exceed $30 million.(a) Use the results below to determine the opportunity cost in
State whether each of the following involves debt financing or equity financing:(a) A bond issue for $3,500,000 by a city-owned utility(b) An initial public offering (IPO) of $35,000,000 in common stock for a dot-com company(c) $31,000 taken from your retirement account to pay cash for a new
The owner of a small pipeline construction company wants to determine how much he should bid in his attempt to win his first “big” contract. He estimates that his cost to complete the project will be $7.2 million in PW equivalency. He wants to bid an amount that will generate an after-tax rate
Lodi Enterprises uses an after-tax MARR of 15% per year. If the company’s effective tax rate (federal, state, and local taxes) is 38%, determine the company’s before-tax MARR.
An alternative has the following cash flows: benefits = $50,000 per year; disbenefits = $27,000 per year; costs = $25,000 per year. The B/C ratio is closest to:(a) 0.92(b) 0.96(c) 1.04(d) 2.00
After 15 years of employment in the airline industry, John started his own consulting company to use physical and computer simulation in the analysis of commercial airport accidents on runways. He estimates his average cost of new capital at 8% per year for physical simulation projects, that is,
For each of the following factors, state if it will raise or lower the MARR:(a) Higher risk(b) Company wants to expand into a competitor’s area(c) Higher corporate taxes(d) Limited availability of capital(e) Increased market interest rates(f) Government imposition of price controls
State how the opportunity cost sets the MARR when, because of limited capital, only one alternative can be selected from two or more.
Identify the two primary sources of capital and state what is meant by each.
Of the following words, the one not related to ethics is:(a) Virtuous(b) Honest(c) Lucrative(d) Proper
The statements contained in a code of ethics are variously known as all of the following, except:(a) Canons(b) Norms(c) Standards(d) Laws
Cost-effectiveness analysis (CEA) differs from benefit/cost analysis (B/C) in that:(a) CEA cannot handle multiple alternatives(b) CEA compares alternatives on the basis of a specific outcome rather than solely on monetary units(c) CEA cannot handle independent alternatives(d) CEA is more time
The estimated first cost of a permanent national monument is $2 million with annual benefits and disbenefits estimated at $360,000 and $42,000, respectively. The B/C ratio at 6% per year is closest to:(a) 0.16(b) 0.88(c) 1.73(d) 2.65
For the two independent projects shown, determine which, if any, should be funded at i = 10% per year using the B/C ratio method:(a) Fund neither(b) Fund X(c) Fund Y(d) Fund both X and Y Alternative х 60,000 45,000 Annualized first cost, $/year Annual M&O cost, $/year Annual benefits, $/year
A permanent flood-control dam is expected to have an initial cost of $2.8 million and an annual M&O cost of $20,000. In addition, minor reconstruction will be required every 5 years at a cost of $200,000. As a result of the dam, flood damage will be reduced by an average of $310,000 per year.
The first cost of grading and spreading gravel on a short rural road is expected to be $700,000. The road will have to be maintained at a cost of $25,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off road vehicles.
From the PW, AW, and FW values shown, the conventional B/C ratio is closest to:(a) 1.27(b) 1.33(c) 1.54(d) 2.76 AW, $/Year 16,275 11,197 40,000 PW, $ FW, $ 259,370 178,441 637,496 First cost M&O cost Benefits Disbenefits 100,000 68,798 245,784 30,723 79,687 5,000
All of the following are examples of unethical behavior, except:(a) Deception(b) Withholding information(c) Lying(d) Offering engineering services at a lower cost than a competitor
In evaluating three mutually exclusive alternatives by the B/C method, the alternatives were ranked A, B, and C, respectively, in terms of increasing cost, and the following results were obtained for overall B/C ratios: 1.1, 0.9, and 1.3. On the basis of these results, it is correct to:(a) Select
All of the following cash flows can be identified as benefits, except:(a) Longer tire life because of smooth pavement(b) $200,000 annual income to local businesses because of tourism created by water reservoir(c) Expenditure of $20 million for construction of a highway(d) Fewer highway accidents
All of the following are primarily associated with public sector projects, except:(a) Low interest rates(b) Stocks(c) Benefits(d) Infinite life
When a B/C analysis is conducted, the benefits and costs:(a) Must be expressed in terms of their present worth values(b) Must be expressed in terms of their annual worth values(c) Must be expressed in terms of their future worth values(d) Can be expressed in terms of PW, AW, or FW
When comparing different-life alternatives by the B/C method, the alternatives should be compared over:(a) The life of the shorter-lived alternative(b) The life of the longer-lived alternative(c) The LCM of their lives(d) An infinite time period
Consider the four independent projects outlined below. At 5% per year and a 15-year study period,(a) Determine which projects are acceptable,(b) The value of the annual M&O cost to make any non-acceptable project acceptable with a B/C ratio of at least 1.0. Project First cost,
Use the estimates from Problem 9.39 (repeated below) to answer the questions asked concerning the extraction of rare metals in a National Wildlife Preserve. Utilize the B/C method, a 5-year study period, and a discount rate of 10% per year. The monetary unit is $ million.(a) Which site is the best
There are two potential locations to construct an urgent care walk-in clinic to serve rural residents. The DN alternative is an option since the clinic is not a requirement; it would be a convenience for future patients. When incremental B/C analysis was applied at a discount rate of 8% per year,
For the FOUNDATION Fieldbus H1 installation analyzed in Problem 9.27, do the following: (Data is repeated below.)(a) Find the PI for the first 6 years of operation.(b) Find the required ΔNCF for next year if Dickinson plans to invest an additional $150,000 in year 7 and wants to realize
In most developed countries, laws that prohibit texting-while-driving (TWD) have been enacted. Hambara and Associates, a systems engineering consulting company, has won the contract to assist the Callaghan Police Department in implementing projects that will have a zero-tolerance policy for TWD,
An engineering student has only 45 minutes before the final exam in her Engineering Economy class. She needs help in understanding cost effectiveness analysis because she knows from the instructor€™s review session that a CEA problem will be on the exam. There is time for using only one
There are a number of techniques to help people stop smoking, but their cost and effectiveness vary widely. One accepted measure of effectiveness of a program is €œpercentage of enrollees quitting.€ The table in this problem shows several techniques touted as effective stop
Various techniques have been proposed to curb cross-border drug smuggling into a country. The costs of implementing each strategy along a particularly rugged section of the border are indicated below. The table also includes a score that is compiled based on deterrence, interdiction, and
Several alternatives are under consideration to enhance security at a county jail. Since the alternatives serve different areas of the facility, all that are economically attractive will be implemented. Determine which one(s) should be selected, based on a B/C analysis using an interest rate of 7%
In order to safeguard the public health, environment, public beaches, water quality, and economy of south San Diego County, California, and Tijuana, Mexico, federal agencies in the United States and Mexico developed four alternatives for treating wastewater prior to discharge into the ocean. The
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