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engineering economy

Engineering Economy 8th edition Leland T. Blank, Anthony Tarquin - Solutions

1. If the MARR = 12%, which server should be selected? Use the PW or AW method to make the selection.2. Use incremental ROR analysis to decide between the servers at MARR = 12%.3. Use any method of economic analysis to display on the spreadsheet the value of the incremental ROR between server 2
When applying the MIRR approach to determine the external rate of return of a project, which of the following statements is true?(a) The borrowing rate, ib, is usually equal to the MARR.(b) The borrowing rate, ib, is usually greater than the investment rate, ii.(c) The borrowing rate, ib, is
A municipal bond with a face value of $10,000 was issued today with an interest rate of 6% per year payable semiannually. The bond matures 20 years from now. If an investor paid $9,000 for the bond and holds it to maturity, all of the following equations will yield the correct semiannual rate of
When positive net cash flows are generated before the end of a project, and when these cash flows are reinvested at an interest rate that is greater than the internal rate of return,(a) The resulting rate of return is equal to the internal rate of return.(b) The resulting rate of return is less
According to Norstrom’s criterion, there is only one positive rate of return value in a cash flow series when:(a) The cumulative cash flow starts out positive and changes sign only once(b) The cumulative cash flow starts out negative and changes sign only once(c) The cumulative cash flow total is
During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond that was issued 15 years ago is for sale for
The capitalized cost of machine Y is closest to:(a) $17,726(b) $86,590(c) $177,260(d) $207,720Problem is based on the following cash flows for alternatives X and Y at an interest rate of 10% per year. Machine Initial cost, $ AOC, $/year Annual revenue, $/year Salvage value, $ Life, years -220,000
Define the term capitalized cost and give a real world example of something that might be analyzed using a capitalized cost evaluation technique.
A small company plans to spend $10,000 in year 2 and $10,000 in year 5. At an interest rate of effective 10% per year, compounded semiannually, the equation that represents the equivalent annual worth in years 1 through 5 is:(a) A = 10,000(P∕F10%,2)(A∕P,10%,5) + 10,000(A∕F,10%,5)(b) A =
Solve Problem 4.19 by applying the EFFECT function to determine the rates.Problem 4.19Jennifer and Rex both receive a dividend from their 401(k) retirement plan every 6 months. The earning rates for this year have been 5% per year, compounded quarterly for Jennifer, and 4.85% per year, compounded
An interest rate of 12% per year, compounded monthly, is nearest to:(a) 12.08% per year(b) 12.28% per year(c) 12.48% per year(d) 12.68% per year
A very optimistic hedge fund investor expects his single-deposit investment to triple in value in 5 years.(a) What is the required effective monthly rate, compounded continuously?(b) What is the corresponding effective annual rate needed?
McMillan Company manufactures electronic flow sensors that are designed as an alternative to balland- tube rotometers. The company recently spent $3 million to increase the capacity of an existing production line. If the extra revenue generated by the expansion amounts to $200,000 per month, how
Thermal Systems, a company that specializes in odor control for wastewater treatment plants, made deposits of $100,000 now and $25,000 every 6 months for 2 years. Determine the future worth after 2 years of the deposits for i = 16% per year, compounded quarterly.
First Corp Bank advertises interest paid at 2% every 6 months. What is the APR?
A large water utility is planning to upgrade its SCADA system for controlling well pumps, booster pumps, and disinfection equipment so that everything can be centrally controlled. Phase I will reduce labor and travel costs by $28,000 per year. Phase II will reduce costs by an additional $20,000 per
For the cash flow diagram shown, determine the value of G that will make the present worth in year 0 equal to $2500 at an interest rate of 10% per year. i = 10% per year %3D 2 3 1 5 Year 900-3G 900-2G 900-G 900
For the cash flows shown, calculate the equivalent annual worth in years 1 through 4 at an interest rate of 10% per year. 3 4 Year 250,000 275,000 300,000 325,000 375,000 Cash Flow, $
After you have conducted a future worth comparison of alternatives, what do you multiply the FW values by in order to obtain the AW values of the alternatives?
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, the
The annual worth for years 1 through infinity of $50,000 now, $10,000 per year in years 1 through 15, and $20,000 per year in years 16 through infinity at 10% per year is closest to:(a) less than $16,900(b) $16,958(c) $17,395(d) $19,575
In comparing the alternatives on a future worth basis, the FW of machine X is closest to:(a) $23,160(b) $40,560(c) $58,950(d) $71,860Problem is based on the following cash flows for alternatives X and Y at an interest rate of 10% per year. Machine Initial cost, $ AOC, $/year Annual revenue, $/year
The initial cost of a packed-bed degassing reactor for removing trihalomethanes from potable water is $84,000. The annual operating cost for power, site maintenance, etc. is $13,000. If the salvage value of the pumps, blowers, and control systems is expected to be $9000 at the end of 10 years, the
In comparing the alternatives on a present worth basis, the PW of machine X is closest to:(a) $23,160(b) $40,560(c) $58,950(d) $72,432Problem is based on the following cash flows for alternatives X and Y at an interest rate of 10% per year. Machine Initial cost, $ AOC, $/year Annual revenue, $/year
For the cash flow diagram shown, the future worth in year 4 is closest to:(a) <$2800(b) $2915(c) $3735(d) $5219 i = 7%/semiannual period 2. 3 4 Years Semiannual periods 5 200 220 270 320 370 420 470 3. 2.
The cost of replacing a high-definition television production line in 6 years is estimated to be $500,000. At an interest rate of 14% per year, compounded semiannually, the uniform amount that must be deposited into a sinking fund every 6 months beginning now is closest to:(a) <$21,000(b)
The cost of maintaining a permanent monument is expected to be $70,000 now and $70,000 every 10 years forever. At an interest rate of 10% per year, the capitalized cost is nearest:(a) $−11,393(b) $−58,930(c) $−84,360(d) $−113,930
Define the term reinvestment rate and describe how it differs for any cash flow series between(1) A PW value calculated at the MARR,(2) The IROR value i*.
The annual worth of alternative Y is closest to:(a) $ˆ’50,000(b) $ˆ’76,625(c) $ˆ’90,000(d) $ˆ’92,000Problem is based on the following cash flows and an interest rate of 10% per year. Alternative First cost, $ Annual cost, $/year Salvage value, $ |Life, years
The annual worth of perpetual service for alternative X is represented by the following equation:(a) ˆ’200,000(0.10) ˆ’ 60,000 + 20,000(0.10)(b) ˆ’200,000(Aˆ•P,10%,5) ˆ’ 60,000 + 20,000(Aˆ•F,10%,5)(c)
In comparing the alternatives by the annual worth method, the AW of X is determined by the following equation:(a) ˆ’200,000(0.10) ˆ’ 60,000 + 20,000(0.10)(b) ˆ’200,000(Aˆ•P,10%,5) ˆ’ 60,000 + 20,000(Aˆ•F,10%,5)(c)
The estimates for two alternatives are to be compared on the basis of their perpetual equivalent annual worth. At an interest rate of 10% per year, the equation that represents the perpetual AW of Y1 is:(a) AWY1 = ˆ’90,000(0.10) ˆ’ 4000 + 15,000(0.10)(b) AWY1 =
To get the AW of a cash flow of $10,000 that occurs every 10 years forever, with the first one occurring now, it is correct to:(a) Multiply the $10,000 by (A∕P,i,10 )(b) Multiply the $10,000 by (A∕F,i,10 )(c) Multiply the $10,000 by i(d) Multiply the $10,000 by (A∕F,i,n) and then multiply by i
You will make equal deposits into your retirement account each year for 10 years starting now (i.e., years 0–9). If you expect to withdraw $50,000 per year forever beginning 30 years from now, and the funds will earn interest at 10% per year, the size of the 10 deposits is nearest:(a) $4239(b)
If you have the annual worth of an alternative with a 5-year life, you can calculate its perpetual annual worth by:(a) No calculation needed. The perpetual annual worth is equal to the annual worth(b) Multiplying the annual worth by (A∕P,i,5)(c) Dividing the annual worth by i(d) Multiplying the
The AW amounts of three revenue alternatives are $−23,000 for alternative A, $−21,600 for B, and $−27,300 for C. On the basis of these AW values, the correct decision is to:(a) Select alternative A(b) Select alternative B(c) Select alternative C(d) Select the Do Nothing alternative
The AW values of three cost alternatives are $−23,000 for alternative A, $−21,600 for B, and $−27,300 for C. On the basis of these results, the decision is to:(a) Select alternative A(b) Select alternative B(c) Select alternative C(d) Select the Do Nothing alternative
If you have the capitalized cost of a certain alternative that has a 5-year life, you can get its annual worth by:(a) Multiplying the CC by i(b) Multiplying the CC by (A∕F,i,5)(c) Multiplying the CC by (P∕A,i,5)(d) Multiplying the CC by (A∕P,i,5)
An automaton asset with a high first cost of $10 million has required capital recovery (CR) of $1,985,000 per year. The correct interpretation of this CR value is that:(a) The owner must pay an additional $1,985,000 each year to retain the asset.(b) Each year of its expected life, a net revenue of
Cost increases imposed by design changes introduced at different times during advancing stages of the product life cycle (PLC) usually rise dramatically as the change is introduced later in the life cycle of the product. Though the numbers vary from one industry to another, one cost-increase model
Three methods to dispose of nonhazardous waste have been developed€”land application, fluidizedbed incineration, and private disposal contract. Use AW analysis and an associated scatter chart of AW versus i values to select the economically best alternative for interest rates between i =
This problem requires the development of a spreadsheet and associated scatter chart to answer the economic questions. As you came to work this morning, your department head asked you to perform an analysis of installing MAP/TOP in the manufacturing planning division of the company. (MAP/TOP is a
Problem 6.9 described Google’s rental agreement for an airbase in California. It included the following estimates: P = $1.16 billion; M&O = $0.0063 billion per year; refurbishment cost = $0.0026 billion in year 4; n = 60 years; and i = 15% per year.(a) You calculated the AW over 60 years.
ABC Beverage, LLC purchases its 355-ml cans in large bulk from Wald China Can Corporation. The finish on the anodized aluminum surface is produced by mechanical finishing technologies called brushing or bead blasting. Engineers at Wald are switching to more efficient, faster, and cheaper machines
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 restriping, weed control, light replacement, shoulder repairs, etc. For one section of state highway S102, these costs are
Harmony Auto Group sells and services imported and domestic cars. The owner wants to evaluate the option of outsourcing all of its new auto warranty service work to Winslow, Inc., a private repair service that works on any make and year car. Either a 5-year contract basis or 10-year license
Determine the difference in annual worth between an investment of $100,000 per year for 50 years and an investment of $100,000 per year forever at an interest rate of(a) 5%(b) 10% per year. Compare the two differences.
Cisco, Inc. has a proposal from the Engineering Planning Division to invest some of the Cisco retained earnings in the design, testing, and development of the next generation of smart grids useful in the Internet of Things (IoT) environment. The initial investment projection is $5,000,000 in year
The State of Chiapas, Mexico, decided to fund a program for improving reading skills in elementary school students. The first cost is $300,000 now, and an update amount of $100,000 every 5 years forever. Determine the perpetual equivalent annual cost at an interest rate of 10% per year.
How much must you deposit each year into your retirement account starting now and continuing through year 9, if you want to be able to withdraw $80,000 per year forever, beginning 30 years from now? Assume the account earns interest at(a) The generous rate of 10% per year,(b) A more conservative
Calculate the perpetual equivalent annual cost (years 1 to ∞) of $1,000,000 now and $1,000,000 three years from now at an interest rate of 10% per year.
A chemical engineer is considering two sizes of pipes for moving distillate from a refinery to the tank farm. A small pipeline will cost less to purchase (including valves and other appurtenances), but will have a high head loss and, therefore, a higher pumping cost. The small pipeline will cost
Two mutually exclusive alternatives have the estimates shown below. Use annual worth analysis to determine which should be selected at an interest rate of 10% per year. First cost, $ -42,000 -80,000 AOC, $ per year -6,000 -7,000 in year 1, increasing by $1,000 per year thereafter Salvage value, $
Blue Whale Moving and Storage recently purchased a warehouse building in Santiago. The manager has two good options for moving pallets of stored goods in and around the facility. Alternative 1 includes a 4000-pound capacity, electric forklift (P = $−30,000; n = 12 years; AOC = $−1000 per year;
An environmental engineer wants to evaluate three different methods for disposing of a non-hazardous chemical waste: land application, fluidized-bed incineration, and private disposal contract. Use the estimates below to help him determine which has the least cost at i = 10% per year, on the basis
You have two machines under consideration for an improved automated wrapping process for Snickers Fun Size candy bars as detailed below.(a) Using an AW analysis, determine which should be selected at i = 15% per year.(b) Assume you want machine D to be selected and are willing to extend its
Two types of robots (Cartesian and Articulated) with the following estimates are under consideration for a dishwasher assembly process. Using an interest rate of 10% per year, determine which one should be selected on the basis of an annual worth analysis. Robot Carteslan Articulated First cost, $
An international textile company€™s North America Division must decide which type of fabric cutting machines it will use€”straight knife or round knife. The estimates are summarized below. Compare them on the basis of annual worths values at i = 10% per year using(a) Factors,(b)
A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of $36,000, an operating cost of $4000, and a salvage value of $15,000 after 3 years. A Ford model will have a first cost of $32,000, an operating cost of $3100, and also
Your brother, a new college graduate, wants to be his own boss. He wants to open a restaurant in a small strip center or acquire and operate a food truck, an increasingly popular mode of eating, especially in larger cities. The restaurant space can be rented for $2200 per month. Modest furnishings
Two methods can be used for producing solar panels for electric power generation. Method 1 will have an initial cost of $550,000, an AOC of $160,000 per year, and $125,000 salvage value after its 3-year life. Method 2 will cost $830,000 with an AOC of $120,000, and a $240,000 salvage value after
Polymer Molding, Inc. is considering two processes for manufacturing storm drains. Plan A involves conventional injection molding that will require making a steel mold at a cost of $2 million. The cost for inspecting, maintaining, and cleaning the molds is expected to be $60,000 per year. Since the
The Briggs and Stratton Commercial Division designs and manufactures small engines for golf turf maintenance equipment. A robotics-based testing system with support equipment will ensure that their new signature guarantee program entitled €œAlways Insta-Start€ does indeed work
Airodyne Wind, Inc. has wind tunnels that can operate vertically or horizontally for evaluating the effects of air flow on a component’s PCB response and reliability. The company expects to build a new tunnel that will be outfitted with multiple sensor ports. For the estimates below, calculate
The Toro Company is expanding its El Paso, Texas plastic molding plant as it continues to transfer work from Juarez, Mexico contractors. The plant bought a $1.1 million precision injection molding machine to make plastic parts for Toro lawn mowers, trimmers, and snow blowers. The plant also spent
U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $13 million now and another $10 million 1 year from now. If total operating costs will be $1.2 million per year starting 1 year from
In 2016, Google rented 1000 acres of a historic California airbase in the San Francisco Bay Area for $1.16 billion via a 60-year lease. Annual M&O is expected to be $6.3 million. In addition, Google will refurbish three hangars at a cost of $2.6 million 4 years from now. Assuming the $1.16
White Oaks Properties builds strip shopping centers and small malls. The company plans to replace its refrigeration, cooking, and HVAC equipment with newer models in one entire center built 9 years ago. The original purchase price of the equipment was $638,000 nine years ago and the operating cost
Humana Hospital Corporation installed a new MRI machine at a cost of $750,000 this year in its medical professional clinic in Cedar Park. This state-of-the-art system is expected to be used for 5 years and then sold for $125,000. Humana uses a return requirement of 25% per year for all of its
One way to recover invested capital with interest is to collect the principal P over n years as P∕n and also collect the interest on the unrecovered balance. Assume you borrowed $6000 at 10% per year interest with a repayment period of 3 years to purchase a new network controller for your
As discussed in Section 6.2, either of the following two equations can be applied to determine the amount necessary to recover invested capital and a required return:CR1 = −P(A∕P,i,n) + S(A∕F,i,n) orCR2 = −[(P – S)(A/P,i,n) + S(i)]For an alternative that has a first cost of $50,000 and a
A delivery car had a first cost of $30,000, an annual operating cost of $12,000, and an estimated $4000 salvage value after its 6-year life. Due to an economic slowdown, the car will be retained for only 2 years and must be sold now as a used vehicle.(a) At an interest rate of 10% per year, what
A machine used to shread cardboard boxes for composting has a first cost of $10,000, an AOC of $7000 per year, a 3-year life, and no appreciable salvage value. Assume you were told that the service provided by the machine will be needed for only 5 years, which entails a repurchase and retention for
Assume an alternative has a 3-year life and that you calculated its AW value over its 3-year life cycle. If you were asked to provide the AW value of the alternative for a 4-year study period, is the AW value you calculated for the alternative’s 3-year life cycle a valid estimate of the AW over
The future worth of alternative B is closest to:(a) $ˆ’85,000(b) $ˆ’750,000(c) $ˆ’850,000(d) ˆ’ˆžProblem is based on the following cash flows for alternatives A and B at an interest rate of 10% per year. Alternative First cost, $ AOC, $/year Salvage
All of the following equations for calculating the capitalized cost of alternative B are correct, except:(a) CCB = ˆ’750,000 ˆ’ 10,000/0.10(b) CCB = ˆ’750,000 ˆ’ 10,000/0.10 + 2,000,000(0.10)(c) CCB = [ˆ’750,000(0.10) ˆ’ 10,000]/0.10(d)
The capitalized cost of alternative B is nearest:(a) $ˆ’590,000(b) $ˆ’625,000(c) $ˆ’734,000(d) $ˆ’850,000Problem is based on the following cash flows for alternatives A and B at an interest rate of 10% per year. Alternative First cost, $ AOC, $/year Salvage
The present worth of alternative B is nearest:(a) $ˆ’85,000(b) $ˆ’750,000(c) $ˆ’850,000(d) $ˆ’950,000Problem is based on the following cash flows for alternatives A and B at an interest rate of 10% per year. Alternative First cost, $ AOC, $/year Salvage
You have been asked to compare the alternatives on the basis of a present worth comparison. The PW of alternative A is closest to:(a) $ˆ’724,320(b) $ˆ’530,520(c) $ˆ’388,950(d) $ˆ’72,432Problem is based on the following cash flows for alternatives A and B at
An engineer analyzed four independent alternatives by the present worth method. On the basis of her results, the alternative(s) she should select are:(a) Only D(b) Can€™t tell from this information(c) All of them(d) None of them B C D Alternative A Present worth, $ -5000 -2000 -3000 -1000
An upgraded version of a CNC machine has a first cost of $200,000, an annual operating cost of $60,000, and a salvage value of $50,000 after its 8-year life. At an interest rate of 10% per year, the capitalized cost is closest to:(a) $−93,116(b) $−100,060(c) $−931,160(d) $−1,000,600
The capitalized cost of an initial investment of $200,000 and annual investments of $30,000 forever at an interest rate of 10% per year is closest to:(a) $−230,000(b) $−300,000(c) $−500,000(d) $−2,300,000
When comparing mutually exclusive alternatives that have different lives by the present worth method, it is necessary to:(a) Always compare them over a period equal to the life of the longer-lived alternative(b) Always compare them over a time period of equal service(c) Always compare them over a
The present worth of an alternative that provides infinite service is called its:(a) Net present value(b) Discounted total cost(c) Capitalized cost(d) Perpetual annual cost
Petrobras, the Brazilian energy company, has identified two alternatives to provide potable water to offshore platforms—purchase and operate the equipment, or contract long term with Manal and Associates, an international oilfield service corporation. For the estimates shown, use capitalized cost
Hannifin CNG Fuel Dispensers needs to purchase replacement equipment to streamline one of its production lines for a new contract, but may sell the equipment before its expected life is reached at an estimated market value for used equipment. At MARR = 15% per year, select the better option using a
Charlie€™s Truck Repair and Service has a new contract that requires him to purchase and maintain new equipment for work on 18-wheeler trucks and heavy road equipment. Two separate vendors have made quotes and estimates for Charlie. Use the estimates and a 6% per year return requirement
Use a spreadsheet and a study period of 8 years to select alternative A or B in Problem 5.20.Data from problem 5.20 Alternative A First cost, $ -15,000 -28,000 -9,000 Annual operating cost, $/year -6,000 Overhaul in year 4, $ -2000 Salvage value, $ 3,000 4 5,000 |Life, years
You wish to evaluate four independent projects that all have a 10-year life at MARR = 15% per year. Preliminary estimates for first cost, annual net income, and SV have been made.(a) Accept or reject each project using a present worth analysis. On your spreadsheet, include the logical IF function
Leonard Motors is trying to increase its international export business. It is considering several alternatives. Two were available earlier (per Problem 5.11), but a new one has recently been proposed by a potential internationally partnering corporation, which has funds to invest.Option 1:
Compare three alternatives on the basis of their capitalized costs at i = 10% per year. Alternative G First cost, $ AOC, $ per year Salvage value, $ |Life, years -50,000 -300,000 - 10,000 -900,000 -30,000 -3,000 70,000 5,000 2 200,000 4
Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $250 million. Annual upkeep is expected to amount to $800,000. The turf will have to be replaced every 10 years at a cost of $950,000. Painting every 5
An aggressive stockbroker claims an ability to consistently earn 12% per year on an investor’s money. A client invests $10,000 now, $30,000 three years from now, and $8000 per year for 5 years starting 4 years from now.(a) How much money can the client withdraw every year forever, beginning 20
Assume that 25 years ago your dad invested $200,000, plus $25,000 in years 2 through 5, and $40,000 per year from year 6 on ward. At a very good interest rate of 12% per year, determine(a) The CC value,(b) The annual retirement amount that he can withdraw forever starting next year (year 26), if no
How much money was deposited 35 years ago at 10% per year interest if it is sufficient to provide a perpetual income of $10,000 per year beginning now, year 35?
The cost of upgrading a section of Grand Loop Road in Yellowstone National Park is $1.7 million. Resurfacing and other maintenance are expected to cost $350,000 every 3 years. What is the capitalized cost of the road at an interest rate of 6% per year?
What is the present worth difference between an investment of $10,000 per year for 50 years and an investment of $10,000 per year forever at an interest rate of 10% per year?
Golden Gate bridge is maintained by 38 painters and 17 ironworkers (who replace corroding steel and rivets). If the painters get an average wage of $120,000 per year (with benefits) and the ironworkers get $150,000 per year, what is the capitalized cost today of all the future wages for bridge
Determine the capitalized cost of a permanent roadside historical marker that has a first cost of $78,000 and a maintenance cost of $3500 once every 5 years. Use an interest rate of 8% per year.
A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the “shell” will cost $150,000 and is expected to have a $65,000 salvage value after 6 years. Alternatively, the company can lease a clamshell for only $20,000 per year, but

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