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engineering economy
Engineering Economy 17th Edition William Sullivan, Elin Wicks, C Koelling - Solutions
6-82 through 6-85. (6.4) 6-82. After the base alternative has been identified, the first comparison to be made in an incremental analysis should be which of the following? (a) C → B (b) A → B (c) D → E (d) C → D (e) D → C
6-81. For the following table, assume a MARR of 15% per year and a useful life for each alternative of eight years which equals the study period. The rank-order of alternatives from least capital investment to greatest capital investment is Z → Y → W → X. Complete the incremental analysis by
6-80. For the following table, assume a MARR of 10% per year and a useful life for each alternative of six years that equals the study period. The rank-order of alternatives from least capital investment to greatest capital investment is Do Nothing → A → C → B. Complete the IRR analysis by
6-79. The Ford Motor Company is considering three mutually exclusive electronic stability control systems for protection against rollover of its automobiles. The investment period is four years (equal lives), and the MARR is 12% per year. Data for fixturing costs of the systems are given below.
6-78. Complete the following analysis of cost alternatives and select the preferred alternative. The study period is 10 years and the MARR = 12% per year. “Do Nothing” is not an option. (6.4) A BCD Capital $15,000 $16,000 $13,000 $18,000 investment Annual costs 250 300 500 100 Market value
6-77. Complete the following analysis of investment alternatives and select the preferred alternative. The study period is three years and the MARR = 15% per year. (6.4) Alternative Alternative Alternative ABC Capital $11,000 $16,000 $13,000 investment Annual 4,000 6,000 5,540 revenues Annual costs
6-76. The Tree Top Airline (TTA) is a small feeder-freight line started with very limited capital to serve the independent petroleum operators in the arid Southwest. All of its planes are identical, although they are painted different colors. TTA has been contracting its overhaul work to Alamo
6-75. You can earn thousands of dollars more from your mutual funds. The secret is to purchase no-load (no front-end commission) funds directly from companies specializing in this area. You can save 5.75% commission compared to “loaded” mutual funds when you buy no-load funds. That means you
6-74. Go to your local grocery store to obtain the price of ice cream packaged in different-sized containers. Use this information (along with additional assumptions you feel necessary) to make a recommendation. (6.7)
6-73. Would the recommendation change if landfill costs double to $40 per cubic yard? (6.7)
6-72. What other factors might you include in such an analysis? Should projected revenues be included in the analysis? (6.7)
6-71. Using the data from Problem 6-7, create a spreadsheet to identify the best design using an IRR analysis. (6.4) Case Study Exercises
6-70. Create a spreadsheet to solve Example 6-11. What would the capital investment amount for pump SP240 have to be such that the firm would be indifferent as to which pump model is selected? (6.5)
6-69. Wilbur is a college student who desires to establish a long-term Roth IRA account with $4,000 that his grandmother gifted to him. He intends to invest the money in a mutual fund that earns an expected 5% per year on his account (this is a very conservative estimate). The sales agent says,
6-68. Refer to Example 6-3. Re-evaluate the recommended alternative if (a) the MARR = 15% per year; (b) the selling price is $0.50 per good unit; and (c) rejected units can be sold as scrap for $0.10 per unit. Evaluate each change individually. (d) What is the recommended alternative if all three
6-67. Three models of baseball bats will be manufactured in a new plant in Pulaski. Each bat requires some manufacturing time at either Lathe 1 or Lathe 2, according to the following table. Your task is to help decide which type of lathe to install. Show and explain all work to support your
6-66. Bob and Sally have just bought a new house and they are considering the installation of 10 compact fluorescent bulb (CFB) fixtures instead of the 10 conventional incandescent lighting fixtures (which cost a total of $500) typically installed by the builder. According to the home builder,
6-65. Your university advertises that next year’s “discounted” tuition is $18,000 and can be paid in full by July 1. The other option is to pay the first semester’s tuition of $9,500 by July 1, with the remaining $9,500 due of January 1. Assuming you (or your parents) have $18,000 available
6-64. Your brother has decided to purchase a new automobile with a hybrid-fueled engine and a six-speed transmission. After the trade-in of his present car, the purchase price of the new automobile is $30,000. This balance can be financed by the auto dealership at 2.9% APR and payments over 48
6-63. Your boss has asked you to evaluate the economic viability of refinancing a loan on your plant’s process equipment. The original loan of $500,000 was for six years. The payments are monthly and the nominal interest rate on the current loan is 6% per year. As of the present time, your
6-62. On your student loans, if possible, try to make interest-only payments while you are still in school. If interest is not repaid, it folds into principal after graduation and can cost you hundreds (or thousands) of extra dollars in finance charges. For example, Sara borrowed $5,000 at the
6-61. A telecommunications firm is considering a product expansion of a popular cell phone. Two alternatives for the cell phone expansion are summarized below. The company uses a MARR of 8% per year for decisions of this type, and repeatability may be assumed. Which alternative should be
6-60. Your FICO score makes a big difference in how lenders determine what interest rate to charge you. Consider the situation faced by Edward and Jorge. Edward has a fairly poor FICO score of 660 and, as a result, pays 18.0% APR on the unpaid balance of his credit card. Jorge has a FICO score of
6-59. A high-quality filter for tap water and a reusable drinking container cost $75 and typically will last for three years. If a family drinks an average of eight cups of water per day (one cup is 8 fluid ounces), the consumption of water is 547.5 gallons over a three-year period. Tap water costs
6-58. A pump for a reservoir must be operated continuously (8,760 hours per year). In the event of a large storm, the electricity from the local utility’s power grid may be interrupted for an indefinite period of time. To deal with this emergency situation, two mutually exclusive backup diesel
6-57. A single-stage centrifugal blower is to be selected for an engineering design application. Suppliers have been consulted, and the choice has been narrowed down to two new models, both made by the same company and both having the same rated capacity and pressure. Both are driven at 3,600 rpm
6-56. The two mutually exclusive alternatives shown in the table are available (“do nothing” is also an option). If the MARR = 15% select the better alternative with an incremental analysis using the IRR method. Given: IRRA = 24.7% and IRRB = 16.6%. State your assumptions. (6.5) A B Initial
6-55. Refer to Problem 6-52. Suppose the study period has been coterminated at 10 years. Use the imputed market value technique and determine which alternative is the most economical. (6.5)
6-54. Use the imputed market value technique to determine the better alternative below. The MARR is 12% per year and the study period is six years. (6.5.3) Alternative J Alternative K Capital investment, millions $45 $60 Annual expenses, millions $12 $14 Useful life, years 6 8 Market value (end of
6-53. A set of four “100-year,” sixty (60) watt light bulbs costs $24.95. If H equals the annual number of hours the bulb is used, each bulb provides 100H hours of light, and the efficiency of each bulb is 80%. A set of four, sixty (60) watt standard bulbs costs $2.60. Each standard bulb
6-52. Compare alternatives A and B with the equivalent worth method of your choice if the MARR is 15% per year. Which one would you recommend? State all assumptions. (6.5) A B Capital investment $50,000 $20,000 Operating costs $5,000 at end of year 1 and increasing by $500 per year thereafter
6-51. What is the investment cost of Alternative 2 that will cause it to breakeven with Alternative 1, assuming the MARR = 12% per year. Further assume cotermination at the end of year five. State any other assumptions you make. (6.5.3) Alternative 1 Alternative 2 Investment cost $3,000 $ X Annual
6-50. Consider these mutually exclusive alternatives. MARR = 8% per year, so all the alternatives are acceptable. (6.5) Alternative AB C Capital investment $250 $375 $500 (thousands) Uniform annual savings $40.69 $44.05 $131.90 (thousands) Useful life 10 20 5 (years) Computed IRR 10% 10% 10% (over
6-49. A dyeing and finishing plant is interested in acquiring a dyeing machine for the production of a new product. Three alternatives are being considered as summarized below. ABC Investment cost $20,000 $33,000 $45,000 Annual cash flows $10,000 $9,500 $10,500 Salvage value $4,000 $10,000 $18,000
6-48. It has been decided that whole body scanning technology will be used for airport security purposes. Two types of devices are being considered at a certain airport (only one will be selected): back scatter (B) and millimeter wave (W). The selected scanning equipment is to be used for six
6-47. The Advantgard Company plans to make a “green” investment in its forklift truck fleet. A hydrogen fuel-cell powered forklift will do the work of three battery-pack forklifts because of the time required to recharge the batteries. If the MARR is 20% per year, which type of forklift should
6-46. A large utility company is considering two mutually exclusive methods for storing its coal combustion by-products. One method is wet (slurry) storage and the second method is dry storage. The company must adopt one of those two methods for all 28 of its ash and gypsum impoundments at seven
6-45. A piece of production equipment is to be replaced immediately because it no longer meets quality requirements for the end product. The two best alternatives are a used piece of equipment (E1) and a new automated model (E2). The economic estimates for each are shown in the accompanying table.
6-44. Three mutually exclusive earth-moving pieces of equipment are being considered for several large building projects in India over the next five years. The estimated cash flows for each alternative are given below. The construction company’s MARR is 15% per year. Which of the three
6-43. IBM is considering an environmentally conscious green building at one of its new production facilities. The company will decide among three different green designs for the facility, and each of the final mutually exclusive concepts for the facility results in different costs and savings.
6-42. A “greenway” walking trail has been proposed by the city of Richmond. Two mutually exclusive alternative locations for the 2-meter-wide trail have been proposed: one is on flat terrain and is 14 kilometers in length, and the other is in hilly terrain and is 12 kilometers in length.
6-41. Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. The estimated cash flows for each alternative are as follows: (6.5) Alternative A Alternative B Capital investment $20,000
6-40. A one-mile section of a roadway in Florida has been washed out by heavy rainfall. The county is considering two options for rebuilding the road. Pertinent data are presented below. Asphalt Concrete Capital investment $800,000 $1,100,000 Annual maintenance $2,000 $1,000 Life of roadway 10
6-39.a. Compare the probable part cost from Machine A and Machine B, assuming that each will make the part to the same specification. Which machine yields the lowest part cost? Assume that the MARR = 10% per year. (6.5)b. If the cost of labor can be cut in half by using part-time employees, which
6-38. Two mutually exclusive alternatives for office building refrigeration and air conditioning are being investigated. Their relevant costs and lives are summarized as follows: Absorption Compression Chilling (AC) Chilling (CC) Capital investment $60,000 $80,000 Annual operating expenses 40,000
6-37. A company’s MARR is 10% per year. Two mutually exclusive alternatives are being considered. Compare the two alternatives utilizing: (6.5)a. The repeatability assumption with a 10-year study period.b. A five-year study period (MV5 of Alt. 1 is $45,000). EOY Alt. 1 Alt. 2 0 –$70,000
6-36. Drain Your Brain, a local video arcade, is considering the addition of a new virtual reality system. Several different vendors have been contacted. The owner of the arcade, affectionately referred to by the patrons as Wizard, has narrowed his selection to one of three choices (mutually
6-35. Three mutually exclusive investment alternatives are being considered. The estimated cash flows for each alternative are given below. The study period is 30 years and the firm’s MARR is 20% per year. (6.5.2) Alt. 1 Alt. 2 Alt. 3 Capital investment –$30,000 –$60,000 –$40,000 Annual
6-34. Potable water is in short supply in many countries. To address this need, two mutually exclusive water purification systems are being considered for implementation in China. Doing nothing is not an option. Refer to the data below and state your key assumptions in working this problem. (6.5)
6-33. A firm has decided to manufacture biodegradable golf tees. These are two production processes available for consideration. Pertinent data for each process are as follows:Process A Process B Investment $22,000 $15,000 Operation and maintenance costs $15,000/year $13,000/year Material and
6-32. As the supervisor of a facilities engineering department, you consider mobile cranes to be critical equipment. The purchase of a new medium-sized, truck-mounted crane is being evaluated. The economic estimates for the two best alternatives are shown in the following table. You have selected
6-31. A new manufacturing facility will produce two products, each of which requires a drilling operation during processing. Two alternative types of drilling machines (D1 and D2) are being considered for purchase. One of these machines must be selected. For the same annual demand, the annual
6-30. Two electric motors are being considered to drive a centrifugal pump. Each motor is capable of delivering 50 horsepower (output) to the pumping operation. It is expected that the motors will be in use 2,000 hours per year and the MARR = 8% per year. (6.5) Motor A Motor B Initial cost $1,200
6-29. Two pumps are being considered for service in Africa. Each can draw water from a depth of 50 meters and both pumps deliver 60 horsepower (output) to the pumping operation. One of the pumps must be selected. It is expected that the pump will be in use 800 hours per year. The following data are
6-28. Consider the following EOY cash flows for two mutually exclusive alternatives (one must be chosen):Lead Acid Lithium Ion Capital investment $6,000 $14,000 Annual expenses $2,500 $2,400 Useful life 12 years 18 years Market value at $0 $2,800 end of useful life The MARR is 5% per year. (6.5)a.
6-27. Refer to Problem 6-2. Solve this problem using the ERR method. Let ∈ = 10% per year. (6.4)
6-26. In the Rawhide Company (a leather products distributor), decisions regarding approval of proposals for capital investment are based upon a stipulated MARR of 18% per year. The five packaging devices listed in Table P6-26 were compared, assuming a 10-year life and zero market value for each at
6-25. Two 100 horsepower motors are being considered for use: ABC Brand XYZ Brand Purchase price $ 1900 6200 Life in years 10 10 Salvage value $ None None Annual maintenance $ 170 310 Efficiency % 80 90 If power costs $0.10 per kWh, and if the interest rate is 12%, how many hours of operation per
6-24. A printed circuit board manufacturer will construct a new plant. The potential sites have the following estimates of income and cost. A plant on Site A would cost $30.2 million (mil) to build, produce $31.6 mil/year in revenues, $22.7 mil/year in expenses, and last 18 years. At Site B
6-23. Environmentally conscious companies are looking for ways to be less damaging to the environment while saving money with innovative investments in capital equipment. DuPont is sponsoring a project to recover much of the energy presently being lost in the primary stage of one of their chemical
6-22. Pamela recently moved to Celebration, Florida, an unincorporated master-planned community in Osceola County that connects directly to the Walt Disney World parks. To support the planned community’s environmentally friendly transit system and to save on transportation costs, she wants to buy
6-21. Two mutually exclusive design alternatives are being considered for purchase. Doing nothing is also an option. The estimated cash flows for each alternative are given below. The MARR is 8% per year. Using the PW method, which alternative, if either, should be recommended? State your
6-20. Two electric motors (A and B) are being considered to drive a centrifugal pump. Each motor is capable of delivering 50 horsepower (output) to the pumping operation. It is expected that the motors will be in use 1,000 hours per year. If electricity costs $0.07 per kilowatt-hour and 1 hp =
6-19. Six sites have been identified for a parking lot in downtown Blacksburg. Because the sites are plots of land, their salvage value and investment cost are identical. A 10-year study period has been specified, and the MARR is 18% per year. Which site should be chosen based on the IRR criterion?
6-18. An old, heavily used warehouse currently has an incandescent lighting system. The lights run essentially 24 hr/day, 365 days/yr and draw about 10 kW of power. Consideration is being given to replacing these lights with fluorescent lights to save on electricity. It is estimated that the same
6-17. Refer to the situation in Problem 6-16. Most motors are operated at a fraction of their rated capacity (i.e., full load) in industrial applications. Suppose the average usage (load factor) of the motor in Problem 6-16 is expected to be 60%. Which motor should be recommended under this
6-16. A special-purpose 30-horsepower electric motor has an efficiency of 90%. Its purchase and installation price is $2,200. A second 30-horsepower high-efficiency motor can be purchased for $3,200, and its efficiency is 93%. Either motor will be operated 4,000 hours per year at full load, and
6-15. You are the president of AMT Enterprises. You have the opportunity to expand your product line to include a new semi-conductor wafer fabrication line. In order to produce the new wafer, you must invest in a new production process. In addition to doing nothing, two mutually exclusive processes
6-14. The estimated negative cash flows for three design alternatives are shown below. The MARR is 12% per year and the study period is seven years. Which alternative is best based on the IRR method? Doing nothing is not an option. (6.4.2) Alternative EOY A B C Capital investment 0 $85,600 $63,200
6-13. The alternatives for an engineering project to recover most of the energy presently being lost in the primary cooling stage of a chemical processing system have been reduced to three designs. The estimated capital investment amounts and annual expense savings are as follows:Assume that the
6-12. A new highway is to be constructed. Design A calls for a concrete pavement costing $90 per foot with a 20-year life; two paved ditches costing $3 per foot each; and three box culverts every mile, each costing $9,000 and having a 20-year life. Annual maintenance will cost $1,800 per mile; the
6-11. Which alternative in the table below should be selected when the MARR = 10% per year? The life of each alternative is 10 years. (6.4) Increment considered (A – DN) (B – A) (C – B) (D – C) Investment cost $900 $600 $1,000 $1,500 (Annual revenues less costs) $150 $126 $170 $150
6-10. Today, you have $40,000 to invest. Two investment alternatives are available to you. One would require you to invest your $40,000 now; the other would require the $40,000 investment two years from now. In either case, the investments will end five years from now. The cash flows for each
6-9. DuPont claims that its synthetic composites will replace metals in the construction of future automobiles. “The fuel mileage will double,” says DuPont. Suppose the lighter and stronger “composite automobile” will get 50 miles per gallon of gasoline, and that gasoline costs $3.50 per
6-8. Your boss has asked you to evaluate the economics of replacing 1,000 60-Watt incandescent light bulbs (ILBs) with 1,000 compact fluorescent lamps (CFLs) for a particular lighting application. During your investigation you discover that 13-Watt CFLs costing $2.00 each will provide the same
6-7. Fiesta Foundry is considering a new furnace that will allow them to be more productive. Three alternative furnaces are under consideration.Furnace Furnace Furnace AB C Initial investment $450,000 $400,000 $300,000 Annual revenues ∗ $80,000 $70,000 $70,000 Annual cost ∗ $10,000 $8,000
6-6. You have been asked to evaluate the economic implications of various methods for cooling condenser effluents from a 200-MW steam-electric plant. In this regard, cooling ponds and once-through cooling systems have been eliminated from consideration because of their adverse ecological effects.
6-5. Your company is environmentally conscious and is considering two heating options for a new research building. What you know about each option is below, and your company will use an annual interest rate (MARR) of 8% for this decision. Gas Heating Option: The initial equipment and installment of
6-4. Three mutually exclusive design alternatives are being considered. The estimated sales and cost data for ABC Investment cost $30,000 $60,000 $50,000 Estimated units 15,000 20,000 18,000 to be sold/year Unit selling price, $3.50 $4.40 $4.10 $/unit Variable costs, $1.00 $1.40 $1.15 $/unit Annual
6-3. One of the mutually exclusive alternatives below must be selected. Base your recommendation on (Sauer–Glock) cash flows when the MARR = 8% per year. (6.4) 5 5 P P 0 0 P/2 2P Sauer 45 10 10 Glock 40 EOY EOY
6-2. The Consolidated Oil Company must install antipollution equipment in a new refinery to meet federal clean-air standards. Four design alternatives are being considered, which will have capital investment and annual operating expenses as shown below. Assuming a useful life of 8 years for each
6-1. An oil refinery finds that it is necessary to treat the waste liquids from a new process before discharging them into a stream. The treatment will cost $30,000 the first year, but process improvements will allow the costs to decline by $3,000 each year. As an alternative, an outside company
5-85. Consider an investment project with net cash flows as follows. EOY Cash Flow 0 –$120,000 1 20,000 2 30,000 3 25,000 4 35,000 5 35,000 The project’s internal rate of return is closest to (5.6): (a) 12% (b) 6% (c) 9% (d) 21%
5-84. A deep-water port for imported liquefied natural gas (LNG) is needed for three years. At the end of the third year, it will cost more to dismantle the LNG facility than it produces in revenues. The cash flows are estimated as follows: (5.6) EOY Net Cash Flow 0 –$48 million 1 45 million 2 45
5-83. A 2,000 square foot house in New Jersey costs $1,725 each winter to heat with its existing oil-burning furnace. For an investment of $5,000, a natural gas furnace can be installed, and the winter heating bill is estimated to be $1,000. If the homeowner’s MARR is 6% per year, what is the
5-82. An automobile dealership offers a car with $0 down payment, $0 first month’s payment, and $0 due at signing. The monthly payment, starting at the end of month two, is $386 and there are a total of 38 payments. If the APR is 12% compounded monthly, the negotiated sales price is closest to
5-81. A town in Wyoming wants to drill a geothermal well to provide district heating steam and hot water for its businesses and residences. After government subsidies, the capital investment for the well is $500,000, and the geothermal well will reduce natural gas consumption for steam and hot
5-80. A new machine was bought for $9,000 with a life of six years and no salvage value. Its annual operating costs were as follows: $7,000, $7,350, $7,717.50, ... , $8,933.97. If the MARR = 12%, what was the annual equivalent cost of the machine? (5.5) (a) $7,809 (b) $41,106 (c) $9,998 (d) $2,190
5-79. What is the equivalent AW of a two-year contract that pays $5,000 at the beginning of the first month and increases by $500 for each month thereafter? MARR = 12% compounded monthly. (5.5) (a) $10,616 (b) $131,982 (c) $5,511 (d) $5,235 (e) $134,649
5-78. If you invest $5,123 in a long-term venture, you will receive $1,110 per year forever. Assuming your interest rate is 10% per year, what is the capitalized worth of your investment? Choose the most closest answer below. (5.3) (a) $4,327 (b) $5,977 (c) $5,819 (d) $6,103
5-77. A bond has a face value of $1,000, is redeemable in eight years, and pays interest of $100 at the end of each of the eight years. If the bond can be purchased for $981, what is the rate of return if the bond is held until maturity? (5.3) (a) 10.65% (b) 12.65% (c) 10.35% (d) 11.65%
5-76. What is the IRR in the following cash flow? (5.6) Year End 0 1 2 3 4 Cash Flow ($) −3,345 1,100 1,100 1,100 1,100 (a) 12.95% (b) 11.95% (c) 9.05% (d) 10.05% (e) 11.05%
5-75. Street lighting fixtures and their sodium vapor bulbs for a two-block area of a large city need to be installed at a first cost (investment cost) of $120,000. Annual maintenance expenses are expected to be $6,500 for the first 20 years and $8,500 for each year thereafter. The lighting will be
5-74. A specialized automatic machine costs $300,000 and is expected to save $111,837.50 per year while in operation. Using a 12% interest rate, what is the discounted payback period? (5.8) (a) 4 (b) 5 (c) 6 (d) 7 (e) 8
5-73. Elin purchased a used car for $10,000. She wrote a check for $2,000 as a down payment for the car and financed the $8,000 balance. The annual percentage rate (APR) is 9% compounded monthly, and the loan is to be repaid in equal monthly installments over the next four years. Which of the
5-72. Doris Wade purchased a condominium for $50,000 in 1987. Her down payment was $20,000. She financed the remaining amount as a $30,000, 30-year mortgage at 7%, compounded monthly. Her monthly payments are $200. It is now 2007 (20 years later) and Doris has sold the condominium for $100,000,
5-71. Suppose that the average utilization of the CVD tool increased to 90%; however, the operating hours of the fabrication plant were decreased from 168 hours to 150 hours. What are the corresponding impacts on the PW and breakeven point, respectively? (5.9)
5-70. Suppose that the mechanical engineer in the plant has retrofitted the CVD tool so that it now produces 15 wafers per hour. What is the new breakeven point? (5.9)
5-69. Suppose that the industrial engineers are able to increase the average utilization rate of the CVD tool from 80% to 90%. What is the projected impact of this 10% increase on the PW of the project? (5.9)
5-68. Refer to Problem 5-61. Develop a spreadsheet to investigate the sensitivity of annual profit (loss) to changes in the occupancy rate and the annual rental fee. (5.5)
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