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engineering economy
Engineering Economy 8th edition Leland T. Blank, Anthony Tarquin - Solutions
A company that manufactures ultrasonic wind sensors invested $1.5 million 2 years ago to acquire part-ownership in an innovative chip making company. How long will it take from the date of their initial investment for their share of the chip-making company to be worth $6 million, if that company is
Demco Products, a company that manufactures stainless steel control valves, has a fund for equipment replacement that contains $500,000. The company plans to spend $85,000 each year on new equipment.(a) Estimate the number of years it will take to reduce the fund to no more than $85,000 at an
How many years will it take for a uniform annual deposit of size A to accumulate to 10 times the size of a single deposit at a rate of return of 10% per year?
A systems engineer who invested wisely can retire now because she has $2,000,000 in her self-directed retirement account. Determine how many years she can withdraw(a) $100,000 per year, or(b) $150,000 per year (beginning 1 year from now) provided her account earns at a rate of 5% per year.(c)
RKE & Associates is considering the purchase of a building it currently leases for $30,000 per year. The owner of the building put it up for sale at a price of $170,000, but because the firm has been a good tenant, the owner offered to sell it to RKE for a cash price of $160,000 now. If
The business plan for KnowIt, LLC, a start-up company that manufactures portable multi-gas detectors, showed equivalent annual cash flows of $400,000 for the first 5 years. If the cash flow in year 1 was $320,000 and the constant increase thereafter was $50,000 per year, what interest rate was used
For a 5-year period, determine the compound interest rate per year that is equivalent to a simple interest rate of 15% per year.
Parkhill, Smith, and Cooper, a consulting engineering firm, pays a bonus to each engineer at the end of the year based on the company’s profit for that year. If the company’s initial investment was $1.2 million, what rate of return has it made if each engineer’s bonus has been $3000 per year
Assume you were asked to prepare a table of compound interest factor values (like those in the back of this book) used in calculating the present worth of a geometric gradient series. Determine the two values for n = 1 and 2 for an interest rate of 10% per year and a rate of change g of 5% per
A cash flow sequence starts in year 1 at $4000 and decreases by $300 each year through year 9. Determine(a) The value of the gradient G;(b) The amount of cash flow in year 5; and(c) The value of n for the (P∕G,i%,n) factor.
Find the numerical value of the following factors using(a) Linear interpolation and(b) The appropriate formula.1. (F∕P,18%,33)2. (A∕G,12%,54)
Find the numerical value of the following factors by(a) Linear interpolation,(b) Using the appropriate formula, and(c) A spreadsheet function.1. (F∕A,19%,20)2. (P∕A,26%,15)
You developed an interest in the LCOE relation and the publicized cost of electricity of 10.27¢/kWh for this year. You wonder if the addition of 60 MW of wind-sourced electricity will make any difference in the LCOE value for this next year. You did learn the following:This is year t = 11 for
A currently-owned asset has B = $150,000, S = $95,000, and a 10-year depreciable life. The book value at the end of year 3 according to the MACRS method would be closest to: dt values for years 1, 2, 3, and 4 are 10.00%, 18.00%, 14.40%, and 11.52%, respectively.(a) $86,400(b) $62,400(c) $43,900(d)
An industrial robot that is depreciated by the MACRS method has B = $60,000 and a 5-year depreciable life. If the depreciation charge in year 3 is $8640, the salvage value that was used in the depreciation calculation is closest to: (dt values for years 1, 2, 3, 4, and 5 are 10.00%, 18.00%, 14.40%,
South African Gold Mines, Inc. is writing off its $210 million investment using the cost depletion method. An estimated 700,000 ounces of gold are available in its developed mines. This year 35,000 ounces were produced at an average price of $400 per ounce. The depletion for the year is closest
A stone and gravel quarry in Texas can use a percentage depletion rate of 5% of gross income, or a cost depletion rate of $1.28 per ton. Quarry first cost = $3.2 million; estimated total tonnage = 2.5 million tons; tonnage this year = 65,000; gross income = $40 per ton. Of the two depletion
A motorized cultivator with a first cost of $28,000 and salvage value of 25% of the first cost is depreciated by the DDB method over a 5-year period. If the operating cost is $43,000 per year, the depreciation charge for year 2 is closest to:(a) $18,000(b) $11,200(c) $6720(d) $4350
Ederly Quarry sells a wide variety of cut limestone for residential and commercial building construction. A recent quarry expansion cost $2.9 million and added an estimated 100,000 tons of reserves.(a) Estimate the cost depletion allowance for the next 5 years, using the projections made by the
Classic straight line depreciation of a $100,000 asset takes place over a 5 year recovery period. If the salvage value is 15% of first cost, the depreciation charge for year 3 is closest to:(a) $17,000(b) $20,000(c) $24,000(d) $28,000
For the last 10 years, Am-Mex Coal has used the cost depletion factor of $2500 per 100 tons to write off the investment of $35 million in its Pennsylvania anthracite coal mine. Depletion thus far totals $24.8 million. A new study to appraise mine reserves indicates that no more than 800,000 tons of
All of the following assets can be depreciated, except:(a) A bulldozer(b) A copper mine(c) A surgical robot(d) A conveyor belt
Carrolton Oil and Gas, an independent oil and gas producer, is approved to use a 20% of gross income depletion allowance. The write-off last year was $700,000 on its horizontal directional drill wells. Determine the estimated total reserves in barrels if the volume pumped last year amounted to 1%
The Los Angeles, California, city engineer is analyzing a for-profit public works project at the port authority using an after-tax replacement analysis of the system installed 5 years ago (defender) and a challenger as detailed below. All values are in $1000 units. The effective state tax rate of
Determine(a) The before-tax ROR, and(b) Approximate after-tax ROR for a project that has a first cost of $750,000, a salvage value of 25% of the first cost after 3 years, and annual (GI-OE) of $260,000. Assume the company has a Te of 37%.
Vibrations Dynamics uses vibrations sensitive equipment based on lithography to measure vibrations in building foundations caused by subway, rail, and automobile traffic in major cities of the world. Use a spreadsheet to(a) Plot the annual tax curves, and(b) Calculate total taxes and the PWtax
Equipment associated with manufacturing small railcars had a first cost of $180,000 with an expected salvage value of $30,000 at the end of its 5-year life. The revenue was $620,000 in year 2, with operating expenses of $98,000. If the company’s effective tax rate was 36%, what would be the
Estimate the gross income for Lopez Enterprises when it had a CFAT of $2.5 million, $900,000 in expenses, $900,000 in depreciation charges, and an effective tax rate of 26.4%.
If PSK Engineering had a CFAT of $750,000, charged depreciation of $400,000, and had a Te of 36%, what was PSK’s CFBT?
Estimate the CFAT for a company that has taxable income of $120,000, depreciation of $133,350, and an effective tax rate of 35%.
Helical Products makes machined springs with elastic redundant elements so that a broken spring will continue to function. The company had GI of $450,000 with OE of $230,000 and depreciation of $48,000.(a) How much did the company owe in taxes if its effective tax rate was 38%?(b) Use a spreadsheet
The last annual report of Harrison Engineering’s 3-D Imaging Division showed GI = $4.9 million, OE = $2.1 million, and D = $1.4 million. If the average federal tax rate is 31% and state/local tax rates total 9.8%, estimate(a) Federal income taxes, and(b) The percentage of GI that the federal
Borsberry Medical has a gross income of $6.5 million for the year. Depreciation and operating expenses total $4.1 million. The combined state and local tax rate is 7.6%.(a) Use an effective federal rate of 34% to estimate the income taxes. (b) Borsberry’s president hopes to have a total of
Aquatech Microsystems reported a TI of $80,000 last year. If the state income tax rate is 6%, determine the(a) average federal tax rate,(b) overall effective tax rate,(c) Total taxes to be paid based on the effective tax rate, and(d) Total taxes paid to the state and paid to the federal government.
Knorr & Associates paid total taxes of $72,000 in the first year of their consulting business.(a) What was the company’s taxable income?(b) What was the average tax rate?(c) What was the estimated NOPAT for the year?
Determine the single-value effective tax rate for a corporation that has a federal tax rate of 35% and state tax rate of 7%.
Determine the taxable income for a company that had gross income of $36.7 million, earnings before interest and income taxes of $21.4 million, and depreciation of $9.5 million.
For a company that had net operating income of $51.3 million and operating expenses of $23.6 million, what was the(a) Gross income, and(b) Earnings before interest and income taxes?
For the events described below, select the taxrelated term from the following list that best applies: gross income, depreciation, operating expense, taxable income, income tax, or net operating profit after taxes.(a) A corporation reports that it had a negative $1,750,000 net profit on its annual
State what the following abbreviations stand for:NOI, GI, Te, NOPAT, TI, R, OE, EBIT.
For a corporation that has a taxable income of $250,000, determine(a) The marginal tax rate,(b) The total taxes, and(c) The average tax rate.
Thomas completed a study of a $1 million 3-yearold DNA analysis and modeling system that DynaScope Enterprises wants to keep for 1 more year or dispose of now. His table (in $1000 units) details the analysis, including an anticipated $100,000 selling price (SP) at the end of next year, SL
Guess which depreciation method will have the lower 10%-per-year PW of taxes between the following methods over a 6-year study period: P = $100, S = 0, and GI-OE = $50, and Te = 30%.Verify your answer via spreadsheet.I. Straight line with n = 4 yearsII. MACRS with n = 5 yearsIII. DDB with n = 6
In what alternative evaluation is it considered important that an anticipated capital loss (CL) on an in-place asset should be included in an after-tax analysis? Why?
An in-place machine with B = $120,000 was depreciated by MACRS over a 3-year period. The machine was sold for $60,000 at the end of year 2 when the company decided to import the item that required the use of the machine. In year 2, GI = $1.4 million and OE = $500,000. Determine the tax liability in
A touch-sensitive assembly robot that costs $300,000 had a depreciable life of 5 years with an expected $50,000 salvage value when purchased 3 years ago. Using MACRS depreciation, determine any DR, CG, or CL if the company sold the robot after 3 years for $80,000.
A nanotube forming asset was purchased 3 years ago for $240,000. It was just sold for $285,000. The asset was depreciated by the MACRS method with n = 5 years and has a current book value of $69,120. Determine the amount of(a) CG and DR, and(b) Prepare a spreadsheet showing the taxes each year for
A couple of years ago, the company Health4All purchased land, a building, and two depreciable assets from another corporation. These have all recently been disposed of. Use the information shown to determine the presence and amount of any capital gain, capital loss, or depreciation recapture.
An engineer who made an annual return of 8% after taxes on a stock investment was told by his accountant that this is equivalent to a 12% per year before-tax return. What percentage of taxable income is the accountant assuming will be taken by taxes?
A division of Midland Oil & Gas has a TI of $8.95 million for a tax year. If the state tax rate averages 5% for all states in which the corporation operates, find the equivalent after-tax ROR required of projects that are justified only if they can demonstrate a before-tax return of 22% per
When JJ and Sons was awarded a contract to pour a skyscraper€™s foundation, the father had to choose between two pieces of equipment needed to supplement pumping of concrete into foundation settings. Estimates are below. Both machines have an estimated 7-year useful life; however, MACRS
A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the following estimates:The company is in the 35% tax bracket and assumes classical straight line depreciation
Process control equipment purchased for $78,000 by Debco, Incorporated generated a CFBT of $26,080 during the first year of its 10-year estimated life. This would represent a return of 31.2% per year if maintained throughout the 10 years. However, the corporate finance officer determined that the
Needco Supplies-Canada employee Stella Needleson was asked to determine if the current process of dying writing paper should be retained or a new, environment friendly process should be implemented. Estimates or actual values for the two processes are summarized below. She performed an after-tax
(a) What does the term economic value added (EVA) mean relative to the bottom line of a corporation?(b) Why might an investor in a public corporation prefer to use the EVA estimates over the CFAT estimates for a project?
An asset with a first cost of $300,000 is depreciated by the MACRS method using a 5-year recovery period. Determine the economic value added in year 2, if the net operating profit after taxes is $70,000 and the company uses an after-tax MARR of 15% per year. The MACRS rates for years 1 and 2 are
If the after-tax ROR is 11.4% and the corporate Te is 39%, the approximate before-tax rate of return is closest to:(a) 6.8%(b) 15.4%(c) 18.7%(d ) 19.7%
If the federal tax rate is 36% and the state tax rate is 7%, the effective tax rate is closest to:(a) 40.5%(b) 37.3%(c) 35.4%(d ) 31.8%
If all values carry a + sign, cash flow before taxes (CFBT) is represented by the equation:(a) Gross income – operating expenses – depreciation – initial investment + salvage value(b) Gross income – operating expenses – depreciation + salvage value(c) Gross income – operating expenses
Depreciation recapture occurs when a depreciable asset is sold for:(a) More than the current book value(b) More than the current market value(c) More than the estimated salvage value(d) More than the first cost
A capital gain is calculated by the equation:(a) Capital gain = book value – selling price(b) Capital gain = book value – first cost(c) Capital gain = market value – selling price(d) Capital gain = selling price – first cost
A small manufacturing company with a gross income of $360,000 has the following operating expenses: M&O = $76,000, insurance = $7000, labor = $110,000, utilities = $29,000, debt service = $37,000, and taxes = $9000. The net operating income (NOI) is closest to:(a) $92,000(b) $101,000(c)
An after-market auto parts company sells a machining robot that had been depreciated to zero for $16,000. If the company’s effective tax rate is 36%, the sale will:(a) Increase the company’s taxes by $16,000(b) Increase the company’s taxes by $5760(c) Reduce the company’s taxes by
Decker Scientific is considering an investment of $850,000 in a new product line. The company will make the investment only if it will result in a rate of return of 20% per year or higher. If the revenue is expected to be between $290,000 and $325,000 per year for each of 5 years, determine if the
A company that manufactures high-speed submersible rotary-indexing spindles is considering an upgrade of production equipment to reduce costs over the next 5 years. The company can invest $80,000 now, 1 year from now, or 2 years from now. Depending on when the investment is made, the savings will
Home Automation is considering an investment of $500,000 in a new product line. The company will make the investment only if it will result in a rate of return of 15% per year or higher. The revenue is expected to be between $138,000 and $165,000 per year for 5 years.(a) Determine if the decision
The AW of the current process to make motion controllers is $–62,000 per year. A replacement process under consideration has estimates of P = $64,000, AOC = $38,000, and n = 3 years. Three engineers have given their opinions about what the salvage value of the new process may be in 3 years as
Hemisphere Electric may purchase equipment to manufacture a new line of wireless devices for home appliance control. The first cost will be $80,000, and the life is estimated at 6 years with a salvage value of $10,000. Different people in marketing have provided revenue estimates that the devices
MAG Industrial needs 1000 square meters of storage space. Purchasing land for $80,000 and erecting a temporary metal building at $70 per square meter is one option. The president expects to sell the land for $100,000 and the building for $20,000 after 3 years. Another option is to lease space for
A major equipment purchase is being economically evaluated by a team of three design engineers and one production engineer at Raytheon Aerospace. The agreed-upon estimates are P = $560,000, n = 6 years, and S = $100,000. The group disagrees, however, on the estimated annual net savings the
Consider two air-conditioning systems with the estimates below.(a) Use AW analysis to determine the sensitivity of the economic decision to MARR values of 4%, 6%, and 8% per year.(b) Develop the spreadsheet functions that will display the six AW values. System First cost, $ - 10,000 -17,000 AOC, $
Determine if the selection of system GH or B3 is sensitive to variation in the return required by management. Depending on the type of project, the corporate MARR ranges from 8% to 16% per year on different projects.(a) Write the AW equations to find the values by hand.(b) Solve using a spreadsheet
The production manager on the Ofon Phase 2 offshore platform operator by Total S.A. must purchase specialized environmental equipment or an equivalent service. The first cost is $250,000 with an AOC of $75,000. The manager has let it be known that he does not care about the salvage value because he
A biofuel subsidiary of Petrofac, Inc. is planning to borrow $12 million to acquire a small technology- based company. The rate on a 5-year loan is highly variable; it could be as low as 7%, as high as 15%, but is expected to be 10% per year. The company will only move forward with the acquisition
A young couple planning ahead for their retirement has decided that $3 million is the amount they will need in order to retire comfortably 20 years from now. For the past 5 years, they have been able to invest one of their salaries ($50,000 per year, which includes employer contributions) while
A company that manufactures clear PVC pipe is investigating the production options of batch and continuous processing. Estimated cash flows are:The chief operating officer (COO) has asked you to determine if the batch option would ever have a lower annual worth than the continuous flow system using
An engineer must decide between two ways to pump concrete to the top of a seven-story building. Plan 1 requires the leasing of equipment for $60,000 initially and will cost between $0.40 and $0.95 per metric ton to operate, with a most likely cost of $0.50 per metric ton. The pumper is able to
An engineer has been offered an investment opportunity that will require a cash outlay of $40,000 now for a cash inflow of $3500 for each year of investment. However, she must state now the number of years she plans to retain the investment. Additionally, if the investment is retained for 6 years,
An expansion of the current BIM (Building Information Model) software has been proposed to First Financial, the building’s owner. A total installed cost of $120,000 is expected to generate additional savings of $40,000 per year for 10 years, after which time the software will be replaced with no
A-Z Technologies, a manufacturer of amplified pressure transducers, is trying to decide between a dual-speed and a variable-speed machine. The engineers are not sure about the salvage value of the variable speed machine, so they have asked several different used-equipment dealers for estimates. The
Calculate the expected flow rate (barrels per day) for each oil well using the estimated probabilities. Estimated Flow, bbl/Day 300 400 100 200 Probablity of Flow 0.15 0.75 0.10 0.0 0.35 0.15 0.45 0.05 North well East well
Thermtech Science has performed an economic analysis of proposed service in a new region of the country. The three-estimate approach to sensitivity analysis has been applied. The optimistic and pessimistic values each have an estimated 15% chance of occurring. Use the FW values shown to determine
The variable Y is defined by the relation 3n for n = 1, 2, 3, 4 with probabilities of 0.4, 0.3, 0.233, and 0.067, respectively. Determine the expected value of Y.
(a) Determine the expected present worth of the following cash flow series if each series may be realized with the probability shown at the head of each column. Let i = 20% per year.(b) Determine the expected AW value for the same cash flow series. Annual Cash Flow, $ per Year Year Prob. = 0.5
Global Foundries (GF), a privately held company that invests in companies producing essential components for high-volume data storage, is valued at $4.0 billion dollars. A computer company that wants to get into cloud computing is considering the purchase of GF, but because of the uncertain
In evaluating the sensitivity of an alternative to its first cost, its AW was calculated for changes in the estimated first cost by –10%, +5%, and +15%. The resulting AW values were $+21,000, $–2410, and $–34,000, respectively. On the basis of these values, one could conclude that:(a) The
All of the following are steps in the procedure for conducting a sensitivity analysis, except:(a) Determine which parameters might vary from the most likely estimated value(b) Change the parameters in the range of −100% to +100%(c) Select a measure of worth(d) Compute the results for each
In conducting a sensitivity analysis of a proposed project, the present worth values of $–10,000, $40,000, and $50,000 were believed to have chances of 25%, 40%, and 35%, respectively. The expected PW is closest to:(a) $19,000(b) $26,000(c) $28,500(d) $31,000
When the sensitivity of several parameters is considered for one alternative using a single measure of worth and the measure of worth is plotted against percentage change for each parameter, the resulting graph is called a:(a) Spider graph(b) Distribution graph(c) Trend graph(d) Cash flow graph
When conducting a sensitivity analysis using three estimates for each parameter, all of the following are estimates that should be made, except:(a) Pessimistic(b) Improbable(c) Optimistic(d) Most likely
Revenue into the general fund of the state of Texas for any biennium is highly dependent on the price of oil. At a price average of $50 per barrel, general revenue will be $95 billion. At $68 and $75 per barrel, the revenue will be $118 billion and $125 billion, respectively. If the chances are
A recent sensitivity analysis of a public works project indicates that the expected present worth is $83,000. If there is a 20% chance that the PW will be the pessimistic one of $45,000 and 50% chance that it will be the most likely one of $72,000, the optimistic PW is closest to:(a) $89,520(b)
The best alternative to select under the pessimistic strategy is:(a) Alternative 1(b) Alternative 2(c) Alternative 3(d) Alternative 4Four mutually exclusive alternatives are evaluated using three estimates or strategies (pessimistic, most likely, and optimistic) for several parameters. The
If none of the strategies is more likely than any other strategy, the alternative to select is:(a) 1(b) 1 and 2 are equally acceptable(c) 2(d) 3Four mutually exclusive alternatives are evaluated using three estimates or strategies (pessimistic, most likely, and optimistic) for several parameters.
CINESA, a government-owned power company that normally uses natural gas for electricity generation, is purchasing fuels other than natural gas and power from a commercially built wind farm, often at extra costs, which are transferred to the customer. Total monthly fuel and wind-power costs are now
Identify the following variables as either discrete or continuous:(a) The number of times heads comes up in 100 tosses of a coin(b) The number of accidents occurring in a specified section of a freeway(c) The weight of boxes shipped from an Amazon warehouse(d) The concentration of carbon dioxide in
For each situation below, determine(1) If the variable(s) is(are) discrete or continuous, and(2) If the information involves certainty, risk, and/or uncertainty.(a) A friend in real estate tells you the price per square foot for new houses will go up slowly or rapidly during the next 6 months.(b)
In the recent past, the production output has been between 10,000 and 20,000 units per week 75% of the time; however, it may fall below 10,000 or go above 20,000 more frequently in the future. The production manager wants to use E(output) to make a decision about upgrading automation software.
The cost of flood damage from significant storms varies as a function of the severity of the storm. Estimate the expected flood damage due to the next significant storm. Flood Damage, $ MIllons Flood Flow, Million Acre-ft Probability 0.35 0.36 0.5 19 41 97 1.0 1.5 0.20 0.09 >2.0 210
AAA car-buying service surveyed 1000 households to determine the number of operating vehicles owned by residents at the same address. Use the results below to estimate the percentage of households that own (a) One or less vehicles,(b) One or two vehicles, and(c) More than three vehicles.Number
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