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engineering economy

Engineering Economy 16th edition William G. Sullivan, Elin M. Wicks, C. Patrick Koelling - Solutions

A steel pedestrian overpass must either be reinforced or replaced. Reinforcement would cost $25,000 and would make the overpass adequate for an additional 6 years of service. If the overpass is torn down now, the scrap value of the steel would exceed the removal cost by $15,000. If it is
The corporate average fuel economy (CAFE) standard for mileage is currently 27.5 miles per gallon of gasoline (the defender) for passenger cars. To conserve fuel and reduce air pollution, suppose the U.S. Congress sets the CAFE standard at 36 miles per gallon (the challenger) in 2014. An auto will
Four years ago, the Attaboy Lawn Mower Company purchased a piece of equipment. Because of increasing maintenance costs for this equipment, a new piece of machinery is being considered for the assembly line. The cost characteristics of the defender (present equipment) and the challenger are shown
A small high-speed commercial centrifuge has the following net cash flows and abandonment values over its useful life (see Table P9-15, p. 439). The firm€™s MARR is 10% per year. Determine the optimal time for the centrifuge to be abandoned if its current MV is $7,500 and it
A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time for $40,000 and replaced by a new truck (the challenger) with a purchase price of $70,000.a.
Machine A was purchased last year for $20,000 and had an estimated MV of $2,000 at the end of its six-year life. Annual operating costs are $2,000. The machine will perform satisfactorily over the next five years. A salesperson for another company is offering a replacement, Machine B, for $14,000,
A company is considering replacing a machine that was bought six years ago for $50,000. The machine, however, can be repaired and its life extended by five more years. If the current machine is replaced, the new machine will cost $44,000 and will reduce the operating expenses by $6,000 per year.
Machine A was purchased three years ago for $10,000 and had an estimated MV of $1,000 at the end of its 10-year life. Annual operating costs are $1,000. The machine will perform satisfactorily for the next seven years. A salesperson for another company is offering Machine B for $50,000 with an MV
Machine A was purchased three years ago for $10,000 and had an estimated MV of $1,000 at the end of its 10-year life. Annual operating costs are $1,000. The machine will perform satisfactorily for the next seven years. A salesperson for another company is offering Machine B for $50,000 with an MV
The Adams Construction Company is bidding on a project to install a large flood drainage culvert from Dandridge to a distant lake. If they bid $2,000,000 for the job, what is the benefit-cost ratio in view of the following data? The MARR is 6% per year, and the project’s life is 30 years.Initial
An environmentally friendly 2,800-square-foot green home (99% air tight) costs about 8% more to construct than a same-sized conventional home. Most green homes can save 15% per year on energy expenses to heat and cool the living space. For a $250,000 conventional home with a heating and cooling
A proposal has been made for improving the downtown area of a small town. The plan calls for banning vehicular traffic on the main street and turning this street into a pedestrian mall with tree plantings and other beautification features. This plan will involve actual costs of $6,000,000 and,
Five independent projects consisting of reinforcing dams, levees, and embankments are available for funding by a certain public agency. The following tabulation shows the equivalent annual benefits and costs for each:a. Assume that the projects are of the type for which the benefits can be
In the development of a publicly owned, commercial waterfront area, three possible independent plans are being considered. Their costs and estimated benefits are as follows: a. Which plan(s) should be adopted, if any, if the controlling board wishes to invest any amount required, provided that
Five mutually exclusive alternatives are being considered for providing a sewage-treatment facility. The annual equivalent costs and estimated benefits of the alternatives are as follows:Which plan, if any, should be adopted if the Sewage Authority wishes to invest if, and only if, the
A town in northern Colorado is planning on investing in a water purification system. Three mutually exclusive systems have been proposed, and their capital investment costs and net annual benefits are the following (salvage values are negligible).If the town€™s MARR is 10% per year, use
There are two mutually exclusive proposals for a for a flood control project in Illinois. The first proposal involves an initial outlay of $1,350,000 and annual expenses of $110,000. This plan is assumed to be permanent. The second proposal requires an initial outlay of $700,000, followed by
Four mutually exclusive projects are being considered for a new 2-mile jogging track. The life of the track is expected to be 80 years, and the sponsoring agency€™s MARR is 12% per year. Annual benefits to the public have been estimated by an advisory committee and are shown on the next
Two municipal cell tower designs are being considered by the city of Newton. If the city expects a modified benefit€“cost ratio of 1.0 or better, which design would you recommend based on the data that follows? Assume repeatability. The city€™s cost of capital is 10% per year.
The Fox River is bordered on the east by Illinois Route 25 and on the west by Illinois Route 31. Along one stretch of the river, there is a distance of 16 miles between adjacent crossings. An additional crossing in this area has been proposed, and three alternative bridge designs are under
The city council of Morristown is considering the purchase of one new fire truck. The options are Truck X and Truck Y. The appropriate financial data are as follows:The purchase is to be financed by money borrowed at 12% per year. What is the conventional B€“C ratio for Truck X?(a)
You have been tasked with recommending one of the mutually exclusive industrial sanitation control systems summarized below. The life of both alternatives is 30 years, and residual salvage values are negligible. Use the benefit€“cost ratio method in your analysis. If the MARR is 8% per
The Metropolitan Transit Authority (MTA) has just opened a new subway line (the Orange Line) in its underground transportation network. The Orange Line had a capital investment of $20 million, expected operating and maintenance expenses are $3 million per year, and the final salvage value at the
Consider these two alternatives.a. Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 15% per year.b.
Consider the following two investment alter-natives. Determine the range of investment costs for Alternative B (i.e., min. value < X < max. value) that will convince an investor to select Alternative B. MARR = 10% per year, and other relevant data are shown in the following table. State
The Ford Motor Company is considering three mutually exclusive electronic stability control systems for protection against rollover of its automobiles. The investment (study) period is four years, and MARR is 12% per year. Data for the fixture costs of the systems are as follows.Plot the AW of each
A large city in the mid-West needs to acquire a street-cleaning machine to keep its roads looking nice year round. A used cleaning vehicle will cost $85,000 and have a $20,000 market (salvage) value at the end of its five-year life. A new system with advanced features will cost $150,000 and have a
An industrial machine costing $14,000 will produce net cash savings of $5,000 per year. The machine has a five-year useful life but must be returned to the factory for major repairs after three years of operation. These repairs cost $5,000. The company’s MARR is 10% per year. What IRR will be
Two traffic signal systems are being considered for an intersection. One system costs $32,000 for installation and has an efficiency rating of 78%, requires 28 kW power (output), incurs a user cost of $0.24 per vehicle, and has a life of 10 years. A second system costs $45,000 to install, has an
An office building is considering converting from a coal-burning furnace to one that burns either fuel oil or natural gas. The cost of converting to fuel oil is estimated to be $80,000 initially; annual operating expenses are estimated to be $4,000 less than that experienced when using the coal
A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread.Neither machine has a market value at the end of seven years, and MARR is 12% per year.What is the minimum number of loaves that must be sold per year to justify
A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread.Neither machine has a market value at the end of seven years, and MARR is 12% per year.What is the minimum number of loaves that must be sold per year to justify
A supermarket chain buys loaves of bread from its supplier at $0.50 per loaf. The chain is considering two options to bake its own bread.Neither machine has a market value at the end of seven years, and MARR is 12% per year. If the demand for bread at this supermarket is 35,000 loaves per year,
A carpet manufacturer in Georgia plans to expand its plant for a capital investment of $500,000. The extra capacity will permit the company to produce 400,000 yards of carpet each year during the plant’s five-year life. Each yard of carpet will produce a revenue of $2.00, and the plant’s
A centrifuge is required in a chemical separation process. Two centrifuges (A and B) are available and summarized below. The net annual revenues for centrifuge B are not known. If the MARR is 10% per year and salvage values can be ignored, what is the minimum value of X to make centrifuge B the
A new snow making machine utilizes technology that permits snow to be produced in ambient temperature of 70 degrees Fahrenheit or below. The estimated cash flows for the ski resort contemplating this investment are uncertain as shown below:-The machine is expected to have a useful life of 12 years,
Annual profit (P) is the product of total annual sales (S) and profit per unit sold (X); that is, P = X·S. It is desired to know the probability distribution of the random variable P when X and Shave the following assumed probability mass functions (X and S are independent):What are the
It costs $250,000 to drill a natural gas well. Operating expenses will be 10% of the revenue from the sale of natural gas from this particular well. If found, natural gas from a highly productive well will amount to 260,000 cubic feet per day. The probability of locating such a productive well,
The purchase of a new piece of electronic measuring equipment for use in a continuous metal-forming process is being considered. If this equipment were purchased, the capital cost would be $418,000, and the estimated savings are $148,000 per year. The useful life of the equipment in this
In an industrial setting, process steam has been found to be normally distributed with an average value of 25,000 pounds per hour. There is an 80% probability that steam flow lies between 20,000 and 30,000 pounds per hour. What is the variance of the steam flow?
Suppose that a random variable (e.g., market value for a piece of equipment) is normally distributed, with mean = $175 and variance = 25$2. What is the probability that the actual market value is at least $171?
Two mutually exclusive investment alternatives are being considered, and one of them must be selected. Alternative A requires an initial investment of $13,000 in equipment. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of $5,000 and a standard
Two investment alternatives are being considered. The data below have been estimated by a panel of experts, and all cash flows are assumed to be independent. Life is not a variable.With MARR = 15% per year, determine the mean and standard deviation of the incremental PW [i.e.,
In 2015, a firm has receipts of $8 million and expenses (excluding depreciation) of $4 million. Its depreciation for 2015 amounts to $2 million. If the effective income tax rate is 40%, what is this firm’s net operating income after taxes (NOPAT)?
A firm is considering a capital investment. The risk premium is 0.04, and it is considered to be constant through time. Riskless investments may now be purchased to yield 0.06 (6%). If the project’s beta (β) is 1.5, what is the expected return for this investment?
A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each year for three years and then have a market value of $10,000 at the end of the third year. The equipment could be leased for $22,000 a year, with the first payment due immediately.a. If the
Four proposals are under consideration by your company. Proposals A and C are mutually exclusive; proposals B and D are mutually exclusive and cannot be implemented unless proposal A or C has been selected. No more than $140,000 can be spent at time zero. The before-tax MARR is 15% per year. The
Suppose state income taxes and local income taxes are treated as expenses for purposes of calculating federal taxable income and hence federal income taxes. Determine the effective income tax rate when the federal income tax rate is 35%, the state income tax rate is 6%, and the local income tax
A special-purpose machine is to be depreciated as a linear function of use (units-of-production method). It costs $35,000 and is expected to produce 150,000 units and then be sold for $5,000. Up to the end of the third year, it had produced 60,000 units, and during the fourth year it produced
A manufacturer of aerospace products purchased three flexible assembly cells for $500,000 each. Delivery and insurance charges were $35,000, and installation of the cells cost another $50,000.a. Determine the cost basis of the three cells.b. What is the class life of the cells?c. What is the MACRS
A piece of construction equipment (asset class 15.0) was purchased by the Jones Construction Company. The cost basis was $300,000.a. Determine the GDS and ADS depreciation deductions for this property.b. Compute the difference in PW of the two sets of depreciation deductions in Part (a) if i =12%
What is the depreciation deduction, using each of the following methods, for the second year for an asset that costs $35,000 and has an estimated MV of $7,000 at the end of its seven-year useful life? Assume its MACRS class life is also seven years.(a) 200% DB,(b) GDS (MACRS),(c) ADS (MACRS).(7.3,
The “Big-Deal” Company has purchased new furniture for their offices at a retail price of $125,000.An additional $20,000 has been charged for insurance,shipping, and handling. The company expects to use the furniture for 10 years (useful life=10 years) and then sell it at a salvage (market)
An asset purchased for $50,000 has a depreciable life of 5 years, and it has a terminal book (salvage) value of $5,000 at the end of its depreciable life. With the straight-line method of depreciation, what is the asset’s book value at the end of year 3?
Consider the savings plans for two investors — we’ll call them Mary and Bill—who began investing 10 years apart. Both put the same amount of money aside ($100 per month for 20 years for a total of $24,000). Mary and Bill earned the same interest rate, which was 8% compounded monthly. Mary
Consider the mutually exclusive alternatives given in the table below. The MARR is 10% per year.Assuming repeatability, which alternative should the company select?(a) Alternative X(b) Alternative Y(c) Alternative Z(d) Do nothing Alternative Capital $500,000 $250,000 $400,000 investment (thousands)
The following mutually exclusive investment alter-natives have been presented to you. (See Table P6-82.) The life of all alternatives is 10 years. Using a MARR of 15%, the preferred Alter-native is:(a) Do nothing(b) Alt. A(c) Alt. B(d) Alt. C(e) Alt. D(f) Alt. ETable P6-82: Capital investment
The following mutually exclusive investment alter-natives have been presented to you. (See Table P6-82.) The life of all alternatives is 10 years. 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
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
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 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.Which
Complete the following analysis of cost alternatives and select the preferred alternative. The study period is 10 years and the MARR = 12% per year. €œDo Nothing€ is not an option.(a) Alternative A(b) Alternative B(c) Alternative C(d) Alternative D Capital $15,000 $16,000
Complete the following analysis of investment alternatives and select the preferred alternative. The study period is three years and the MARR = 15% per year.(a) Do Nothing(b) Alternative A(c) Alternative B(d) Alternative C Alternative Alternative Alternative в Capital $11,000 $13,000 $16,000
Would the recommendation change if landfill costs double to $40 per cubic yard?Three mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given next. The MARR is 20% per year. At the conclusion of the useful life, the investment will be
Using the data from Problem 6-7, create a spreadsheet to identify the best design using an IRR analysis.Data from Problem 6-7:Three mutually exclusive design alternatives are being considered. The estimated cash flows for each alternative are given next. The MARR is 20% per year. At the conclusion
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 for
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 months.
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 recommended and
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
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 by
You do not start saving money until age 46. On your 46th birthday you dutifully invest $10,000 each year until you finish your deposits when you reach the age of 65. The annual interest rate is 8% that you earn on your deposits. Your brother starts saving $10,000 a year on his 36th birthday but
A new municipal refuse collection vehicle can be purchased for $84,000. Its expected useful life is 6 years, at which time the market value and book value will be zero. Before-tax cash flow (BTCF) will be+$18,000 per year over the 6-year life of the vehicle.a. Use straight-line depreciation, an
An injection molding machine can be purchased and installed for $90,000. It is in the seven-year GDS property class and is expected to be kept in service for eight years. It is believed that $10,000 can be obtained when the machine is disposed of at the end of year eight. The net annual value
An office supply company has purchased a light-duty delivery truck for $18,000. The truck will be depreciated under the MACRS with a property class of 5 years. The truck’s MV is expected to decrease by $3,000 per year. It is anticipated that the purchase of the truck will increase the company’s
A high-pressure reactor vessel in a pharmaceutical company was purchased for $200,000. It has a useful life of 10 years, and the vessel can be sold for $30,000 at that time. The vessel will be depreciated with the MACRS method (its class life is 5 years). Annual net cash flow (revenue less
Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $35,000. Annual operating cost will be in direct proportion to the level of production at $8.50 per unit, and each
The expected annual maintenance expense for a new piece of equipment is $10,000. This is Alternative A. Alternatively, it is possible to perform the maintenance every fifth year at a cost of $50,000 (Alternative B). In either case, maintenance will be performed in the fifth year so that the
A firm must decide between two silicon layer chip designs from Intel. Their effective income tax rate is 40%, and MACRS depreciation is used. If the desired after-tax return on investment is 10% per year, which design should be chosen? State your assumptions. Design A Design B Capital investment MV
Alternative Methods I and II are proposed for a security operation. The following is comparative information:Determine which is the better alternative based on an after-tax annual cost analysis with an effective income tax rate of 40% and an after-tax MARR of 15%, assuming the following methods of
A biotech company has an effective income tax rate of 40%. Recaptured depreciation is also taxed at the rate of 40%. The company must choose one of the following mutually exclusive cryogenic freezers for its tissue samples. The after-tax MARR is 12% per year. Which freezer should be selected based
Suppose that you invest $200 per month (before taxes) for 30 years (360 payments) and the annual interest rate (APR) is 8%, compounded monthly. If your income tax bracket is 28%, what lump sum, after-tax distribution can be taken at the end of 30 years?
A $5,000 balance in a tax-deferred savings plan will grow to $50,313.50 in 30 years at an 8% per year interest rate. What would be the future worth if the $5,000 had been subject to a 28% income tax rate?
The income tax-free yield on a certain municipal bond is 7% per year. This translates into approximately a 5% annual yield if the municipal bond’s interest had been taxable in the 28% income tax bracket [7% (1 −0.28) approx. = 5%]. Compare the future worth of the two situations (i.e.,
Create a spreadsheet to solve Problem 7-24. What would the MV of M1 have to be (at the end of year five) for the firm to select M1?Data from Problem 7-24:Refer to Example 6-10. Work this problem on an after-tax basis when the MARR is 12% per year. The effective income tax rate is 40%,
The Parkview Hospital is considering the purchase of a new autoclave. This equipment will cost $150,000. This asset will be depreciated using an MACRS (GDS) recovery period of three years. The BV at the end of the second year is(a) $27,771(b) $41,667(c) $116,675(d) $33,325
The Parkview Hospital is considering the purchase of a new autoclave. This equipment will cost $150,000. This asset will be depreciated using an MACRS (GDS) recovery period of three years. If the autoclave is sold during the third year of ownership, the allowable depreciation charge for the third
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be $25,000. Using the SL method, the annual depreciation on the equipment is(a) $50,000(b) $51,500(c)
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be $25,000. Using the SL method, the BV at the end of the depreciable life is(a) $0(b) $25,000(c) $35,000(d)
An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment will be kept for 10 years before being sold. The estimated SV for depreciation purposes is to be $25,000. If MACRS depreciation is used, the recovery period of the equipment using the GDS guidelines
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new equipment will be kept for 10 years before being sold. Its estimated SV at the time is expected to be
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new equipment will be kept for 10 years before being sold. Its estimated SV at the time is expected to be
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new equipment will be kept for 10 years before being sold. Its estimated SV at the time is expected to be
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new equipment will be kept for 10 years before being sold. Its estimated SV at the time is expected to be
A wood products company has decided to purchase new logging equipment for $100,000 with a trade-in of its old equipment. The old equipment has a BV of $10,000 at the time of the trade-in. The new equipment will be kept for 10 years before being sold. Its estimated SV at the time is expected to be
A small pump costs $16,000 and has a life of eight years and a $2,000 SV at that time. If the 200% DB method is used to depreciate the pump, the BV at the end of year four is(a) $9,000(b) $8,000(c) $6,000(d) $5,000
Air handling equipment that costs $12,000 has a life of eight years with a $2,000 SV. What is the SL depreciation amount for each year?(a) $1,500(b) $1,000(c) $1,200(d) $1,250
The air handling equipment just described is to be depreciated, using the MACRS with a GDS recovery period of seven years. The BV of the equipment at the end of (including) year four is most nearly(a) $3,749(b) $3,124(c) $5,000(d) $8,251
Your company just purchased a bar-code system for $70,000. It has a five-year MACRS class life. The expected market value of the bar-code system in 3 years is $32,000. What is the gain (or loss) when this asset is sold at end year 3?(a) $11,840(b) $5,120(c)−$1,600(d) $11,120
Suppose for some year the income of a small company is $110,000; the expenses are $65,000; the depreciation is $25,000; and the effective income tax rate = 40%. For this year, the ATCF is most nearly(a)−$8,900(b) $4,700(c) $13,200(d) $29,700(e) $37,000
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.The

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