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engineering economy
Engineering Economy 16th edition William G. Sullivan, Elin M. Wicks, C. Patrick Koelling - Solutions
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
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. These
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:a. Which environmental protection equipment alternative should be
Your plant must add another boiler to its steam generating system. Bids have been obtained from two boiler manufacturers as follows:If the MARR is 10% per year, which boiler would you recommend? Use the repeatability assumption. Boiler A Boiler B Capital investment Useful life, N $100,000 40 years
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.a. Use the PW
Two electric motors are being considered to drive a centrifugal pump. One of the motors must be selected. Each motor is capable of delivering 60 horsepower (output) to the pumping operation. It is expected that the motors will be in use 800 hours per year. The following data are available:a. If
Consider the following EOY cash flows for two mutually exclusive alternatives (one must be chosen):The MARR is 5% per year.a. Determine which alternative should be selected if the repeatability assumption applies.b. Determine which alternative should be selected if the analysis period is 18 years,
Refer to Problem 6-2. Solve this problem using the ERR method. Let ˆˆ = 10% per year.Data from Problem 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
A municipal police department has decided to acquire an unmanned drone for aerial surveillance of a high-crime region of their city. Three mutually exclusive drones are being studied and their data are provided on p. 297. All alternatives are expected to have negligible market (salvage) values at
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
Two flight guidance systems are being evaluated for a backup control tower at a local airport. One system utilizes conventional radar, and the second uses a global positioning system (GPS). The life of both systems is 6 years, and the MARR is 12% per year. Based on the internal rate of return
A movie theatre is considering the purchase of a new three-dimensional (3D) digital projection system. The new ticket price for a 3D movie will be $15 per person, which is $2.00 higher than for the conventional two-dimensional cellulose film projection system. The new 3D system will cost $50,000.a.
A stem cell research project requires expensive specialized laboratory equipment. For this purpose, three pieces of equipment and their associated cash flows (listed below) are under consideration. One piece of equipment must be selected, and the laboratory€™s MARR is 15% per year.a. Use
Acme Semiconductor is expanding its facility and needs to add equipment. There are three process tools under consideration. You have been asked to perform an economic analysis to select the most appropriate tool to acquire. You have gathered the following information for evaluation. Each of these
Three mutually exclusive design alternatives are being considered. The estimated sales and cost data foreach alternative are given on p. 292. The MARR is 20% per year. Annual revenues are based on the number of units sold and the selling price. Annual expenses are based on fixed and variable costs.
Which mutually exclusive project below would you recommend? Explain your answer. Project PW (12%) IRR $45,252 $42,591 15% R15 S19 18%
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 design,
A foundation was endowed with $15,000,000 in July 2010. In July 2014, $5,000,000 was expended for facilities, and it was decided to provide $250,000 at the end of each year forever to cover operating expenses. The first operating expense is in July 2015, and the first replacement expense in July
Bill Mitselfik borrowed $10,000 to be repaid in quarterly installments over the next five years. The interest rate he is being charged is 12% per year compounded quarterly. What is his quarterly payment?(a) $400(b) $550(c) $650(d) $800
Your monthly mortgage payment (principal plus interest) is $1,500. If you have a 30-year loan with a fixed interest rate of 0.5% per month, how much did you borrow from the bank to purchase your house? Select the closest answer.(a) $154,000(b) $180,000(c) $250,000(d) $300,000(e) $540,000
When you were born, your grandfather established a trust fund for you in the Cayman Islands. The account has been earning interest at the rate of 10% per year. If this account will be worth $100,000 on your 25th birthday, how much did your grandfather deposit on the day you were born?(a) $4,000(b)
An amount, P, must be invested now to allow withdrawals of $1,000 per year for the next 15 years and to permit $300 to be withdrawn starting at the end of year 6 and continuing over the remainder of the 15-year period as the $300 increases by 6% per year thereafter. That is, the withdrawal at EOY
An electronic device is available that will reduce this year’s labor costs by $8,000. The equipment is expected to last for 10 years. Labor costs increase at a rate of 5% per year and the interest rate is 10% per year.a. What is the maximum amount that we could justify spending for the device?b.
Amy Parker, a 22-year-old and newly hired marine biologist, is quick to admit that she does not plan to keep close tabs on how her 401(k) retirement plan will grow with time. This sort of thing does not really interest her. Amy’s contribution, plus that of her employer, amounts to $2,200 per year
It is likely that your college tuition will in-crease an average of 8% per year for the next 4 years. The annual cost of tuition at the beginning of your freshman year in college will be $12,000 (A1). How much money will you and your parents have to deposit in a mutual fund account one year prior
Rework Problem 4-47 assuming the construction bonds had been retired as an annuity (i.e., equal uni-form annual payments had been made to repay the $35 million).Data from Problem 4-47:A piece of airport baggage handling equipment can be purchased for $80,000 cash or for $84,000 to be financed over
A piece of airport baggage handling equipment can be purchased for $80,000 cash or for $84,000 to be financed over 60 months at 0% interest. This special offer is good for only the next two days. The salesperson states that at least $20,000 can be saved by the 0% offer compared to their
A manufacturing company leases a building for $100,000 per year for its manufacturing facilities. In addition, the machinery in this building is being paid for in installments of $20,000 per year. Each unit of the product produced costs $15 in labor and $10 in materials. The product can be sold for
In a building construction project, 7,500 feet of insulated ductwork is required. The ductwork is made from 14-gauge steel costing $8.50 per pound. The 24-inch-diameter duct weighs 15 pounds per foot. Insulation for the ductwork costs $10 per foot. Engineering design will cost $16,000, and labor to
The interest rate on short-term German bonds is −0.1%. Explain how this is possible and what it means.
Jonathan borrowed $10,000 at 6% annual compound interest. He agreed to repay the loan with five equal annual payments at end-of-years 1–5. How much of the annual payment is interest, and how much principal is there in each annual payment?
You just inherited $10,000. While you plan to squander some of it away, how much should you deposit in an account earning 5% interest per year if you’d like to have $10,000 in the account in 10 years?
The value of an investment comes from its cash flows. Let’s say you are intent on receiving $45,000 per year, starting at the end of year one and continuing over 10 years. A lump-sum of $380,000 invested now (year 0) will allow you to receive your desired annual amount. What interest rate is
A geothermal heat pump can save up to 80% of the annual heating and cooling bills of a certain home in the northeastern U.S. In this region, the yearly cost of conventionally heating and cooling a 2,000 square foot house is about $2,500. With a federal tax credit of 30% on the total installation of
An individual makes five annual deposits of $2,000 in a savings account that pays interest at a rate of 4% per year. One year after making the last deposit, the interest rate changes to 6% per year. Five years after the last deposit, the accumulated money is withdrawn from the account. How much is
A person has made an arrangement to borrow $1,000 now and another $1,000 two years hence. The entire obligation is to be repaid at the end of four years. If the projected interest rates in years one, two, three, and four are 10%, 12%, 12%, and 14%, respectively, how much will be repaid as a
Suppose that you have a money market certificate earning an annual rate of interest, which varies over time as follows:If you invest $10,000 in this certificate at the beginning of year one and do not add or withdraw any money for five years, what is the value of the certificate at the end of the
Determine the present equivalent value of the cash-flow diagram of Figure P4-97 (p. 180) when the annual interest rate,ik, varies as indicated.Picture P4-97: P = ? $2,000 $2,000 $1,000 $1,000 ! = 8% i4 = 6% i6 = 10% iz = 8% iş = 6% iz = 10% 2 3 6. Years
a. What is the effective annual interest rate when a nominal rate of 12% per year is compounded monthly?b. How many months does it take for a present sum of money to double if the nominal interest rate is 12% per year and compounding is monthly?c. How many months does it take for a present sum of
An APR of 3.75% produces an effective annual interest rate of 3.82% What is the compounding frequency (M) in this situation?
Compute the effective annual interest rate in each of the following situations.a. 5.75% nominal interest, compounded quarterly.b. 5.75% nominal interest, compounded daily.
To pay off $50,000,000 worth of new construction bonds when they come due in 20 years, a water municipality must deposit money into a sinking fund. Payments to the fund will be made quarterly, starting three months from now. If the interest rate for the sinking fund is 8% compounded quarterly, how
An automobile salesperson states that his company will pay the interest for the first 12 months of your automobile loan if you buy the vehicle today. Suppose you go ahead and purchase a car for $25,000 and finance it with a 48-month loan having an APR of 9%. What is your monthly payment going to be
Many people get ready for retirement by depositing money into a monthly or annual savings plan.a. If $300 per month is deposited in a bank account paying a 6% APR compounded monthly, how much will be accumulated in the account after 30 years?b. If inflation is expected to average 2% per year into
The average college graduate owes $22,500 in loans incurred over his/her college career. Now that it is so difficult to land a job after graduation, an option for the graduate seeking relief is to stretch the loan over 20 years (with the bank’s approval, of course) instead of repaying the loan
Suppose you owe $1,100 on your credit card. The annual percentage rate (APR) is 18%, compounded monthly. The credit card company says your minimum monthly payment is $19.80.(4.15)a. If you make only this minimum payment, how long will it take for you to repay the $1,100 balance (assuming no more
Determine the annual equivalent amount over 4 years for the following cash flow (CF) pattern. The nominal interest rate is 10%, and it is compounded monthly. ΕΟΥ CF -$7,500 -$2,000 $14,000 $18,000 $4,000 2 3
A nominal interest rate of 11.333%, continuously compounded, yields an effective annual interest rate of how much?
College students are now graduating with loan debts averaging $24,000.a. If students repay their loan of $24,000 over 10 years with an annual effective interest rate of 8.3%, what will their annual payment be?b. What is the annual payment going to be when the interest rate is 9.6%, continuously
Juan deposits $5,000 into a savings account that pays 7.2% per year, continuously compounded. What is the effective annual interest rate? Determine the value of his account at the end of two years.
A man deposited $10,000 in a savings account when his son was born. The nominal interest rate was 8% per year, compounded continuously. On the son’s 18th birthday, the accumulated sum is withdrawn from the account. How much will this accumulated amount be?
What is the present equivalent of a uniform series of annual payments of $3,500 each for five years if the interest rate, compounded continuously, is 10%?
The amount of $7,000 is invested in a Certificate of Deposit (CD) and will be worth $16,000 in nine years. What is the continuously compounded nominal (annual) interest rate for this CD?
Indicate whether each of the following statements is true (T) or false (F).(all sections)a. Interest is money paid for the use of equity capital.b. (A/F, i%, N) = (A/P, i%, N) + i.c. Simple interest ignores the time value of money principle.d. Cash-flow diagrams are analogous to free-body diagrams
Mark each statement true (T) or false (F), and fill in the blanks in Part (e).(all sections)a. The nominal interest rate will always be less than the effective interest rate when r = 10% and M = ∞.b. A certain loan involves monthly repayments of $185 over a 24-month period. If r = 10% per year,
A $15,000 investment is to be made with anticipated annual returns as shown in the spreadsheet in Figure P4-130. If the investor€™s time value of money is 10% per year, what should be entered in cells B11, B12, and B13 to obtain present, annual, and future equivalent values for the
If you borrow $3,000 at 6% simple interest per year for seven years, how much will you have to repay at the end of seven years?(4.2)(a) $3,000(b) $4,511(c) $1,260(d) $1,511(e) $4,260
Every year you deposit $2,000 into an account that earns 2% interest per year. What will be the balance of your account immediately after the 30th deposit?(a) $44,793(b) $60,000(c) $77,385(d) $81,136(e) $82,759
Consider the following sequence of year-end cash flows:What is the uniform annual equivalent if the interest rate is 12% per year?(a) $20,422(b) $17,511(c) $23,204(d) $22,000(e) $12,422 2 Cash $8,000 $15,000 $22,000 $29,000 $36,000 5 EOY 3 4 Flow
If you borrow $5,000 to buy a car at 12% compounded monthly, to be repaid over the next four years, what is your monthly payment?(a) $131(b) $137(c) $1,646(d) $81(e) $104
The effective annual interest rate is given to be 19.2%. What is the nominal interest rate per year (r) if continuous compounding is being used? Choose the closest answer below.(a) 19.83%(b) 18.55%(c) 17.56%(d) 16.90%
A bank advertises mortgages at 12% com-pounded continuously. What is the effective annual interest?(a) 12.36%(b) 12.55%(c) 12.75%(d) 12.68%(e) 12.00%
On a $200,000, 30-year fixed mortgage, the monthly payment will be approximately how much when the nominal interest rate on the mortgage is 4.2%?(a) $568(b) $980(c) $918(d) $1,000(e) $895
Adding a small amount to your monthly home mortgage payment will shorten the life of your loan. Adding $10 per month to your $540 monthly mortgage payment will trim how many months from a 30 year, 5% mortgage of $100,000? Select the closest answer.(a) 25 months(b) 19 months(c) 13 months(d) 6 months
Tennessee Tool Works (TTW) is considering investment in five independent projects, Any profitable combination of them is feasible.TTW has $50 million available to invest, and these funds are currently earning 7% interest annually from municipal bonds. If the funds available are limited to $50
Buildings that are constructed to be environmentally responsible are referred to as “green buildings.” They cut down on energy consumption, increase water efficiency, improve indoor air quality, and use recycled materials in their construction. According to recent studies, money spent on a
Are there multiple IRRs for the following cash flows? If so, how many are there? If not, what is the unique IRR? 3 EOY Cash flow -$1,000 $1,500 -$600 $500
To join an upscale country club, an individual must first purchase a membership bond for $20,000. In addition, monthly membership dues are $250. Suppose an individual wants to put aside a lump sum of money now to pay for her basic country club membership expenses (including the $20,000 bond) over
A large induced-draft fan is needed for an upgraded industrial process. The motor to drive this fan is rated at 100 horsepower, and the motor will operate at full load for 8,760 hours per year. The motor’s efficiency is 92%. Because the motor is fairly large, a demand charge of $92 per kilowatt
A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be approximately $18,000 per year over the six-year study period. Use the PW method and a MARR of 18% to
The winner of a state lottery will receive $5,000 per week for the rest of her life. If the winner’s interest rate is 6.5% per year compounded weekly, what is the present worth of this jackpot?
A new six-speed automatic transmission for automobiles offers an estimated 4% improvement in fuel economy compared to traditional four-speed transmissions in front-wheel drive cars. If a four-speed transmission car averages 30 miles per gallon and gasoline costs $4.00 per gallon, how much extra can
The price of a 10-year bond can decline by approximately 9% if interest rates rise by 1% point. To illustrate this, suppose you own a 10-year U.S. Treasury bond that has a bond rate of 2% per year. How much money will you lose if the value of the bond today is $10,000 (face value of the bond) and
A U.S. government bond matures in 10 years. Its quoted price is now 96.4, which means the buyer will pay $96.40 per $100 of the bond’s face value. The bond pays 5% interest on its face value each year. If $10,000 (the face value) worth of these bonds are purchased now, what is the yield to the
A city is spending $20 million on a new sewage system. The expected life of the system is 40 years, and it will have no market value at the end of its life. Operating and maintenance expenses for the system are projected to average $0.6 million per year. If the city’s MARR is 8% per year, what is
Vidhi is investing in some rental property in Collegeville and is investigating her income from the investment. She knows the rental revenue will increase each year, but so will the maintenance expenses. She has been able to generate the data that follows regarding this investment opportunity.
After graduation, you have been offered an engineering job with a large company that has offices in Tennessee and Pennsylvania. The salary is $55,000 per year at either location. Tennessee’s tax burden (state and local taxes) is 6% and Pennsylvania’s is 3.07%. If you accept the position in
A simple, direct space heating system is currently being used in a professional medical office complex. An upgraded “variable air-volume system” retrofit can be purchased and installed for $200,000 (investment cost). Its power savings in the future will be 500,000 kilo-Watt hours per year over
Refer to the following table of cash flows:What is the annual worth of these cash flows over 16 years when i = 5% per year? End of year 4 12 16 $5,000 $5,000 $5,000 $5,000 $5,000 Cash flow
Combined-cycle power plants use two combustion turbines to produce electricity. Heat from the first turbine’s exhaust is captured to heat water and produce steam sent to a second steam turbine that generates additional electricity. A 968-megawatt combined-cycle gas fired plant can be purchased
An environmentally friendly green home (99% air tight) costs about 8% more to construct than a conventional home. Most green homes can save 15% per year on energy expenses to heat and cool the dwelling. For a $250,000 conventional home, how much would have to be saved in energy expenses per year
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 $45,000. Annual operating costs will be directly proportional to the level of production at $8.50 per unit, and each
Stan Moneymaker has been informed of a major automobile manufacturer’s plan to conserve on gasoline consumption through improved engine design. The idea is called “engine displacement,” and it works by switching from 8-cylinder operation to 4-cylinder operation at approximately 40 miles per
A large automobile manufacturer is considering the installation of a high-tech material handling system for $30,000,000. This system will save $7,500,000 per year in manual labor, and it will incur $2,750,000 in annual operating and maintenance expenditures. The salvage value at the end of the
The EZ Credit Company offers to loan a college student $6,000 for school expenses. Repayment of the loan will be in monthly installments of $304.07 for 24 months. The total repayment of money is $7,297.68, which includes the original $6,000, $1,207.04 in interest charges, and $90.64 for a required
A loan of $3,000 for a new, high-end laptop computer is to be repaid in 15 end-of-month payments (starting one month from now). The monthly payments are determined as follows.What nominal and effective interest rates per year are actually being paid? Hint: Draw a cash-flow diagram from the
A large lithium-ion phosphate battery pack for an industrial application is expected to save $20,000 in annual energy expenses over its 6-year life. For a 3-year simple payback period, the permissible capital investment is $60,000. What is the internal rate of return on this $60,000 battery pack
At a military base in Texas, Corporal Stan Moneymaker has been offered a wonderful savings plan. These are the salesperson’s words: “During your 48-month tour of duty, you will invest $200 per month for the first 45 months. We will make the 46th, 47th, and 48th payments of $200 each for you.
To purchase a used automobile, you borrow $10,000 from Loan Shark Enterprises. They tell you the interest rate is 1% per month for 35 months. They also charge you $200 for a credit investigation, so you leave with $9,800 in your pocket. The monthly payment they calculated for you isIf you agree to
Experts agree that the IRR of a college education is about 12%/yr. This results from the increased earnings over your lifetime. Draw a CFD that supports the 12% annual return over the 40 years of your career. State your assumptions.
An integrated, combined cycle power plant produces 285 MW of electricity by gasifying coal. The capital investment for the plant is $570 million, spread evenly over two years. The operating life of the plant is expected to be 20 years. Additionally, the plant will operate at full capacity 75% of
A solar sea power plant (SSPP) is being considered in a North American location known for its high temperature ocean surface and its much lower ocean temperature 100 meters below the surface. Power can be produced based on this temperature differential. With high costs of fossil fuels, this
A new automotive “dry paint” separation process is environmentally friendly and is expected to save $8.00 per car painted at a Detroit plant. The installed cost of the process is $8 million, and 250,000 cars are painted each year. What is the simple payback for the new technology?
Javier borrows $50,000 from a local bank at an APR of 9%, compounded monthly. His monthly payments amount to $50,000 (A/P, 0.75%, 60) = $1,040 for a 60-month loan. If Javier makes an extra payment on the first month of each year, his repayment duration for the loan will be reduced by how many
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 $8,500 for each year thereafter. The lighting will be
What is the IRR in the following cash flow?(a) 12.95%(b) 11.95%(c) 9.05%(d) 10.05%(e) 11.05% Year End Cash Flow ($) -3,345 1,100 1,100 1,100 1,100 2
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.(a) $4,327(b) $5,977(c) $5,819(d) $6,103
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.(a) $10,616(b) $131,982(c) $5,511(d) $5,235(e) $134,649
A foreman supervises A, B, and eight other employees. The foreman states that he spends twice as much time supervising A and half as much time supervising B, compared with the average time spent supervising his other subordinates. All employees have the same production rate. On the basis of equal
A car rental agency is considering a modification in its oil change procedure. Currently, it uses a Type X filter, which costs $5 and must be changed every 7,000 miles along with the oil (5 quarts). Between each oil change, one quart of oil must be added after each 1,000 miles. The proposed filter
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