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engineering economy
Questions and Answers of
Engineering Economy
A company that manufactures high-strength epoxys is considering investing $100,000 in two new adhesives identified as X and Z. The investment in X is $20,000 and is expected to yield a rate of return
The rate of return for alternative X is 18% per year and for alternative Y is 17%, with Y requiring a larger initial investment. If a company has a minimum attractive rate of return of 16%:(a) The
Alternative A has a rate of return of 14% and alternative B has a rate of return of 17%. If the investment required in B is larger than that required for A, the rate of return on the increment of
Perform the required analysis of truck-bed sizes in Problem 8.33 using a spreadsheet.Data from problem 8.33A recent graduate who wants to start an excavation/ earth-moving business is trying to
A mechanical engineer at Anode Metals is considering five equivalent projects, some of which have different life expectations. Salvage value is nil for all alternatives. Assuming that the
Ryan has received cost and salvage value estimates for two competing fire sprinkler systems to be installed in his office building. System A has a first cost of $100,000, annual M&O costs of
In Problem 8.20, two methods of cooling water treatment are analyzed. These are revenue alternatives which generate annual savings against their costs.(a) Perform the complete procedure for
Kleen Corp., a privately owned and operated single-stream recycling facility, has annual contracts with several cities in the Tri-County Metropolitan Area. Kleen Corp. wants to add a new set of
A rate of return analysis was initiated for the infinite- life alternatives shown below.(a) Fill in the 10 blanks in the incremental rate of return (Îi*) columns.(b) How much revenue is
Four different machines were under consideration for materials flow improvement on a drug bottling line. An engineer performed the economic analysis to select the best machine, but some of his
The four alternatives described below are being evaluated by the rate of return method.(a) If the proposals are independent, which should be selected at a MARR of 16% per year?(b) If the proposals
A small manufacturing company could expand its operation by adding new products. Any or all of the products shown below can be added. If the company uses a MARR of 15% per year and a 5-year project
You are considering five projects, all of which can be considered to last indefinitely. If the companys MARR is 15% per year, determine which should be selected if they are(a) Independent
For the four revenue alternatives below, use the ROR method results to determine:(a) Which one(s) to select, if MARR = 17% per year and the proposals are independent.(b) Which one to select, if MARR
A recent graduate who wants to start an excavation/ earth-moving business is trying to determine which size of used dump truck to buy. He knows that as the bed size increases, the net income
Old Southwest Canning Co. has determined that any one of four machines can be used in its chilicanning operation. The cost of the machines are estimated below, and all machines have a 5-year life. If
Polytec Chemical, Inc. must decide between two additives to improve the dry-weather stability of its low-cost acrylic paint. Additive A will have an equipment and installation cost of $125,000 and an
A total of $50,000 was allocated to a project to detect and reduce insider theft in the ZipCar auto parts store. Two alternatives identified as Y and Z are under consideration. The overall ROR on the
According to Descartes’ rule of signs, the possible number of rate of return values for the net cash flow series ++++−−−−−−+−+−−−++ is(a) 2(b) 4(c) 6(d) 8
A metal plating company is considering four different methods for recovering by-product heavy metals from a manufacturing sites liquid waste. The investment costs and annual net incomes
Four mutually exclusive service alternatives are under consideration for automating a manufacturing operation. The alternatives were ranked in order of increasing initial investment and then compared
One of Suzannes project engineers e-mailed her the screen-shot (below) of his spreadsheet analysis of the annual costs and savings for two equivalent systems considered for installation
Two roadway designs are under consideration for access to a permanent suspension bridge. Design 1A will cost $3 million to build and $100,000 per year to maintain. Design 1B will cost $3.5 million to
Alternative R has a first cost of $100,000, annual M&O costs of $50,000, and a $20,000 salvage value after 5 years. Alternative S has a first cost of $175,000 and a $40,000 salvage value after 5
Konica Minolta plans to sell a copier that prints documents on both sides simultaneously, cutting in half the time it takes to complete big commercial jobs. The faster copier is expected to increase
A solid-waste recycling plant is considering two types of storage bins using an MARR of 10% per year.(a) Use ROR evaluation to determine which should be selected.(b) Confirm the selection using the
The manager of a canned-food processing plant has two labeling machine options. On the basis of a rate of return analysis with a MARR of 20% per year, determine(a) Which model is economically
A process control manager is considering two robots to improve materials handling capacity in the production of rigid shaft couplings that mate dissimilar drive components. Robot X has a first cost
A company that manufactures amplified pressure transducers wishes to decide between the machines shownvariable speed (VS) and dual speed (DS). Compare them on the basis of rate of return
EP Electric has identified two new methods to treat its cooling water. Alternative I (for inflow) would treat the raw water with a conventional reverse osmosis system so that the cycles of
A consulting engineering firm’s CFO wants to purchase either Ford Explorers or Toyota 4Runners for company principals. The two models under consideration cost $30,900 for the Ford and $36,400 for
The PW-based relation for the incremental cash flow series to find Δi* between the lower first-cost alternative X and alternative Y has been developed.0 = − 40,000 + 9000(P∕A,Δi*,10) −
Lesco Chemical is considering two processes for making a cationic polymer. Process A has a first cost of $100,000 and an AOC of $60,000 per year. Process B’s first cost is $165,000. If both process
Certain parts for NASAs reusable space exploration vehicle can either be anodized (A) or powder coated (P). Some of the costs for each process are shown in the table below. The
For the two alternatives, demonstrate that the sum of the incremental cash flow series (Z X) over the LCM is equal to the difference in the sums of the individual cash flow series for X
For the cash flows shown, determine the incremental cash flow between machines B and A(a) In year 0,(b) in year 3,(c) in year 6. Machine First cost, $ AOC, $ per year A -15,000 -25,000 -1,600 3,000
For each of the following scenarios, state whether an incremental ROR analysis is required to select an alternative and state why or why not. Assume that alternative Y requires a larger initial
Amigo Mobility, which manufactures battery powered mobility scooters, has $700,000 to invest.The company is considering three different battery projects that will yield the following rates of
Assume you have a total of $200,000 to invest in two corporate stocks identified as Z1 and Z2. The overall rate of return you require on the $200,000 is 26% per year.(a) If $40,000 is invested in Z2
A small construction company has $100,000 set aside in a capital improvement fund to purchase new equipment. If $30,000 is invested at 30%, $20,000 at 25%, and the remaining $50,000 at 20% per year,
What is the overall rate of return on a $100,000 investment that returns 20% on the first $30,000 and 14% on the remaining $70,000?
Why is an incremental analysis necessary when conducting a rate of return analysis for cost alternatives?
If alternative A has i*A = 10% and alternative B has i*B = 18% per year, what is known about the rate of return on the increment between A and B if the investment required in B is(a) Larger than that
A food processing company is considering two types of moisture analyzers. Only one can be selected. The company expects an infrared model to yield a rate of return of 27% per year. A more expensive
Incremental cash flow is calculated as (cash flowB− cash flowA), where B represents the alternative with the larger initial investment. If the two cash flows were switched wherein B represents the
If the sum of the incremental cash flows is negative, what is known about the rate of return on the incremental investment?
Schneeberger, Inc. is considering two alternatives to increase the acceleration of its linear motor actuators. The initial investment required in alternative X is $200,000 and in Y is $150,000. The
What is the primary purpose of a public sector project?
Assume alternatives A and B are being evaluated by the rate of return method against a MARR of 15% per year. Alternative B requires a higher initial investment than A and the i* values are i *A = 20%
1. If the MARR = 12%, which server should be selected? Use the PW or AW method to make the selection.2. Use incremental ROR analysis to decide between the servers at MARR = 12%.3. Use any method of
When applying the MIRR approach to determine the external rate of return of a project, which of the following statements is true?(a) The borrowing rate, ib, is usually equal to the MARR.(b) The
A municipal bond with a face value of $10,000 was issued today with an interest rate of 6% per year payable semiannually. The bond matures 20 years from now. If an investor paid $9,000 for the bond
When positive net cash flows are generated before the end of a project, and when these cash flows are reinvested at an interest rate that is greater than the internal rate of return,(a) The resulting
According to Norstrom’s criterion, there is only one positive rate of return value in a cash flow series when:(a) The cumulative cash flow starts out positive and changes sign only once(b) The
During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value,
The capitalized cost of machine Y is closest to:(a) $17,726(b) $86,590(c) $177,260(d) $207,720Problem is based on the following cash flows for alternatives X and Y at an interest rate of 10% per
Define the term capitalized cost and give a real world example of something that might be analyzed using a capitalized cost evaluation technique.
A small company plans to spend $10,000 in year 2 and $10,000 in year 5. At an interest rate of effective 10% per year, compounded semiannually, the equation that represents the equivalent annual
Solve Problem 4.19 by applying the EFFECT function to determine the rates.Problem 4.19Jennifer and Rex both receive a dividend from their 401(k) retirement plan every 6 months. The earning rates for
An interest rate of 12% per year, compounded monthly, is nearest to:(a) 12.08% per year(b) 12.28% per year(c) 12.48% per year(d) 12.68% per year
A very optimistic hedge fund investor expects his single-deposit investment to triple in value in 5 years.(a) What is the required effective monthly rate, compounded continuously?(b) What is the
McMillan Company manufactures electronic flow sensors that are designed as an alternative to balland- tube rotometers. The company recently spent $3 million to increase the capacity of an existing
Thermal Systems, a company that specializes in odor control for wastewater treatment plants, made deposits of $100,000 now and $25,000 every 6 months for 2 years. Determine the future worth after 2
First Corp Bank advertises interest paid at 2% every 6 months. What is the APR?
A large water utility is planning to upgrade its SCADA system for controlling well pumps, booster pumps, and disinfection equipment so that everything can be centrally controlled. Phase I will reduce
For the cash flow diagram shown, determine the value of G that will make the present worth in year 0 equal to $2500 at an interest rate of 10% per year. i = 10% per year %3D 2 3 1 5 Year 900-3G
For the cash flows shown, calculate the equivalent annual worth in years 1 through 4 at an interest rate of 10% per year. 3 4 Year 250,000 275,000 300,000 325,000 375,000 Cash Flow, $
After you have conducted a future worth comparison of alternatives, what do you multiply the FW values by in order to obtain the AW values of the alternatives?
An alumnus of West Virginia University wishes to start an endowment that will provide scholarship money of $40,000 per year beginning in year 5 and continuing indefinitely. The donor plans to give
The annual worth for years 1 through infinity of $50,000 now, $10,000 per year in years 1 through 15, and $20,000 per year in years 16 through infinity at 10% per year is closest to:(a) less than
In comparing the alternatives on a future worth basis, the FW of machine X is closest to:(a) $23,160(b) $40,560(c) $58,950(d) $71,860Problem is based on the following cash flows for alternatives X
The initial cost of a packed-bed degassing reactor for removing trihalomethanes from potable water is $84,000. The annual operating cost for power, site maintenance, etc. is $13,000. If the salvage
In comparing the alternatives on a present worth basis, the PW of machine X is closest to:(a) $23,160(b) $40,560(c) $58,950(d) $72,432Problem is based on the following cash flows for alternatives X
For the cash flow diagram shown, the future worth in year 4 is closest to:(a) <$2800(b) $2915(c) $3735(d) $5219 i = 7%/semiannual period 2. 3 4 Years Semiannual periods 5 200 220 270 320 370 420
The cost of replacing a high-definition television production line in 6 years is estimated to be $500,000. At an interest rate of 14% per year, compounded semiannually, the uniform amount that must
The cost of maintaining a permanent monument is expected to be $70,000 now and $70,000 every 10 years forever. At an interest rate of 10% per year, the capitalized cost is nearest:(a) $−11,393(b)
Define the term reinvestment rate and describe how it differs for any cash flow series between(1) A PW value calculated at the MARR,(2) The IROR value i*.
The annual worth of alternative Y is closest to:(a) $50,000(b) $76,625(c) $90,000(d) $92,000Problem is based on the following cash flows and an
The annual worth of perpetual service for alternative X is represented by the following equation:(a) 200,000(0.10) 60,000 + 20,000(0.10)(b)
In comparing the alternatives by the annual worth method, the AW of X is determined by the following equation:(a) 200,000(0.10) 60,000 + 20,000(0.10)(b)
The estimates for two alternatives are to be compared on the basis of their perpetual equivalent annual worth. At an interest rate of 10% per year, the equation that represents the perpetual AW of Y1
To get the AW of a cash flow of $10,000 that occurs every 10 years forever, with the first one occurring now, it is correct to:(a) Multiply the $10,000 by (A∕P,i,10 )(b) Multiply the $10,000 by
You will make equal deposits into your retirement account each year for 10 years starting now (i.e., years 0–9). If you expect to withdraw $50,000 per year forever beginning 30 years from now, and
If you have the annual worth of an alternative with a 5-year life, you can calculate its perpetual annual worth by:(a) No calculation needed. The perpetual annual worth is equal to the annual
The AW amounts of three revenue alternatives are $−23,000 for alternative A, $−21,600 for B, and $−27,300 for C. On the basis of these AW values, the correct decision is to:(a) Select
The AW values of three cost alternatives are $−23,000 for alternative A, $−21,600 for B, and $−27,300 for C. On the basis of these results, the decision is to:(a) Select alternative A(b) Select
If you have the capitalized cost of a certain alternative that has a 5-year life, you can get its annual worth by:(a) Multiplying the CC by i(b) Multiplying the CC by (A∕F,i,5)(c) Multiplying the
An automaton asset with a high first cost of $10 million has required capital recovery (CR) of $1,985,000 per year. The correct interpretation of this CR value is that:(a) The owner must pay an
Cost increases imposed by design changes introduced at different times during advancing stages of the product life cycle (PLC) usually rise dramatically as the change is introduced later in the life
Three methods to dispose of nonhazardous waste have been developedland application, fluidizedbed incineration, and private disposal contract. Use AW analysis and an associated scatter
This problem requires the development of a spreadsheet and associated scatter chart to answer the economic questions. As you came to work this morning, your department head asked you to perform an
Problem 6.9 described Google’s rental agreement for an airbase in California. It included the following estimates: P = $1.16 billion; M&O = $0.0063 billion per year; refurbishment cost =
ABC Beverage, LLC purchases its 355-ml cans in large bulk from Wald China Can Corporation. The finish on the anodized aluminum surface is produced by mechanical finishing technologies called brushing
The cost associated with maintaining rural highways follows a predictable pattern. There are usually no costs for the first 3 years, but thereafter maintenance is required for restriping, weed
Harmony Auto Group sells and services imported and domestic cars. The owner wants to evaluate the option of outsourcing all of its new auto warranty service work to Winslow, Inc., a private repair
Determine the difference in annual worth between an investment of $100,000 per year for 50 years and an investment of $100,000 per year forever at an interest rate of(a) 5%(b) 10% per year. Compare
Cisco, Inc. has a proposal from the Engineering Planning Division to invest some of the Cisco retained earnings in the design, testing, and development of the next generation of smart grids useful in
The State of Chiapas, Mexico, decided to fund a program for improving reading skills in elementary school students. The first cost is $300,000 now, and an update amount of $100,000 every 5 years
How much must you deposit each year into your retirement account starting now and continuing through year 9, if you want to be able to withdraw $80,000 per year forever, beginning 30 years from now?
Calculate the perpetual equivalent annual cost (years 1 to ∞) of $1,000,000 now and $1,000,000 three years from now at an interest rate of 10% per year.
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