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engineering economy

Engineering Economy 17th Edition William Sullivan, Elin Wicks, C Koelling - Solutions

5-67. A certain medical device will result in an estimated $15,000 reduction in hospital labor expenses during its first year of operation. Labor expenses (and thus savings) are projected to increase at a rate of 7% per year after the first year. Additional operating expenses for the device
5-66. Refer to Example 5-13. Create a single spreadsheet that calculates PW, FW, AW, IRR, and ERR for the proposed investment. Assume that ∈ = MARR = 20% per year. Does your recommendation change if the MARR decreases to 18%? Increases to 22%? (5.6, 5.7)
5-65. An investor has a principal amount of $P. If he desires a payout (return) of 0.1P each year, how many years will it take to deplete an account that earns 8% per year? 0.1P = P(A/P, 8%, N), so N ∼= 21 years. A payout duration table can be constructed for select payout percentages and
5-64. Jane Roe’s plan is to accumulate $250,000 in her personal savings account by the time she retires at 60. The longer she stalls on getting started, the tougher it will be to meet her objective. Jane is now 25 years old. Create a spreadsheet to complete the following table to show how much
5-63. Extended Learning Exercise A company is producing a high-volume item that sells for $0.75 per unit. The variable production cost is $0.30 per unit. The company is able to produce and sell 10,000,000 items per year when operating at full capacity. The critical attribute for this product is
5-62. A hospital germ-fighting and floor cleaning robot, named Maurice, costs $104,000. Patients are billed $1 per day for Maurice’s use and upkeep. A certain 300-bed hospital is considering purchasing this robot. What is the simple payback period for Maurice? What assumptions did you make? (5.8)
5-61. A group of private investors borrowed $30 million to build 300 new luxury apartments near a large university. The money was borrowed at 6% annual interest, and the loan is to be repaid in equal annual amounts (principal and interest) over a 40-year period. Annual operating, maintenance, and
5-60.a. Calculate the IRR for each of the three cash-flow diagrams that follow. Use EOY zero for (i) and EOY four for (ii) and (iii) as the reference points in time. What can you conclude about “reference year shift” and “proportionality” issues of the IRR method?b. Calculate the PW at MARR
5-59. In southern California a photovoltaic (PV) system for a certain home costs $28,000 for parts and installation. This 6.1 kW system requires 350 ft2 of rooftop space and has an estimated life of 20 years.a. If this PV system saves $200 each month in electricity expenses, what is the simple
5-58. The high-tech home of today features computer apps that control air conditioning, heating, and large and small appliances from your smartphone or tablet. For a typical 2,000-square-foot home, the estimated benefits of a certain high-tech home is $2,000 per year. (5.8)a. If a payback period of
5-57. 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
5-56. The Fischer-Tropsch (F-T) process was developed in Germany in 1923 to convert synthesis gas (i.e., a mixture of hydrogen and carbon monoxide) into liquid with some gaseous hydrocarbons. Interestingly, the F-T process was used in World War II to make gasoline and other fuels. (5.8)a. If the
5-55. The upturned wingtips on jet aircraft reduce drag and increase lift. Wingtips save on fuel consumption, averaging 4% of the total fuel bill. A single set of wingtips can annually save 45,000 gallons of jet fuel costing $3 per gallon. (Fuel is the biggest operating expense of an airline
5-54. The American Pharmaceutical Company (APC) has a policy that all capital investments must have a four-year or less discounted payback period in order to be considered for funding. The MARR at APC is 8% per End of Year Cash Flow 0 −$275,000 1 −$35,000 2 $55,000 3 $175,000 4 $250,000 5
5-53. Advanced Modular Technology (AMT) makes energy cleaner, safer, more secure, and more efficient. It typically exhibits net annual revenues that increase over a fairly long period. In the long run, an AMT project may be profitable as measured by IRR, but its simple payback period may be
5-52. Just because a project’s payback period is relatively long doesn’t mean it is not profitable in the long run. Consider an investment in LED lights with a price tag of $239,000. The estimated annual savings in electricity and routine maintenance is $40,300 and the life of the LED lights is
5-51. A computer call center is going to replace all of its incandescent lamps with more energy-efficient fluorescent lighting fixtures. The total energy savings are estimated to be $1,875 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,900. The study period is
5-50. 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%
5-49. In this problem, we consider replacing an existing electrical water heater with an array of solar panels. The net installed investment cost of the panels is $1,400 ($2,000 less a 30% tax credit from the government). Based on an energy audit, the existing water heater uses 200 kilowatt hours
5-48. The prospective exploration for oil in the outer continental shelf by a small, independent drilling company has produced a rather curious pattern of cash flows, as follows: End of Year Net Cash Flow 0 −$520,000 1–10 +200,000 10 −1,500,000 The $1,500,000 expense at EOY 10 will be
5-47. A company has the opportunity to take over a redevelopment project in an industrial area of a city. No immediate investment is required, but it must raze the existing buildings over a four-year period and, at the end of the fourth year, invest $2,400,000 for new construction. It will collect
5-46. 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. (5.6)
5-45. Your boss has just presented you with the summary in the accompanying table of projected costs and annual receipts for a new product line. He asks you to calculate the IRR for this investment opportunity. What would you present to your boss, and how would you explain the results of your
5-44. 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 is $10,000
5-43. Toyota will bring hybrid electric automobiles to market next year priced at $30,000 (this includes a $7,500 federal tax credit). At $2.00 per gallon of gasoline, it will take 10 years to recoup the difference in price between a base model Toyota Camry and its four-cylinder gasoline-only
5-42. Sergeant Jess Frugal has the problem of running out of money near the end of each month (he gets paid once a month). Near his army base there is a payday lender company, called Predatory Lenders, Inc., that will give Jess a cash advance of $350 if he will repay the loan a month later with a
5-41. Nowadays it is very important to reduce one’s carbon “footprint” (how much carbon we produce in our daily lifestyles). Minimizing the use of fossil fuels and instead resorting to renewable sources of energy (e.g., solar energy) are vital to a “sustainable” lifestyle and a lower
5-40. Use the ERR method to evaluate the economic worth of the diagram shown below. The value of the external reinvestment rate, ∈, is 8% per year. The MARR = 10% per year. (5.7)
5-39. Stan Slickum has a used car that can be bought for $8,000 cash or for a $1,000 down payment and $800 per month for 12 months. What is the effective annual interest rate on the monthly payment plan? (5.6.1)
5-38. 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. Loan principal $3,000 Interest for 15 months at 1.5% per month 675 Loan application fee 150 Total $3,825 Monthly
5-37. The city of Oak Ridge is considering the construction of a four kilometer (km) greenway walking trail. It will cost $1,000 per km to build the trail and $300 per km per year to maintain it over its 20-year life. If the city’s MARR is 7% per year, what is the equivalent uniform annual cost
5-36. A parking garage has a capital investment cost of $2.1 million (not including land). One year later $1.2 million will be spent on finishing work on the garage. It will cost $2 million to tear down and dispose of the garage at the end of its 25-year useful life. If the MARR is 25% per year,
5-35. Each year in the United States nearly 5 billion pounds of discarded carpet end up in land fills. In response to this situation, a carpet manufacturer has decided to start a take-back program whereby obsolete carpet is reclaimed at the end of its useful life (about 7 years). The
5-34. The required investment cost of a new, large shopping center is $50 million. The salvage value of the project is estimated to be $20 million (the value of the land). The project’s life is 15 years and the annual operating expenses are estimated to be $15 million. The MARR for such projects
5-33. 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
5-32. 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
5-31. 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
5-30. “It’s easier to make money when interest rates in the economy are low.” To illustrate this point, compute the capital recovery amounts (CR) for a $1 million project when interest rates are 3%, 6%, and 12% per year. Assume no residual value at the end of a useful life of 15 years. (5.5)
5-29. 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
5-28. A 50-kilowatt gas turbine has an investment cost of $40,000. It costs another $14,000 for shipping, insurance, site preparation, fuel lines, and fuel storage tanks. The operation and maintenance expense for this turbine is $450 per year. Additionally, the hourly fuel expense for running the
5-27. A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000, and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per
5-26. The ownership and operating expenses for a typical automobile total $9,137 per year in 2017. Forty-eight percent of this is the capital recovery amount (depreciation plus finance charges). Fuel-related operating expense is based on driving 15,000 miles per year and it is assumed that it costs
5-25. 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
5-24. An asset has an initial capital investment of $4 million. Its terminal value at the end of an eight-year life is –$1 million (i.e., it costs more to dispose of this asset than it is worth in the marketplace). The MARR is 10% per year. What is the capital recovery amount of this asset? (5.5)
5-23. Fill in Table P5-23 below when P = $10,000, S = $2,000 (at the end of four years), and i = 15% per year. Complete the accompanying table and show that the equivalent uniform CR amount equals $3,102.12. (5.5)
5-22. What are the PW and FW of a 20-year geometric cash-flow progression increasing at 2% per year if the first year amount is $1,020 and the interest rate is 10% per year? (5.4)
5-21. Determine the FW of the following engineering project when the MARR is 15% per year. Is the project acceptable? (5.4) Proposal A Investment cost $10,000 Expected life 5 years Market (salvage) valuea −$1,000 Annual receipts $8,000 Annual expenses $4,000 a A negative market value means that
5-20. Your firm is thinking about investing $200,000 in the overhaul of a manufacturing cell in a lean environment. Revenues are expected to be $30,000 in year one and then increasing by $10,000 more each year thereafter. Relevant expenses will be $10,000 in year one and will increase by $5,000 per
5-19. 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
5-18. Ms. Jones wants to make 8% nominal interest compounded quarterly on a bond investment. She has an opportunity to purchase a 6%, $10,000 bond that will mature in 15 years and pays quarterly interest. This means that she will receive quarterly interest payments on the face value of the bond
5-17. 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,
5-16.a. What is the CW, when i = 10% per year, of $1,500 per year, starting in year one and continuing forever; and $10,000 in year five, repeating every four years thereafter, and continuing forever? (5.3)b. When i = 10% per year in this type of problem, what value of N, practically speaking,
5-15. The Western Railway Company (WRC) has been offered a 100-year contract to haul a fixed amount of coal each year from Wyoming to Illinois. Under the terms of the agreement, WRC will receive $4,200,000 now in exchange for its hauling services valued at $360,000 at the end of year (EOY) one,
5-14. The cash-flow diagram below has an internal rate of return of 35%. What is the value of Y if perpetual service is assumed? (5.3.3) EOY Y YY Y 0 1 2345 ` $1,000,000 $500,000 $500,000
5-13. Bill Mitselfik has purchased a bond that was issued by Acme Chemical. This bond has a face value of $1,000 and pays a dividend of 8% per year, compounded semi-annually. Bill bought the bond three years ago at face value and there are seven years remaining until the bond matures. Bill wishes
5-12. A bond with a face value of $10,000 pays interest of 4% per year. This bond will be redeemed at its face value at the end of 10 years. How much should be paid now for this bond when the first interest payment is payable one year from now and a 5% yield is desired? (5.3.2)
5-11. Last month Jim purchased $10,000 of U.S. Treasury bonds (their face value was $10,000). These bonds have a 30-year maturity period, and they pay 1.5% interest every three months (i.e., the APR is 6%, and Jim receives a check for $150 every three months). But interest rates for similar
5-10. A corporate bond pays 5% of its face value once per year. If this $5,000 10-year bond sells now for $5,500, what yield will be earned on this bond? Assume the bond will be redeemed at the end of 10 years for $5,000. (5.3.2)
5-9. 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
5-8. The Ford Motor Company has redesigned its best selling truck by substituting aluminum for steel in many key body parts. This saves 700 pounds of weight and decreases gas consumption. The fuel consumption will be 24 miles per gallon (mpg), up from 19 mpg of the previous year’s model. Ford
5-7. Determine the present worth of the following cash flows if the interest rate is 6% per year: (5.3) End of 0 1 2 3 4 Year Cash −$10,000 −$20,000 $35,000 $48,000 −$3,000 Flow
5-6. 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
5-5. What is the capitalized worth of a project that has an indefinitely long study period and dollar cash flows that repeat as shown in the following figure. The interest rate is 15% per year. (5.3)
5-4. Suppose that you have just completed the mechanical design of a high-speed automated palletizer that has an investment cost of $3,000,000. The existing palletizer is quite old and has no salvage value. The market value for the new palletizer is estimated to be $300,000 after seven years. One
5-3. An award is being established, and it will pay $11,000 every two years, with the first installment being paid in two years. The award will be given for an indefinitely long period of time. If the interest rate is 3% per annum, what lump-sum amount of money (invested now) will be required to
5-2. Lignin is a basic component of almost any plant that grows, so it is one of the most abundant organic compounds in the world. Almost anything derived from oil can be made out of lignin. The question is “can we do it cost-effectively and consistently?” A startup company has developed a
5-1. Tennessee Tool Works (TTW) is considering investment in five independent projects, Any profitable combination of them is feasible. A B C DE Capital investment (millions) $10 $25 $30 $30 $5 Annual rate of profit (%) 30 10 12 15 25 TTW has $50 million available to invest, and these funds are
4-153. Start saving early! Put $100 per month into an account with a 7% annual interest rate. Assume monthly compounding. If you are now 27 years old, how much will this account be worth when you are age 67? (4.7) (a) $240,000 (b) $281,000 (c) $262,000 (d) $277,000
4-152. The best way to break the 100,000 mile mark for your car is to schedule regular oil and filter changes. Annual savings are estimated to be $6,000 over the 15-year life of your car. If interest is 8% per year compounded continuously, what is the future equivalent value of your savings? (4.16)
4-151. Suppose a friend of yours invests $100 each month in an individual retirement account (IRA) for a decade and earns an unbelievable APR of 12% a year (1% per month) on her investment. She will end up with $100 (F/A, 1%, 120) = $100 (230.0387) = $23,003.87 after 10 years. If you decide to
4-150. 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. (4.7) (a) 25 months (b) 19 months (c) 13
4-149. 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%? (4.7) (a) $568 (b) $980 (c) $918 (d) $1,000 (e) $895
4-148. If you invest $7,000 at 12% compounded continuously, how much would it be worth in three years? (4.16) (a) $9,449 (b) $4,883 (c) $10,033 (d) $9,834 (e) $2,520
4-147. A bank advertises mortgages at 12% compounded continuously. What is the effective annual interest? (4.16) (a) 12.36% (b) 12.55% (c) 12.75% (d) 12.68% (e) 12.00%
4-146. 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. (4.16) (a) 19.83% (b) 18.55% (c) 17.56% (d) 16.90%
4-145. 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? (4.15) (a) $131 (b) $137 (c) $1,646 (d) $81 (e) $104
4-144. What is the principal remaining after 20 monthly payments have been made on a $20,000 five-year loan? The annual interest rate is 12% nominal compounded monthly. (4.15) (a) $10,224 (b) $13,333 (c) $14,579 (d) $16,073 (e) $17,094
4-143. Sixty monthly deposits are made into an account paying 6% nominal interest compounded monthly. If the objective of these deposits is to accumulate $100,000 by the end of the fifth year, what is the amount of each deposit? (4.15)(a) $1,930 (b) $1,478 (c) $1,667 (d) $1,430 (e) $1,695
4-142. 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? (4.15) (a) $400 (b) $550 (c) $650 (d) $800
4-141. A cash flow at time zero (now) of $9,982 is equivalent to another cash flow that is an EOY annuity of $2,500 over five years. Each of these two cash-flow series is equivalent to a third series, which is a uniform gradient series. What is the value of G for this third series over the same
4-140. Consider the following sequence of year-end cash flows: EOY 1 2 3 4 5 Cash $8,000 $15,000 $22,000 $29,000 $36,000 Flow What is the uniform annual equivalent if the interest rate is 12% per year? (4.11) (a) $20,422 (b) $17,511 (c) $23,204 (d) $22,000 (e) $12,422
4-139. 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. (4.7) (a) $154,000 (b) $180,000 (c) $250,000 (d) $300,000 (e)
4-138. 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? (4.7) (a) $44,793 (b) $60,000 (c) $77,385 (d) $81,136 (e) $82,759
4-137. 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? (4.6)
4-136. 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
4-135. If Enrico is more daring with his retirement investment savings and feels he can average 10% per year, how much will he have accumulated for retirement at the end of the 10-year period? (4.17)
4-134. Enrico has planned to have $40,000 at the end of 10 years to place a down payment on a condo. Property taxes and insurance can be as much as 30% of the monthly principal and interest payment (i.e., for a principal and interest payment of $1,000, taxes and insurance would be an additional
4-133. After Enrico’s car is paid off, he plans to continue setting aside the amount of his car payment to accumulate funds for the car’s replacement. If he invests this amount at a rate of 3% compounded monthly, how much will he have saved by the end of the initial 10-year period? (4.17)
4-132. Higher interest rates won’t cost you as much to drive a car as do higher gasoline prices. This is because automobile loans have payment schedules that are only modestly impacted by Federal Reserve Board interest-rate increases. Create a spreadsheet to compare the difference in monthly
4-131. Refer to Example 4-23. Suppose the cash-flow sequence continues for 10 years (instead of four). Determine the new values of P, A, and F. (4.12)
4-130. 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
4-129. Create a spreadsheet that duplicates Table 4-1. Make it flexible enough that you can investigate the impact of different interest rates and principal loan amounts without changing the structure of the spreadsheet. (4.7)
4-128. What is the amount $R that makes the two cash-flow diagrams below equivalent? The interest rate is 10% compounded continuously. (4.16)
4-127. Analyze the truth of this statement, assuming you are 20 years old: “For every five years that you wait to start accumulating money for your retirement, it takes twice as much savings per year to catch up.” Base your analysis on the target of having $1,000,000 when you retire at age 60.
4-126. Javier just bought a condominium in Collegetown, USA. His $100,000 mortgage is 6% compounded monthly, and Javier will make monthly payments on his loan for 30 years. In addition, property taxes and title insurance amount to $400 per month. (4.15)a. What is the total mortgage-related amount
4-125. A mutual fund investment is expected to earn 11% per year for the next 25 years. If inflation will average 3% per year during this 25-year period of time, what is the compounded value (in today’s dollars) of this savings vehicle when $10,000 is invested now? (4.6)
4-124. Mark each statement true (T) or false (F), and fill in the blanks in Part (e). (all sections)a. T F The nominal interest rate will always be less than the effective interest rate when r = 10% and M = ∞.b. T F A certain loan involves monthly repayments of $185 over a 24-month period. If r =
4-123. Indicate whether each of the following statements is true (T) or false (F). (all sections)a. T F Interest is money paid for the use of equity capital.b. T F (A/F, i%, N) = (A/P, i%, N) + i.c. T F Simple interest ignores the time value of money principle.d. T F Cash-flow diagrams are
4-122. Many persons prepare for retirement by making monthly contributions to a savings program. Suppose that $2,000 is set aside each year and invested in a savings account that pays 10% interest per year, compounded continuously. (4.16)a. Determine the accumulated savings in this account at the
4-121. How many years will it take an investment to quadruple if the interest rate is 8% compounded continuously? (4.16)

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