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engineering economy

Engineering Economy 17th Global Edition William G. Sullivan ,Elin M. Wicks ,C. Patrick Koelling - Solutions

11-9. Your company operates a fleet of light trucks that are used to provide contract delivery services. As the engineering and technical manager, you are analyzing the purchase of 55 new trucks as an addition to the fleet. These trucks would be used for a new contract thesales staff is trying to
11-8. 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.Alternatives
11-7. Consider the following two investment alternatives.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 clearly
11-6. An area can be irrigated by pumping water from a nearby river. Two competing installations are being considered.Pump A Pump B 6 in. System 8 in. System Operating load on motor 15 hp 10 hp Efficiency of pump motor 0.60 0.75 Cost of installation $2,140 $4,280 Market values at the end $60 $0 of
11-5. Consider these two alternatives. (11.2)Alternative A Alternative B Capital investment $6,000 $7,500 Annual revenues $1,800 $2,250 Annual expenses $500 $750 Estimated market $1,200 $1,600 values Useful life 10 years 12 yearsa. Recommend which alternative should be selected.b. Suppose that the
11-4. A firm is trying to decide between two types of trucks, one a conventional gasoline vehicle and the other a diesel powered vehicle. The following information is available. (11.2)Gasoline Diesel Initial investment $32,000 $27,000 Useful life 5 years 4 years Salvage value $12,000 $8,000
11-3. The Universal Postal Service is considering the possibility of fixing wind deflectors on the tops of 500 of their long-haul tractors. Three types of deflectors, with the following characteristics, are being considered (MARR = 10% per year):Windshear Blowby Air-vantage Capital investment
11-2. Refer to Example 11-2. Assuming gasoline costs $4.50 per gallon, the breakeven mileage per year between the hybrid vehicle and the gas-only vehicle.All other factors remain the same.
11-1. 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 $28 million, expected operating and maintenance expenses are $4.2 million per year, and the final salvage value
10-31. 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 year,
10-30. What is the modified B–C ratio for the flood control project?(a) 1.53 (b) 1.33 (c) 1.76 (d) 2.20 (e) 4.80
10-29. What is the conventional B–C ratio for the flood control project?(a) 1.53 (b) 1.33 (c) 1.76 (d) 2.20 (e) 4.80
10-28. A state government is considering construction of a flood control dike having a life span of 15 years.History indicates that a flood occurs every five years and causes $600,000 in damages, on average. If the state uses a MARR of 12% per year and expects every public-works project to have a
10-27. Which fire truck should be purchased? (10.9)(a) Neither Truck X nor Truck Y(b) Truck X(c) Truck Y(d) Both Truck X and Truck Y
10-26. What is the conventional B–C ratio for Truck X? (10.7)(a) 1.41 (b) 0.87 (c) 1.64 (d) 1.10 (e) 1.15
10-25. Extended Learning Exercise 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
10-24. In the aftermath of Hurricane Thelma, the U.S. Army Corps of Engineers is considering two alternative approaches to protect a freshwater wetland from the encroaching seawater during high tides. The first alternative, the construction of a 5-mile long, 20-foot-high levee, would have an
10-23. You have been requested to recommend one of the mutually exclusive industrial sanitation control systems that are given below. If MARR is 15% per year, which system would you select? Use the B–C method. (10.9)Alternative Gravity-fed Vacuum-led Capital investment $24,500 $37,900 Annual
10-22. Ten years ago, the port of Secoma built a new pier containing a large amount of steel work, at a cost of$300,000, estimating that it would have a life of 50 years.The annual maintenance cost, much of it for painting and repair caused by environmental damage, has turned out to be unexpectedly
10-21. An area on the Colorado River is subject to periodic flood damage that occurs, on the average, every two years and results in a $2,000,000 loss. It has been proposed that the river channel be straightened and deepened, at a cost of $2,500,000, to reduce the probable damage to not over
10-20. The city of Oak Ridge is evaluating three mutually exclusive landscaping plans for refurbishing a public greenway. Benefits to the community have been estimated by a landscaping committee, and the costs of planting trees and shrubbery, as well as maintaining the greenway, are summarized
10-19. A state-sponsored Forest Management Bureau is evaluating alternative routes for a new road into a formerly inaccessible region. Three mutually exclusive plans for routing the road provide different benefits, as indicated in Table P10-19. The roads are assumed to have an economic life of 50
10-18. 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. (10.8)Verizon
10-17. 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 below. Use the
10-16. Consider the mutually exclusive alternatives in Table P10-16. Which alternative would be chosen according to these decision criteria?a. Maximum benefitb. Minimum costc. Maximum benefits minus costsd. Largest investment having an incremental B–C ratio larger than onee. Largest B–C ratio
10-15. 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
10-14. A new storm drainage system must be constructed right away to reduce periodic flooding that occurs in a city that is in a valley. Five mutually exclusive designs have been proposed, and their present worth (in thousands of dollars) of costs and benefits are the following. (10.9)System 1 2 3
10-13. A nonprofit government corporation is considering two alternatives for generating power:Alternative A. Build a coal-powered generating facility at a cost of $20,000,000. Annual power sales are expected to be $1,000,000 per year. Annual operating and maintenance costs are $200,000 per year. A
10-12. 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).System EOY A B C 0 −$160,000 −$245,000
10-11. 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:Annual Equivalent (in thousands)Alternative Cost Benefits A $1,050 $1,110 B 900 810 C 1,230 1,390 D 1,350
10-10. 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: (10.8)PW ($000s)Plan Costs Benefits A $123,000 $139,000 B 135,000 150,000 C 99,000 114,000a. Which plan(s) should be
10-9. 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: (10.8)Project Annual Benefits Annual Costs A $1,800,000 $2,000,000 B
10-8. Refer back to Problem 10-7. Suppose that the toll bridge can be redesigned such that it will have a (virtually)infinite life. MARR remains at 10% per year. Revised costs and revenues (benefits) are given as follows: (10.7, 10.9)Capital investment: $22,500,000 Annual operating and maintenance
10-7. A toll bridge across the Mississippi River is being considered as a replacement for the current I-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B–C ratio method must be applied in the evaluation.
10-6. The city of Oakmont is interested in developing some lake front property into a sports park (picnic facilities, boat docks, swimming area, etc.). A consultant has estimated that the city would need to invest $3.5 million in this project. In return, the developed property would return $500,000
10-5. In Problem 10-4, what is the benefit–cost ratio of the project if the general inflation rate is 4%per year and the market value is negligible? The market interest rate (im) is 20% per year, and the annual savings are expressed in year-zero dollars. (10.7, Chapter 8)
10-4. A retrofitted space-heating system is being considered for a small office building. The system can be purchased and installed for $150,000, and it will save an estimated 240,000 kilowatt-hours(kWh) of electric power each year over an eight-year period. A kilowatt-hour of electricity costs
10-3. 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 $7,500,000
10-2. An environment friendly 2,800 square-foot green home (99% air tight) costs about 10% more to construct than a same-sized conventional home. Most green homes can save 25% per year on energy expenses to heat and cool the living space. For a $300,000 conventional home with a heating and cooling
10-1. Consider a piece of equipment that has the following cost and benefit estimates, and the interest rate is 10% per year:Initial investment: $500,000 Equipment life: 15 years Salvage value: $50,000 Annual receipts: $200,000 Annual expenses: $80,000 What is the modified B/C ratio of this
9-36. A corporation purchased a machine for $60,000 five years ago. It had an estimated life of 10 years and an estimated salvage value of $9,000. The current BV of this machine is $34,500. If the current MV of the machine is$40,500 and the effective income tax rate is 29%, what is the after-tax
9-35. Using the outsider viewpoint, what is the EUAC of buying Machine B? Choose the closest answer. (9.5)(a) $8,565 (b) $11,361 (c) $9,750(d) $9,165 (e) $900
9-34. Using the outsider viewpoint, what is the EUAC of continuing to use Machine A? Choose the closest answer. (9.6)(a) $1,000 (b) $2,182 (c) $2,713(d) $901 (e) $2,435
9-33. 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
9-32. 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
9-31. Before committing to a 10-year lease, it was decided to consider one more alternative. Instead of simply augmenting the existing generator with a new 40-kW unit, this alternative calls for replacing the 80-kW generator with two 40-kW units (for a total of three 40-kW units). The company
9-30. Suppose the study period is reduced to five years.Will this change the replacement decision? (9.10)
9-29. Determine how much the annual lease amount of the challenger can increase before the defender becomes the preferred alternative. (9.10)
9-28. Create a spreadsheet to solve Problem 9-9. What percent reduction in the annual expenses of the defender would result in a delay of its replacement by the challenger? (9.4, 9.7)
9-27. Refer to Example 9-4. By how much would the MARR have to change before the economic life decreases by one year? How about to increase the economic life by one year? (9.5)
9-26. Extended Learning Exercise A truck was purchased four years ago for $65,000 to move raw materials and Defender Challenger EOY Market O&M EOY Market O&M Value Costs Value Costs 1 $30,000 $8,500 1 $56,000 $5,500 2 20,000 10,500 2 44,000 6,800 3 12,000 14,000 3 34,000 7,400 4 4,000 16,000 4
9-25. Extended Learning Exercise There are two customers requiring three-phase electrical service, one existing at location A and a new customer at location B. The load at location A is known to be 110 kVA, and at location B it is contracted to be 280 kVA.Both loads are expected to remain constant
9-24. In 2017, a certain manufacturing company has some existing semi-automated production equipment which they are considering replacing. This equipment has a present market value of $57,000 and a book value of$30,000. It has five more years of straight-line depreciation available (if kept) of
9-23. A manufacturing company has some existing semiautomatic production equipment that it is considering replacing. This equipment has a present MV of $57,000 and a BV of $27,000. It has five more years of depreciation available under MACRS (ADS) of$6,000 per year for four years and $3,000 in year
9-22. A hydraulic press was installed 10 years ago at a capital investment cost of $70,000. This press presently has a market value of $14,000. If kept, the press has an economic life of three years, operating expenses of$14,000 per year, and a market value of $10,000 at the end of year (EOY)
9-21. Five years ago a chemical plant invested $90,000 in a pumping station on a nearby river to provide the water required for their production process. Straight-line depreciation is employed for tax purposes, using a 30-year life and zero salvage value. During the past five years, operating costs
9-20. It is being decided whether or not to replace an existing piece of equipment with a newer, more productive one that costs $80,000 and has an estimated MV of$20,000 at the end of its useful life of six years. Installation charges for the new equipment will amount to $3,000;this is not added to
9-19. A pharmaceutical company has some existing semiautomated production equipment that they are considering replacing. This equipment has a present MV of $57,000 and a BV of $30,000. It has five more years of straight-line depreciation available (if kept) of $6,000 per year, at which time its BV
9-18. The PW of the ATCFs through year k, PWk, for a defender (three-year remaining useful life) and a challenger(five-year useful life) are given in the following table:PW of ATCF through Year k, PWk Year Defender Challenger 1 −$14,020 −$18,630 2 −28,100 −34,575 3 −43,075 −48,130 4
9-17. A current asset (defender) is being evaluated for potential replacement. It was purchased four years ago at a cost of $62,000. It has been depreciated as a MACRS (GDS) five-year property-class asset. The present MV of the defender is $12,000. Its remaining useful life is estimated to be four
9-16. Consider a piece of equipment that initially cost$8,000 and has these estimated annual expenses and MV:End of Annual MV at End Year, k Expenses of Year 1 $3,000 $4,700 2 3,000 3,200 3 3,500 2,200 4 4,000 1,450 5 4,500 950 6 5,250 600 7 6,250 300 8 7,750 0 If the after-tax MARR is 7% per year,
9-15. A small high-speed commercial centrifuge has the following net cash flows and abandonment values over its useful life (see Table P9-15, p. 489).The firm’s MARR is 9% per year. Determine the optimal time for the centrifuge to be abandoned if its current MV is $5,700 and it won’t be used
9-14. A present asset (defender) has a current market value of $85,000 (year 0 dollars). Estimated market values at the end of the next three years, expressed in year 0 dollars, are MV1 = $73,000, MV2 = $60,000, MV3 =$40,000. The annual expenses (expressed in year 0 dollars)are $15,000 and are
9-13. Use the PW method to select the better of the following alternatives:Annual Defender: Challenger:Expenses Alternative A Alternative B Labor $350,000 $280,000 Material $240,000 $125,000 Insurance and 5% of initial None property taxes capital investment Maintenance $12,000 None Leasing cost
9-12. The corporate average fuel economy(CAFE) standard for mileage is currently 24.5 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 32 miles per gallon (the challenger) in 2014. An auto
9-11. 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
9-10. An existing robot is used in a commercial material laboratory to handle ceramic samples in the hightemperature environment that is part of several test procedures. Due to changing customer needs, the robot will not meet future service requirements unless it is upgraded at a cost of $2,000.
9-9. The replacement of a planing machine is being considered by the Reardorn Furniture Company. (There is an indefinite future need for this type of machine.)The best challenger will cost $30,000 for installation and will have an estimated economic life of 12 years and a $2,000 MV at that time. It
9-8. A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $65,000. This pump can be kept in service for an additional four years, or it can be sold for $35,000 and replaced by a new pump. The purchase price of the replacement pump is $50,000. The
9-7. A high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $25,000 and replaced by a newer model having a purchase price of $42,500; or it can be kept in service for a maximum of one more year. The new assembly machine, if
9-6. A steam generation system at a biomassfueled power plant uses an electrostatic precipitator(ESP) to clean its gaseous effluents. The power plant has consistently made use of the same type of ESP over the past several years. The installed cost of a new ESP has been relatively constant at
9-5. In a replacement analysis for a vacuum seal on a spacecraft, the following data are known about the challenger: the initial investment is $12,000; there is no annual maintenance cost for the first three years, however, it will be $2,000 in each of years four and five, and then$4,500 in the
9-4. A manufacturer moves pallets of materials with a forklift truck. He has consistently used the same make and model of forklift over the past several years. The purchase price has been relatively constant at $8,000 each.Records of operation and maintenance indicate these average expenses per
9-3. The Ajax Corporation has an overhead crane that has an estimated remaining life of 8 years. The crane can be sold now for $5,000. If the crane is kept in service, it must be overhauled immediately at a cost of $4,000.Operating and maintenance costs will be $2,500 per year after the crane is
9-2. An existing robot can be kept if $3,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The estimates shown in Table P9-2 have been developed for both the defender and the challenger.The company’s
9-1. Suppose that you have an old car that is a real gas guzzler. It is 10 years old and could be sold to a local dealer for $400 cash. The annual maintenance costs will average $800 per year into the foreseeable future, and the car averages only 10 miles per gallon. Gasoline costs$3.50 per gallon,
8-61. Today the euro costs $1.35. If the dollar gains strength against the euro at a rate of 3% per year, how much will the euro cost (in dollars) after five years? (8.6)(a) $1.20 (b) $1.41 (c) $1.16 (d) $1.09
8-60. If the European euro is worth Canadian $1.60 and a Canadian dollar trades for U.S. $0.75, what is the exchange rate from U.S. dollars to European euros?(8.6)(a) $2.13 (b) $1.44 (c) $1.20 (d) $0.95
8-59. How much life insurance should Stan Money-maker buy if he wants to leave enough money to his family so that they get $25,000 per year forever in constant dollars as of the year of his death? The interest rate from the life insurance company is 7% per year, while the inflation rate is expected
8-58. Two alternatives, A and B, are under consideration.Both have a life of five years. Alternative A needs an initial investment of $17,000 and provides a net revenue of $4,000 per year for five years. Alternative B requires an investment of $19,000 and has an annual net revenue of $5,000. All
8-57. A person just turned 21 years old. If inflation is expected to average 2.4% per year for the next 44 years, how much will $1 today be worth when this person retires at age 65?(a) $0.055 (b) $0.35 (c) $0.56 (d) $0.65
8-56. If you want to receive a 7% inflation-free return on your investment and you expect inflation to be 9% per year, what actual interest rate must you earn? (8.2)(a) 16% (b) −2% (c) 1% (d) 7% (e) 9%
8-55. A machine cost $2,550 on January 1, 2014, and$3,930 on January 1, 2018. The average inflation rate over these four years was 7% per year. What is the true percentage increase in the cost of the machine from 2014 to 2018? (8.2)(a) 14.95% (b) 54.12% (c) 7.00%(d) 17.58% (e) 35.11%
8-54. A redesign of the assembly line would only require 1,300 horsepower output. Determine the best combination of motors given this reduced horsepower requirement. (8.7)
8-53. Suppose the cost of electricity is expected to increase at the rate of 6% per year. How will this new information change your recommendation? Use the original eight-year study period in your analysis. (8.7)
8-52. Refer to the case study and repeat the analysis for a reduced study period of five years. (8.7)
8-51. Because of tighter safety regulations, an improved air filtration system must be installed at a plant that produces a highly corrosive chemical compound. The capital investment in the system is $260,000 in present-day dollars. The system has a useful life of 10 years and is in theMACRS (GDS)
8-50. Refer to Example 8-9. Sara has decided that saving more than 12% of her annual salary was unrealistic. She is considering postponing her retirement until 2027, but still wishes to have $500,000 (in 1997 spending power) at that time. Determine what percentage of her annual salary Sara will
8-49. Develop a spreadsheet to verify that the following table entries are correct (to the nearest whole percent). (8.2)Erosion of Money’s Purchasing Power Inflation Rate 10 years 25 years 2% −18% −39%4% −32% −62%
8-48. Extended Learning Exercise This case study is a justification of a computer system for, the ABC Company.The following are known data:• The combined initial hardware and software cost is$80,000.• Contingency costs have been set at $15,000. These are not necessarily incurred.• A service
8-47. Extended Learning Exercise The yuan is the currency of the People’s Republic of China (PRC). The yuan has been pegged by the PRC government to the U.S.dollar for the past 10 years at a fixed rate of 8.28 yuan to the dollar. If the May 2005 undervalued yuan were allowed to rise to its true
8-46. Extended Learning Exercise Chrysler is considering a cost reduction program with its major suppliers wherein the suppliersmust reduce the cost of the components that they furnish to Chrysler by 5%each year. (The total amount of savings would increase each year.) The initial costs for setting
8-45. You have been assigned the task of analyzing whether to purchase or lease some transportation equipment for your company. The analysis period is six years, and the base year is year zero (b = 0). Other pertinent information is given in Table P8-45. Also,a. The contract terms for the lease
8-44. Your company manufactures circuit boards and other electronic parts for various commercial products.Design changes in part of the product line, which are expected to increase sales, will require changes in the manufacturing operation. The cost basis of new equipment required is $220,000
8-43. A certain engine lathe can be purchased for$150,000 and depreciated over three years to a zero salvage value with the SL method. This machine will produce metal parts that will generate revenues of $80,000(time zero dollars) per year. It is a policy of the company that the annual revenues
8-42. A small heat pump, including the duct system, now costs $2,500 to purchase and install.It has a useful life of 15 years and incurs annual maintenance expenses of $100 per year in real (year-zero)dollars over its useful life. A compressor replacement is required at the end of the eighth year
8-41. A gas-fired heating unit is expected to meet an annual demand for thermal energy of 500 million Btu, and the unit is 80% efficient. Assume that each 1,000 cubic feet of natural gas, if burned at 100%efficiency, can deliver one million Btu. Further suppose that natural gas is now selling for
8-40. Your company must obtain some laser measurement devices for the next six years and is considering leasing. You have been directed to perform an actual-dollar after-tax study of the leasing approach.The pertinent information for the study is as follows:Lease costs: First year, $80,000; second
8-39. An automobile manufacturing company in Country X is considering the construction and operation of a large plant on the eastern seaboard of the United States. Their MARR = 20% per year on a before-tax basis. (This is a market rate relative to their currency in Country X.) The study period used
8-38. Sanjay has 100 euros to spend before he flies back to the United States. He wishes to purchase jewelry priced at $160 (U.S.) in a duty-free shop at the airport. Euros can be bought for $1.32 and sold for $1.24. The owner of the duty-free shop tells Sanjay that the jewelry can be purchased for

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