Questions and Answers of Engineering Economy

A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the
Process control equipment purchased for $78,000 by Debco, Incorporated generated a CFBT of $26,080 during the first year of its 10-year estimated life. This would represent a return of 31.2% per year
Needco Supplies-Canada employee Stella Needleson was asked to determine if the current process of dying writing paper should be retained or a new, environment friendly process should be implemented.
(a) What does the term economic value added (EVA) mean relative to the bottom line of a corporation?(b) Why might an investor in a public corporation prefer to use the EVA estimates over the CFAT
An asset with a first cost of $300,000 is depreciated by the MACRS method using a 5-year recovery period. Determine the economic value added in year 2, if the net operating profit after taxes is
If the after-tax ROR is 11.4% and the corporate Te is 39%, the approximate before-tax rate of return is closest to:(a) 6.8%(b) 15.4%(c) 18.7%(d ) 19.7%
If the federal tax rate is 36% and the state tax rate is 7%, the effective tax rate is closest to:(a) 40.5%(b) 37.3%(c) 35.4%(d ) 31.8%
If all values carry a + sign, cash flow before taxes (CFBT) is represented by the equation:(a) Gross income – operating expenses – depreciation – initial investment + salvage value(b) Gross
Depreciation recapture occurs when a depreciable asset is sold for:(a) More than the current book value(b) More than the current market value(c) More than the estimated salvage value(d) More than the
A capital gain is calculated by the equation:(a) Capital gain = book value – selling price(b) Capital gain = book value – first cost(c) Capital gain = market value – selling price(d) Capital
A small manufacturing company with a gross income of $360,000 has the following operating expenses: M&O = $76,000, insurance = $7000, labor = $110,000, utilities = $29,000, debt service =
An after-market auto parts company sells a machining robot that had been depreciated to zero for $16,000. If the company’s effective tax rate is 36%, the sale will:(a) Increase the company’s
Decker Scientific is considering an investment of $850,000 in a new product line. The company will make the investment only if it will result in a rate of return of 20% per year or higher. If the
A company that manufactures high-speed submersible rotary-indexing spindles is considering an upgrade of production equipment to reduce costs over the next 5 years. The company can invest $80,000
Home Automation is considering an investment of $500,000 in a new product line. The company will make the investment only if it will result in a rate of return of 15% per year or higher. The revenue
The AW of the current process to make motion controllers is $–62,000 per year. A replacement process under consideration has estimates of P = $64,000, AOC = $38,000, and n = 3 years. Three
Hemisphere Electric may purchase equipment to manufacture a new line of wireless devices for home appliance control. The first cost will be $80,000, and the life is estimated at 6 years with a
MAG Industrial needs 1000 square meters of storage space. Purchasing land for $80,000 and erecting a temporary metal building at $70 per square meter is one option. The president expects to sell the
A major equipment purchase is being economically evaluated by a team of three design engineers and one production engineer at Raytheon Aerospace. The agreed-upon estimates are P = $560,000, n = 6
Consider two air-conditioning systems with the estimates below.(a) Use AW analysis to determine the sensitivity of the economic decision to MARR values of 4%, 6%, and 8% per year.(b) Develop the
Determine if the selection of system GH or B3 is sensitive to variation in the return required by management. Depending on the type of project, the corporate MARR ranges from 8% to 16% per year on
The production manager on the Ofon Phase 2 offshore platform operator by Total S.A. must purchase specialized environmental equipment or an equivalent service. The first cost is $250,000 with an AOC
A biofuel subsidiary of Petrofac, Inc. is planning to borrow $12 million to acquire a small technology- based company. The rate on a 5-year loan is highly variable; it could be as low as 7%, as high
A young couple planning ahead for their retirement has decided that $3 million is the amount they will need in order to retire comfortably 20 years from now. For the past 5 years, they have been able
A company that manufactures clear PVC pipe is investigating the production options of batch and continuous processing. Estimated cash flows are:The chief operating officer (COO) has asked you to
An engineer must decide between two ways to pump concrete to the top of a seven-story building. Plan 1 requires the leasing of equipment for $60,000 initially and will cost between $0.40 and $0.95
An engineer has been offered an investment opportunity that will require a cash outlay of $40,000 now for a cash inflow of $3500 for each year of investment. However, she must state now the number of
An expansion of the current BIM (Building Information Model) software has been proposed to First Financial, the building’s owner. A total installed cost of $120,000 is expected to generate
A-Z Technologies, a manufacturer of amplified pressure transducers, is trying to decide between a dual-speed and a variable-speed machine. The engineers are not sure about the salvage value of the
Calculate the expected flow rate (barrels per day) for each oil well using the estimated probabilities. Estimated Flow, bbl/Day 300 400 100 200 Probablity of Flow 0.15 0.75 0.10 0.0 0.35 0.15 0.45
Thermtech Science has performed an economic analysis of proposed service in a new region of the country. The three-estimate approach to sensitivity analysis has been applied. The optimistic and
The variable Y is defined by the relation 3n for n = 1, 2, 3, 4 with probabilities of 0.4, 0.3, 0.233, and 0.067, respectively. Determine the expected value of Y.
(a) Determine the expected present worth of the following cash flow series if each series may be realized with the probability shown at the head of each column. Let i = 20% per year.(b) Determine the
Global Foundries (GF), a privately held company that invests in companies producing essential components for high-volume data storage, is valued at $4.0 billion dollars. A computer company that wants
In evaluating the sensitivity of an alternative to its first cost, its AW was calculated for changes in the estimated first cost by –10%, +5%, and +15%. The resulting AW values were $+21,000,
All of the following are steps in the procedure for conducting a sensitivity analysis, except:(a) Determine which parameters might vary from the most likely estimated value(b) Change the parameters
In conducting a sensitivity analysis of a proposed project, the present worth values of $–10,000, $40,000, and $50,000 were believed to have chances of 25%, 40%, and 35%, respectively. The expected
When the sensitivity of several parameters is considered for one alternative using a single measure of worth and the measure of worth is plotted against percentage change for each parameter, the
When conducting a sensitivity analysis using three estimates for each parameter, all of the following are estimates that should be made, except:(a) Pessimistic(b) Improbable(c) Optimistic(d) Most
Revenue into the general fund of the state of Texas for any biennium is highly dependent on the price of oil. At a price average of $50 per barrel, general revenue will be $95 billion. At $68 and $75
A recent sensitivity analysis of a public works project indicates that the expected present worth is $83,000. If there is a 20% chance that the PW will be the pessimistic one of $45,000 and 50%
The best alternative to select under the pessimistic strategy is:(a) Alternative 1(b) Alternative 2(c) Alternative 3(d) Alternative 4Four mutually exclusive alternatives are evaluated using three
If none of the strategies is more likely than any other strategy, the alternative to select is:(a) 1(b) 1 and 2 are equally acceptable(c) 2(d) 3Four mutually exclusive alternatives are evaluated
CINESA, a government-owned power company that normally uses natural gas for electricity generation, is purchasing fuels other than natural gas and power from a commercially built wind farm, often at
Identify the following variables as either discrete or continuous:(a) The number of times heads comes up in 100 tosses of a coin(b) The number of accidents occurring in a specified section of a
For each situation below, determine(1) If the variable(s) is(are) discrete or continuous, and(2) If the information involves certainty, risk, and/or uncertainty.(a) A friend in real estate tells you
In the recent past, the production output has been between 10,000 and 20,000 units per week 75% of the time; however, it may fall below 10,000 or go above 20,000 more frequently in the future. The
The cost of flood damage from significant storms varies as a function of the severity of the storm. Estimate the expected flood damage due to the next significant storm. Flood Damage, $ MIllons Flood
AAA car-buying service surveyed 1000 households to determine the number of operating vehicles owned by residents at the same address. Use the results below to estimate the percentage of households
An engineer collected monthly operating expenses for the past 3 years for a micro-finishing department. Use the midpoints of each range in preparing your answers.(a) Develop a plot of the probability
The net revenue R for a newly developed antifungal spray for citrus fruit is expected to be $3.1 million per year for the next 5 years. This expected amount is based on estimates that R could be
A discrete variable Q, extra inventory units, has integer values from 1 to 10. When sampled 100 times, the following observed probability distribution was obtained:(a) Determine the sample average
When single-value or single-point estimates are used exclusively in an economic analysis, the decision-making process is said to be:(a) Probabilistic(b) Uncertain(c) Deterministic(d) Monte Carlo
The shipping costs for fresh fruit items have been estimated and assigned the probabilities shown below. The expected value of the shipping costs is closest to:(a) $36.33(b) $39.21(c) $41.28(d)
In a table of two-digit random numbers, the probabilities of 0.16 to 0.20 can be represented by the numbers:(a) 16 to 20(b) 0 to 4(c) 1 to 5(d) 15 to 19
The following temperatures (in oF) were recorded inside the building of a remote pumping station: 99, 87, 93, 90, and 96. The variance of these readings is closest to:(a) 11.7(b) 22.5(c) 31.1(d) 38.6
For the income and probability values shown, the probability that the income in any year will be greater than $8500 is closest to:(a) 0.38(b) 0.49(c) 0.70(d) 0.92 Income, $/Year | 6,200 8,500 9,600
The net revenue from a candy product called Mummies- Lite has averaged $15,000 per month for the past 12 months. If the value of Σ(Xi −X̅)2 is $4,680,000, the standard deviation value is closest
The dispersion of values about the sample average is represented by the:(a) Variance(b) Expected value(c) Probability distribution(d) Standard deviation
For the nonconventional net cash flow series shown, the external rate of return per year using the MIRR method, with an investment rate of 20% per year and a borrowing rate of 8% per year, is closest
Five years ago, an alumnus of a university donated $50,000 to establish a permanent endowment for scholarships. The first scholarships were awarded 1 year after the contribution. If the amount
A bulk materials hauler purchased a used dump truck for $50,000 two years ago. The operating costs have been $5000 per month and revenues have averaged $7500 per month. The truck was just sold for
An investment of $60,000 ten years ago resulted in uniform income of $10,000 per year for the 10-year period. The rate of return on the investment was closest to:(a) 10.6% per year(b) 14.2% per
Basset, a furniture manufacturing company, borrowed $1 million and repaid the loan through monthly payments of $20,000 for 2 years plus a single lump-sum payment of $1 million at the end of 2 years.
A $10,000 mortgage bond that is due in 20 years pays interest of $250 every 6 months. The bond coupon rate is:(a) 2.5% per year, payable quarterly(b) 5.0% per year, payable quarterly(c) 5% per year,
A $20,000 collateral bond has a coupon rate of 7% per year payable quarterly. The bond matures 30 years from now. At a market interest rate of 7% per year, compounded semiannually, the amount and
As part of your inheritance, you received a bond that will pay interest of $700 every 6 months for 15 years. If the coupon rate is 7% per year, the face value of the bond is(a) $10,000(b) $20,000(c)
For the nonconventional net cash flow series experienced over the first 3 years of operation by Viking, Inc., an Internet-based sports boat and ski equipment sales company, perform a thorough ROR
Ten years ago, JD and his colleagues resigned from a major aerospace corporation, after many years of salaried employment, to form JRG Solar, Inc. with the intent to make a significant impact on the
Charles Enterprises got into the drone manufacturing business at the inception of the technology. Net cash flows (in $ million units) for years 0 through 5 had its ups and downs as shown below.
An Australian steel company, ASM International, claims that a savings of 40% of the cost of stainless steel threaded bar can be achieved by replacing machined threads with precision weld depositions.
Determine the following for the quarterly cash flow estimates.(a) i* value or values;(b) If an MARR of 5% per quarter is achievable; and(c) The minimum revenue in quarter 8 that will generate an i*
You need to determine i* per year for the cash flows shown below. Since you have a new boss, you decided to perform a thorough analysis. Do the following:(a) Use a spreadsheet to find i*.(b) Develop
Cloey has just purchased new bedroom furniture from Haverty’s for a total of $10,000. She paid 20% down and, through a special promotional, she can pay off the $8000 in ten $800, no-interest
Ten years ago, DEWA, an electricity and water authority, issued $20 million worth of municipal bonds that carried a coupon rate of 6% per year, payable semiannually. The bonds had a maturity date of
A savvy investor paid $6000 for a 20-year $10,000 mortgage bond that had a bond interest rate of 8% per year, payable quarterly. Three years after he purchased the bond, market interest rates went
A $10,000 mortgage bond with a bond interest rate of 8% per year, payable quarterly, was purchased for $9200. The bond was kept until it was due, a total of 7 years. What rate of return was made by
Janice V. bought a 5% $1000 twenty-year bond for $925. She received a semiannual dividend for 8 years, then sold it immediately after the 16th dividend for $800. What rate of return did she make(a)
An engineer planning for his child’s college education purchased a zero coupon corporate bond (i.e., a bond that has no dividend payments) for $9250. The bond has a face value of $50,000 and is
A mortgage bond issued by Automation Engineering is for sale for $8200. The bond has a face value of $10,000 with a coupon rate of 8% per year, payable annually. What rate of return will be realized
If you receive a $5000 bond as a graduation present and the bond will pay you $75 interest every 3 months for 20 years, what is the bond coupon rate?
The Martian Corporation, a space vehicle development company, is starting a new division that will develop the next generation launch missile engine configuration. Use a hand application of the MIRR
For the nonconventional net cash flow shown, determine the external rate of return using the MIRR method at a borrowing rate of 10% per year and an investment rate of(a) 15% per year, and(b) 30% per
A new advertising campaign by a company that manufactures products that apply biometric, surveillance, and satellite technologies resulted in the cash flows shown. Calculate unique external rate of
For the net cash flow series shown,(a) Apply the two rules of sign change,(b) Find the external rate of return using the ROIC method at an investment rate of 15% per year, and(c) Determine an i*
For the cash flows shown, determine:(a) The number of possible i* values(b) The i* value displayed by the IRR function(c) the external rate of return using the MIRR method if ii = 18% per year and ib
For the net cash flow series,(a) Determine the number of possible i* values using the two sign tests, (b) find the EROR using the MIRR method with an investment rate of 20% per year and a
Profit and loss (in $1000 units) associated with the sale of a vision guided machine tool loading system and the resulting NCF amounts are recorded.(a) Use sign-change rules to determine the possible
Arc-bot Technologies, manufacturers of six-axis, electric servo-driven robots, has experienced the cash flows shown in a shipping department. (a) Determine the number of possible rate of return
A third-year college friend of yours opened Mike’s Bike Repair Shop when he was a freshmen working on a sociology degree. He shared his NCF figures for the 3 years, including the $17,000 amount
RKI Instruments manufactures a ventilation controller designed for monitoring and controlling carbon monoxide in parking garages, boiler rooms, tunnels, etc. The net cash flow associated with one
A cutting-edge product of Continental Fan had the following net cash flow series (in $1000 units) during its first 5-year period on the market. Find all rate of return values between 0% and 100%.Year
Jenco Electric manufactures washdown adjustable speed drives in open loop, encoderless, and closedloop servo configurations. The net cash flow associated with one phase of the production operation is
One of your employees presented you the cash flow estimates (in $1000 units) for a new method of manufacturing box cutters for a 2 year period.(a) Apply the rule of signs to determine the maximum
Self-tightening wedge grips are designed for tensile testing applications up to 1200 pounds. The cash flows associated with the product are available below. Determine the following from these values:
The annual revenues (in $1000 units) associated with several large apartment complexes are $0, $350, $290, $460, $150, and $320 for years 0, 1, 2, 3, 4, and 5, respectively. Determine(1) Whether each
Identify the net cash flows shown below as either conventional or nonconventional. 1 Year (a) (b) (c) 2 3 4 5 - 100 400 300 200 100 40 -50 -50 -50 40 40 300 200 - 1000 200 300 400 10,000 -2000 (d)
Identify the following net cash flow series as conventional or non conventional. Sign on Net Cash Flow by Year Year 2 3 4 (a) (b) (c) (d) (e) I +I + + || + + | + || + + + OII + + I
What cash flows are associated with Descartes’ rule of signs and Norstrom’s criterion?
An Indium-Gallium-Arsenide-Nitrogen alloy developed at Sandia National Laboratory is said to have potential uses in electricity generating solar cells. The new material is expected to have a longer

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