Questions and Answers of Fundamentals Engineering Economics

A manufacturing company has purchased three assets:The truck was depreciated by the units€of€production method. Usage of the truck was 22,000 miles and 25,000 miles during the
Davis Machine Works purchased a stamping machine for $135,000 on February 1, 2012. The machine is expected to have a useful life of 10 years, salvage value of $12,000, production of 250,000 units,
A local private hospital has just purchased a new computerized patient information system with an installed cost of $220,000. The information system is treated as five‐year MACRS property. The
Belmont Paving Company purchased a hauling truck on January 8, 2012, at a cost of $37,000. The truck has a useful life of eight years with an estimated salvage value of $6,000. The straight‐line
AG&M Cutting Tools Company purchased a new abrasive jet-cutting ma - chine in 2012 at a cost of $180,000. The company also paid $5,000 to have the equipment delivered and installed. The cutting
A stamping machine is classified as seven‐year MACRS property. The cost basis for the machine is $120,000, and the expected salvage value is $10,000 at the end of 12 years. Compute the book value
A hot-and-cold forming machine was purchased at a cost of $65,000. It has an estimated useful life of six years with salvage value of $8,000. It was placed in service on March 1 of the current fiscal
In 2012, you purchased a spindle machine (seven‐year MACRS property class) for $28,000, which you placed in service in January. Compute the depreciation allowances for the machine.
In 2012, three assets were purchased and placed in service by a firm:Compute the depreciation allowances for each asset. Date Placed in MACRS Asset Type Machine tools CNC machine Service Cost Base
On October 3, Kim Bailey paid $250,000 for a residential rental property. This purchase price represents $200,000 for the building and $50,000 for the land. Five years later, on June 25, she sold the
On October 1, you purchased a residential home in which to locate your professional office for $180,000. The appraisal is divided into $30,000 for the land and $150,000 for the building.(a) In your
Ray Electric Company purchased a 10,000 ft2 office space for $1,000,000 to relocate its engineering office on May 1, 2012. Determine the allowed depreciation in years 2012 and 2013.
Consider the data in the following two tables:First
At the beginning of the fiscal year, G&J Company acquired new equipment at a cost of $100,000. The equipment has an estimated life of five years and an estimated salvage value of $10,000.(a)
A company purchased a new forging machine to manufacture disks for airplane turbine engines. The new press cost $3,800,000, and it falls into the seven‐year MACRS property class. The company has to
Lynn Construction Company had a gross income of $34,000,000 in tax‐year 1, $5,000,000 in salaries, $4,000,000 in wages, $1,000,000 in depreciation expenses, a loan principal payment of $200,000,
A consumer electronics company was formed to sell a portable handset system. The company purchased a warehouse and converted it into a manufacturing plant for $2,000,000 (including the purchase price
ABC Corporation will commence operations on January 1, 2013. The company projects the following financial performance during its first year of operation:Sales revenues are estimated at
Consider a five‐year MACRS asset that was purchased for $76,000. Compute the gain or loss amounts if the asset were disposed of in (a) Year 3 with a salvage value of $20,000; (b) Year 5
Auburn Crane, Inc., a hydraulic crane service company, had sales revenues of $4,250,000 during tax year 2013. The following table provides other financial information relating to the tax year:Labor
A machine now in use that was purchased three years ago at a cost of $4,000 has a book value of $2,000. It can be sold now for $2,500, or it could be used for three more years, at the end of which
Phillip Zodrow owns and operates a small unincorporated plumbing service business, Zodrow Plumbing Service (ZPS). Phillip is married and has two children, so he claims four exemptions on his tax
Julie Magnolia has $50,000 cash to invest for three years. Two types of bonds are available for consideration. She can buy a tax‐exempt Arizona state bond that pays interest of 9.5% per year, or
Classify the following costs into either being product cost or period cost:(a) Raw material costs(b) Income taxes paid(c) Interest expenses on borrowed funds(d) Wages incurred in producing
Some commonly known costs associated with manufacturing operations are listed below:(a) Paint shop superintendent’s salary(b) Labor costs in assembling a product(c) Rent on a factory building(d)
Suppose that a company expects the following financial results from a project during its first year operation:Sales revenue: $300,000Variable costs: $100,000Fixed costs: $50,000Total unit produced
Suppose ADI Corporation’s break-even sales volume is $500,000 with fixed costs of $250,000.(a) Compute the contribution margin percentage.(b) Compute the selling price if variable costs are $15 per
Given the following information, answer the questions:The ratio of variable cost per unit divided by selling price per unit equals 0.3.Fixed costs amount to $60,000 .(a) Draw the
The Austin Electric Company has three product lines of surge protectors commonly used in PC and other electronic devices—A, B, and C—having a contribution margin of $3, $2, and $1, respectively.
Buffalo Environmental Service expects to generate a taxable income of $350,000 from its regular business in 2012. The company is also considering a new venture: cleaning up oil spills made by fishing
Scottsdale Print Shop expects to have an annual taxable income of $300,000 from its regular business over the next two years. The company is also considering the proposed acquisition of a new
Delta Electric Company expects to have an annual taxable income of $500,000 from its residential accounts over the next two years. The company is also bidding on a two‐year wiring service job for a
A small manufacturing company has an estimated annual taxable income of $195,000. Due to an increase in business, the company is considering purchasing a new machine that will generate additional
Simon Machine Tools Company is considering the purchase of a new set of machine tools to process special orders over the next three years. The following financial information is available:Without the
Jackson Heating & Air Company had sales revenue of $2,250,000 from operations during tax‐year 1. Here are some operating data on the company for that year:Labor
In 2012, Elway Aerospace Company had gross revenues of $1,200,000 from operations. The following financial transactions were posted during the year:Manufacturing expenses (including depreciation of
An asset in the five‐year MACRS property class cost $100,000 and has a zero estimated salvage value after six years of use. The asset will generate annual revenues of $300,000 and will require
An auto‐part manufacturing company is considering the purchase of an industrial robot to do spot welding, which is currently done by skilled labor. The initial cost of the robot is $250,000, and
You are considering purchasing a new injection molding machine. This machine will have an estimated service life of 10 years with a negligible after‐tax salvage value. Its annual net after‐tax
A corporation is considering a proposal for the purchase of a machine that will save $130,000 per year before taxes. The cost of operating the machine, including maintenance, is $20,000 per year. The
Atlanta Capital Leasing Company (ACLC) leases tractors to construction companies. The firm wants to set a three‐year lease payment schedule for a tractor purchased at $53,000 from the equipment
You are interested in purchasing a machine that will save $200,000 per year before taxes. The cost of operating the machine, including maintenance, is $80,000 per year. The machine, which costs
Peachtree Construction Company, a highway contractor, is considering the purchase of a new trench excavator that costs $300,000 and can dig a 3‐foot‐wide trench at the rate of 16 feet per hour.
Tucson Solar Company builds residential solar homes. Because of an anticipated increase in business volume, the company is considering the acquisition of a loader at a cost of $54,000. This
An automaker is considering installing a three‐dimensional (3‐D) computerized styling system at a cost of $180,000 (including hardware and software). With the 3‐D computer modeling system,
Consider a project with an initial investment of $300,000, which must be financed at an interest rate of 12% per year. Assuming that the required repayment period is six years, determine the
A special‐purpose machine tool set would cost $30,000. The entire capital expenditure ($30,000) is to be borrowed with the stipulation that it be repaid by two equal end‐of‐year payments at 12%
The Balas Manufacturing Company is considering buying an overhead pulley system. The new system has a purchase price of $150,000, an estimated useful life and MACRS class life of five years, and an
A toy manufacturer is considering the installation of a new process machine for its toy manufacturing facility. The machine costs $350,000 installed, will generate additional revenues of $120,000 per
Consider the following financial information about a retooling project at a computer manufacturing company:The project costs $2 million and has a five‐year service life.The project can be
A manufacturing company is considering the acquisition of a new injection‐ molding machine at a cost of $110,000. Because of a rapid change in product mix, the need for this particular machine is
Suppose an asset has a purchase cost of $15,000, a life of five years, a salvage value of $3,000 at the end of five years, and a net annual before‐tax revenue of $7,500. The firm’s marginal tax
A construction company is considering the proposed acquisition of a new earth mover. The purchase price is $100,000, and an additional $25,000 is required to modify the equipment for special use by
H&H Machine Systems Inc. needs to acquire a new lift truck for transporting final products to their warehouse. One alternative is to purchase the lift truck for $40,000, which will be financed by
Fuller Ford Company is considering the purchase of a vertical drill machine. The machine will cost $50,000 and will have an eight‐year service life. The selling price of the machine at the end of
K&G Chemical Company has just received a special subcontracting job from one of its clients. This two‐year project requires the purchase of a special‐purpose painting sprayer for $60,000.
USA Aluminum Company is considering making a major investment of $150 million ($5 million for land, $45 million for buildings, and $100 million for manufacturing equipment and facilities) to produce
H‐Robot Incorporated (HRI), a world leader in the robotics industry, produces a line of industrial robots and peripheral equipment, which perform many routine assembly‐line tasks. The company
A&H Chemical Corporation is a multinational manufacturer of industrial chemical products. A&H has made great progress in energy‐cost reduction and has implemented several co-generation
Lane Construction Ltd. is considering the acquisition of a new dump truck. The truck’s base price is $75,000, and it will cost another $15,000 to modify it for special use by the company. This
Autonumerics, Inc. has just invested $600,000 in a manufacturing process that is estimated to generate an after‐tax annual cash flow of $250,000 in each of the next five years. At the end of year
A real-estate developer seeks to determine the most economical height for a new office building. The building will be sold after five years. The relevant net annual revenues and salvage values are as
Jane Livingston, an industrial engineer at Energy Conservation Service, has found that the anticipated profitability of a newly developed water‐heater temperature‐control device can be measured
Matt Mona is in the process of purchasing a motel near a college town. The motel costs $3,500,000. The lot costs $500,000. Furniture and furnishings cost $700,000 and should be recovered in seven
D&D Machinery has been making a part for its industrial rotary gear shaving machine. D&D engineers are asked to investigate alternative ways of obtaining the part, as the unit cost for the
Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be
A firm is considering two different methods of solving a production problem. Both methods are expected to be obsolete in six years. Method A would cost $80,000 initially and have annual operating
A national newspaper publishing group is considering introducing a new morning newspaper in Denver. Its direct competitor charges $0.75 per copy at retail, with $0.15 going to the retailer. For the
Weldon Cutting Tools Company is considering the purchase of a new broaching machine to produce finished parts. Two types of broaching machines are available on the market. The lives of Machine A and
Peabody Corporation has the following base‐case estimates for its new small engine assembly project:Price per unit = $500Variable costs = $120 per unitFixed costs = $2.5 millionDemand = 20,000
Suppose you are considering an investment project that requires $800,000, has a six‐year life, and has a salvage value of $100,000. Sales volume is projected to be 65,000 units per year. Price per
The following information is available about Henson Manufacturing Co.:Probability Return on Investment0.15……….....................5%0.25………...................15%
Suppose that you are considering an investment project with a two€year life. If the annual cash flows are given in terms of three€point estimates and these cash flows are
Newnan Furniture owns and operates an industrial lift truck in its warehousing operation. The record indicates that the lift truck was purchased four years ago at $12,000. The estimated salvage value
Macintosh Printing Inc. purchased a $20,000 printing machine two years ago. The company expected this machine to have a five-year life and a salvage value of $5,000. Unfortunately, the company spent
Consider again the scenario in Problem 12.2. Suppose that the company has been offered the opportunity to purchase another printing machine for $15,000. Over its three-year useful life, the machine
Razorback Manufacturing is considering replacing a broken metal-cutting machine. Several options have been proposed.Option 1: The broken machine can be sold today for $2,500.Option 2: It can be
A firm is considering the replacement of a 2,000 lb capacity pressing machine purchased five years ago at a cost of $22,000. The machine was originally expected to have a useful life of 10 years and
A manufacturing firm is considering replacing one of its CNC machines with a machine that is newer and more efficient. The company has an MARR of 12%.Old Machine: The firm purchased the current CNC
A manufacturer is considering the replacement of one of its boring machines with a newer and more efficient one. The relevant details for both defender and challenger are as follows:Defender: The
A local hospital has the following replacement decision problem:Old machine: The hospital purchased a digital image-processing machine three years ago at a cost of $45,000. The machine had an
Higgins Machine Tools, Inc. is currently manufacturing one of its products on a hydraulic stamping press machine. The unit cost of the product is $15, and in the past year, 3,500 units were produced
You purchased an industrial oven five years ago for $70,000. O&M costs are $20,000 this year but are expected to increase by $1,500 each year for the next five years. The current salvage value of
A special-purpose machine is to be purchased at a cost of $30,000. The following table shows the expected annual operating and maintenance cost and the salvage value for each year of service:If the
Consider a new electric forklift truck that would cost $18,000, have operating costs of $1,000 in the first year, and have a salvage value of $10,000 at the end of the first year. For the remaining
Eight years ago, a firm purchased a lathe for $45,000. The operating expenses for the lathe are $8,700 per year. An equipment vendor offers the firm a new machine for $53,500 with operating costs of
Advanced Electrical Insulator Company is considering replacing a broken inspection machine, which has been used to test the mechanical strength of electrical insulators with a newer and more
Cushman Manufacturing Company has a five-year-old vertical numerical chucker (VNC) that has a current market value of $5,000 and expected O&M costs of $3,000 this year, which increase by $1,500
Green leaf Company is considering the purchase of a new set of air-electric quill units to replace an obsolete machine. The current machine has a market value of zero; however, it is in good working
Acme-Denver Corporation is considering the replacement of an old, relatively inefficient surface-grinder machine that was purchased seven years ago at a cost of $12,000. The machine had an original
An auto-part manufacturer is faced with the prospect of replacing its old robot, which has been used in stamping operation for 10 years. This particular robot was installed at a cost of $100,000 and
Four years ago, a firm purchased an industrial batch oven for $23,000. The oven had an estimated life of 10 years with $1,000 salvage value. These original estimates are still good. If sold now, the
Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The
Rework Problem 12.1, assuming the following additional information: The asset is classified as a five-year MACRS property. The firm’s marginal tax rate is 40%, and its after-tax MARR is 8%.Data
Rework Problem 12.8, assuming the following additional information:The old machine will be depreciated according to the straight-line method for the remaining useful life.The new machine will be
Rework Problem 12.11, assuming the following additional information:The machine is classified as a seven-year MACRS recovery period. The tax rate is 40%, and the after-tax MARR is 10%.Data From
Rework Problem 12.13 with the following additional information:The current book value of the old machine is $7,809. The anticipated book values for the next four years are as follows: year 1, $5,578;
A machine has a purchase cost of $10,000. End-of-year book values, salvage values, and annual O&M costs are provided over its useful life as follows: (a) Determine the economic life of the
Assume, for a particular asset, that I = $30,000, Sn = 22,000 - 2,000n, Bn = 30,000 - 3,000n,O & Mn =
Rework Problem 12.11, assuming the following additional information:For tax purposes, the entire cost of $30,000 can be depreciated according to a five-year MACRS property class.The firm€™s

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