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fundamentals engineering economics
Fundamentals Of Engineering Economic Analysis 2nd Edition White, John A., Grasman, Kellie S., Case, Kenneth E., LaScola Needy, Kim, Pratt, David B. - Solutions
10.04-PR007 A construction company decides to purchase a crane for$250,000. The crane qualifies as 5-year equipment for MACRS-GDS depreciation. The BTCF profile for the acquisition, expressed in constant dollars, consists of an annual uniform series of $50,000, plus a $50,000 salvage value at the
10.04-PR006 Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is $9 million, with $4 million borrowed at 12% over 6 years. The salvage value after 6 years is
Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of$200,000 after 8 years. Raytheon will borrow $800,000 at
10.04-PR004 Reconsider Problem 10.04-PR003 exactly as written.a. Determine the real or constant dollar after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d. Determine the FW of the after-tax cash flows.e. Determine the
Video Solution Henredon purchases a highprecision programmable router for shaping furniture components for$190,000. It is expected to last 12 years and have a salvage value of $5,000.Henredon will borrow $100,000 at 13% over 6 years, paying only interest each year and paying all the principal in
Reconsider Problem 10.04-PR001 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d. Determine the FW of the after-tax cash flows.e. Determine the real IRR of the after-tax cash
Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is $9 million, with $4 million borrowed at 12% over 6 years and paying only the interest each year and the entire principal
WI, Inc., is replacing a large portion of its computer and data handling equipment for $2,000,000. This investment qualifies as 5-year property for MACRS-GDS depreciation. The BTCF profile of savings due to the acquisition, in then-current dollars, is an increasing gradient of $100,000 beginning
Assets used for special handling in the manufacture of food and beverages are purchased for $2,800,000. These qualify as 3-year equipment for MACRS-GDS depreciation. The before-tax cash flows, measured in constant dollars, consist of a uniform annual series of $925,000 plus an$800,000 salvage value
Assets used for the manufacture of medical supplies are purchased by an Abbott supplier for $1,500,000. They qualify as 5-year equipment for MACRS-GDS depreciation. The before-tax cash flows, in constant dollars, include an annual uniform series of $480,000 plus a $400,000 salvage value at the end
10.03-PR015 An investment of $450,000 is made in equipment that qualifies as 5-year equipment for MACRS-GDS depreciation. The then-current dollar before tax cash flows are given by a $50,000 increasing gradient series, with the cash flow the first year equaling $100,000. In addition, a $50,000
10.03-PR014 A construction company purchases a crane for $250,000. The crane qualifies as 5-year equipment for MACRS-GDS depreciation. The BTCF profile for the acquisition, expressed in constant dollars, consists of an annual uniform series of $50,000, plus a $50,000 salvage value at the end of the
10.03-PR013 A manufacturing company decides to purchase a computer for$800,000. The equipment qualifies as 5-year equipment for MACRS-GDS depreciation. The constant-dollar before-tax cash flows can be represented by a $25,000 increasing gradient series; the BTCF the first year is $125,000; and a
10.03-PR012 Specialized production equipment is purchased for $125,000.The equipment qualifies as 5-year equipment for MACRS-GDS depreciation.The BTCF profile for the acquisition, in then-current dollars, is an increasing$10,000 gradient series, beginning with $50,000 the first year. In addition,
10.03-PR011 An investment of $600,000 is made in equipment that qualifies as 3-year equipment for MACRS-GDS depreciation. The before-tax cash flows, measured in constant dollars, for the investment consist of a uniform annual series of $200,000 plus a $200,000 salvage value at the end of the 5-year
10.03-PR010 A surface-mount placement machine is purchased for $500,000.The SMP machine qualifies as 5-year equipment for MACRS-GDS depreciation. The before-tax cash flows, in constant dollars, include an annual uniform series of $120,000 plus a $200,000 salvage value at the end of the 4-year
10.03-PR009 Reconsider Problem 10.03-PR008 exactly as written.a. Determine the actual after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d. Determine the FW of the after-tax cash flows.e. Determine the combined IRR of
10.03-PR008 Henredon purchases a high-precision programmable router for shaping furniture components for $190,000. It is expected to last 12 years and have a salvage value of $5,000. It will produce $45,000 in net revenue each year during its life. All dollar amounts are expressed in actual
10.03-PR007 Reconsider Problem 10.03-PR006 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d. Determine the FW of the after-tax cash flows.e. Determine the real IRR of the
Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of$200,000 after 8 years. Its use will create an opportunity
10.03-PR005 Reconsider Problem 10.03-PR004 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d. Determine the FW of the after-tax cash flows.e. Determine the real IRR of the
Henredon purchases a highprecision programmable router for shaping furniture components for$190,000. It is expected to last 12 years and have a salvage value of $5,000. It will produce $45,000 in net revenue each year during its life. All dollar amounts are expressed in real dollars. Depreciation
10.03-PR003 Reconsider Problem 10.03-PR002 exactly as written.a. Determine the real after-tax cash flows for each year.b. Determine the PW of the after-tax cash flows.c. Determine the AW of the after-tax cash flows.d. Determine the FW of the after-tax cash flows.e. Determine the real IRR of the
10.03-PR002 Electronic Games is moving very quickly to introduce a new interrelated set of video games. The initial investment for equipment to produce the necessary electronic components is $9 million. The salvage value after 6 years is $700,000. Anticipated net contribution to income is $6
10.03-PR001 An economic analysis is being performed in real (not actual)dollars. The company’s combined MARR is 10%, and the inflation rate is 4%.The asset has a first cost of $10,000. It will be depreciated as MACRS 3-year property using rates of 33.33%, 44.45%, 14.81%, and 7.41%. What
10.02-PR035 True or False: If the real MARR is 10% and inflation is 4%, then an investment that yields a combined external rate of return of 13.5% is not justified economically.
10.02-PR034 True or False: If the combined minimum attractive rate of return is 12% and inflation is 3%, then an investment that yields a real external rate of return of 9% is not justified economically.
10.02-PR033 True or False: When the real return on investment is 6% and the combined minimum attractive rate of return is 10%, then inflation must be less than 4%.
10.02-PR032 For the situation stated in Problem 10.02-PR031, let the interest on borrowed money go from 7% to 20% in 1% increments. For each borrowing rate, which payment plan is preferred? Do your answers match what is predicted in the text?
10.02-PR031 Steinway R&D is pursuing the development of an attachment that can easily clean the inside of grand pianos. This innovation will require a loan of $500,000 for fabrication and testing of several units. Inflation is 3.9%, and the loan is available at a rate of 10%. The combined MARR is
10.02-PR030 For the situation stated in Problem 10.02-PR029, let the interest on borrowed money go from 5% to 15% in 1% increments. For each borrowing rate, which payment plan is preferred? Do your answers match what is predicted in the text?
10.02-PR029 A ham radio operator wishes to borrow $160,000 to construct a world-class antenna system, transceiver, and amplifier at an electrically quiet location that can be accessed remotely and controlled via the Internet.Microphone, Morse code, radio teletype, slow-scan TV, and a host of other
10.02-PR028 In 2020, Samsung introduced a new smartphone on the market at a retail price of $250; the cost of producing the phone was $50/unit. During 2020, 5 million smartphones were sold. The number of smartphones sold increased at an annual rate of 10% through 2024; in 2025, Apple introduced a
10.02-PR027 A rental car agency rents cars for an average price of $45/day.The number of cars owned in 2020 totals 150. The number of days rented per car in 2020 equals 200. Hence, the rental revenue in 2020 totals $45(150)(200), or $1,350,000. If the agency increases the number of cars at an
10.02-PR026 Ninety-thousand dollars is invested in a program to reduce the material requirements in a production process. As a result of the investment, the annual material requirement is reduced by 10,000 pounds. The present unit cost of the material is $2 per pound. The price of a pound of the
10.02-PR025 The unit price of personal computers, measured in constant dollars, is expected to decrease at an annual rate of 10%. However, the number of microcomputers purchased by the company is expected to increase over a 5-year period at an annual rate of 30%. The unit price of a personal
10.02-PR024 A landfill has a first cost of $270,000. Annual operating and maintenance costs for the first year will be $40,000. These costs will increase at 11% annually. Income for dumping rights at the landfill will be held fixed at$120,000 per year. The landfill will be operating for 10 years.
10.02-PR023 The inflation rates for 4 years are forecast to be 3%, 3%, 4%,and 5%. The interest rate exclusive of inflation is anticipated to be 6%, 5%, 4%, and 5% over this same period. If labor is projected to be $1,000, $1,500,$2,000, and $1,000 in then-current dollars, during those years,
10.02-PR022 The following material costs are anticipated over a 5-year period: $9,000, $11,000, $14,000, $18,000, and $23,000. It is estimated that a 4% inflation rate will apply over the time period in question. The material costs given above are expressed in then-current dollars. The time value
10.02-PR021 Mellin Transformers, Inc., uses a required return of 15% in all economic justifications. Inflation is anticipated to be 5% over the foreseeable future. What real discount rate are they implicitly using?
10.02-PR020 If you desire a real return of 8% on your money and inflation is running at 3%, what combined rate of return should you require on your investments?
10.02-PR019 Yearly labor costs of a highway maintenance group are currently$420,000/year. If labor costs increase at a 12% rate and general inflation increases at 9%, determine for each of the next 6 years the labor cost in thencurrent and constant dollars.
10.02-PR018 Labor costs over a 4-year period have been forecast in thencurrent dollars as follows: $10,000, $12,000, $15,000, and $17,500. The general inflation rate for the 4 years is forecast to be 5%. Determine the constant-dollar labor costs for each of the 4 years.
10.02-PR017 Parents wish to provide for their child’s college education.Being a bit risk averse, they plan to invest in stable, yet unspectacular, opportunities yielding a 6.0% return. Their best guess at inflation is 4.0% for the foreseeable future. They plan to make investments on the child’s
10.02-PR016 The winner of a lottery is given a choice of $1,000,000 cash today or $2,000,000 paid out as follows: $100,000 cash per year for 20 yearswith the first payment today and 19 subsequent annual payments thereafter.The inflation rate is expected to be constant at 4%/yr over the award period
10.02-PR015 An investment of $8,000 is made at time 0 with returns of$3,500 at the end of each of years 1–4, with all monetary amounts being in real dollars. Inflation is running 7% per year over that time. Also, the real rate of return is 15% per year. Determine the present worth of the
10.02-PR014 A 24-year-old December 2019 graduate has decided he wants the equivalent of $2,500,000 in January 1, 2020 buying power to be available exactly 40 years later on January 1, 2060. He plans to make his first investment of $Z on January 1, 2021 and every year thereafter, with the last
Padayappa has now retired after 40 years of employment.He just made an annual deposit to his investment portfolio and realized he has$2 million (not counting home, cars, furniture, etc.). His money has been earning 7% per year and inflation has been running 4% per year over the past 40 years.a.
10.02-PR012 Global steel prices have a year-over-year inflationary rate increase of 12.4%. Tube Fab purchased $700,000 of a particular carbon steel during the year just ended right now. Their business has been increasing and they intend to purchase 20% more steel each year, over the previous
Global steel prices have a yearover-year inflationary rate increase of 12.4%. Tube Fab purchased $700,000 of a particular carbon steel during the year just ended right now, and they intend to purchase the same quantity at the end of each of the next 5 years. Tube Fab earns a real rate of 16.0% on
10.02-PR010 Shea is pricing materials (wood, wire, pipe, etc.) for new home construction on a “per unit” basis. Inflation on materials has been running at 16.0% for the past 3 years and is expected to remain at that rate for the next 10 years. The actual dollars paid for expenses at the end of
Your department is budgeting miscellaneous expenses for the next 5 years. Your best guess at the annual inflation rate is 3.9% and the combined MARR is 15%. Expenses currently run $14,500 per year. Assume that expenses are end-of-year payments.a. Determine the then-current dollar amounts for years
10.02-PR008 You invested $10,000 on January 1, 2018, at 7% interest compounded annually. You have not touched the investment since that date.You are planning to take your money and close out the investment on January 1, 2028.a. If average inflation is 3.7%, what has been your “real” annual
A software company’s labor requirements currently cost $350,000/year. The labor hour requirements are expected to increase by 10% per year over the next five years. If inflation is 4%, determine the labor costs after 5 years using:a. Then-current dollars.b. Constant-worth dollars.
10.02-PR006 How much must you invest exactly 5 years from now to have$500,000 in today’s buying power 20 years from now? You can invest your money at 10% per year and inflation runs 4%.
Suppose you want to earn a real interest rate of 5%. For inflation rates of 0.0, 1.0, 2.0, …, 9.0, 10.0, 15.0, 20.0, and 50.0%, determine the combined rate of interest you must earn.
10.02-PR004 Chevron-Phillips requires a real return of 14.2%. If inflation is running 3.8%, what must be their MARR or “hurdle rate” on capital investments when using then-current dollars in analyses?
Array Solutions requires a 14.0% return on their projects.Analysis shows that even though they have been earning the desired 14.0%, their real return appears to be only 10.0% when they look at what they can buy with their returns.a. Explain why there is this discrepancy.b. Determine the inflation
10.02-PR002 You are considering a bond that pays annually at 6.2%. Inflation is projected to be running 4.0%. What will be your real interest rate?
You are earning 5.2% on a certificate of deposit. Inflation is running 3.5%. What is the real rate of return on your investment?
10.01-PR012 The Korean hourly compensation rates of increase are presented as follows:a. Assuming the index value in year 2013 was 165.9, determine the index for each year from 2014 to 2018 to one place after the decimal.b. Because this index, like inflation, is compounded from period to
The Korean manufacturing output per hour index is given for years 2014–2018 as followsa. For each year from 2015 to 2018 determine the rate of increase in Korean manufacturing output per hour to two decimal places.b. Because this index, like inflation, is compounded from period to period(e.g.,
10.01-PR010 The CPI-U for Americans 62 years of age and older (some of your professors and some of your authors are interested in this!) present the following annual inflation rates in percent:a. Assuming the index value in year 2011 was 100.0, determine the index for each year from 2012 to 2016 to
10.01-PR009 The CPI-U (U.S. city average, all items) has the following annual averages:a. For each year from 2014 to 2017 determine the annual inflation rate in percent to two decimal places.b. Because inflation, like interest, is compounded from period to period(e.g., year to year), estimate the
10.01-PR008 Suppose a friend argues that the CPI does not represent them because they do not purchase some of the things, including big-ticket items, in the market basket. Can they conclude that the CPI is irrelevant to them?Explain your reasoning
10.01-PR007 What is the Higher Education Price Index (HEPI), where does it fit in with the CPI and PPI, and how is the HEPI related to the CPI?
10.01-PR006 What are the differences between the Consumer Price Index and the Producer Price Index?
10.01-PR005 What is meant by a “market basket rate”?
10.01-PR004 Give two examples of goods or services that you have seen inflate dramatically and also deflate dramatically over the past few years.
10.01-PR003 What is the relationship between “inflation” and “deflation”?Give an example of deflation experienced in your everyday life.
10.01-PR002 Give four examples of goods or services that have exhibited inflation in recent years.
10.01-PR001 What is a good working definition of “inflation” in 10 words or less?
10-FE012 Given an inflation rate of 10% and a combined discount rate of 21%, what is the real (or constant) discount rate?a. 11%b. 10%c. 33.1%d. 2.1%
10-FE011 You have just added a purchase of a high-capacity weld mill for$4,000,000. You want to maximize the deduction you can take when calculating taxable income. Which would you use?a. Section 179 and MACRS depreciationb. 150% bonus depreciationc. 50% bonus depreciation aloned. 100% bonus
10-FE010 Your small business has purchased only two new assets totaling$2,800,000 during the tax year and you want to take advantage of the Section 179 expense deduction. Which would you legally use for the deduction?a. $2,000,000b. $700,000c. $1,000,000d. $2,800,000
10-FE009 As reported by the Bureau of Labor Statistics, the CPI for 2005 was 585.0 (using a Base Year of 1967 = 100). The CPI for 2006 was 603.9.Based on this data, what was the inflation rate for 2006?a. 3.23%b. 5.85%c. 6.04%d. 18.9%
10-FE008 Ten years ago Jennifer bought an investment property for$100,000. Over the 10-year period inflation has held consistently at 3%annually. If Jennifer expects a 13%/yr real rate of return, what would she sell the property for today?a. $116,000b. $134,400c. $339,500d. $456,200
10-FE007 When done correctly, what is the relationship between the present worth of an alternative calculated using a then-current approach and the present worth of the alternative calculated using a constant-worth approach?a. They are equalb. Then-current PW is higher because it uses inflated
If the real discount rate is 7% and the inflation rate is 10%, hich of the follo ing interest rates ill be sed to find the present orth of awhich of the following interest rates will be used to find the present worth of a series of cash flows that are in constant-worth dollars?a. 10.0%b. 17.7%c.
If the real discount rate is 7% and the inflation rate is 10%, which of the following interest rates will be used to find the present worth of a series of cash flows that are in then-current dollars?a. 10.0%b. 17.7%c. 7.0%d. 10.7%
An economist has predicted that there will be a 7% per year inflation of prices during the next 10 years. If this prediction proves to be correct, an item that presently sells for $10 would sell for what price in 10 years?a. $5.08b. $10.70c. $17.00d. $19.67
10-FE003 Mike’s Veneer Shop owns a vacuum press that requires annual maintenance. Mike has a contract to cover the maintenance expenses for the next 5 years. The contract calls for an annual payment of $600 with adjustment each year for inflation. Inflation is expected to hold constant at 6%/yr
10-FE002 Mike’s Veneer Shop owns a vacuum press that requires annual maintenance. Mike has a contract to cover the maintenance expenses for the next 5 years. The contract calls for an annual payment of $600 with adjustment each year for inflation. Inflation is expected to hold constant at 6%/yr
10-FE001 Logan is conducting an economic evaluation under inflation using the then-current approach. If the inflation rate is j and the real time value of money rate is d, which of the following is the interest rate he should use for discounting the cash flows?a. j b. d c. j + d d. j + d + dj
Small businesses can take both a Section 179 expense deduction and bonus depreciation.a. Trueb. False
Utilizing bonus depreciation will result in an increase in after-tax present worth.a. Trueb. False
When comparing purchasing equipment versus an operating leasing of equipment, the purchase cost of equipment is generally __________ and the lease cost of equipment is generally __________.a. depreciated; depreciatedb. depreciated; expensedc. expensed; expensedd. expensed; depreciated
When determining the present worth of the after-tax cash flows of an investment purchased using borrowed funds, which of the following are required?I. Principal and interest component for each loan payment II. Tax rate applied to the taxable income generated by the investment III. Depreciation
When comparing multiple alternatives in an after-tax cash flow analysis, which of the following are true?I. All alternatives should be depreciated using the same depreciation method II. Some alternatives may be expensed III. Some alternatives may use different depreciation methods IV. All
The present worth of the after-tax cash flows of an investment will be maximized when the cost of the investment isa. expensedb. depreciated using straight-line depreciationc. depreciated using double declining balance depreciationd. depreciated using MACRS depreciation
When performing economic justifications, income taxes are important becausea. income tax dollars are cash flowsb. depreciation does not impact income taxesc. federal taxes are important, but state taxes are negligibled. income-tax laws remain constant over time
With revenue of $62.8 billion in 2017, Intel is the world’s largest chip maker and also a leading manufacturer of computer, networking, and communications products. Major products include platforms designed for notebooks and desktops, wireless and wired connectivity devices, workload-optimized
09.06-PR006 Fluid Power has put into place new laboratory equipment for the production of chemicals. The first cost is $1,800,000 installed. This will be their only equipment capital investment for the year. The throughput rate for in-process test samples has increased the capacity of the lab, with
09.06-PR005 Specialty Valves has robotic micro-welders as well as robotic checkers with vision for making high-precision valves in a niche market for production of petroleum and natural gas. One welder costing $1,200,000 (MACRS-7-year property class) was installed and is increasing productivity and
09.06-PR004 A subsidiary of AEP places in service electric generating and transmission equipment at a cost of $3,000,000. It is expected to last 30 years with a salvage value of$250,000. The equipment will increase net income by $500,000 in the first year, increasing by 2.4% each year thereafter.
09.06-PR003 Raytronics wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of$200,000 after 8 years. Its use will create
09.06-PR002 A subsidiary of AEP places in service electric generating and transmission equipment at a cost of $3,000,000. It is expected to last 30 years with a salvage value of$250,000. The equipment will increase net income by $500,000 in the first year, increasing by 2.4% each year thereafter.
09.06-PR001 Video Solution Raytronics wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of $200,000 after 8 years. Its
09.05-PR004 A granary has two options for a conveyor used in the manufacture of grain for transporting, filling, or emptying. One conveyor can be purchased and installed for$70,000 with $3,000 salvage value after 16 years. The other can be purchased and installed for $110,000 with $4,000 salvage
09.05-PR003 A virtual mold apparatus for producing dental crowns permits an infinite number of shapes to be custom constructed based upon mold imprints taken by dentists.Two models are available. One costs $58,500 and is expected to last 9 years with no salvage value at that time. Costs of use are
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