Questions and Answers of Fundamentals Engineering Economics

Rework Problem 12.16, assuming the following additional information:The current book value of the old machine is $5,623, and the asset has been depreciated according to a seven-year MACRS property
Rework Problem 12.18, assuming the following additional information:The current book value of the old machine is $4,000, and the annual depreciation charge is $800 if the firm decides to keep the old
Rework Problem 12.20, assuming the following additional information:The old switching system has been fully depreciated.The new system falls into the five-year MACRS property class.The company’s
Rework Problem 12.14, assuming the following additional information:The old machine has been fully depreciated.The new machine will be depreciated under the seven-year MACRS class.The marginal tax
Rework Problem 12.23, assuming the following additional information:Option 1: The old sprayer has been fully depreciated. The new sprayer isclassified as a seven-year MACRS property.Option 2: The
Definitional problems: Listed are eight terms that relate to financial statements:1. Balance‐sheet statement2. Income statement3. Cash‐flow statement4. Operating
Definitional problems: Listed are 11 terms that relate to ratio analysis:1. Book value per share2. Inventory turnover3. Debt‐to‐equity ratio4. Average collection
Birmingham Steels has the following (incomplete) balance sheet and income statement.(a) Determine the shareholders€™ equity in 2011 and 2012.(b) Determine the net working capital in 2011
The following data are available for two companies, Apple and Oracle, all stated in thousands of dollars.(a) Calculate each company€™s return on equity (ROE) and return on assets (ROA).(b)
The following data were taken from the income statements of Metronix Corporation.Compute the inventory-turnover ratio for each year. What conclusions concerning the management of the inventory can be
If Company A uses more debt than Company B and both companies have identical operations in terms of sales, operating costs, etc., which of the following statements is true?(a)
You are looking to buy stock in a high‐growth company. Which of the following ratios best indicates the company’s growth potential?(a) Debt ratio(b) Price/earnings ratio(c) Profit margin(d)
Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt‐to‐equity ratio.(b) The best guideline to determine the
The table that follows summarizes the financial performances of four companies in the year 2012. From the given information, which company generated the highest return on equity?(a) Company A(b)
J. C. Olson & Co. had earnings per share of $8 in 2012, and it paid a $4 dividend. Book value per share at year-end was $80. During the same period, the total retained earnings increased by $24
Consider the following financial statements for Dell Corporation:The closing stock price for Dell was $13.47 on January 28, 2011. The numbers of outstanding shares were 1,944 million in 2011 and
Which of the following statements is incorrect?(a) Holding on to cash is the most risk‐free investment option.(b) To maximize your return on total assets (ignoring financial risk), you must put all
The average unleaded gasoline price for California residents on May 30, 2011, was $4.12 per gallon. Assuming that the base period (price index = 100) is 1996 and that the unleaded gasoline price for
The average cost of a gallon of gas was $0.99 per gallon in 1998. In 2011, the average cost of a gallon of gas is $3.00. What is the average inflation rate for the period 1998–2011?
The following data indicate the price indices of lumber (price index for the base period 1982-1984 = 100) during the last 10 years:Period Price
Prices are increasing at an annual rate of 8% the first year and 12% the second year. Determine the average inflation rate (f) over these two years.
The following table shows a utility company’s cost to supply a fixed amount of power to a new housing development; the indices are specific to the utility industry. Assume that year 0 is the base
Because of general price inflation in our economy, the purchasing power of the dollar shrinks with the passage of time. If the average general inflation rate is expected to be 6% per year for the
An engineer’s salary was $55,000 in 2002. The same engineer’s salary in 2011 is $85,000. If the company’s salary policy dictates that a yearly raise in salaries reflect the cost-of-living
The average starting salary for engineers was $5,000 a year in 1955. John, a mechanical engineer, got an offer for $60,000 a year in 2011. Knowing that the CPIs for 1955 and 2011 are 26.87 and
If you are looking for a 4% real return (inflation‐free interest) on your investment, would you be interested in an investment opportunity that produces a 10% return on investment (market interest
If you deposit $10,000 in a bank account that pays a 2% interest compounded monthly for five years, what would be your economic loss if the general inflation rate is 3% during that period?
An annuity provides for 10 consecutive end‐of‐year payments of $10,000. The average general inflation rate is estimated to be 5% annually, and the market interest rate is 9% annually. What is the
A company is considering buying workstation computers to support its engineering staff. In today’s dollars, it is estimated that the maintenance costs for the computers (paid at the end of each
Given the cash flows in actual dollars provided in the following table, convert the cash flows to equivalent cash flows in constant dollars if the base year is time 0. Assume that the market interest
The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at 9% interest compounded monthly. If the general inflation rate is 4% compounded monthly, find the
A series of four annual constant‐dollar payments beginning with $30,000 at the end of the first year is growing at the rate of 8% per year. Assume that the base year is the current year (n = 0). If
Consider a situation, where (a) the equal‐payment cash flow of $1,000 in constant dollars over three years is converted from (b) the equal‐payment cash flow in actual dollars over three years at
A 10‐year $1,000 bond pays a nominal rate of 9% compounded semiannually. If the market interest rate is 10% compounded annually and the general inflation rate is 6% per year, find the actual- and
The following table represents the thallium production and apparent consumption in the United States for the years 2004 through 2010. Unit value is the value in actual dollars of one metric ton (t)
You will receive $50 interest every six months from your investment in a corporate bond. The bond will mature in five years from now and has a face value of $1,000. This means that if you hold the
You just signed a business consulting contract with one of your clients. The client will pay you $50,000 a year for five years for the service you will provide over this period. You anticipate the
Suppose that you borrow $60,000 at 9% compounded monthly over five years. Knowing that the 9% represents the market interest rate, you compute the monthly payment in actual dollars as $2,372.46. If
The annual fuel costs to operate a small solid‐waste treatment plant are projected to be $1.5 million without consideration for any future inflation. The best estimates indicate that the annual
Suppose that you just purchased a used car worth $12,000 in today’s dollars. Assume also that, to finance the purchase, you borrowed $10,000 from a local bank at 9% compounded monthly over two
A man is planning to retire in 20 years. He can deposit money for his retirement at 6% compounded monthly. It is estimated that the future general inflation (f̅) rate will be 5% compounded annually.
On her 23rd birthday, an engineer decides to start saving toward building up a retirement fund that pays 8% interest compounded quarterly (market interest rate). She feels that $600,000 worth of
A couple wants to save for their daughter’s college expense. The daughter will enter college eight years from now, and she will need $40,000, $41,000, $42,000, and $43,000 in actual dollars for
Consider the following project??s after??tax cash flow and the expected annual general inflation rate during the project period: (a) Determine the average annual general inflation rate over the
Suppose you have three goals in your financial planning for saving money. First, you would like to be able to retire 25 years from now with a retirement income of $10,000 (today’s dollar) per month
If we were to invest $10,000 in an S&P 500 index fund, pay 0.2% annual fees, and add $100 a month to it for 40 years, receiving 10.4% annual returns, what, theoretically, would happen to our
You have $10,000 cash that you want to invest. Normally, you would deposit the money in a savings account that pays an annual interest rate of 6%. However, you are now considering the possibility of
Business week magazine currently offers the following subscription options: one year for $39; two years for $72; three years for $103. These rates are expected to increase at the general inflation
K&J Enterprise Inc. has purchased a small motor engine line to go in golf carts. The total purchase cost was $1.5 million, which can generate revenues of $650,000 per year. Direct manufacturing
Delaware Chemicals is considering the installation of a computer process control system in one of its processing plants. This plant is used about 40% of the time, or 3,500 operating hours per year,
As a chief engineer, you need to come up with the cash flow estimate for a newly proposed production line. Initially, the system is designed to have a maximum capacity (Cmax)of six million parts to
An investment project provides cash inflows of $2,500 per year for five years. What is the payback period if the project requires $4,000 at the beginning of the project?
Consider a project with the following cash flows:End of Year (n) Cash Flows
J&M Manufacturing plans on purchasing a new assembly machine for $32,000 to automate one of its current manufacturing operations. It will cost an additional $3,500 to have the new machine
You are given the following financial data about a new system to be implemented at a company:Investment cost at n = 0: $23,000Investment cost at n = 1: $18,000Useful life: 10 yearsSalvage value (at
Consider the following cash flows, for four different projects:(a) Calculate the conventional payback period for each project.(b) Determine whether it is meaningful to calculate a payback period
The Northern Investment Group is considering investing $2 million in a new shopping plaza in Atlanta. The company has estimated that the shopping plaza, once built, will generate $450,000 per year
Due to a high demand for corn as a source of ethanol fuel production, a farmer is considering planting more corn, which requires the purchase of a new, larger row crop planter. The planter will cost
You are considering producing a new golf ball for sale in China to meet a growing demand in the country. This golf ball is less expensive to manufacturecompared with a better known brand, but it
Consider the following set of investment projects, all of which have a three-year investment life:(a) Compute the net present worth of each project at i = 10%. Project Cash Flows A B D п -$1,200
You have been asked to evaluate the profitability of building a new distribution center under the following conditions:The proposal is for a distribution center costing $1,500,000. The facility has
You want to purchase a house for $85,000, and you have $17,000 cash available for a down payment. You are considering the following two financing options:Option 1: Get a new standard mortgage with
Today is your birthday and you decide to start saving for your retirement. You will retire on your 67th birthday and need $50,000 per year at the end of each of following 20 years. You will make a
A local dealer is advertising a 24‐month lease of a sport utility vehicle for $520 payable at the beginning of each month. The lease requires a $2,500 down payment plus a $500 refundable security
A couple is planning to finance its three‐year‐old son’s college education. The couple can deposit money at 6% compounded quarterly. What quarterly deposit must be made from the son’s 3rd
Sam Musso is planning to retire in 20 years. He can deposit money at 8% compounded quarterly. What deposit must he make at the end of each quarter until he retires so that he can make a withdrawal of
Suppose you borrowed $10,000 at an interest rate of 8% compounded monthly over 36 months. At the end of the first year (after 12 payments), you want to negotiate with the bank to pay off the
Tamara Massey received $1,000,000 from an insurance company after her husband’s death. She wants to deposit this amount in a savings account that earns interest at a rate of 6% compounded monthly.
Anita Hayes, who owns a travel agency, bought an old house to use as her business office. She found that the ceiling was poorly insulated and that the heat loss could be cut significantly if 6 in. of
You want to open a savings plan for your future retirement. You are considering the following two options:Option 1: You deposit $1,000 at the end of each quarter for the first 10 years. At the end of
Maria Anguiano’s current salary is $65,000 per year, and she is planning to retire 25 years from now. She anticipates that her annual salary will increase by $3,000 each year. (That is, in the
How many years will it take an investment to triple if the interest rate is 9% compounded(a) Quarterly?(b) Monthly?(c) Continuously?
A series of equal quarterly payments of $5,000 for 10 years is equivalent to what present amount at an interest rate of 9% compounded(a) Quarterly?(b) Monthly?(c) Continuously?
What is the future worth of an equal‐payment series of $3,000 per year for eight years if the interest rate is 7% compounded continuously?
Suppose that $1,500 is placed in a bank account at the end of each quarter over the next 20 years. What is the account’s future worth at the end of 20 years when the interest rate is 8%
If the interest rate is 8.5% compounded continuously, what is the required quarterly payment to repay a loan of $15,000 in four years?
What is the future worth of a series of equal monthly payments of $2,000 if the series extends over a period of six years at 9% interest compounded(a) Quarterly?(b) Monthly?(c) Continuously?
What is the required quarterly payment to repay a loan of $25,000 in five years if the interest rate is 6% compounded continuously?
A series of equal quarterly payments of $2,000 extends over a period of five years. What is the present worth of this quarterly‐payment series at 9.75% interest compounded continuously?
A series of equal quarterly payments of $3,000 for 10 years is equivalent to what future lump‐sum amount at the end of 15 years at an interest rate of 8% compounded continuously?
Your bank calculates the interest based on 12% APR on your credit card balance (monthly compounding). Suppose that your current outstanding balance is $2,000 and you skip payments for two months.
You have just received credit card applications from two banks, A and B. The interest terms on your unpaid balance are stated as follows:1. Bank A: 18% compounded
You received a credit card application from Sun Bank offering an introductory rate of 2.9% per year compounded monthly for the first six months, increasing thereafter to 17% compounded monthly. This
Jennifer Lee, an engineering major in her junior year, has received in the mail two guaranteed line€of€credit applications from two different banks. Each bank offers a different
Suppose you take out a car loan of $10,000 with an interest rate of 12% compounded monthly. You will pay off the loan over 48 months with equal monthly payments.(a) What is the monthly interest
An automobile loan of $15,000 at a nominal rate of 9% compounded monthly for 36 months requires equal end€of€month payments of $477. Complete the following table for the first
You borrow $150,000 with a 30‐year payback term and a variable APR that starts at 9% and can be changed every five years.(a) What is the initial monthly payment?(b) If, at the end of five years,
Sarah Maddox wants to buy a new car that will cost $18,000. She will make a down payment in the amount of $4,000. She would like to borrow the remainder from a bank at an interest rate of 9%
Talhi Hafid is considering the purchase of a used car. The price, including the title and taxes, is $9,530. Talhi is able to make a $2,530 down payment. The balance, $7,000, will be borrowed from his
Janie Curtis borrowed $22,000 from a bank at an interest rate of 9% compounded monthly. This loan is to be repaid in 36 equal monthly installments over three years. Immediately after her 20th
You are buying a home for $360,000. If you make a down payment of $60,000 and take out a mortgage on the rest at 8.5% compounded monthly, what will be your monthly payment if the mortgage is to be
For a $350,000 home mortgage loan with a 20‐year term at 9% APR compounded monthly, compute the total payments on principal and interest over the first five years of ownership.
A lender requires that monthly mortgage payments be no more than 25% of gross monthly income with a maximum term of 30 years. If you can make only a 15% down payment, what is the minimum monthly
To buy an $180,000 condominium, you put down $30,000 and take out a mortgage for $150,000 at an APR of 9% compounded monthly. Five years later, you sell the house for $205,000 (after all selling
Just before the 20th payment,Family A had a balance of $150,000 on a 9%, 30‐year mortgage.Family B had a balance of $150,000 on a 9%, 15‐year mortgage.Family C had a balance of $150,000 on a 9%,
Home mortgage lenders often charge points on a loan in order to avoid exceeding a legal limit on interest rates or to make their rates appear competitive with those of other lenders. As an example,
A restaurant is considering purchasing the lot adjacent to its business to provide adequate parking space for its customers. The restaurant needs to borrow $44,000 to secure the lot. A deal has been
Alice Harzem wanted to purchase a new car for $18,400. A dealer offered her financing through a local bank at an interest rate of 13.5% compounded monthly. The dealer’s financing required a 10%
David Kapamagian borrowed money from a bank to finance a small fishing boat. The bank’s loan terms allowed him to defer payments (interest is still being charged even though payment is deferred)
A loan of $18,000 is to be financed over a period of 24 months. The agency quotes a nominal interest rate of 8% for the first 12 months and a nominalinterest rate of 9% for any remaining unpaid

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