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engineering economy

Questions and Answers of Engineering Economy

14-18. Two sport utility vehicles (SUVs) are being considered by a recent engineering graduate. Based on your local market, gather data on two SUVs and evaluate which one is better. Use these six
14-17. “Paper or plastic?” asks a checkout clerk at your grocery store. According to Time magazine (August 13, 2007, page 50), paper bags cost 5.7 cents each as opposed to 2.2 cents per plastic
14-16. For the data from Problem 14-15, apply the additive weighting technique, using weights you develop, to make a travel decision. (14.7)
14-15. When traveling, one always has a choice of airlines. However, which should you choose? Many attributes are worthy of consideration, some of which are cost, airline miles, number of hops
14-14. The additive weighting model is a decision tool that aggregates information from different independent criteria to arrive at an overall score for each course of action being evaluated. The
14-13. Consider the data from Problem 14-10. The human resources department requires that nondimensional scaling be applied to make your decision. Rate the individual attributes using Equations
14-12. You have volunteered to serve as a judge in a midwestern contest to select Sunshine, the most wholesome pig in the world. Your assessments of the four finalists for each of the attributes used
14-11. The town of Whoopup has decided that it needs a new public library. Although the city leaders have made this decision, the decision of location of the library is still an open question.
4-10. Hiring an employee is always a multiattribute decision process. Most jobs possess a diversity of requirements, and most applicants have a diversity of skills to bring to the job. Table P14-10
14-9. Mary Jones utilized the additive weighting technique to select a job with Sigma Ltd., in Macon, Georgia. The importance weights she placed on the four attributes in Table 14-1 were social
14-8. Three large industrial centrifuge designs are being considered for a new chemical plant.a. By using the data in Table P14-8 on p. 616, recommend a preferred design with each method that was
14-7. You are ready to finally plan your family summer vacation. After what seems like an eternity of long hours at work, you deserve a week of total relaxation. Now, where do you go? The mountains?
14-6. With reference to the data provided in Table P14-6 on p. 615, recommend the preferred alternative by using (a) dominance, (b) satisficing, (c) disjunctive resolution, and (d) lexicography.
14-5. Given the matrix of outcomes in Table P14-5 on p. 615 for alternatives and attributes (with higher numbers being better), show what you can conclude, using the following methods: (14.6)a.
14-4. Use the additive weighting technique to rank order the overall success of these five presidents: T. Jefferson, A. Lincoln, F.D. Roosevelt, R. Reagan, and W. Clinton. Five broad criteria to
14-3. You have inherited a large sum of money from Aunt Bee. You think the purchase of a beach house would be a good investment. Besides a good investment, you could enjoy the house with your family
14-2. You have been asked to rank order three universities based on the following data: Total Price of a Degree High School GPA Percent Admitted StudentFaculty Ratio University A $94,000 4.0 30 16/1
14-1. As a recent college graduate you are ready for the same thing every recent graduate is ready for—a new car! You know this is a big decision, so you want to immediately put to use the tools
13-15. Companies obtain the funds needed for capital investments from multiple sources. To evaluate potential projects, the cost of the different sources of capital must be accounted for in the
13-14. Three alternatives are being considered for an engineering project. Their cash-flow estimates are shown in the accompanying table. A and B are mutually exclusive, and C is an optional add-on
13-13. Four proposals are under consideration by your company. Proposals A and C are mutually exclusive; proposals B and D are mutually exclusive and cannot be implemented unless proposal A or C has
13-12. A firm is considering the development of several new products. The products under consideration are listed in the following table. Products in each group are mutually exclusive. At most, one
13-11. The Capitalpoor Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs
13-10. The Shakey Company can finance the purchase of a new building costing $2 million with a bond issue, for which it would pay $100,000 interest per year, and then repay the $2 million at the end
13-9. A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each year for three years and then have a market value of $10,000 at the end of the third year. The
13-7. A four-year-old truck has a present net realizable value of $6,000 and is now expected to have a market value of $1,800 after its remaining three-year life. Its operating disbursements are
13-6. The FMS Corporation needs to raise investment money amounting to $40 million in new equity. The firm’s market risk is βM = 1.4, which means the firm is believed to be riskier than the market
13-5. The price to earnings (P/E) ratio is an after-tax metric reflecting growth potential of the common stock of a corporation. P is the selling price (per share) of the common stock, and E is the
13-4. A firm is considering a capital investment. The risk premium is 0.04, and it is considered to be constant through time. Riskless investments may now be purchased to yield 0.06 (6%). If the
13-3. Refer to the associated graph. Identify when the WACC approach to project acceptability agrees with the CAPM approach. When do recommendations of the two approaches differ? Explain why. (13.3)
13-2. The Caterpillar Company has a beta (a measure of common stock volatility) of 1.28. What is its estimated cost of equity capital based on the CAPM when the risk-free interest rate is 2.5%? (13.3)
13-1. In 2015, a firm has receipts of $8 million and expenses (excluding depreciation) of $4 million. Its depreciation for 2015 amounts to $2 million. If the effective income tax rate is 40%, what is
12-27. Refer to Problem 12-21. Use a spreadsheet to extend the number of trials to 500. Compute E(AW) and plot the cumulative average AW. Are 500 trials enough to reach steady state? (12.7)
12-26. Refer to Example 12-4. After additional research, the range of probable useful lives has been narrowed down to the following three possibilities: Useful Life, Years (N) p(N) 14 0.3 15 0.4 16
12-25. Extended Learning Exercise A firm must decide between constructing a new facility or renting a comparable office space. There are two random outcomes for acquiring space, as shown in Figure
12-24. Extended Learning Exercise The additional investment in a new computer system is a certain $300,000. It is likely to save an average of $100,000 per year compared to the old, outdated system.
12-23. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure P12-23? (12.8)
12-22. Simulation results are available for two mutually exclusive alternatives. A large number of trials have been run with a computer, with the results shown in Figure P12-22. Discuss the issues
12-21. A company that manufactures automobile parts is weighing the possibility of investing in an FMC (Flexible Manufacturing Cell). This is a separate investment and not a replacement of the
12-20. The market value of a certain asset depends upon its useful life as follows: Useful Life Market Value 3 years $18,000 4 years $12,000 5 years $6,000a. The asset requires a capital investment
12-19. Two investment alternatives are being considered. The data below have been estimated by a panel of experts, and all cash flows are assumed to be independent. Life is not a variable.
12-18. Two mutually exclusive investment alternatives are being considered, and one of them must be selected. Alternative A requires an initial investment of $13,000 in equipment. Annual operating
12-17. The use of three estimates (defined here as H = high, L = low, and M = most likely) for random variables is a practical technique for modeling uncertainty in some engineering economy studies.
12-16. Suppose that a random variable (e.g., market value for a piece of equipment) is normally distributed, with mean = $175 and variance = 25$2. What is the probability that the actual market value
12-15. In an industrial setting, process steam has been found to be normally distributed with an average value of 25,000 pounds per hour. There is an 80% probability that steam flow lies between
12-14. A hospital administrator is faced with the problem of having a limited amount of funds available for capital projects. He has narrowed his choice down to two pieces of x-ray equipment, since
12-13. A potential project has an initial capital investment of $100,000. Net annual revenues minus expenses are estimated to be $40,000 (A$) in the first year and to increase at the rate of 6.48%
12-12. The tree diagram in Figure P12-12 describes the uncertain cash flows for an engineering project. The analysis period is two years, and MARR = 15% per year. Based on this information,a. What
12-11. The purchase of a new piece of electronic measuring equipment for use in a continuous metalforming process is being considered. If this equipment were purchased, the capital cost would be
12-10. An energy conservation project is being evaluated. Four levels of performance are considered feasible. The estimated probabilities of each performance level and the estimated before-tax cost
12-9. Refer to Problem 12-8. Assume the following changes: the study period is eight years; the ski lift will be depreciated by using the MACRS Alternative Depreciation System (ADS); the ADS recovery
12-8. The owner of a ski resort is considering installing a new ski lift that will cost $900,000. Expenses for operating and maintaining the lift are estimated to be $1,500 per day when operating.
12-7. A diesel generator is needed to provide auxiliary power in the event that the primary source of power is interrupted. Various generator designs are available, and more expensive generators tend
12-6. A very important levee spans a distance of 10 miles on the outskirts of a large metropolitan area. Hurricanes have hit this area twice in the past 20 years, so there is concern over the
12-5. Consider the following cash flow diagram. The probability of the pessimistic value of N = 4 years is 0.30, the probability of the most likely value of N = 6 years is 0.50, and the probability
12-4. It costs $250,000 to drill a natural gas well. Operating expenses will be 10% of the revenue from the sale of natural gas from this particular well. If found, natural gas from a highly
12-3. A new snow making machine utilizes technology that permits snow to be produced in ambient temperature of 70 degrees Fahrenheit or below. The estimated cash flows for the ski resort
12-2. A bridge is to be constructed now as part of a new road. An analysis has shown that traffic density on the new road will justify a two-lane bridge at the present time. Because of uncertainty
12-1. A large mudslide caused by heavy rains will cost Sabino County $1,000,000 per occurrence in lost property tax revenues. In any given year, there is one chance in 100 that a major mudslide will
11-42. A centrifuge is required in a chemical separation process. Two centrifuges (A and B) are available and summarized below. The net annual revenues for centrifuge B are not known. If the MARR is
11-41. A carpet manufacturer in Georgia plans to expand its plant for a capital investment of $500,000. The extra capacity will permit the company to produce 400,000 yards of carpet each year during
11-40. Two electric motors are being economically evaluated for use in a submersible robotic device. Each is capable of delivering 90 horsepower to a necessary application that the device performs.
11-37. Variations in the profit and useful life of the project are inversely related. (a) True (b) False
11-36. If the profit (R−E) is decreased by 5%, this project is not profitable. (a) True (b) False
11-35. If the initial investment is increased by more than 9%, the project is profitable. (a) True (b) False
11-34. If the demand for bread at this supermarket is 35,000 loaves per year, what strategy should be adopted for acquiring bread? Both Machine A and Machine B are capable of meeting annual demand.
11-33. What is the minimum number of loaves that must be sold per year to justify installing Machine B instead of buying the loaves from the supplier? (a) 37,529 (b) 15,637 (c) 22,076 (d) 75,059 (e)
11-32. What is the minimum number of loaves that must be sold per year to justify installing Machine A instead of buying the loaves from the supplier? (a) 7,506 (b) 22,076 (c) 37,529 (d) 75,059 (e)
11-31. An analysis of accidents in a rural state indicates that widening a highway from 30 ft to 40 ft will decrease the annual accident rate from 1,250 to 710 per million vehicle-miles. Calculate
11-30. A highway bridge is being considered for replacement. The new bridge would cost $X and would last for 20 years. Annual maintenance costs for the new bridge are estimated to be $24,000. People
11-29. Refer to Problem 6-24. Set up a spreadsheet to answer various “what if” questions such as “How does the IRR vary as the cost of gasoline takes on these values: $3.00 per gallon, $4.00
11-28. Refer to Problem 6-8. Disposing of incandescent light bulbs is just like getting rid of and recycling glassware in general. However, this is not the case for CFLs. Disposing of CFLs is
11-27. The world’s largest carpet maker has just completed a feasibility study of what to do with the 16,000 tons of overruns, rejects, and remnants it produces every year. The company’s CEO
11-26. Suppose that, for an engineering project, the optimistic, most likely, and pessimistic estimates are as shown in the accompanying table. Develop a spreadsheet to determine the AW for each of
11-25. It is desired to determine the most economical thickness of insulation for a large cold-storage room. Insulation is expected to cost $150 per 1,000 square feet of wall area per inch of
11-24. We know the standard means of cutting the high cost of driving our automobiles—slow down your speed, no jack rabbit starts, inflate tires properly, clean air filters regularly, and so on.
11-23. Extended Learning Exercise Construct the spreadsheet used in Example 11-6. Use this spreadsheet as a starting point to answer the following questions. Be sure to clearly state your
11-22. Extended Learning Exercise Consider these two alternatives for solid-waste removal (11.3, Chapter 7): Alternative A: Build a solid-waste processing facility. Financial variables are as
11-21. An aerodynamic three-wheeled automobile (the Dart) runs on compressed natural gas stored in two cylinders in the rear of the vehicle. The $13,000 Dart can cruise at speeds up to 80 miles per
11-20. A bridge is to be constructed now as part of a new road. Engineers have determined that traffic density on the new road will justify a two-lane road and a bridge at the present time. Because
11-19. Suppose that, for a certain potential investment project, the optimistic, most likely, and pessimistic estimates are as shown in the accompanying table. (11.4)a. What is the AW for each of the
11-18. An office building is considering converting from a coal-burning furnace to one that burns either fuel oil or natural gas. The cost of converting to fuel oil is estimated to be $80,000
11-17. Two traffic signal systems are being considered for an intersection. One system costs $32,000 for installation and has an efficiency rating of 78%, requires 28 kW power (output), incurs a
11-16. Refer to problem 5-20. How sensitive is the annual worth to ± 30% changes in the MARR? Are changes in the MARR really a significant consideration in this problem? (11.3)
11-15. An industrial machine costing $14,000 will produce net cash savings of $5,000 per year. The machine has a five-year useful life but must be returned to the factory for major repairs after
11-14. The managers of a company are considering an investment with the following estimated cash flows. MARR is 15% per year. Capital investment $30,000 Annual revenues $20,000 Annual expenses $5,000
11-13. A group of private investors borrowed $30 million to build 300 new luxury apartments near a large university. The money was borrowed at 6% annual interest, and the loan is to be repaid in
11-12. Refer to Problem 11-11. The best estimate for the reduction of labor hours for the new system is 17% (compared with the used system). Investigate how sensitive the decision is to (a) changes
11-11. A large city in the midwest needs to acquire a street-cleaning machine to keep its roads looking nice year round. A used cleaning vehicle will cost $85,000 and have a $20,000 market (salvage)
11-10. A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 150-room motel (excluding furnishings) is $5 million. The firm uses a 15-year planning
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
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
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
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
11-5. Consider these two alternatives. (11.2) Alternative 1 Alternative 2 Capital investment $4,500 $6,000 Annual revenues $1,600 $1,850 Annual expenses $400 $500 Estimated market $800 $1,200 value
11-4. A firm is trying to decide between two types of trucks, one a conventional gasoline vehicle and the other a diesel powered. The following information is available. (11.2) Gasoline Diesel
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
11-2. Assuming gasoline costs $4.00 per gallon, find 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 $20 million,
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 10-31. You have been tasked with recommending one of the mutually exclusive

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