Engineering Economy 17th Edition William Sullivan, Elin Wicks, C Koelling - Solutions

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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 attributes in your analysis: price point, overall appearance, comfort, safety, reliability, and fuel
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 bag. After leaving the store with several plastic bags, you decide to do some research on paper
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 (intermediate stops between departure and final destination), and type of airplane (some people just do
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 alternative with the highest score is preferred.The general form of the model is Vj = n i=1 wi xij,
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 (14-1) and (14-2) where appropriate. For the attribute Project Management Skills, use a score of 0 for No
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 to distinguish among semifinalists are shown in Table P14-12.a. Use dominance, feasible ranges,
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. Knowing that you have a background in economic decision making, they selected you to formulate their
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 matches a set of desired attributes with the capabilities of four job applicants for a job in a
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 climate = 1.00, starting salary = 0.50, career advancement = 0.33, and weather/sports = 0.25.
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 discussed in this chapter for dealing with nonmonetary attributes.b. How would you modify your analysis
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? The beach? Maybe somewhere with a lot of excitement, like Las Vegas? Table P14-7 contains the three
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. (14.6)
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. Satisficingb. Dominancec. Lexicography, with rank-order of attributes D > C > B > 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 assist you in your rank ordering task are leadership, accomplishments, political skill, appointments,
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 for many years to come. You live about 150 miles from the ocean, and there are several communities
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 University B $160,000 3.3 66 12/1 University C $86,000 3.0 75 24/1 Develop weights for each of the
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 you learned in engineering economy. Define five attributes you would use in the selection of a new car
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 interest rate used to discount cash flows and measure project profitability. Consider a large
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 feature to alternative A. Investment funds are limited to $5,000,000. Another constraint on this
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 been selected. No more than $140,000 can be spent at time zero. The before-tax MARR is 15% per year.
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 product from each group will be selected. The firm has a MARR of 10% per year and a budget limitation
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 and service. If the machine is purchased, a comparable repair and service contract can be obtained
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 of the life of the building. Instead of buying in this manner, the company can lease the building by
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 equipment could be leased for $22,000 a year, with the first payment due immediately. (13.8)a. If
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 expected to be $720 per year. An equivalent truck can be leased for $0.40 per mile plus $30 a day for
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 average. The risk free interest rate is 2.8% and the average market return is 9% per year. What is
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 after-tax earnings per year of a share of stock. A high P/E ratio, for example, indicates that a firm
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 project’s beta (β) is 1.5, what is the expected return for this investment? (13.3)
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) 0.30 0.25 0.20 0.15 0.10 0.05 0 1.0 2.0 3.0 A B D C WACC CAPM Required Rate of Return Rate of Return
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 this firm’s net operating income after taxes (NOPAT)? (13.2)
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 0.3 How does this affect E(PW) and SD(PW)? What are the benefits associated with the cost of
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 P12-25. Each would accommodate the expected growth of this company over the next 10 years. The cost of
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. Because of uncertainty, this estimate is expected to be normally distributed, with a standard
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 that may arise when attempting to decide between these two alternatives. (12.6, 12.7)
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 existing facility. Management desires a good estimate of the distribution characteristics for the AW.
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 of $120,000, and MARR is 15% per year. Use Monte Carlo simulation and generate four trial outcomes to
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. Alternative A Alternative B Std. Std. Expected Deviation Expected Deviation End of Cash of Cash Cash of Cash
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 and maintenance costs are anticipated to be normally distributed, with a mean of $5,000 and a standard
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. Assume that the mean and variance of the random variable, Xk, in this situation can be estimated by
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 is at least $171? (12.5)
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 20,000 and 30,000 pounds per hour. What is the variance of the steam flow? (12.5)
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 the radiology department is his greatest producer of revenue. The first piece of equipment (Project
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% per year. The useful life of the primary equipment, however, is uncertain, as shown in the following
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 are the E(PW), V(PW), and SD(PW) of the project?b. What is the probability that PW ≥ 0? (12.3)
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 $418,000, and the estimated savings are $148,000 per year. The useful life of the equipment in this
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 savings in the first year are shown in the following table: Performance Cost Savings Level (L) p(L)
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 period is seven years; MARR = 15% per year (after-tax); and the effective income tax rate (t) is
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. The U.S. Weather Service estimates that there is a 60% probability of 80 days of skiing weather per
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 to have higher reliabilities should they be called on to produce power. Estimates of reliabilities,
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 structural integrity of this particular levee. City engineers have proposed reinforcing and increasing 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 of the optimistic value of N = 9 years is 0.2. What is the expected value of the present worth of
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 productive well will amount to 260,000 cubic feet per day. The probability of locating such a productive
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 contemplating this investment are uncertain as shown below (note: pr. = probability). Capital investment
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 regarding future use of the road, the time at which an extra two lanes will be required is currently
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 occur. A civil engineer has proposed constructing a culvert on a mountain where mudslides are
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 10% per year and salvage values can be ignored, what is the minimum value of X to make centrifuge B
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 the plant’s five-year life. Each yard of carpet will produce a revenue of $2.00, and the plant’s
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. Data for the mutually exclusive motors are as follows. Motor General Electric Phillips Initial
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. (a) Continue buying from the supplier. (b) Install Machine A. (c) Install Machine B. (d) Install both
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) 7,506
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) 15,637
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 the average daily number of vehicles that should use the highway to justify widening on the basis of
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 will be charged a toll of $0.25 per car to use the new bridge. Annual car traffic is estimated at
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 per gallon, and $5.00 per gallon?” Also, how does IRR change when the ownership period changes
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 complicated by the fact that each lamp contains a small amount of mercury, which is a very environmentally
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 launched the feasibility study by asking, Why pay someone to dig coal out of the ground and then pay
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 the three estimate conditions. It is thought that the most critical elements are useful life and net
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 thickness installed, and to require annual property taxes and insurance of 5% of the capital investment.
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. Another way to reduce the cost of driving is to join every big-rigger in the United States and half of
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 assumptions. (11.3)a. How sensitive is the decision to the amount of the down payment for the purchase option?
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 follows: Capital investment $108 million in 2008 (commercial operation started in 2008) Expected life of
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 hour, and it can travel 100 miles per gallon of fuel. Another two-seater automobile costs $10,000
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 of uncertainty regarding future use of the road, the time at which an extra two lanes will be
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 three estimation conditions?b. It is thought that the most critical factors are useful life and net
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 initially; annual operating expenses are estimated to be $4,000 less than that experienced when using the
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 user cost of $0.24 per vehicle, and has a life of 10 years. A second system costs $45,000 to install,
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 three years of operation. These repairs cost $5,000. The company’s MARR is 10% per year. What IRR will
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 Market value $1,000 Useful life 5 years The company is inclined to make the investment; however,
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 equal annual amounts over a 40-year period. Annual operating, maintenance, and insurance expenses are
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 in the MARR, (b) changes in the market value of the new system, and (c) the productivity improvement
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) value at the end of its five-year life. A new system with advanced features will cost $150,000 and
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 horizon to evaluate investments of this type. The furnishings for this motel must be replaced every five
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 an addition to the fleet. These trucks would be used for a new contract the sales staff is trying to
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 years, and MARR is 12% per year. Data for the fixture costs of the systems are as follows. Alternatives
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 Alternative B. MARR = 10% per year, and other relevant data are shown in the following table. State
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 Efficiency of pump motor 0.60 0.75 Cost of installation $2,410 $4,820 Market value $80 $0 Useful life 8
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 Useful life 8 years 10 yearsa. Suppose that the capital investment of Alternative 1 is known with
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 Initial investment $27,000 $21,000 Useful life 4 years 3 years Salvage value $9,000 $6,000 Operating cost
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 characteristics, are being considered (MARR = 10% per year): Windshear Blowby Air-vantage Capital investment
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, expected operating and maintenance expenses are $3 million per year, and the final salvage value at
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 industrial sanitation control systems summarized below. The life of both alternatives is 30 years, and

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Engineering Economy 17th Edition William Sullivan, Elin Wicks, C Koelling - Solutions

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