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engineering economy

Questions and Answers of Engineering Economy

5-67. A certain medical device will result in an estimated $15,000 reduction in hospital labor expenses during its first year of operation. Labor expenses (and thus savings) are projected to increase
5-66. Refer to Example 5-13. Create a single spreadsheet that calculates PW, FW, AW, IRR, and ERR for the proposed investment. Assume that ∈ = MARR = 20% per year. Does your recommendation change
5-65. An investor has a principal amount of $P. If he desires a payout (return) of 0.1P each year, how many years will it take to deplete an account that earns 8% per year? 0.1P = P(A/P, 8%, N), so N
5-64. Jane Roe’s plan is to accumulate $250,000 in her personal savings account by the time she retires at 60. The longer she stalls on getting started, the tougher it will be to meet her
5-63. Extended Learning Exercise A company is producing a high-volume item that sells for $0.75 per unit. The variable production cost is $0.30 per unit. The company is able to produce and sell
5-62. A hospital germ-fighting and floor cleaning robot, named Maurice, costs $104,000. Patients are billed $1 per day for Maurice’s use and upkeep. A certain 300-bed hospital is considering
5-61. 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
5-60.a. Calculate the IRR for each of the three cash-flow diagrams that follow. Use EOY zero for (i) and EOY four for (ii) and (iii) as the reference points in time. What can you conclude about
5-59. In southern California a photovoltaic (PV) system for a certain home costs $28,000 for parts and installation. This 6.1 kW system requires 350 ft2 of rooftop space and has an estimated life of
5-58. The high-tech home of today features computer apps that control air conditioning, heating, and large and small appliances from your smartphone or tablet. For a typical 2,000-square-foot home,
5-57. A solar sea power plant (SSPP) is being considered in a North American location known for its high temperature ocean surface and its much lower ocean temperature 100 meters below the surface.
5-56. The Fischer-Tropsch (F-T) process was developed in Germany in 1923 to convert synthesis gas (i.e., a mixture of hydrogen and carbon monoxide) into liquid with some gaseous hydrocarbons.
5-55. The upturned wingtips on jet aircraft reduce drag and increase lift. Wingtips save on fuel consumption, averaging 4% of the total fuel bill. A single set of wingtips can annually save 45,000
5-54. The American Pharmaceutical Company (APC) has a policy that all capital investments must have a four-year or less discounted payback period in order to be considered for funding. The MARR at
5-53. Advanced Modular Technology (AMT) makes energy cleaner, safer, more secure, and more efficient. It typically exhibits net annual revenues that increase over a fairly long period. In the long
5-52. Just because a project’s payback period is relatively long doesn’t mean it is not profitable in the long run. Consider an investment in LED lights with a price tag of $239,000. The
5-51. A computer call center is going to replace all of its incandescent lamps with more energy-efficient fluorescent lighting fixtures. The total energy savings are estimated to be $1,875 per year,
5-50. An integrated, combined cycle power plant produces 285 MW of electricity by gasifying coal. The capital investment for the plant is $570 million, spread evenly over two years. The operating
5-49. In this problem, we consider replacing an existing electrical water heater with an array of solar panels. The net installed investment cost of the panels is $1,400 ($2,000 less a 30% tax credit
5-48. The prospective exploration for oil in the outer continental shelf by a small, independent drilling company has produced a rather curious pattern of cash flows, as follows: End of Year Net Cash
5-47. A company has the opportunity to take over a redevelopment project in an industrial area of a city. No immediate investment is required, but it must raze the existing buildings over a four-year
5-46. Experts agree that the IRR of a college education is about 12%/yr. This results from the increased earnings over your lifetime. Draw a CFD that supports the 12% annual return over the 40 years
5-45. Your boss has just presented you with the summary in the accompanying table of projected costs and annual receipts for a new product line. He asks you to calculate the IRR for this investment
5-44. To purchase a used automobile, you borrow $10,000 from Loan Shark Enterprises. They tell you the interest rate is 1% per month for 35 months. They also charge you $200 for a credit
5-43. Toyota will bring hybrid electric automobiles to market next year priced at $30,000 (this includes a $7,500 federal tax credit). At $2.00 per gallon of gasoline, it will take 10 years to recoup
5-42. Sergeant Jess Frugal has the problem of running out of money near the end of each month (he gets paid once a month). Near his army base there is a payday lender company, called Predatory
5-41. Nowadays it is very important to reduce one’s carbon “footprint” (how much carbon we produce in our daily lifestyles). Minimizing the use of fossil fuels and instead resorting to
5-40. Use the ERR method to evaluate the economic worth of the diagram shown below. The value of the external reinvestment rate, ∈, is 8% per year. The MARR = 10% per year. (5.7)
5-39. Stan Slickum has a used car that can be bought for $8,000 cash or for a $1,000 down payment and $800 per month for 12 months. What is the effective annual interest rate on the monthly payment
5-38. A loan of $3,000 for a new, high-end laptop computer is to be repaid in 15 end-of-month payments (starting one month from now). The monthly payments are determined as follows. Loan principal
5-37. The city of Oak Ridge is considering the construction of a four kilometer (km) greenway walking trail. It will cost $1,000 per km to build the trail and $300 per km per year to maintain it over
5-36. A parking garage has a capital investment cost of $2.1 million (not including land). One year later $1.2 million will be spent on finishing work on the garage. It will cost $2 million to tear
5-35. Each year in the United States nearly 5 billion pounds of discarded carpet end up in land fills. In response to this situation, a carpet manufacturer has decided to start a take-back program
5-34. The required investment cost of a new, large shopping center is $50 million. The salvage value of the project is estimated to be $20 million (the value of the land). The project’s life is 15
5-33. Stan Moneymaker has been informed of a major automobile manufacturer’s plan to conserve on gasoline consumption through improved engine design. The idea is called “engine displacement,”
5-32. Your company is considering the introduction of a new product line. The initial investment required for this project is $500,000, and annual maintenance costs are anticipated to be $45,000.
5-31. An environmentally friendly green home (99% air tight) costs about 8% more to construct than a conventional home. Most green homes can save 15% per year on energy expenses to heat and cool the
5-30. “It’s easier to make money when interest rates in the economy are low.” To illustrate this point, compute the capital recovery amounts (CR) for a $1 million project when interest rates
5-29. Combined-cycle power plants use two combustion turbines to produce electricity. Heat from the first turbine’s exhaust is captured to heat water and produce steam sent to a second steam
5-28. A 50-kilowatt gas turbine has an investment cost of $40,000. It costs another $14,000 for shipping, insurance, site preparation, fuel lines, and fuel storage tanks. The operation and
5-27. A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000, and $100,000 additional
5-26. The ownership and operating expenses for a typical automobile total $9,137 per year in 2017. Forty-eight percent of this is the capital recovery amount (depreciation plus finance charges).
5-25. A simple, direct space heating system is currently being used in a professional medical office complex. An upgraded “variable air-volume system” retrofit can be purchased and installed for
5-24. An asset has an initial capital investment of $4 million. Its terminal value at the end of an eight-year life is –$1 million (i.e., it costs more to dispose of this asset than it is worth in
5-23. Fill in Table P5-23 below when P = $10,000, S = $2,000 (at the end of four years), and i = 15% per year. Complete the accompanying table and show that the equivalent uniform CR amount equals
5-22. What are the PW and FW of a 20-year geometric cash-flow progression increasing at 2% per year if the first year amount is $1,020 and the interest rate is 10% per year? (5.4)
5-21. Determine the FW of the following engineering project when the MARR is 15% per year. Is the project acceptable? (5.4) Proposal A Investment cost $10,000 Expected life 5 years Market (salvage)
5-20. Your firm is thinking about investing $200,000 in the overhaul of a manufacturing cell in a lean environment. Revenues are expected to be $30,000 in year one and then increasing by $10,000 more
5-19. Vidhi is investing in some rental property in Collegeville and is investigating her income from the investment. She knows the rental revenue will increase each year, but so will the maintenance
5-18. Ms. Jones wants to make 8% nominal interest compounded quarterly on a bond investment. She has an opportunity to purchase a 6%, $10,000 bond that will mature in 15 years and pays quarterly
5-17. A city is spending $20 million on a new sewage system. The expected life of the system is 40 years, and it will have no market value at the end of its life. Operating and maintenance expenses
5-16.a. What is the CW, when i = 10% per year, of $1,500 per year, starting in year one and continuing forever; and $10,000 in year five, repeating every four years thereafter, and continuing
5-15. The Western Railway Company (WRC) has been offered a 100-year contract to haul a fixed amount of coal each year from Wyoming to Illinois. Under the terms of the agreement, WRC will receive
5-14. The cash-flow diagram below has an internal rate of return of 35%. What is the value of Y if perpetual service is assumed? (5.3.3) EOY Y YY Y 0 1 2345 ` $1,000,000 $500,000 $500,000
5-13. Bill Mitselfik has purchased a bond that was issued by Acme Chemical. This bond has a face value of $1,000 and pays a dividend of 8% per year, compounded semi-annually. Bill bought the bond
5-12. A bond with a face value of $10,000 pays interest of 4% per year. This bond will be redeemed at its face value at the end of 10 years. How much should be paid now for this bond when the first
5-11. Last month Jim purchased $10,000 of U.S. Treasury bonds (their face value was $10,000). These bonds have a 30-year maturity period, and they pay 1.5% interest every three months (i.e., the APR
5-10. A corporate bond pays 5% of its face value once per year. If this $5,000 10-year bond sells now for $5,500, what yield will be earned on this bond? Assume the bond will be redeemed at the end
5-9. A new six-speed automatic transmission for automobiles offers an estimated 4% improvement in fuel economy compared to traditional four-speed transmissions in front-wheel drive cars. If a
5-8. The Ford Motor Company has redesigned its best selling truck by substituting aluminum for steel in many key body parts. This saves 700 pounds of weight and decreases gas consumption. The fuel
5-7. Determine the present worth of the following cash flows if the interest rate is 6% per year: (5.3) End of 0 1 2 3 4 Year Cash −$10,000 −$20,000 $35,000 $48,000 −$3,000 Flow
5-6. A large induced-draft fan is needed for an upgraded industrial process. The motor to drive this fan is rated at 100 horsepower, and the motor will operate at full load for 8,760 hours per year.
5-5. What is the capitalized worth of a project that has an indefinitely long study period and dollar cash flows that repeat as shown in the following figure. The interest rate is 15% per year. (5.3)
5-4. Suppose that you have just completed the mechanical design of a high-speed automated palletizer that has an investment cost of $3,000,000. The existing palletizer is quite old and has no salvage
5-3. An award is being established, and it will pay $11,000 every two years, with the first installment being paid in two years. The award will be given for an indefinitely long period of time. If
5-2. Lignin is a basic component of almost any plant that grows, so it is one of the most abundant organic compounds in the world. Almost anything derived from oil can be made out of lignin. The
5-1. Tennessee Tool Works (TTW) is considering investment in five independent projects, Any profitable combination of them is feasible. A B C DE Capital investment (millions) $10 $25 $30 $30 $5
4-153. Start saving early! Put $100 per month into an account with a 7% annual interest rate. Assume monthly compounding. If you are now 27 years old, how much will this account be worth when you are
4-152. The best way to break the 100,000 mile mark for your car is to schedule regular oil and filter changes. Annual savings are estimated to be $6,000 over the 15-year life of your car. If interest
4-151. Suppose a friend of yours invests $100 each month in an individual retirement account (IRA) for a decade and earns an unbelievable APR of 12% a year (1% per month) on her investment. She will
4-150. Adding a small amount to your monthly home mortgage payment will shorten the life of your loan. Adding $10 per month to your $540 monthly mortgage payment will trim how many months from a 30
4-149. On a $200,000, 30-year fixed mortgage, the monthly payment will be approximately how much when the nominal interest rate on the mortgage is 4.2%? (4.7) (a) $568 (b) $980 (c) $918 (d) $1,000
4-148. If you invest $7,000 at 12% compounded continuously, how much would it be worth in three years? (4.16) (a) $9,449 (b) $4,883 (c) $10,033 (d) $9,834 (e) $2,520
4-147. A bank advertises mortgages at 12% compounded continuously. What is the effective annual interest? (4.16) (a) 12.36% (b) 12.55% (c) 12.75% (d) 12.68% (e) 12.00%
4-146. The effective annual interest rate is given to be 19.2%. What is the nominal interest rate per year (r) if continuous compounding is being used? Choose the closest answer below. (4.16) (a)
4-145. If you borrow $5,000 to buy a car at 12% compounded monthly, to be repaid over the next four years, what is your monthly payment? (4.15) (a) $131 (b) $137 (c) $1,646 (d) $81 (e) $104
4-144. What is the principal remaining after 20 monthly payments have been made on a $20,000 five-year loan? The annual interest rate is 12% nominal compounded monthly. (4.15) (a) $10,224 (b) $13,333
4-143. Sixty monthly deposits are made into an account paying 6% nominal interest compounded monthly. If the objective of these deposits is to accumulate $100,000 by the end of the fifth year, what
4-142. Bill Mitselfik borrowed $10,000 to be repaid in quarterly installments over the next five years. The interest rate he is being charged is 12% per year compounded quarterly. What is his
4-141. A cash flow at time zero (now) of $9,982 is equivalent to another cash flow that is an EOY annuity of $2,500 over five years. Each of these two cash-flow series is equivalent to a third
4-140. Consider the following sequence of year-end cash flows: EOY 1 2 3 4 5 Cash $8,000 $15,000 $22,000 $29,000 $36,000 Flow What is the uniform annual equivalent if the interest rate is 12% per
4-139. Your monthly mortgage payment (principal plus interest) is $1,500. If you have a 30-year loan with a fixed interest rate of 0.5% per month, how much did you borrow from the bank to purchase
4-138. Every year you deposit $2,000 into an account that earns 2% interest per year. What will be the balance of your account immediately after the 30th deposit? (4.7) (a) $44,793 (b) $60,000 (c)
4-137. When you were born, your grandfather established a trust fund for you in the Cayman Islands. The account has been earning interest at the rate of 10% per year. If this account will be worth
4-136. If you borrow $3,000 at 6% simple interest per year for seven years, how much will you have to repay at the end of seven years? (4.2) (a) $3,000 (b) $4,511 (c) $1,260 (d) $1,511 (e) $4,260
4-135. If Enrico is more daring with his retirement investment savings and feels he can average 10% per year, how much will he have accumulated for retirement at the end of the 10-year period? (4.17)
4-134. Enrico has planned to have $40,000 at the end of 10 years to place a down payment on a condo. Property taxes and insurance can be as much as 30% of the monthly principal and interest payment
4-133. After Enrico’s car is paid off, he plans to continue setting aside the amount of his car payment to accumulate funds for the car’s replacement. If he invests this amount at a rate of 3%
4-132. Higher interest rates won’t cost you as much to drive a car as do higher gasoline prices. This is because automobile loans have payment schedules that are only modestly impacted by Federal
4-131. Refer to Example 4-23. Suppose the cash-flow sequence continues for 10 years (instead of four). Determine the new values of P, A, and F. (4.12)
4-130. A $15,000 investment is to be made with anticipated annual returns as shown in the spreadsheet in Figure P4-130. If the investor’s time value of money is 10% per year, what should be entered
4-129. Create a spreadsheet that duplicates Table 4-1. Make it flexible enough that you can investigate the impact of different interest rates and principal loan amounts without changing the
4-128. What is the amount $R that makes the two cash-flow diagrams below equivalent? The interest rate is 10% compounded continuously. (4.16)
4-127. Analyze the truth of this statement, assuming you are 20 years old: “For every five years that you wait to start accumulating money for your retirement, it takes twice as much savings per
4-126. Javier just bought a condominium in Collegetown, USA. His $100,000 mortgage is 6% compounded monthly, and Javier will make monthly payments on his loan for 30 years. In addition, property
4-125. A mutual fund investment is expected to earn 11% per year for the next 25 years. If inflation will average 3% per year during this 25-year period of time, what is the compounded value (in
4-124. Mark each statement true (T) or false (F), and fill in the blanks in Part (e). (all sections)a. T F The nominal interest rate will always be less than the effective interest rate when r = 10%
4-123. Indicate whether each of the following statements is true (T) or false (F). (all sections)a. T F Interest is money paid for the use of equity capital.b. T F (A/F, i%, N) = (A/P, i%, N) + i.c.
4-122. Many persons prepare for retirement by making monthly contributions to a savings program. Suppose that $2,000 is set aside each year and invested in a savings account that pays 10% interest
4-121. How many years will it take an investment to quadruple if the interest rate is 8% compounded continuously? (4.16)

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