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fundamentals engineering economics

Questions and Answers of Fundamentals Engineering Economics

1. List eight DCF methods for comparing economic alternatives(Section 4.1.1).
4. In what other parts of their business might ConocoPhillips rely on present worth analysis?
3. Are you surprised to see the detailed explanation of how the numbers were calculated?
2. The statement about the calculations being based on estimates of proved reserves suggests to stakeholders that this is a somewhat volatile business.What measures can an engineering economist take
1. Do you think that small organizations rely on present worth analysis as well, or is this type of analysis important only for extremely large fi rms such as ConocoPhillips?
5. Explain the Annual Percentage Rate (APR) commonly calculated for a home mortgage (Section 3.5).
4. Calculate the worth of a cash fl ow profi le with variable interest rates(Section 3.4).
3. Analyze investments in bonds and determine the purchase price, selling price, and return on such investments (Section 3.3).
2. Analyze immediate payment and deferred payment loans, including payment amount, remaining balance, and interest and principal per payment (Section 3.2).
1. Compare the equivalence between two or more cash fl ow profi les(Section 3.1).
4. How might Samuel set out to secure funding for this proposed business venture?
3. What types of assumptions is Samuel making when he determines his loan needs? What happens if these assumptions do not hold?
2. What qualitative (noneconomic) factors should Samuel consider when he decides how much money to use from his personal savings versus borrowing money from the bank?
1. Discuss the quantitative (economic) tradeoffs that Samuel should consider when he decides how much money to use from his personal savings versus borrowing money from the bank.
4. What impacts will a change in your family status (such as getting married or having a child) have on your investment decisions?
3. If interest rates end up being lower than Kellie assumes, what must she do to build her goal “nest egg?”
2. Although retirement may seem like a long time away, why is it important to start saving early for your “golden years?”
1. What do you suppose Kellie is attempting to do with her investment portfolio by selecting multiple forms of investments?
14. Reconsider the county commissioner’s evaluation of three projects in Problem 13. Take the facts as given, except now suppose the commissioner can commit the county to renewing these
13. A Payne County commissioner has $20,000 remaining in the budget to spend on one of three worthy projects. Each is a one-time investment, and there would be no follow-on investment, regardless of
12. Suppose you have been out of school and gainfully employed for 5 years.You have three alternatives available for investment with your own money.Each has some element of risk, although some are
11. AutoFoundry has contacted Centrifugal Casting Company about the purchase of machines for the production of (1) Babbitt bearings, and (2)diesel cylinder liners (engine sleeves). The cost of the
10. Three proposals (P, Q, and R) are available for investment. Exactly one or two proposals must be chosen; Proposals P and Q are mutually exclusive.Proposal R is contingent on Proposal P being
9. Five proposals (V, W, X, Y, and Z) are available for investment. At least two and no more than four must be chosen. Proposals X and Y are mutually exclusive.Proposal Z is contingent on either
8. Four proposals (A, B, C, and D) are available for investment. Proposals A and C cannot both be accepted; Proposal B is contingent upon the acceptance of either Proposal C or D; and Proposal A is
7. List some nonmonetary factors in the alternative decision process that you should be prepared to address when presenting a proposal to management.Let your mind run free and think this out on your
6. Barbara and Fred have decided to put in an automatic sprinkler system at their cabin. They have requested bids, and the lowest price received is $5,500 from Water Systems Inc (WSI). They decide to
5. The following stages of a project are each contingent upon the preceding stage. If the preceding stage is not performed (accepted), then none of the subsequent stages may be performed.a.
4. If your TVOM is 15 percent and your friend’s is 20 percent, can the two of you work out mutually satisfactory terms for a 1-year, $3,000 loan? Assume the lender has the money available and
3. RT is about to loan his granddaughter Cynthia $20,000 for 1 year. RT’s TVOM, based upon his current investment earnings, is 12 percent, and he has no desire to loan money for a lower rate.
2. RT is about to loan his granddaughter Cynthia $20,000 for 1 year. RT’s TVOM, based upon his current investment earnings, is 8 percent. Cynthia’s TVOM, based upon earnings on investments, is 12
1. Wylie has been offered the choice of receiving $5,000 today or an agreedupon amount in 1 year. While negotiating the future amount, Wylie notes that he would be willing to take no less than $5,700
7. Which of the following best represents the relationship between the weighted average cost of capital (WACC) and the minimum attractive rate of return (MARR)?a. WACC and MARR are unrelated.b. WACC
6. If a student’s time value of money rate is 30 percent, then the student would be indifferent between $100 today and how much in 1 year?a. $30c. $103b. $100d. $130
5. Answering “what if” questions with respect to an economic analysis is an example of which step in the systematic economic analysis technique?a. Identifying the investment alternativesb. Defi
4. The “discounting” in a discounted cash fl ow approach requires the use of which of the following?a. An interest rateb. The economic value addedc. The gross margind. The incremental cost
3. Risks and returns are generally __________ correlated.a. inverselyc. notb. negativelyd. positively
2. If a set of investment alternatives contains all possible choices that can be made, then the set is said to be which of the following?a. Coherentc. Independentb. Collectively exhaustived. Mutually
1. The fact that one should not add or subtract money unless it occurs at the same point in time is an illustration of what concept?a. Time value of moneyc. Economy of scaleb. Marginal returnd.
3. Identify the seven steps of the systematic economic analysis technique(SEAT) used to perform engineering economic analyses (Section 1.3).
2. Identify the 10 principles of engineering economic analysis that can be used by all engineers in analyzing the economic performance of the products, processes, and systems they design (Section
1. Apply the four discounted cash fl ow (DCF) rules to simple time value of money (TVOM) situations (Section 1.1).
4. Compare the length of the fi nancial planning horizon that each investor(Walmart and Robert) is considering. Are they the same or different?
3. Is an engineering economic analysis just as relevant for the complicated business transactions at Walmart as for Robert Thompson’s much simpler transactions?
2. What role does engineering economic analysis play in these scenarios?
1. What do the preceding two examples have in common?
Consider the following sets of investment projects:Compute the equivalent annual worth of each project at i = 10%, and determine the acceptability of each project.
Consider the following cash flows and compute the equivalent annual worth at i = 12%:
Compare Google and Baidu, a Chinese search engine, using a thorough financial ratios analysis.Part A: For each company, compute all the ratios listed in Figure 13.7 for the current year (or the most
Consider the Coca‐Cola Company and Pepsi‐Cola Company. Both companies compete with each other in the soft‐drink sector. Get the most recent annual report for each company, and answer the
Reconsider Problem 10.23. Suppose that the purchase also requires an investment in working capital in the amount of $50,000, which will be recovered in full at the end of year 5. Determine the net
Reconsider Problem 10.17. Suppose that the project requires a $30,000 investment in working capital at the beginning of the project and the entire amount will be recovered at the end of project life.
Reconsider the chapter opening story about the return on investment on college education. According to a recent study, attending a university full-time costs the average student more than $17,000 a
Ms. Kennedy borrowed $4,909 from a bank to finance a car at an add‐on interest rate4 of 6.105%. The bank calculated the monthly payments as follows:• Contract amount = $4,909 and contract period
Kevin Moore received his monthly credit card statement from his bank. His current outstanding balance is $3,168.97. The minimum monthly payment due is 1% of the outstanding balance or $20, whichever
Consider the following two mutually exclusive service projects with project lives of three years and two years, respectively. (The mutually exclusive service projects will have identical revenues for
To decrease the costs of operating a lock in a large river, a new system of operation is proposed. The system will cost $650,000 to design and build. It is estimated that it will have to be reworked
Consider the following two mutually exclusive investment projects:Which project would you select if you used the infinite planning horizon with project repeat ability likely (same costs and benefits)
You are considering buying a new car worth $15,000. You can finance the car either by withdrawing cash from your savings account, which earns 8% interest compounded monthly, or by borrowing $15,000
In 2011, Kevin Jones, Texas Tigers quarterback, agreed to an eight‐year, $50 million contract that at the time made him the highest‐paid player in professional football history. The contract
Consider the following project-balance profiles for proposed investment projects:Now consider the following statements:Statement 1: For Project A, the cash flow at the end of year 2 is $100.Statement
Consider an investment project for which the cash flow pattern repeats itself every four years indefinitely, as shown in the accompanying figure. At an interest rate of 12% compounded annually,
At i = 15%, what is the annual-equivalence amount for the infinite series shown next? $5,000 $3,000 3 4 5 8 9 10 11 12 13 Years
A company is currently paying its employees $0.51 per mile to drive their own cars when on company business. However, it is considering supplying employees with cars, which would involve the
A large food-processing corporation is considering using laser technology to speed up and eliminate waste in the potato-peeling process. To implement the system, the company anticipates needing $3
Consider the following cash flows and present-worth profiles on Page 218:(a) Determine the values for X and Y.(b) Calculate the terminal project balance of Project 1 at MARR = 24%.(c) Find the values
Consider the following project balances for a typical investment project with a service life of five years:(a) Fill in the blanks by constructing the original cash flows of the project and
Consider the following sets of investment projects:(a) Compute the future worth at the end of life for each project at i = 15%.(b) Determine the area of negative project balance for
Consider the following set of independent investment projects:(a) For a MARR of 10%, compute the net present worth for each project, and determine the acceptability of each project.(b) For a MARR of
Maintenance money for a new building at a college is being solicited from potential alumni donors. You would like to make a donation to cover all future expected maintenance costs for the building.
A group of concerned citizens has established a trust fund that pays 6% interest compounded monthly to preserve a historical building by providing annual maintenance funds of $25,000 forever. Compute
A newly constructed bridge costs $10,000,000. The same bridge is estimated to need renovation every 10 years at a cost of $1,000,000. Annual repairs and maintenance are estimated to be $100,000 per
Consider a retired gentleman who starts to collect his Social Security benefits at the age of 66. The monthly check would be close to $2,460. Assuming that his interest rate is 6% compounded monthly,
Consider the following two mutually exclusive projects:(a) At an interest rate of 25%, which project would you recommend choosing?(b) Compute the area of negative project balance, discounted payback
Consider the following cash flow data for two competing investment projects:(a) At i = 12%, which of the two projects would be a better choice?(b) At i = 22%, which project is chosen
Consider the following two mutually exclusive investment projects: Assume that the MARR = 12%.(a) Which alternative would you select by using the NPW criterion?(b) Which alternative would you
Consider the following two mutually exclusive investment projects:Assume that the MARR = 15%.(a) Using the NPW criterion, which project would you select?(b) On the same chart, sketch the
Consider the following two mutually exclusive projects:What value of X would make the decision maker indifferent between A and B at an interest rate of 12%? A B п -$12,000 -$10,000 $X $4,000 $6,000
Consider the following two mutually exclusive investment projects that have unequal service lives:(a) What assumption(s) do you need in order to compare a set of mutually exclusive investments with
Consider the following two mutually exclusive investment projects:Salvage values represent the net proceeds (after tax) from the disposal of assets if they are sold at the end of the year listed.
Two methods of carrying away surface runoff water from a new subdivision are being evaluated:Method A: Dig a ditch. The initial cost would be $30,000, and $10,000 of re-digging and shaping would be
An electric motor is rated at 10 horsepower (HP) and costs $800. Its full-load efficiency is specified to be 85%. A newly designed, high-efficiency motor of the same size has an efficiency of 90%,
Consider the following cash flows for two types of models:Both models will have no salvage value upon their disposal (at the end of their respective service lives). The firm€™s MARR is
An electric utility company is taking bids on the purchase, installation, and operation of microwave towers:Which is the most economical bid if the interest rate is 11%? Both towers will have no
H-Robotic Incorporated (HRI), a world leader in the robotics industry, produces a line of industrial robots and peripheral equipment that performs many routine assembly-line tasks. However, increased
An engineering design firm needs to borrow $300,000 from a local bank at an interest rate of 9% over five years. What is the required annual equal payment to retire the loan in five years?
You are considering an investment costing $250,000. If you want to recover the initial investment, and also earn 12% interest while your money is being tied up within three years, what is the
The investment shown in the following figure has an annual equivalent worth of $200 at i = 8%. Determine the cash flows in periods 2, 3, 5 and 6. $400 $400 3 4 5 6. Years $2,145
Santa Fe Company, a farm-equipment manufacturer, currently produces 20,000 units of gas filters for use in its lawnmower production annually. The following costs are reported according to the
You are considering a luxury apartment building project that requires an investment of $12,500,000. The building has 50 units. You expect that the maintenance cost for the apartment building will be
A machine costing $25,000 to buy and $3,000 per year to operate will save mainly labor expenses in packaging over six years. The anticipated salvage value of the machine at the end of six years is
The Manufacturing Division of Ohio Vending Machine Company is considering its Toledo plant€™s request for a half€inch€capacity automatic screw€cutting
Rivera Industries, a manufacturer of home-heating appliances, is considering the purchase of a used Amada turret punch press to replace its less advanced present system, which uses four old, small
Consider the cash flows for the following investment projects:(a) For Project A , find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i = 13%.(b)
A city has decided to build a softball complex, and the city council has already voted to fund the project at the level of $800,000 (initial capital investment). The city engineer has collected the
J&M Company is a real-estate developer considering a 40-unit apartment complex in a growing college town. As the area is also booming with foreign automakers locating their U.S. assembly plants,
The estimated cost of a completely installed and ready-to-operate 40-kilowatt generator is $30,000. Its annual maintenance costs are estimated at $500. The energy that can be produced annually, at
A large state university, currently facing a severe parking shortage on its campus, is considering constructing parking decks off campus. A shuttle service composed of minibuses could pick up
Two 180-horsepower water pumps are being considered for installation in a farm. Financial data for these pumps are as follows:If power cost is a flat 6 cents per kWh over the study period, determine
Eradicator Food Prep, Inc., has invested $7 million to construct a food irradiation plant, which would destroy organisms that cause spoilage and disease, thus extending the shelf life of fresh foods

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