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fundamentals engineering economics

Questions and Answers of Fundamentals Engineering Economics

You are considering developing an 18-hole championship golf course that requires an investment of $20,000,000. This investment cost includes the course development, club house, and golf carts. Once
An industrial firm can purchase a certain machine for $40,000. A down payment of $4,000 is required, and the balance can be paid in five equal year-end installments at 7% interest on the unpaid
Two 150-horsepower (HP) motors are being considered for installation at a municipal sewage-treatment plant. The first costs $4,500 and has an operating efficiency of 83%. The second costs $3,600 and
Suppose you deposited $1,000 five years ago and another $1,000 three years ago in your savings account. If your current account balance shows $2,529.24, what is the rate of return on your deposit?
Consider the following sets of investment projects:Compute the equivalent annual worth of each project at i = 13%, and determine the acceptability of each project. Project Cash Flows Period D п
Compute the annual-equivalence amount for the following cash flow series at i = 10%: $1,600 $1,600 $800 $800 $800 4 5 $500 $500 $1,000 3.
Beginning next year, a foundation will support an annual seminar on campus by using the interest earnings on a $100,000 gift it received this year. It is determined that 6% interest will be realized
A machine tool company is considering a new investment in a punch press machine that will cost $100,000 and has an annual maintenance cost of $10,000. There is also an additional overhauling cost of
The owner of a business is considering investing $55,000 in new equipment. He estimates that the net cash flows will be $5,000 during the first year and will increase by $2,500 per year each year
An industrial firm is considering purchasing several programmable controllers and automating their manufacturing operations. It is estimated that the equipment will initially cost $150,000, and the
A certain factory building has an old lighting system. To light this building costs, on average, $30,000 a year. A lighting consultant tells the factory supervisor that the lighting bill could be
Consider a piece of industrial equipment that has an installed cost of $100,000. The equipment is expected to generate $30,000 worth of annual energy savings during its first year of installation.
You have purchased an equipment costing $20,000. The equipment will be used for two years, and at the end of two years, its salvage value is expected to be $10,000. The equipment will be used 6,000
You just purchased a pin-inserting machine to relieve some bottleneck problems that have been created in manufacturing a PC board. The machine cost $56,000 and has an estimated service life of five
Georgia Mills Company (GMC) purchased a milling machine, which it intends to use for the next five years, for $180,000. This machine is expected to save GMC $35,000 during the first operating year.
You invest in a piece of equipment costing $30,000. The equipment will be used for two years, at the end of which time the salvage value of the machine is expected to be $10,000. The machine will be
Consider an investment project with the following repeating cash flow pattern every four years forever:What is the annual-equivalence amount of this project at an interest rate of 14%? $100 $100 $100
A newly constructed water treatment facility cost $2 million. It is estimated that the facility will need revamping to maintain the original design specification every 30 years at a cost of $1
An airline is planning to make iPads® available on some of its Boeing 747 air crafts with in-flight e-mail and Internet service on transoceanic flights. Passengers on these flights will be able to
A drill press was purchased for $250,000. It was expected to last 10 years and to have a salvage value of $25,000. If the firm’s interest rate is 20%, what would be the capital cost for each year
You purchased a CNC machine for $44,000. It is expected to have a useful life of 10 years and a salvage value of $3,000. At i = 15%, what is the annual capital cost of this machine?
Susan is considering buying a 2011 Smart ForTwo costing $21,635 and finds that the retaining values of the vehicle over next five years are as follows:Percent of the total value retained after 36
Nelson Electronics, Inc., just purchased a soldering machine to be used in its assembly cell for flexible disk drives. This machine costs $248,000. Because of the specialized function it performs,
You invest in a piece of equipment costing $40,000. The equipment will be used for two years, and it will be worth $15,000 at the end of two years. The machine will be used for 4,000 hours during the
You are considering purchasing a dump truck. The truck will cost $45,000 and have operating and maintenance costs that start at $15,000 the first year and increase by $2,000 per year thereafter.
An auto-parts manufacturer is considering establishing an engineering computing center. This center will be equipped with three engineering workstations each of which would cost $25,000 and have a
You are considering the purchase of a parking deck close to your office building. The parking deck is a 15-year old structure with an estimated remaining service life of 25 years. The tenants have
A project has a service life of five years with the initial investment outlay of $200,000. If the discounted payback period occurs at the end of the project service life (say five years) at an
Consider the following project balances for a typical investment project with a service life of four years:(a) Construct the original cash flows of the project.(b) Determine the interest rate used in
Consider the following information for a typical investment project with a service life of five years:What interest rate is used in the project-balance calculation? Cash Flow Project Balance п
Consider the following sets of investment projects, each of which has a three year investment life:Compute the net future worth of each project at i = 16%. Project Cash Flows Period A B D п -$2,500
A university is trying to determine how much it should charge for tickets to basketball games to help offset the expenses of the new arena. The cost to build thearena including labor, materials, etc.
You are in the mail-order business, selling computer peripherals, including high-speed Internet cables, various storage devices such as memory sticks, and wireless networking devices. You are
Consider the following investment project:Suppose, as shown in the preceding table, that the company€™s reinvestment opportunities (that is, its MARR) change over the life of the project.
Consider Gizmo, a small manufacturing company whose management wishes to reduce overhead by installing a new, energy‐efficient heating system. The new system costs $100,000. Due to the company’s
In computing the equivalent present worth of the cash flow series at period 0, which of the following expressions is incorrect ?(a) P = $100(P/A, i, 4)(P/F, i, 4).(b) P = $100(F/A, i, 4)(P/F, i,
Peabody Transport Service is considering the purchase of a helicopter for connecting services between its base airport and the new inter county airport being built about 30 miles away. It is believed
You are asked to decide between two projects based on annual equivalent worth. A
You are considering two types of electric motors for your paint shop. Financial information and operating characteristics are summarized as follows: If you plan to operate the motor for 2,000
The following cash flows represent the potential annual savings associated with two different types of production processes, each of which requires an investment of $22,000:Assuming that the interest
A chemical company is considering two types of incinerators to burn solid waste generated by a chemical operation. Both incinerators have a burning capacity of 20 tons per day. The following data
An airline is considering two types of engine systems for use in its planes:System A costs $100,000 and uses 40,000 gallons of fuel per 1,000 hours of operation at the average load encountered in
Norton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant:Truck A costs $15,000 and requires $3,000 in annual operating expenses. It will have a $5,000
The city of Peachtree is comparing the following two plans for supplying water to a newly developed subdivision:Plan A will manage requirements for the next 15 years; at the end of that period, the
Capstone Turbine Corporation is the world’s leading provider of micro turbine based Micro CHP (combined heat and power) systems for clean, continuous, distributed-generation electricity. The Micro
Empex Corporation currently produces both videocassette cases (bodies) and metal-particle magnetic tape for commercial use. An increased demand for metal particle videotapes is projected, and Empex
A Veterans Administration (VA) hospital needs to decide which type of boiler fuel system will most efficiently provide the required steam energy output for heating, laundry, and sterilization
You purchased a piece of property at $360,000 five years ago. You can sell the property at $450,000. What is the rate of return on this real estate investment?
Assume that you are going to buy a new car for $25,000. You will be able to make a down payment of $3,000. The remaining $22,000 will be financed by the dealer. The dealer computes your monthly
Mr. Smith wishes to sell a bond that has a face value of $1,000. The bond bears an interest rate (coupon rate) of 7.5%, with bond interest payable semiannually. Four years ago, the bond was
The city of Houston made a $10 million public investment in the arts five years ago and the citizens of Houston are getting a 54% rate of return on their tax investment. What kind of proceeds from
John Whitney Payson, who purchased a painting by Vincent van Gogh for $80,000 in 1947, sold it for $53.9 million in 1988. If Mr. Payson had invested his $80,000 in another investment vehicle (such as
You are purchasing a factory for $450,000. Your projected cash flow streams from the factory will be $132,000 in year 1, $150,000 in year 2, and $280,000 in year 3. What is the rate of return on this
Best Foods forecasts the following cash flows on a special meat packing operation under consideration.What is the rate of return on this investment? Ao A1 A2 A3 ($15,000) $0 $8,200 $9,500
Consider a project that will bring in upfront cash inflows for the first two years but require paying some money to close the project in the third year.This is a simple borrowing project. Determine
Consider four projects with the following sequences of cash flows:(a) Identify all the simple investments.(b) Identify all the non-simple investments.(c) Compute the i* for each project using
Consider an investment project with the following net cash flows:Year Net Cash
Consider the investment project with the following net cash flows:[End of Year (n)
An investor bought 100 shares of stock at a cost of $10 per share. He held the stock for 15 years and then sold it for a total of $4,000. For the first three years, he received no dividends. For each
Consider the following sets of investment projects:(a) Classify each project as either simple or non-simple.(b) Compute the i* for Project A, using the quadratic equation.(c) Obtain the
Consider the following projects:(a) Classify each project as either simple or non-simple.(b) Identify all positive i*s for each project.(c) Plot the present worth as a function of interest rate
Consider the following financial data for a project:Initial investment…………………………………..........………….$20,000Project
A corporation is considering purchasing a machine that will save $200,000 per year before taxes. The cost of operating the machine, including maintenance, is $80,000 per year. The machine, costing
Consider an investment project with the following cash flows:n Cash
Consider the following project’s cash flows:n Cash
You are considering a CNC machine. This machine will have an estimated service life of 10 years with a salvage value of 10% of the investment cost. Its expected savings from annual operating and
A local government is considering promoting tourism in the city. It will cost $5,000 to develop a plan. The anticipated annual benefits and costs are as follows:Annual benefits: Increased local
A leading regional airline that is now carrying 54% of all the passengers that pass through the Southeast is considering the possibility of adding a new long‐range aircraft to its fleet. The
Oregon Machinery Company (OMC) has decided to acquire a screw machine. One alternative is to lease the machine on a three‐year contract for a lease payment of $22,000 per year with payments to be
Air Florida is considering two types of engines for use in its planes, each of which has the same life, same maintenance costs, and same repair record:Engine A costs $100,000 and uses 50,000 gallons
Wilson Machine Tools, Inc., a manufacturer of fabricated metal products, is considering the purchase of a high‐tech computer‐controlled milling machine at a cost of $95,000. The cost of
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
You are considering an investment project with the following financial information:(a) Required investment = $500,000(b) Project life = 5 years(c) Salvage
Consider the following investment cash flows over a three€year life:(a) If all cash flows are mutually independent, compute E(NPW) and Var(NPW) at i = 10%.(b) If all annual cash flows are
Consider Problem 11.20. If you use a 25% risk€adjusted discount rate approach, would this project be justified?Data From Problem 11.20Consider the following investment cash flows over a
Consider Problem 11.21. If your risk€adjusted discount rate is 18%, is this project justifiable?Data From Problem 11.21Assume that we can estimate a project€™s cash flows as
Consider Problem 11.22. Determine the risk€adjusted discount rate at which the project breaks even.Data From Problem 11.22A consumer electronics firm is trying to decide whether to invest
CTI Corporation purchased a special-purpose turnkey stamping machine four years ago for $18,000. It was estimated at that time that this machine would have a life of 10 years and a salvage value of
Rework Problem 12.7, assuming the following additional information:The current book value of the old machine is $0 (fully depreciated).The new machine will be depreciated under a seven-year MACRS
A six-year old CNC machine that originally cost $8,000 has been fully depreciated, and its current market value is $1,500. If the machine is kept in service for the next five years, its O&M costs
Consider the following balance‐sheet entries for Delta Corporation:Balance Sheet Statement as of December 31,
Incomplete financial statements for ABC Company are as follows:Income StatementFor the Year Ended December 31, 2012Sales
If you invest $1,000 in a stock and its value is doubled in four years, what is the return on your stock investment?
The estimated beta (β) of a firm is 1.7. The market return (rm) is 14%, and the risk‐free rate (rf) is 7%. Estimate the cost of equity (ie).
A firm’s cost of equity (ie) is 25%. Its before‐tax cost of debt is 12%, and its marginal tax rate is 40%. The firm’s capital structure calls for a debt‐to‐equity ratio of 40%.
Consider the estimated beta values as of June 30, 2011, for the following companies:Coca Cola……………………………0.60Microsoft……………………………..0.80General
An automobile company is contemplating issuing stock to finance an investment in producing a new sport‐utility vehicle. The annual return to the market portfolio is expected to be 15% and the
Boston Metal Company (BMC), a small manufacturer of fabricated metal parts, must decide whether to compete to become the supplier of transmission housings for Gulf Electric. Gulf Electric produces
MG Cutting Systems is considering an investment project with the following parameters, where all cost and revenue figures are estimated in constant dollars:The project requires the purchase of a
Mount Manufacturing Company produces industrial and public€safety shirts. As is done in most apparel manufacturing, the cloth must be cut into shirt parts in accordance with patterns
The following is a comparison of the cost structure of a conventional manufacturing technology (CMT) system with that of a flexible manufacturing system (FMS) at one U.S. firm:(a) The
A manufacturing firm is considering two mutually exclusive projects. Both projects have an economic service life of one year with no salvage value. The first cost of Project 1 is $1,000, and the
A financial investor has an investment portfolio. A bond in her investment portfolio will mature next month and provide her $25,000 to reinvest. The choices for reinvestment have been narrowed to the
Juan Carols is considering two investment projects whose PWs are described as follows:Project 1: PW(10%) = 2X(X - Y), where X and Y are statistically independent discrete random variables with
You are considering two mutually exclusive projects with the following cash flows:(a) Compute the mean and variance of NPW distribution for each project using i = 12%. Assume that project cash flows
You are considering investing in one of two projects, which have the following returns and probabilities of occurrence:(a) Compute the mean return for each project.(b) Compute the variance of return
Consider an investment with the following projected cash flows:The distributions are assumed to be independent of each other.(a) Compute the mean of the NPW at i = 10%. Using just the mean value,
A consumer electronics firm is trying to decide whether to invest $18M in a new plant for expanding its output of cell phones. Management forecasts that the new expansion will generate incremental
Assume that we can estimate a project€™s cash flows as follows:In this case, each annual flow can be represented by a random variable with known mean and variance. Further assume complete
Your firm has purchased an injection molding machine at a cost of $100,000. The machine’s useful life is estimated to be eight years. Your accounting department has estimated the capital cost for

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