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fundamentals engineering economics

Questions and Answers of Fundamentals Engineering Economics

A construction company is considering the proposed acquisition of a new earth mover. The purchase price is $100,000, and an additional $25,000 is required to modify the equipment for special use by
H&H Machine Systems Inc. needs to acquire a new lift truck for transporting final products to their warehouse. One alternative is to purchase the lift truck for $40,000, which will be financed by
Fuller Ford Company is considering the purchase of a vertical drill machine. The machine will cost $50,000 and will have an eight‐year service life. The selling price of the machine at the end of
K&G Chemical Company has just received a special subcontracting job from one of its clients. This two‐year project requires the purchase of a special‐purpose painting sprayer for $60,000.
USA Aluminum Company is considering making a major investment of $150 million ($5 million for land, $45 million for buildings, and $100 million for manufacturing equipment and facilities) to produce
H‐Robot Incorporated (HRI), a world leader in the robotics industry, produces a line of industrial robots and peripheral equipment, which perform many routine assembly‐line tasks. The company
A&H Chemical Corporation is a multinational manufacturer of industrial chemical products. A&H has made great progress in energy‐cost reduction and has implemented several co-generation
Lane Construction Ltd. is considering the acquisition of a new dump truck. The truck’s base price is $75,000, and it will cost another $15,000 to modify it for special use by the company. This
Autonumerics, Inc. has just invested $600,000 in a manufacturing process that is estimated to generate an after‐tax annual cash flow of $250,000 in each of the next five years. At the end of year
A real-estate developer seeks to determine the most economical height for a new office building. The building will be sold after five years. The relevant net annual revenues and salvage values are as
Jane Livingston, an industrial engineer at Energy Conservation Service, has found that the anticipated profitability of a newly developed water‐heater temperature‐control device can be measured
Matt Mona is in the process of purchasing a motel near a college town. The motel costs $3,500,000. The lot costs $500,000. Furniture and furnishings cost $700,000 and should be recovered in seven
D&D Machinery has been making a part for its industrial rotary gear shaving machine. D&D engineers are asked to investigate alternative ways of obtaining the part, as the unit cost for the
Barbara Thompson is considering the purchase of a piece of business rental property containing stores and offices at a cost of $350,000. Barbara estimates that annual receipts from rentals will be
A firm is considering two different methods of solving a production problem. Both methods are expected to be obsolete in six years. Method A would cost $80,000 initially and have annual operating
A national newspaper publishing group is considering introducing a new morning newspaper in Denver. Its direct competitor charges $0.75 per copy at retail, with $0.15 going to the retailer. For the
Weldon Cutting Tools Company is considering the purchase of a new broaching machine to produce finished parts. Two types of broaching machines are available on the market. The lives of Machine A and
Peabody Corporation has the following base‐case estimates for its new small engine assembly project:Price per unit = $500Variable costs = $120 per unitFixed costs = $2.5 millionDemand = 20,000
Suppose you are considering an investment project that requires $800,000, has a six‐year life, and has a salvage value of $100,000. Sales volume is projected to be 65,000 units per year. Price per
The following information is available about Henson Manufacturing Co.:Probability Return on Investment0.15……….....................5%0.25………...................15%
Suppose that you are considering an investment project with a two€year life. If the annual cash flows are given in terms of three€point estimates and these cash flows are
Newnan Furniture owns and operates an industrial lift truck in its warehousing operation. The record indicates that the lift truck was purchased four years ago at $12,000. The estimated salvage value
Macintosh Printing Inc. purchased a $20,000 printing machine two years ago. The company expected this machine to have a five-year life and a salvage value of $5,000. Unfortunately, the company spent
Consider again the scenario in Problem 12.2. Suppose that the company has been offered the opportunity to purchase another printing machine for $15,000. Over its three-year useful life, the machine
Razorback Manufacturing is considering replacing a broken metal-cutting machine. Several options have been proposed.Option 1: The broken machine can be sold today for $2,500.Option 2: It can be
A firm is considering the replacement of a 2,000 lb capacity pressing machine purchased five years ago at a cost of $22,000. The machine was originally expected to have a useful life of 10 years and
A manufacturing firm is considering replacing one of its CNC machines with a machine that is newer and more efficient. The company has an MARR of 12%.Old Machine: The firm purchased the current CNC
A manufacturer is considering the replacement of one of its boring machines with a newer and more efficient one. The relevant details for both defender and challenger are as follows:Defender: The
A local hospital has the following replacement decision problem:Old machine: The hospital purchased a digital image-processing machine three years ago at a cost of $45,000. The machine had an
Higgins Machine Tools, Inc. is currently manufacturing one of its products on a hydraulic stamping press machine. The unit cost of the product is $15, and in the past year, 3,500 units were produced
You purchased an industrial oven five years ago for $70,000. O&M costs are $20,000 this year but are expected to increase by $1,500 each year for the next five years. The current salvage value of
A special-purpose machine is to be purchased at a cost of $30,000. The following table shows the expected annual operating and maintenance cost and the salvage value for each year of service:If the
Consider a new electric forklift truck that would cost $18,000, have operating costs of $1,000 in the first year, and have a salvage value of $10,000 at the end of the first year. For the remaining
Eight years ago, a firm purchased a lathe for $45,000. The operating expenses for the lathe are $8,700 per year. An equipment vendor offers the firm a new machine for $53,500 with operating costs of
Advanced Electrical Insulator Company is considering replacing a broken inspection machine, which has been used to test the mechanical strength of electrical insulators with a newer and more
Cushman Manufacturing Company has a five-year-old vertical numerical chucker (VNC) that has a current market value of $5,000 and expected O&M costs of $3,000 this year, which increase by $1,500
Green leaf Company is considering the purchase of a new set of air-electric quill units to replace an obsolete machine. The current machine has a market value of zero; however, it is in good working
Acme-Denver Corporation is considering the replacement of an old, relatively inefficient surface-grinder machine that was purchased seven years ago at a cost of $12,000. The machine had an original
An auto-part manufacturer is faced with the prospect of replacing its old robot, which has been used in stamping operation for 10 years. This particular robot was installed at a cost of $100,000 and
Four years ago, a firm purchased an industrial batch oven for $23,000. The oven had an estimated life of 10 years with $1,000 salvage value. These original estimates are still good. If sold now, the
Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The
Rework Problem 12.1, assuming the following additional information: The asset is classified as a five-year MACRS property. The firm’s marginal tax rate is 40%, and its after-tax MARR is 8%.Data
Rework Problem 12.8, assuming the following additional information:The old machine will be depreciated according to the straight-line method for the remaining useful life.The new machine will be
Rework Problem 12.11, assuming the following additional information:The machine is classified as a seven-year MACRS recovery period. The tax rate is 40%, and the after-tax MARR is 10%.Data From
Rework Problem 12.13 with the following additional information:The current book value of the old machine is $7,809. The anticipated book values for the next four years are as follows: year 1, $5,578;
A machine has a purchase cost of $10,000. End-of-year book values, salvage values, and annual O&M costs are provided over its useful life as follows: (a) Determine the economic life of the
Assume, for a particular asset, that I = $30,000, Sn = 22,000 - 2,000n, Bn = 30,000 - 3,000n,O & Mn =
Rework Problem 12.11, assuming the following additional information:For tax purposes, the entire cost of $30,000 can be depreciated according to a five-year MACRS property class.The firm€™s
Rework Problem 12.16, assuming the following additional information:The current book value of the old machine is $5,623, and the asset has been depreciated according to a seven-year MACRS property
Rework Problem 12.18, assuming the following additional information:The current book value of the old machine is $4,000, and the annual depreciation charge is $800 if the firm decides to keep the old
Rework Problem 12.20, assuming the following additional information:The old switching system has been fully depreciated.The new system falls into the five-year MACRS property class.The company’s
Rework Problem 12.14, assuming the following additional information:The old machine has been fully depreciated.The new machine will be depreciated under the seven-year MACRS class.The marginal tax
Rework Problem 12.23, assuming the following additional information:Option 1: The old sprayer has been fully depreciated. The new sprayer isclassified as a seven-year MACRS property.Option 2: The
Definitional problems: Listed are eight terms that relate to financial statements:1. Balance‐sheet statement2. Income statement3. Cash‐flow statement4. Operating
Definitional problems: Listed are 11 terms that relate to ratio analysis:1. Book value per share2. Inventory turnover3. Debt‐to‐equity ratio4. Average collection
Birmingham Steels has the following (incomplete) balance sheet and income statement.(a) Determine the shareholders€™ equity in 2011 and 2012.(b) Determine the net working capital in 2011
The following data are available for two companies, Apple and Oracle, all stated in thousands of dollars.(a) Calculate each company€™s return on equity (ROE) and return on assets (ROA).(b)
The following data were taken from the income statements of Metronix Corporation.Compute the inventory-turnover ratio for each year. What conclusions concerning the management of the inventory can be
If Company A uses more debt than Company B and both companies have identical operations in terms of sales, operating costs, etc., which of the following statements is true?(a)
You are looking to buy stock in a high‐growth company. Which of the following ratios best indicates the company’s growth potential?(a) Debt ratio(b) Price/earnings ratio(c) Profit margin(d)
Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt‐to‐equity ratio.(b) The best guideline to determine the
The table that follows summarizes the financial performances of four companies in the year 2012. From the given information, which company generated the highest return on equity?(a) Company A(b)
J. C. Olson & Co. had earnings per share of $8 in 2012, and it paid a $4 dividend. Book value per share at year-end was $80. During the same period, the total retained earnings increased by $24
Consider the following financial statements for Dell Corporation:The closing stock price for Dell was $13.47 on January 28, 2011. The numbers of outstanding shares were 1,944 million in 2011 and
Which of the following statements is incorrect?(a) Holding on to cash is the most risk‐free investment option.(b) To maximize your return on total assets (ignoring financial risk), you must put all
The average unleaded gasoline price for California residents on May 30, 2011, was $4.12 per gallon. Assuming that the base period (price index = 100) is 1996 and that the unleaded gasoline price for
The average cost of a gallon of gas was $0.99 per gallon in 1998. In 2011, the average cost of a gallon of gas is $3.00. What is the average inflation rate for the period 1998–2011?
The following data indicate the price indices of lumber (price index for the base period 1982-1984 = 100) during the last 10 years:Period Price
Prices are increasing at an annual rate of 8% the first year and 12% the second year. Determine the average inflation rate (f) over these two years.
The following table shows a utility company’s cost to supply a fixed amount of power to a new housing development; the indices are specific to the utility industry. Assume that year 0 is the base
Because of general price inflation in our economy, the purchasing power of the dollar shrinks with the passage of time. If the average general inflation rate is expected to be 6% per year for the
An engineer’s salary was $55,000 in 2002. The same engineer’s salary in 2011 is $85,000. If the company’s salary policy dictates that a yearly raise in salaries reflect the cost-of-living
The average starting salary for engineers was $5,000 a year in 1955. John, a mechanical engineer, got an offer for $60,000 a year in 2011. Knowing that the CPIs for 1955 and 2011 are 26.87 and
If you are looking for a 4% real return (inflation‐free interest) on your investment, would you be interested in an investment opportunity that produces a 10% return on investment (market interest
If you deposit $10,000 in a bank account that pays a 2% interest compounded monthly for five years, what would be your economic loss if the general inflation rate is 3% during that period?
An annuity provides for 10 consecutive end‐of‐year payments of $10,000. The average general inflation rate is estimated to be 5% annually, and the market interest rate is 9% annually. What is the
A company is considering buying workstation computers to support its engineering staff. In today’s dollars, it is estimated that the maintenance costs for the computers (paid at the end of each
Given the cash flows in actual dollars provided in the following table, convert the cash flows to equivalent cash flows in constant dollars if the base year is time 0. Assume that the market interest
The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at 9% interest compounded monthly. If the general inflation rate is 4% compounded monthly, find the
A series of four annual constant‐dollar payments beginning with $30,000 at the end of the first year is growing at the rate of 8% per year. Assume that the base year is the current year (n = 0). If
Consider a situation, where (a) the equal‐payment cash flow of $1,000 in constant dollars over three years is converted from (b) the equal‐payment cash flow in actual dollars over three years at
A 10‐year $1,000 bond pays a nominal rate of 9% compounded semiannually. If the market interest rate is 10% compounded annually and the general inflation rate is 6% per year, find the actual- and
The following table represents the thallium production and apparent consumption in the United States for the years 2004 through 2010. Unit value is the value in actual dollars of one metric ton (t)
You will receive $50 interest every six months from your investment in a corporate bond. The bond will mature in five years from now and has a face value of $1,000. This means that if you hold the
You just signed a business consulting contract with one of your clients. The client will pay you $50,000 a year for five years for the service you will provide over this period. You anticipate the
Suppose that you borrow $60,000 at 9% compounded monthly over five years. Knowing that the 9% represents the market interest rate, you compute the monthly payment in actual dollars as $2,372.46. If
The annual fuel costs to operate a small solid‐waste treatment plant are projected to be $1.5 million without consideration for any future inflation. The best estimates indicate that the annual
Suppose that you just purchased a used car worth $12,000 in today’s dollars. Assume also that, to finance the purchase, you borrowed $10,000 from a local bank at 9% compounded monthly over two
A man is planning to retire in 20 years. He can deposit money for his retirement at 6% compounded monthly. It is estimated that the future general inflation (f̅) rate will be 5% compounded annually.
On her 23rd birthday, an engineer decides to start saving toward building up a retirement fund that pays 8% interest compounded quarterly (market interest rate). She feels that $600,000 worth of
A couple wants to save for their daughter’s college expense. The daughter will enter college eight years from now, and she will need $40,000, $41,000, $42,000, and $43,000 in actual dollars for
Consider the following project??s after??tax cash flow and the expected annual general inflation rate during the project period: (a) Determine the average annual general inflation rate over the
Suppose you have three goals in your financial planning for saving money. First, you would like to be able to retire 25 years from now with a retirement income of $10,000 (today’s dollar) per month
If we were to invest $10,000 in an S&P 500 index fund, pay 0.2% annual fees, and add $100 a month to it for 40 years, receiving 10.4% annual returns, what, theoretically, would happen to our
You have $10,000 cash that you want to invest. Normally, you would deposit the money in a savings account that pays an annual interest rate of 6%. However, you are now considering the possibility of
Business week magazine currently offers the following subscription options: one year for $39; two years for $72; three years for $103. These rates are expected to increase at the general inflation
K&J Enterprise Inc. has purchased a small motor engine line to go in golf carts. The total purchase cost was $1.5 million, which can generate revenues of $650,000 per year. Direct manufacturing
Delaware Chemicals is considering the installation of a computer process control system in one of its processing plants. This plant is used about 40% of the time, or 3,500 operating hours per year,
As a chief engineer, you need to come up with the cash flow estimate for a newly proposed production line. Initially, the system is designed to have a maximum capacity (Cmax)of six million parts to
An investment project provides cash inflows of $2,500 per year for five years. What is the payback period if the project requires $4,000 at the beginning of the project?

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