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fundamentals engineering economics

Questions and Answers of Fundamentals Engineering Economics

30. Labor costs over a 4-year period have been forecast in then-current dollars as follows: $10,000, $12,000, $15,000, and $17,500. The general infl ation rate for the 4 years is forecast to be 5%.
29. A family wishes to provide for their child’s college education. Being a bit risk averse, they plan to invest in stable, yet unspectacular, opportunities yielding a 6.0% return. Their best guess
28. The winner of a lottery is given a choice of $1,000,000 cash today or$2,000,000 paid out as follows: $100,000 cash per year for 20 years with the fi rst payment today and 19 subsequent annual
27. An investment of $8,000 is made at time 0 with returns of $3,500 at the end of each of years 1–4, with all monetary amounts being in real dollars.Infl ation is running 7% per year over that
26. A 24-year old December 2012 graduate has decided he wants the equivalent of$2,500,000 in January 1, 2013 buying power to be available exactly 40 years later on January 1, 2053. He plans to make
25. Padayappa has now retired after 40 years of employment. He just made an annual deposit to his investment portfolio and realized he has $2 million(not counting home, cars, furniture, etc.). His
24. Global steel prices have a year-over-year infl ationary rate increase of 12.4%.Tube Fab purchased $700,000 of a particular carbon steel during the year just ended right now. Their business has
23. Video Solution Global steel prices have a year-over-year infl ationary rate increase of 12.4%. Tube Fab purchased $700,000 of a particular carbon steel during the year just ended right now, and
22. Shea is pricing materials (wood, wire, pipe, etc.) for new home construction on a “per unit” basis. Infl ation on materials has been running at 16.0% for the past three years and is expected
21. Your department is budgeting miscellaneous expenses for the next 5 years.Your best guess at the annual infl ation rate is 3.9% and the combined MARR is 15%. Expenses currently run $14,500 per
20. You invested $10,000 on January 1, 2004, at 7% interest compounded annually.You have not touched the investment since that date. You are planning to take your money and close out the investment
19. A software company’s labor requirements currently cost $350,000/year. The labor hour requirements are expected to increase by 10% per year over the next fi ve years. If infl ation is 4%,
18. How much must you invest exactly 5 years from now to have $500,000 in today’s buying power 20 years from now? You can invest your money at 10%per year and infl ation runs 4%.
17. Suppose you want to earn a real interest rate of 5%. For infl ation rates of 0.0, 1.0, 2.0, . . ., 9.0, 10.0, 15.0, 20.0, and 50.0 percent, determine the combined rate of interest you must earn.
16. Chevron-Phillips requires a real return of 14.2%. If infl ation is running 3.8%, what must be their MARR or “hurdle rate” on capital investments when using then-current dollars in analyses?
13. You are earning 5.2% on a certifi cate of deposit. Infl ation is running 3.5%.What is the real rate of return on your investment?14. You are considering a bond that pays annually at 6.2%. Infl
12. The Korean hourly compensation rates of increase are presented as follows:Year Rate %2001 –14.84 2002 13.75 2003 10.09 2004 18.87 2005 18.79a. Assuming the index value in year 2000 was 165.9,
11. The Korean manufacturing output per hour index is given as follows for years 2001–2005 as follows:Year Index 2001 214.8 2002 235.8 2003 252.2 2004 281.2 2005 305.1a. For each year from 2002 to
10. The CPI-U for Americans 62 years of age and older (some of your professors and some of your authors are interested in this!) present the following annual infl ation rates in percent:Year Rate
9. The CPI-U (U.S. city average, all items) has the following annual averages:Year Index 2002 179.9 2003 184.0 2004 188.9 2005 195.3 2006 201.6a. For each year from 2003 to 2006 determine the annual
8. Suppose a friend argues that the CPI does not represent them because they do not purchase some of the things, including big ticket items, in the market basket.Can they conclude that the CPI is
7. What is the Higher Education Price Index (HEPI), where does it fi t in with the CPI and PPI, and how is the HEPI related to the CPI?
6. What are the differences between the Consumer Price Index and the Producer Price Index?
5. What is meant by a “market basket rate?”
4. Give two examples of goods or services that you have seen infl ate dramatically and also defl ate dramatically over the past few years.
3. What is the relationship between “infl ation” and “defl ation”? Give an example of defl ation experienced in your everyday life.
2. Give four examples of goods or services that have exhibited infl ation in recent years.
1. What is a good working defi nition of “infl ation” in 10 words or less?
9. As reported by the Bureau of Labor Statistics, the CPI for 2005 was 585.0(using a Base Year of 1967 5 100). The CPI for 2006 was 603.9. Based on this data, what was the infl ation rate for 2006?a.
8. Ten years ago Jennifer bought an investment property for $100,000. Over the ten year period infl ation has held consistently at 3% annually. If Jennifer expects a 13%/yr real rate of return, what
7. When done correctly, what is the relationship between the present worth of an alternative calculated using a then-current approach and the present worth of the alternative calculated using a
6. If the real discount rate is 7% and the infl ation rate is 10%, which of the following interest rates will be used to fi nd the present worth of a series of cash fl ows that are in constant-worth
5. If the real discount rate is 7% and the infl ation rate is 10%, which of the following interest rates will be used to fi nd the present worth of a series of cash fl ows that are in then-current
4. An economist has predicted that there will be a 7% per year infl ation of prices during the next ten years. If this prediction proves to be correct, an item that presently sells for $10 would sell
3. Mike’s Veneer Shop owns a vacuum press that requires annual maintenance.Mike has a contract to cover the maintenance expenses for the next fi ve years. The contract calls for an annual payment
2. Mike’s Veneer Shop owns a vacuum press that requires annual maintenance.Mike has a contract to cover the maintenance expenses for the next fi ve years.The contract calls for an annual payment of
1. Logan is conducting an economic evaluation under infl ation using the then-current approach. If the infl ation rate is j and the real time value of money rate isd, which of the following is the
65. Michelin is considering going “lights out” in the mixing area of the business that operates 24/7. Currently, personnel with a loaded cost of $600,000 per year are used to manually weigh real
64. Griffi n Dewatering is considering three alternatives. The fi rst is the purchase of a permanent steel building to house their existing equipment for the overhaul of dewatering systems (engines,
63. Recall problem 41. Suppose both options will involve a loan of 40 percent of the investment cost, with payment overa) 6 years andb) 8 years using Plan 1 and a sweet Federal government loan rate
62. Recall problem 40. Suppose both alternatives will involve a loan of 40 percent of the investment cost, with payment over 10 years using Plan 4 and a sweet Federal government loan rate of 2
61. Recall problem 39. Suppose both conveyors will require a loan of $14,000 at an interest rate of 10 percent, with payment using Plan 2 over a period of 3 years. Rework the problem.
60. Recall problem 38. Suppose both investments will require a loan of $14,000 at an interest rate of 10 percent, with payment using Plan 4 over a period of 3 years. Rework the problem.
59. Recall problem 37. Suppose both alternatives will require a loan of 50 percent of the investment cost, an annual interest rate of 18 percent, with payment using Plan 3 over the 6-year planning
58. Recall problem 36. Suppose both models will require a loan of $40,000 at an interest rate of 17 percent, with payment using Plan 1 over a period of 4 years.Rework the problem.
57. A project has a fi rst cost of $180,000, an estimated salvage value of $20,000 after 6 years, and other economic attributes as detailed in the table below. Unfortunately, as the end of year 4
56. An asset is purchased for $90,000 with the intention of keeping it for 10 years, but is sold at the end of year 3. A total of $30,000 was borrowed money that was to be repaid over three years in
55. Chevron Phillips has put into place new laboratory equipment for the production of chemicals; the fi rst cost is $1,800,000 installed. Chevron Phillips borrows 45% of all capital needed and the
54. A subsidiary of AEP places in service electric generating and transmission line equipment at a cost of $3,000,000 with half of it borrowed at 11% over 8 years.It is expected to last 30 years with
53. Video Solution Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is
52. A Boeing contractor responsible for producing a portion of the landing gear for huge airliners experienced a storm-related power glitch during the multiaxis milling, to tolerances less than 0.001
51. GO Tutorial Abbott placed into service a fl exible manufacturing cell costing$850,000 early this year. They fi nanced $425,000 of it at 11% per year over 5 years. Gross income due to the cell is
50. Hyundai USA has numerous robotic welders as well as robotic checkers with vision. One underbody robotic welder costing $1,200,000 (7-year property class) was installed and is increasing
49. Specialized production equipment is purchased for $125,000. The equipment qualifi es as 5-year equipment for MACRS-GDS depreciation. Suppose 40 percent of the investment capital is borrowed at an
48. A company purchases a machine for $800,000. The equipment qualifi es as 5-year property for MACRS-GDS depreciation. The machine is paid for by borrowing $500,000, to be repaid over a 5-year
47. An investment of $250,000 is made in equipment that qualifi es as MACRSGDS 7-year property. The before-tax cash fl ow profi le for the investment is given below, including a $100,000 salvage
46. A Boeing contractor responsible for producing a portion of the landing gear for huge airliners experienced a storm-related power glitch during the multi-axis milling, to tolerances less than
45. GO Tutorial Abbott placed into service a fl exible manufacturing cell costing $850,000 early this year for production of their analytical testing equipment. Gross income due to the cell is
44. Hyundai USA has numerous robotic welders as well as robotic checkers with vision. One underbody robotic welder was installed and is increasing productivity by 2.5% in one area. The result is a
43. Chevron Phillips has put into place new laboratory equipment for the production of chemicals; the cost is $1,800,000 installed. CP borrows 45% of all capital needed and the borrowing rate is
\42. What is the difference or distinction being made when we speak of before-tax cash fl ows and before-tax and loan cash fl ows. Be precise in your answer.
41. Two mutually exclusive alternatives, A and B (both MACRS-GDS 5-year property), are available. Alternative A requires an original investment of$100,000, has a useful life of 6 years, annual
40. A fi rm may invest $30,000 in a numerically controlled lathe for use in furniture manufacturing (MACRS-GDS 7-year property). It would last for 11 years and have zero salvage value at that time.
39. A granary has two options for a conveyor used in the manufacture of grain for transporting, fi lling, or emptying. One conveyor can be purchased and installed for $70,000 with $3000 salvage value
38. Two investments involving a granary qualify for different property classes.Investment A costs $70,000 with $3000 salvage value after 16 years and is depreciated as MACRS-GDS in the 10-year
37. Video Solution A portable concrete test instrument used in construction for evaluating and profi ling concrete surfaces (MACRS-GDS 5-year property class) is under consideration by a construction
36. A virtual mold apparatus for producing dental crowns permits an infi nite number of shapes to be custom constructed based upon mold imprints taken by dentists. Two models are available. One costs
35. GO Tutorial Two investments involving a virtual mold apparatus for producing dental crowns qualify for different property classes. Investment A has a cost of $58,500, lasts 9 years with no
34. In Problem 33, suppose the equipment still qualifi es as MACRS-GDS 3-year property, but is sold for $300,000 after 3 years of use. A 40 percent tax rate applies and the after-tax MARR is 8
33. An investment of $800,000 is made in equipment that qualifi es as 3-year equipment for MACRS-GDS depreciation. The BTCF profi le for the investment is given below, including a $200,000 salvage
32. A company purchases a machine for $800,000. The equipment qualifi es as 5-year property for MACRS-GDS depreciation. Before-tax cash fl ows are as shown below, including a $200,000 salvage value
31. Specialized production equipment is purchased for $125,000. The equipment qualifi es as 5-year equipment for MACRS-GDS depreciation. The BTCF profi le for the acquisition, shown below, includes a
30. AgriGrow can invest in a “100-day” short-term project costing $90,000 to improve customer service. They believe the return on the project will be a net increase in sales of $37,000 per year
29. A tractor for over-the-road hauling is to be purchased by AgriGrow for$90,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,000. Transportation
28. Henredon can spend $190,000 now for a design portfolio with a different furniture look inspired by some of the ultra-modern culture in the metropolitan areas of Dubai. While some consider this a
27. A high-precision programmable router for shaping furniture components is purchased by Henredon for $190,000. It is expected to last 12 years and have a salvage value of $5,000. It will produce
26. Bell’s Amusements purchased an expensive ride for their theme and amusement park situated within a city-owned Expo Center. Bell’s had a multiyear contract with Expo Center. The ride cost
25. A subsidiary of AEP places in service electric generating and transmission equipment at a cost of $3,000,000. It is expected to last 30 years with a salvage value of $250,000. The equipment will
24. Suppose Milliken has an opportunity with similar cash fl ows to those for a digitally controlled “dyer,” although there are no depreciable items. They can invest in a marketing study by a
23. GO Tutorial Milliken uses a digitally controlled “dyer” for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000.
22. Raytheon wishes to use an automated environmental chamber in the manufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for
21. A specially coated mold for manufacturing tires (MACRS-GDS 3-year property) costs $35,000 and has a salvage value of $1,750 after a useful life of 5 years. The mold generates a net savings of
20. A special handling device for the manufacture of food is placed in service. It costs $30,000 and has a salvage value of $2,000 after a useful life of 5 years.The device generates a savings of
19. An air purifi er for use in manufacturing semiconductors is placed in service with a fi rst cost of $50,000. It will be used for 8 years, have an annual gross income less operating expenses of
18. Westwood Specialties had an increase in taxable income of $5,000,000 this year. Their increase in taxes was exactly $1,720,000.a. What was their taxable income last year?b. What was their total
17. Acme Universal is a micro-cap that had a $3,000,000 drop in taxable income this year. Their drop in taxes was $1,030,000. For each of the following, determine the largest amount that meets the
16. Pneumatics, a startup fi rm of four persons, had an increase in taxable income of $20,000 this year. Their increase in taxes was exactly $6350.a. What was their taxable income last year?b. What
15. West Mountain Radio, an electronics fi rm specializing in equipment interfaces, had been in a marginal tax bracket of 39% and then this year had an increase in taxable income of $150,000. Their
14. Matrix Service Company is an industrial service contractor with a strong reputation in refi ning, power, petrochemicals, gas/LNG, and related areas.Their base taxable income is $19.2 million on
13. Noise Sniffers Inc (NSI) is a contractor to public utilities providing electrical service to homes and businesses. Most small- and mid-sized municipal utilities do not have the expertise or the
12. An engineer named Don maintains a small incorporated civil engineering consulting practice. Last year, Don’s fi rm’s taxable income was $41,000.During that year, he spent a great deal of
11. TenTec in Sevierville, TN makes commercial and amateur radio equipment including receivers, transceivers, antenna tuners, linear amplifi ers, etc.Their taxable income last year was $720,000. They
10. Determine the smallest taxable income on which:a. The very last dollar is taxed at 35% or more.b. Every dollar is taxed at 34% or more.c. Every dollar is taxed at 35% or more.
9. Determine the smallest taxable income on which:a. The very last dollar is taxed at 25% or more.b. Every dollar is taxed at 25% or more.c. Every dollar is taxed at 34% or more.
8. Video Solution Calculate the corporate income tax for each of the following corporate taxable incomes. For each, determine the effective (average)tax rate and also the marginal tax rate.a.
7. Calculate the corporate income tax for each of the following corporate taxable incomes. For each, determine the effective (average) tax rate and also the marginal tax rate.a. $15,000d. $400,000b.
6. What is the federal income tax for each of the following corporate taxable incomes?a. $25,000e. $1,000,000b. $70,000f. $12,000,000c. $95,000 g. $17,000,000d. $200,000 h. $25,000,000
5. Explain why it is generally preferred to do economic analyses on an after-tax basis, rather than on a before-tax basis.
4. Explain the primary effect of (a) the Economic Recovery Act of 1981,(b) the Tax Reform Act of 1986, and (c) the Omnibus Reconciliation Act of 1993.
3. For each statement in parts (a) to (d), give a short answer or indicate True or False.a. Which of the following is a cash fl ow: (1) depreciation, (2) loan interest paid, and/or (3) income tax.b.

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