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fundamentals engineering economics

Questions and Answers of Fundamentals Engineering Economics

29. You plan to purchase a car for $28,000. Its market value will decrease by 20% per year. You have determined that the IRS-allowed mileage reimbursement rate for business travel is about right for
28. Bumps Unlimited, a highway contractor, must decide whether to overhaul a tractor and scraper or replace it. The old equipment was purchased 5 years ago for $130,000; it had a 12-year projected
27. A highway construction fi rm purchased a particular earth-moving machine 3 years ago for $125,000. The salvage value at the end of 8 years was estimated to be 35% of fi rst cost. The fi rm earns
26. The Telephone Company of America purchased a numerically controlled production machine 5 years ago for $300,000. The machine currently has a trade-in value of $70,000. If the machine is continued
25. The Ajax Specialty Items Corporation has received a 5-year contract to produce a new product. To do the necessary machining operations, the company is considering two alternatives.Alternative A
24. National Chemicals has an automatic chemical mixture that it has been using for the past 4 years. The mixer originally cost $18,000. Today the mixer can be sold for $10,000. The mixer can be used
23. A fi rm is contemplating replacing a computer they purchased 3 years ago for $400,000. It will have a salvage value of $20,000 in 4 years. Operating and maintenance costs have been $75,000/year.
22. Kwik-Kleen Car Wash has been experiencing diffi culties in keeping its equipment operational. The owner is faced with the alternative of overhauling the present equipment or replacing it with new
21. A building supplies distributor purchased a gasoline-powered fork-lift truck 4 years ago for $8,000. At that time, the estimated useful life was 8 years with a salvage value of $800 at the end of
20. A machine was purchased 5 years ago at $12,000. At that time, its estimated life was 10 years with an estimated end-of-life salvage value of $1,200. The average annual operating and maintenance
19. Metallic Peripherals, Inc. has received a production contract for a new product. The contract lasts for 5 years. To do the necessary machining operations, the fi rm can use one of its own lathes,
18. A small foundry is considering the replacement of a No. 1 Whiting cupola furnace that is capable of melting gray iron only with a reverberatory-type furnace that can melt gray iron and nonferrous
17. Esteez Construction Company has an overhead crane that has an estimated remaining life of 7 years. The crane can be sold for $14,000. If the crane is kept in service it must be overhauled
16. A company owns a 5-year old turret lathe that has a book value of $25,000.The present market value for the lathe is $16,000. The expected decline in market value is $2,000/year to a minimum
15. Fluid Dynamics Company owns a pump that it is contemplating replacing.The old pump has annual operating and maintenance costs of $8,000/year:it can be kept for 4 years more and will have a zero
14. Apricot Computers is considering replacing its material handling system and either purchasing or leasing a new system. The old system has an annual operating and maintenance cost of $32,000, a
13. Video Solution Clear Water Company has a down-hole well auger that was purchased 3 years ago for $30,000. O&M costs are $13,000 per year.Alternative A is to keep the existing auger. It has a
12. Five years ago, ARCHON, a regional architecture/contractor fi rm, purchased an HVAC unit for $25,000 which was expected to last 15 years. It will have a salvage value of $0 in 10 more years. The
11. GO Tutorial Five years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complex parts used in commercial and military aircraft worldwide. It cost $350,000,
10. A division of Raytheon owns a 5-year old turret lathe that has a non-tax book value of $24,000. It has a current market value of $18,000. The expected decline in market value is $3,000 per year
9. Allen Construction purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next fi ve years. Normal operation costs$35,000 per year. The current crane will have no
8. Dell is considering replacing one of its material handling systems. It has an annual O&M cost of $48,000, a remaining operational life of 8 years, and an estimated salvage value of $6,000 at that
7. A currently-owned shredder for use in a refuse-powered electrical generating plant has a present net realizable value of $200,000 and is expected to have a market value of $10,000 after 4 years.
6. Online Educators (OE), a not-for-profi t fi rm exempt from taxes, is considering replacement of some electronic equipment associated with its distance learning (DL) facility. They spent $100,000
5. A specialty concrete mixer used in construction was purchased for$300,000 7 years ago. Its annual O&M costs are $105,000. At the end of the 8-year planning horizon, the mixer will have a salvage
4. The Container Corporation of America is considering replacing an automatic painting machine purchased 9 years ago for $700,000. It has a market value today of $40,000. The unit costs $350,000
3. Ten reasons why companies use equipment long after replacements would be justifi ed economically are given in the text. In many cases, these reasons do not apply just to companies; rather, they
2. Give two examples each of (i) functional obsolescence, (ii) technological obsolescence, and (iii) economic obsolescence for items that you or your family own.
1. Identify something you own, perhaps even something you still use regularly.a. Give a list of at least 6 potential reasons why you might consider replacing the identifi ed item.b. Identify at least
10. Increasing the magnitude of the initial investment tends to ____________ the optimum replacement interval.a. Decreasec. Reverseb. Increased. Not affect
9. What two cost categories form the trade off that leads to an optimum replacement interval?a. Direct costs and indirect costsb. Insider costs and outsider costsc. Operating & maintenance costs and
8. A company owns a 5-year old turret lathe that has a book value of $20,000.The present market value of the lathe is $16,000. A new turret lathe can be purchased for $45,000. Using a before tax
7. A company owns a 5-year old turret lathe that has a book value of $20,000.The present market value of the lathe is $16,000. A new turret lathe can be purchased for $45,000. Using a before tax
6. The most common approach to determining the planning horizon for replacement analysis is which of the following?a. Shortest lifec. Longest lifeb. Median Lifed. Least Common Multiple
5. Which of the following is not an approach to replacement analysis?a. cash fl ow approachc. outsider viewpointb. insider viewpointd. supply chain approach
4. A radiology clinic is considering buying a new $700,000 x-ray machine, which will have no salvage value after installation since the cost of removal will be approximately equal to its sales value.
3. In evaluating a piece of equipment for its optimum replacement interval, the following table of equivalent uniform annual costs is obtained. What is the optimum replacement interval for the
2. A company owns a 6-year old gear hobber that has a book value of $60,000.The present market value of the hobber is $80,000. A new gear hobber can be purchased for $450,000. Using an outsider’s
1. A company owns a 6-year old gear hobber that has a book value of$60,000. The present market value of the hobber is $80,000. A new gear hobber can be purchased for $450,000. Using an insider’s
76. Solve problem 44, except use the external rate of return approach.
75. Solve problem 43, except use the external rate of return approach.
74. Solve problem 36, except use the external rate of return approach.
73. Solve problem 35, except use the external rate of return approach.
72. Tempura, Inc. is considering two projects. Project A requires an investment of $50,000. Estimated annual receipts for 20 years are $20,000; estimated annual costs are $12,500. An alternative
71. Calisto Launch Services is an independent space corporation and has been contracted to develop and launch one of two different satellites. Initial equipment will cost $750,000 for the fi rst
70. Three alternatives are being considered by the management of Brawn Engineering to satisfy an OSHA requirement for safety gates in the machine shop. Each of the gates will completely satisfy the
69. GO Tutorial Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized
68. Home Innovations is evaluating a new product design. The estimated receipts and disbursements associated with the new product are shown below. MARR is 10%/yr.a. What is the external rate of
67. Aerotron Electronics is considering the purchase of a water fi ltration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time
66. Quilts R Us (QRU) is considering an investment in a new patterning attachment with the cash fl ow profi le shown in the table below. QRU’s MARR is 13.5%/yr.a. What is the external rate of
65. Solve problem 19, except use the external rate of return approach.
64. Solve problem 18, except use the external rate of return approach.
63. Solve problem 17, except use the external rate of return approach.
62. Solve problem 16, except use the external rate of return approach.
61. Nu Things, Inc. is considering an investment in a business venture with the following anticipated cash fl ow results:Assume MARR is 20% per year. Based on an external rate of return analysis (1)
60. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. Determine the ERR for this project.b. Is this project economically attractive? NCF NCF 0 2 3 1 -$100 $25 $200 -$100 456
59. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. Determine the ERR for this project.b. Is this project economically attractive? EOY NCF EOY NCF 0 -$100 123 $15 45 $15 $15
58. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. Determine the ERR for this project.b. Is this project economically attractive? NCF EOY NCF 0 -$101 1 $411 2 -$558 456 4 $2
57. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. Determine the ERR for this project.b. Is this project economically attractive? NCF EOY NCF 0 -$100 1 $25 45 4 -$30 $60 2
56. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. Determine the ERR for this project.b. Is this project economically attractive? NCF NCF 0 -$100 4 $25 1 $25 5 $25 23 2 $25
55. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. Determine the ERR for this project.b. Is this project economically attractive? EOY NCF NCF 0 -$100 4 -$950 1 $800 2 -$750
54. Packaging equipment for Xi Cling Wrap costs $60,000 and is expected to result in end-of-year net savings of $23,000 per year for 3 years. The equipment will have a market value of $10,000 after 3
53. Calisto Launch Services is an independent space corporation and has been contracted to develop and launch one of two different satellites. Initial equipment will cost $750,000 for the fi rst
52. Several years ago, a man won $27 million in the State Lottery. To pay off the winner, the State planned to make an initial $1 million payment today followed by equal annual payments of $1.3
51. Video Solution Parker County Community College (PCCC) is trying to determine whether to use no insulation or to use insulation 1-inch thick or 2-inches thick on its steam pipes. The heat loss
50. Xanadu Mining is considering three mutually exclusive alternatives as shown in the table below. MARR is 10%/yr. Based on an internal rate of return analysis, which alternative should be
49. Final Finishing is considering three mutually exclusive alternatives for a new polisher. Each alternative has an expected life of 10 years and no salvage value. Polisher I requires an initial
48. Video Solution The engineering team at Manuel’s Manufacturing, Inc.is planning to purchase an Enterprise Resource Planning (ERP) system. The software and installation from Vendor A costs
47. DelRay Foods must purchase a new gumdrop machine. Two machines are available.Machine 7745 has a fi rst cost of $10,000, an estimated life of 10 years, a salvage value of $1,000, and annual
46. Five projects form the mutually exclusive, collectively exhaustive set under consideration. The cash fl ow profi les for the fi ve projects are given in the table below.Information on each
45. Three alternatives are being considered by the management of Brawn Engineering to satisfy an OSHA requirement for safety gates in the machine shop. Each of the gates will completely satisfy the
44. A fi rm is faced with four investment proposals, A, B, C, and D, having the cash fl ow profi les shown below. Proposals A and C are mutually exclusive, and Proposal D is contingent on Proposal B
43. Arnold Engineering has available two mutually exclusive investment proposals, A and B. Their net cash fl ows are as shown in the table over a 10-year planning horizon. MARR is 12%.Determine which
42. On-Site Testing Service has received four investment proposals for consideration.Two of the proposals, X1 and X2, are mutually exclusive. The other two proposals, Y1 and Y2 are also mutually
41. Yani has $12,000 for investment purposes. His bank has offered the following three choices.1) A special savings certifi cate that will pay $100 each month for 5 years and a lump sum payment at
40. Orpheum Productions in Nevada is considering three mutually exclusive alternatives for lighting enhancements to one of its recording studios. Each enhancement will increase revenues by attracting
39. Dark Skies Observatory is considering several options to purchase a new deep space telescope. Revenue would be generated from the telescope by selling“time and use” slots to various
38. A large company has the opportunity to select one of seven projects: A, B, C, D, E, F, G, or the null (Do Nothing) alternative. Each project requires a single initial investment as shown in the
37. ZeeZee’s Construction Company has the opportunity to select one of four projects (A, B, C, or D) or the null (Do Nothing) alternative. Each project requires a single initial investment and has
36. Chingos and Daughters Construction is considering three investment proposals:A, B, and C. Proposals A and B are mutually exclusive, and Proposal C is contingent on proposal B. The cash fl ow data
35. Two mutually exclusive proposals, each with a life of 5 years, are under consideration.MARR is 12%. Each proposal has the following cash fl ow profi le:Determine which alternative the decision
34. Quantum Logistics, Inc., a wholesale distributor, is considering the construction of a new warehouse to serve the southeastern geographic region near the Alabama-Georgia border. There are three
33. Quilts R Us (QRU) is considering an investment in a new patterning attachment with the cash fl ow profi le shown in the table below. QRU’s MARR is 13.5%/yr.a. What is the internal rate of
32. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. Determine the IRR(s) for this project.b. Is this project economically attractive? NCF NCF 0 1 -$101 $411 45 4 $2 $8 23
31. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. What does Descartes’ rule of signs tell us about the IRR(s) of this project?b. What does Norstrom’s criterion tell us
30. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. What does Descartes’ rule of signs tell us about the IRR(s) of this project?b. What does Norstrom’s criterion tell us
29. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. What does Descartes’ rule of signs tell us about the IRR(s) of this project?b. What does Norstrom’s criterion tell us
28. Video Solution Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. What does Descartes’ rule of signs tell us about the IRR(s) of this project?b. What does Norstrom’s
27. Consider the following cash fl ow profi le and assume MARR is 10%/yr.a. What does Descartes’ rule of signs tell us about the IRR(s) of this project?b. What does Norstrom’s criterion tell us
26. Delta Dawn’s Bakery is considering purchasing a new van to deliver bread.The van will cost $18,000. Two-thirds ($12,000) of this cost will be borrowed.The loan is to be repaid with four equal
25. Aerotron Electronics is considering the purchase of a water fi ltration system to assist in circuit board manufacturing. The system costs $40,000.It has an expected life of 7 years at which time
24. Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is
23. Video Solution RealTurf is considering purchasing an automatic sprinkler system for its sod farm by borrowing the entire $30,000 purchase price.The loan would be repaid with four equal annual
22. Baon Chemicals Unlimited purchases a computer-controlled fi lter for$100,000. Half of the purchase price is borrowed from a bank at 15%compounded annually. The loan is to be paid back with equal
21. Value Lodges is the owner of an economy motel chain. Value Lodges is considering building a new 200-unit motel. The cost to build the motel is estimated at $8,000,000; Value Lodges estimates
19. Smith Investors places $50,000 in an investment fund. One year after making the investment, Smith receives $7,500 and continues to receive $7,500 annually until 10 such amounts are received.
18. An investment of $20,000 for a new condenser is being considered. Estimated salvage value of the condenser is $5,000 at the end of an estimated life of 6 years. Annual income each year for the 6
17. Shrewd Endeavors, Inc. invested $70,000 in a business venture with the following cash fl ow results:MARR is 10%. Determine the internal rate of return and whether or not this is a desirable
16. Brock Associates invested $80,000 in a business venture with the following results:MARR is 12%. Determine the internal rate of return and whether or not this is a desirable venture. EOY CF EOY CF
15. GO Tutorial Nancy’s Notions pays a delivery fi rm to distribute its products in the metro area. Shipping costs are $30,000 per year. Nancy can buy a used truck for $10,000 that will be adequate

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