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Chapter 1
Foundations of Engineering Economy
1.1
If the alternative that is actually the best one is not even recognized as an
alternative, it obviously will not be able to be selected by using any economic
analysis tools.
1.4
The analysis techniques that are used in engineering economic analysis are only
as good as the accuracy of the cash flow estimates.
1.7
1.10
Time value of money means that there is a certain worth in having money and that
worth changes as a function of time.
1.13
The term that describes compensation for renting of money is time value of
money, which manifests itself as interest.
1.16
Minimum attractive rate of return is the lowest rate of return (interest rate) on a
project that companies or individuals consider to be high enough to induce them
to invest their money.
1.19
1.22
1.25
1.28
1.31
The engineer is wrong, unless the MARR is exactly equal to the cost of capital.
Usually, the inequality ROR MARR > cost of capital is used, and the MARR is
established higher than the cost of capital so that profit, risk and other factors are
considered.
1
1.34
F = P + Pni
100,000 = 1000 + 1000(n)(0.1)
99,000 = 1000(n)(0.10)
n = 990 years
1.37
P(1.20)(1.20) = 20,000
P = $13,888.89
1.40
F = P + P(n)(i)
3P = P + P(n)(0.20)
n = 10 years
1.43
1.46
P = $50,000; F = ?; i = 15%; n = 3
1.49
1.52
1.55
The difference between cash inflows and cash outflows is known as net cash
flow.
1.58
1.61
1.64
For built-in spreadsheet functions, a parameter that does not apply can be left
blank when it is not an interior one. For example, if no F is involved when using
the PMT function, it can be left blank because it is an end parameter. When the
parameter involved is an interior one (like P in the PMT function), a comma must
be put in its position.
1.67
(a) Assuming that Carols supervisor is a trustworthy and ethical person himself,
going to her supervisor and informing him of her suspicion is probably the
best of these options. This puts Carol on record (verbally) as questioning
something she heard at an informal gathering.
(b) Another good option is to go to Joe one-on-one and inform him of her
concern about what she heard him say at lunch. Joe may not be aware he is on
the bid evaluation team and the potential ethical consequences if he accepts
the free tickets from Dryer.
1.70
Answer is (a)
(c) NPER is n
(d) IRR is i
(e) PV is P
1.73
F = P(1+i)n
16,000 = 8000(1 + i)9
21/9 = 1 + i
1.08 = 1 + i
i = 0.08
(8%)
Answer is (b)
1.76
2P = P + P(n)(0.05)
1 = 0.05n
n = 20
Answer is (d)
Chapter 2
Factors: How Time and Interest Affect Money
2.1
2.4
2.7
2.10
A = 12,700,000(A/P,20%,8)
= 12,700,000(0.26061)
= $3,309,747
2.13
A = 20,000,000(A/P,10%,6)
= 20,000,000(0.22961)
= $4,592,200
2.16
(a) A = 3,000,000(10)(A/P,8%,10)
= 30,000,000(0.14903)
= $4,470,900
(b) If calculator function is PMT(8,10,-30000000,0), the answer is $4,470,884.66
(c) If the spreadsheet function is = -PMT(8%,10,30000000), display is
1
2.19
A = $4,470,884.66
(a) A = 225,000(A/P,15%,4)
= 225,000(0.35027)
= $78,811
(b) Recall amount = 78,811/0.10
= $788,110 per year
2.22
P = (280,000-90,000)(P/A,10%,5)
= 190,000(3.7908)
= $720,252
2.25
P = 2,100,000(P/F,10%,2)
= 2,100,000(0.8264)
= $1,735,440
2.28
P = 95,000,000(P/F,12%,3)
= 95,000,000(0.7118)
= $67,621,000
2.31
2.34
A = 10,000,000(A/P,10%,10)
= 10,000,000(0.16275)
= $1,627,500
2.37
A = 3,250,000(A/P,15%,6)
= 3,250,000(0.26424)
= $858,780
2.40
A = 5000(7)(A/P,10%,10)
= 35,000(0.16275)
= $5696.25
2.43
F = P(F/P,10%,n)
3P = P(F/P,10%,n)
(F/P,10%,n) = 3.000
From 10% interest tables, n is between 11 and 12 years. Therefore, n = 12 years
2.49
2.52
A = 9000 560(A/G,10%,5)
= 9000 560(1.8101)
= $7986
2.55
A = 100,000 + 10,000(A/G,10%,5)
= 100,000 + 10,000(1.8101)
= $118,101
F = 118,101(F/A,10%,5)
= 118,101(6.1051)
= $721,018
2.58
2.61
A = 7,000,000 - 500,000(A/G,10%,5)
= 7,000,000 - 500,000(1.8101)
= $6,094,950
2.64
P = (23,000) 1 (1.02/1.10)5
(0.10 0.02)
= $90,405
2.67
2.70
2.73
Solve for A1 in geometric gradient equation and then find cost in year 3
400,000 = A1[1 (1.04/1.10)5]/(0.10 0.04)
4.0759 A1 = 400,000
A1 = $98,138
Cost in year 3 = 98,138(1.04)2
= $106,146
2.76
Since 4th deposit is known to be $1250, increase it by 5% each year to year one
A1 = 1250/(0.95)3
= $1457.94
2.79
F = 200,000(F/A,10%,6)
= 200,000(7.7156)
= $1,543,120
2.82
2.85
2.88
2.91
2.94
In $ billion units,
Gross revenue first 2 years = 5.8(0.701) = $4.0658
Gross revenue last 2 years = 6.2(0.701) = $4.3462
F = 4.0658(F/A,14%,2)(F/P,14%,2) + 4.3462(F/A,14%,2)
= 4.0658(2.1400)(1.2996) + 4.3462(2.1400)
= $20.6084 billion
2.97
2.100 Find P in year -1for geometric gradient, than move to year 0 to find P
P-1 = (30,000) 1 (1.05/1.10)8
(0.10 0.05)
= $186,454
F = P0 = 186,454(F/P,10%,1)
= 186,454(1.10)
= $205,099
2.103 Find P in year 6 using arithmetic gradient factor and then find F today
P-6 = 10,000(P/A,12%,6) + 1000(P/G,12%,6)
= 10,000(4.1114) + 1000(8.9302)
= 41,114 + 8930.20
= $50,044.20
F = 50,044.20(F/P,12%,6)
= 122,439(1.9738)
= $98,777
2.106 (a) Add and subtract $2400 and $2600 in periods 3 and 4, respectively, to use
gradient
30,000 = 2000 + 200(A/G,10%,8) 2400(P/F,10%,3)(A/P,10%,8)
-2600(P/F,10%,4)(A/P,10%,8) + x(P/F,10%,3)(A/P,10%,8)
+ 2x(P/F,10%,4)(A/P,10%,8)
(b) Spreadsheet
Chapter 3
Nominal and Effective Interest Rates
3.1
3.4
(a) year; (b) quarter; (c) day; (d) continuous (period length is zero); (e) hour
3.7
3.10
3.13
PP = day; CP = quarter
3.16
3.19
In $ million units,
F = (54 +14 + 10)(F/P,1.5%,12)
= 78(1.1956)
= $93.2568 ($93,256,800)
3.22
F = 242,000(F/P,1.5%,48)
= 242,000(2.0435)
= $494,527
3.25
P = 190,000(P/F,2%,8) + 120,000(P/F,2%,16)
= 190,000(0.8535) + 120,000(0.7284)
= $249,573
3.28
3.31
P = 51(100,000)(0.25)(P/A,0.5%,60)
= (1,275,000)(51.7256)
= $65,950,140
3.34
3.37
i/week = 0.25%
P = 2.99(P/A,0.25%,40)
= 2.99(38.0199)
= $113.68
3.40
P = 90(P/A,3%,12) + 2.50(P/G,3%,12)
= 90(9.9540) + 2.50(51.2482)
= $1023.98
3.43
Find cost of treatments after one year, then monthly equivalent A over 5 years
Cost of treatment = 10,000(F/A,1%,12)
= 10,000(12.6825)
= $126,825
A = 126,825(A/P,1%,60)
= 126,825(0.02224)
= $2821 per month
3.46
3.49
F = 9000(F/A,1%,24)
= 9000(26.9735)
= $242,762
3.52
3.55
3.58
3.61
3.64
3.67
3.70
Answer is (a)
3.73
P = 30(P/A,0.5%,60)
= $1552
Answer is (b)
3.76
Chapter 4
Present Worth Analysis
4.1
The do-nothing alternative is not an option (1) when it is absolutely required that
one of the defined alternatives be selected (such as for legal purposes), and (2)
when each alternative has only cost cash flow estimates.
4.4
4.7
XD
XE
XDE
4.10
4.13
4.16
PW = $-107,360
PW = $-130,743
(a) Monetary units are in $1000. Calculate PW values to select the pull system.
PWpull = -1500 700(P/A,10%,8) + 100(P/F,10%,8)
= -1500 700(5.3349) + 100(0.4665)
= $-5187.780 ($-5,187,780)
PWpush = -2250 600(P/A,10%,8) + 50(P/F,10%,8) 500(P/F,10%,3)
= -2250 600(5.3349) + 50(0.4665) 500(0.7513)
= $-5803.265 ($-5,803,265)
(b) By spreadsheet, enter the following into single cells to display the PW values.
PWpull : = - PV(10%,8,-700000,100000)-1500000
PWpush : = - PV(10%,8,-600000,50000)-2250000-PV(10%,3,,-500000)
4.22
(a) For Allison (A), use i = 1% per month and n = 60 months to calculate PW.
PWA = -40,000 - 5000(P/A,1%,60) + 10,000(P/F,1%,60)
= -40,000 - 5000(44.9550) + 10,000(0.5504)
= $-259,271
For Joshua (J), use effective semiannual i and n = 10 to calculate PW.
effective i = (1.01)6 -1 = 6.152%
PWJ = -60,000 13,000(P/A,6.152%,10) + 8,000(P/F,6.152%,10)
= -60,000 13,000(7.30737) + 8,000(0.55045)
= $-150,592
Select Joshuas plan
4.25
4.28
4.31
4.34
4.40
FWC = -80,000[(F/P,12%,15)+(F/P,12%,10)+(F/P,12%,5)+1]
= -80,000[5.4736 + 3.1058 + 1.7623 + 1]
= $-907,336
FWM = -200,000(F/P,12%,15) 500[(F/P,12%,12)+(F/P,12%,9)+(F/P,12%,6)
5
+(F/P,12%,3)+1] +25,000
= -200,000(5.4736) - 500[3.8969 + 2.7731 + 1.9738 + 1.4049 + 1] + 25,000
= $-1,075,244
Select the concrete exterior by a future worth amount of approximately $168,000.
4.43
4.46
CC = - [38(120,000) + 17(150,000)]/0.08
= $-88,875,000
4.49
CC = -1,700,000 350,000(A/F,6%,3)/0.06
= - 1,700,000 350,000(0.31411)/0.06
= $-3,532,308
4.52
CC = 100,000 + 100,000/0.08
= $1,350,000
4.55
4.58
Budget = $800,000
i = 10%
Display: $+4,775,295
Display: $-1,526,886
Display: $+3,333,333
6 viable bundles
Bundle
Projects
NCFj0
NCFjt
1
2
3
4
5
6
X
Y
Z
XY
XZ
Do nothing
$-250,000
-300,000
-550,000
-550,000
-800,000
0
$ 50,000
90,000
150,000
140,000
200,000
0
S
$ 45,000
-10,000
100,000
35,000
145,000
0
PW at 10%
$-60,770
-21,539
-6,215
-82,309
-66,985
0
4.67
CC = A/i
7
A = 10,000(A/F,10%,5)
= 10,000(0.16380)
= $-1638
CC = -1638/0.10
= $-16,380
Answer is (b)
4.70
Answer is (d)
Chapter 5
Annual Worth Analysis
5.1
AW = -7,000,000(A/P,15%,3) - 860,000
= -7,000,000(0.43798) - 860,000
= $-3,925,860
Therefore, required revenue is $3,925,860 per year
5.4
In $ millions,
AW = [-13 - 10(P/F,15%,1)](A/P,15%,10) 1.2
= [-13 - 10(0.8696)](0.19925) 1.2
= $-5.5229
Revenue required is $5,522,900 per year
5.7
5.10
5.13
5.16
5.19
By spreadsheet for part (b) use the PMT functions at different P values.
490G: = -PMT(10%,2,-250000,25000)-3000
Display: $-135,143
D103 @ P=-300,000: = -PMT(10%,3,-300000,30000)-4000
Display: $-115,571
D103 @ P=-500,000: = -PMT(10%,3,-500000,50000)-4000
Display: $-189,952
5.22
AW = PW(i)
AW = [5,000,000 + 2,000,000(P/F,10%,10) + 100,000/(0.10)(P/F,10%,10)](0.10)
= [5,000,000 + 2,000,000(0.3855) + 1,000,000(0.3855)](0.10)
= $615,650
5.25
P = 24,000(P/A,8%,30)
= 24,000(11.2578)
= $270,187
270,187 = A(F/A,8%,20)
= A(45.7620)
A = $5904 per year
By spreadsheet, enter two functions.
P after 20 years: = -PV(8%,30,24000)
A over 20 years: = -PMT(8%,20,,270187)
Display: $270,187
Display: $5904
5.31
5.34
Answer is (b)
5.37
Answer is (d)
5.40
Chapter 6
Rate of Return Analysis
6.1
6.4
In $ million units
Annual payment = 6,000,000(A/P,10%,10)
= 6,000,000(0.16275)
= $976,500
Principal remaining after year 1 = 6,000,000(1.10) 976,500
= $5,623,500
Interest, year 2 = 5,623,500(0.10)
= $562,350
6.7
6.10
too low
too high
6.13
0 = -3,000,000 + 1,500,000(P/A,i*,3)
(P/A,i*,3) = 2.0000
Solve for i* = 23.38% per year
6.16
(spreadsheet)
6.19
6.22
(interpolation or spreadsheet)
(spreadsheet)
(spreadsheet)
6.25
(a) The rate of return on the increment has to be larger than 18%
(b) The rate of return on the increment has to be smaller than 10%
(c) Two samples follow with approximate ROR values of 10% for X
and 18% for Y
6.28
6.31
(spreadsheet)
Select P
6.34
(spreadsheet)
Select robot Y
6.37
Product 2:
Product 3:
6.40
eliminate DN
eliminate A
eliminate D
eliminate E
eliminate B
Select D
(c) Same as part (b) above, except last comparison against MARR = 14%
D to A: i* = 10% < MARR
eliminate D
Select A
Cumulative
Cash Flow, $
-40,000
-8000
+10,000
+8000
+7000
There is one sign change in the cumulative cash flow series; only one positive i*
value is indicated
6.49 Quarter Expenses
0
-20
1
-20
2
-10
3
-10
4
-10
5
-10
6
-15
7
-12
8
-15
Revenue
0
5
10
25
26
20
17
15
2
Cumulative
-20
-35
-35
-20
-4
+6
+8
+11
-2
(a) From net cash flows, there are two possible i* values
(b) From cumulative cash flow, sign starts negative and changes twice. Norstroms
criterion is not satisfied, there may be up to two i* values.
6.52
Net CF, $
-17,000
-20,000
4,000
-11,000
32,000
47,000
Cumulative
CF, $
-17,000
-37,000
-33,000
-44,000
-12,000
+35,000
Year
0
1
2
3
4
5
6
7
8
9
10
Cash Flow, $
0
-5000
-5000
-5000
-5000
-5000
-5000
+9000
-5000
-5000
-5000 + 50,000
Cumulative
Cash Flow, $
0
-5,000
-10,000
-15,000
-20,000
-25,000
-30,000
-21,000
-26,000
-31,000
+14,000
(a) Cash flow rule of signs test (Descartes rule): three possible ROR values
Cumulative cash flow test (Norstroms criterion): one positive ROR value
(b) Move all cash flows to year 10 and solve for i*
0 = -5000(F/A,i*,10) + 14,000(F/P,i*,3) + 50,000
Solve for i* = 6.29%
(spreadsheet)
F0 > 0; use ir
F1 > 0; use ir
F2 > 0; use ir
F3 < 0; use i
6.61
Answer is (b)
6.64
0 = -60,000 + 10,000(P/A,i*10)
(P/A,i*,10) = 6.0000
From tables, i* is between 10% and 11%
Answer is (a)
6.67
Answer is (c)
6.70
Answer is (c)
Chapter 7
Benefit/Cost Analysis and Public Sector Projects
7.1
7.4
Under a DBOMF contract, the contractor is responsible for managing the cash
flows for the project and the government unit remains responsible for obtaining
capital and operating funds for the project.
7.7
7.10
7.13
7.16
7.19
(a)
B = $600,000
D = $190,000
C = 650,000(A/P,6%,20) + 150,000
= 650,000(0.08718) + 150,000
= $206,667
B/C = (600,000 190,000)/206,667
= 1.98
Project is justified since B/C > 1.0
7.25
B/C = 2.7/2.23
= 1.21
eliminate DN
Expand to Pond:
eliminate S
7.31
NS to EC:
B = 130,000 110,000 = $20,000
D = 18,000 26,000 = $-8000
C = 86,387 - 54,410 = $31,977
B/C = [20,000 -(-8000)]/31,977
= 0.88
eliminate NS
Select method EC
7.34 Rank alternatives by increasing cost: DN, G, J, H, I, L, K
Eliminate H and K based on B/C to DN < 1.0
G to DN = 1.15
J to G = 1.07
I to J = 1.07
L to I = ?
eliminate DN
eliminate G
eliminate J
Answer is (c)
7.40
7.43
7.46
In $1000 units,
B/C = [(220 140) (30 10)]/(450 - 300) = 0.40
Answer is (b)
7.49
Chapter 8
Breakeven, Sensitivity, and Payback Analysis
8.1
8.4
8.7 (a) Plot shows maximum quantity at about 1350 units. Profit is about $20,000.
(a) Using the relation PW = 0, select different i values and solve for n. Details for
i = 8% and 15% are shown.
0 = -3,150,000 + 500,000(P/A,i%,n) + 400,000(P/F,i%,n)
i = 8%, n = 8: PW = -3,150,000 + 500,000(5.7466) + 400,000(0.5403)
= $-60,580
i = 8%, n = 9: PW = -3,150,000 + 500,000(6.2469) + 400,000(0.5002)
= $173,530
n = 8.2 (interpolation)
i = 15%, n = 19: PW = -3,150,000 + 500,000(6.1982) + 400,000(0.0703)
= $-22,780
i = 15%, n = 20: PW = -3,150,000 + 500,000(6.2593) + 400,000(0.0611)
= $4090
n = 19.8 years
(interpolation)
(b) Retention ranges from 8 to 20 years for varying i values. This is a perfect
example where the spreadsheet is easier. Use the NPER function.
8.13
8.16
8.19
8.22
8.25
VC1
2.04T
2.28T
2.40T
2.52T
2.76T
VC2
6.8T
7.6T
8.0T
8.4T
9.2T
AW1 = AW2
Breakeven
relation
T value, tons
4.76T = 5327
1119
5.32T = 5327
1001
5.60T = 5327
951
5.88T = 5327
906
6.44T = 5327
827
SOLVER can be used to find breakeven with the constraint AW1 = AW2.
8.28
(a) Solve relation Revenue - Cost = 0 for Q = number of filters per year
50Q - [200,000(A/P,6%,5) + 25,000 + 20Q] = 0
30Q = 200,000(0.23740) +25,000
Q = 72,480/30
= 2416 filters per year
At 5000 units, make the filters inhouse
(b) Solve the relation AWbuy = AWmake
(50-30)Q = -72,480 + (50-20)Q
Q = 7248 filters per year
Since 5000 < 7248, outsourcing is the correct choice; slope of 30Q is larger
(c) Inhouse: make 5000 at $20 each
Profit = 5000(50-20) - 72,480 = $77,520
Outsource: buy 5000 at $30 each
Profit = 5000(50-30) = $100,000
A spreadsheet can be used to answer all three questions.
8.31
8.34
AWcurrent = $-62,000
AW10,000 = - 64,000(A/P,15%,3) 38,000 + 10,000(A/F,15%,3)
= - 64,000(0.43798) 38,000 + 10,000(0.28798)
= $-63,151
AW13,000 = - 64,000(A/P,15%,3) 38,000 + 13,000(A/F,15%,3)
= - 64,000(0.43798) 38,000 + 13,000(0.28798)
= $-62,287
AW18,000 = - 64,000(A/P,15%,3) 38,000 + 18,000(A/F,15%,3)
= - 64,000(0.43798) 38,000 + 18,000(0.28798)
= $-60,847
The decision is sensitive; replace the existing process only if the estimate of
$18,000 is reliable.
8.37
AW1
$-2318
$-2444
$-2573
AW2
$-2234
$-2448
$-2673
Selection
2
1
1
(b) Spreadsheet solution requires that the PW value is first determined using the
NPV function over the LCM of 24 years and then converting it to an AW value
using the PMT function. Spreadsheet follows.
8.40
8.43
(a) Set up the general AW relation for D103 and determine AW for the three
scenarios.
AWD103 = -P(A/P,10%,n) + (0.1P)(A/F,10%,n) 4000
Strategy
P
S
n
AW
Pess
-500,000 50,000 1 $-504,000
ML
-400,000 40,000 3 -152,761
Opt
-300,000 30,000 5
-78,226
The AW490G = $-135,143 is known. D103 is selected only if the optimistic
scenario is correct, i.e., P = $-300,000 and n = 5 years.
(b) Spreadsheet solution.
8.46
(a)
Machine 1:
7
np = 40,000/10,000
= 4 years
Machine 2:
np = 90,000/15,000
= 6 years
Select only machine 1.
(b) Machine 1:
-40,000 + 10,000(P/A,10%,np) = 0
(P/A,10%,np) = 4.0000
From 10% interest tables, np is between 5 and 6 years; np > 5 years.
Machine 2:
-90,000 + 15,000(P/A,10%,np) = 0
(P/A,10%,np) = 6.0000
From 10% interest tables, np is between 9 and 10 years np > 9 years
Select neither alternative for further analysis
8.49
8.52 Set up the PW relation and use trial and error or spreadsheet for np.
0 = -10,000 +1700(P/A,8%,np) + 900(P/F,8%,np)
For np = 7:
For np = 8:
8.55
8.58
Both the fixed cost and variable cost of alternative X are higher than those of
alternative Y. Therefore, it can never be favored.
Answer is (a)
8.61
Answer is (a)
8.64
Answer is (c)
8.67
8.70
Chapter 9
Replacement and Retention Decisions
9.1
The defender refers to the currently-owned, in-place asset while the challenger
refers to the equipment/process that is under consideration as its replacement.
9.4
9.7
9.10
Add AW values for first cost, operating cost, and salvage value; select lowest AW.
Years Retained
1
2
3
4
5
Economic service life is n = 4 years.
9.13
Total AW
$-102,000
-84,334
-84,190
-83,857
-84,294
9.16
9.19
9.25
9.28
Only 2 options; replace defender, buy challenger now or retain defender for 3 years.
AWD = - (40,000 + 70,000)(A/P,15%,3) 85,000 + 30,000(A/F,15%,3)
= -110,000(0.43798) 85,000 + 30,000(0.28798)
= $-124,538
AWC = -220,000(A/P,15%,3) 65,000 + 50,000(A/F,15%,3)
= -220,000(0.43798) 65,000 + 50,000(0.28798)
= $-146,957
Keep the defender
9.31
Answer is (a)
3
9.34
Answer is (b)
9.37
Years for Years for
Defender Challenger
A
0
3
B
1
2
C
2
1
Option A:
AW = $-73,000
Option
Option B:
AW = -84,000 + 10,000(P/F,15%,1)(A/P,15%,3)
= -84,000 + 10,000(0.8696)(0.43798)
= $-80,192
Option C:
AW = -74,000 - 10,000(A/F,15%,3)
= -74,000 - 10,000(0.28798)
= $-76,880
Option
AW, $/year
-73,000
-80,192
-76,880
Chapter 10
Effects of Inflation
10.1
Inflated dollars are converted into constant value dollars by dividing by one plus
the inflation rate per period for however many periods are involved.
10.4
10.7
10.16
if per month = 24/12 = 2%. Use inflated rate equation to solve for real rate i.
0.020 = i + 0.005 + (i)(0.005)
1.005i = 0.015
i = 0.0149
(1.49% per month)
10.19
10.22
if = i + 0.05 + (i)(0.05)
0.10 = i + 0.05 + (i)(0.05)
1.05i = 0.05
i = 0.0476
(4.76%)
or
i = 0.10 0.05/(1 + 0.05) = 0.0476
2
(4.76%)
10.40
10.43
Chapter 11
Estimating Costs
11.1
Elements of first cost include equipment cost, delivery charges, installation cost,
insurance coverage, and training of personnel for equipment use.
11.4
11.7
Cost2011 = Cost2002(1490.2/1104.2)
328 = Cost2002(1.3496)
Cost2002 = $243
11.19
31.39 = Rate1913(16,520.53/100)
Rate1913 = $0.19 per hour
11.22 C2 = 9500(450/250)0.32
= 9500(1.207)
= $11,466
11.25 If C2 = 1.04 C1 and Q2/Q1 = 0.50, the cost-capacity relation is
1.04C1 = C1 (Q2/Q1)x
1.04 = (0.50)x
log 1.04 = x log 0.50
x = -0.0566
11.28 Cost = 3750(2)0.89(1520.6/1104.2) = $9570
11.31
1,320,000 = h(225,000)
h = 5.87
11.43 Compare last years allocation based on flight traffic with this years based on
baggage traffic. Significant change took place.
Last year;
This year;
flight basis baggage basis
DFW $330,000
$343,620
YYZ
187,500
218,371
MEX 150,000
105,363
11.46 The answer is (c)
11.49 C2 = 22,000(300/200)0.64 = $28,518
Answer is (b)
11.52 CT = 2.45(390,000) = $955,500
Answer is (a)
11.55
3,000,000 = 550,000(100,000/6000)x
5.4545 = (16.67)x
log 5.4545 = xlog16.67
x = 0.60
Answer is (d)
Percent
change
+ 4.1%
+16.5
29.7
Chapter 12
Depreciation Methods
12.1
12.4
Productive life Time the asset is actually expected to provide useful service.
Tax recovery period Time allowed by tax laws to depreciate the assets value to
salvage (or zero).
Book recovery period Time used on company accounting books for depreciation
to salvage (or zero)
12.7
Book Depreciation
Dt
BVt
40,000
10,000 30,000
10,000 20,000
10,000 10,000
10,000
0
12.10
(B 80,000)/5 = 72,000
B = $440,000
(b)
D4 = [80,000 - 0.25(80,000)]/5
= $12,000 per year
BV4 = 80,000 4(12,000)
= $32,000
D1 = 0.01391(3,400,000) = $47,294
D2 to D10 = 0.02564(3,400,000) = $87,176
1
0.20
2
0.32
3
0.192
4
0.1152
5
0.1152
6__
0.0576
DDB: d1 = d = 0.20
d2:
(selected)
d4:
(selected)
d3 = 0.48/(5-3+1.5) = 0.137
d4 = 0.288/2.5 = 0.1152
(select either)
d5:
d6:
12.37
12.40 (a) Determine the cost depletion factor in $/1000 tons and multiply by yearly
tonnage.
pt = 2,900,000/100 = $29,000 per 1000 tons
Annual cost depletion = volume $29,000
Volume, Cost depletion,
Year 1000 tons
$ per year
1
10
290,000
2
12
348,000
3
15
435,000
4
15
435,000
5
18
522,000
Total
70
$2,030,000
(b) Cost depletion is limited by the total first cost, which is $2.9 million. Since
only $2.03M has been depleted, all 5 years depletion is acceptable.
12.43 Depreciation is same for all years in straight line method.
D3 = [100,000 0.20(100,000)]/5 = $16,000
Answer is (a)
12.46
d = 2/5 = 0.4
BV2 = 30,000(1 0.4)2 = $10,800
Answer is (b)
12.52 Percentage:
Cost:
Answer is (b)
Chapter 13
After-Tax Economic Analysis
13.1
13.4
13.7
Year GI
E
P and S CFBT
0
$-1900 $-1900
1
$800 $-100
0
700
2
950 -150
0
800
3
600 -200
0
400
4
300 -250
700
750
TI
$633 $ 67
845 -45
281 119
141 -91
Taxes
$23
-16
42
-32
CFAT
$-1900
677
816
358
782
(0.264)
13.22 Calculate taxes = GI E (TI + DR)(Te) for each year and add. System 2 has
lower total taxes by $26,600. Spreadsheet solution follows.
P and
CFBT, $
-200,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
Rate
D, $
TI, $
Taxes, $
0.2000
0.3200
0.1920
0.1152
0.1152
0.0576
0
0
40,000
64,000
38,400
23,040
23,040
11,520
0
0
35,000
11,000
36,600
51,960
51,960
63,480
75,000
75,000
13,300
4,180
13,908
19,745
19,745
24,122
28,500
28,500
$152,000
13.43
Find BVt -1 = BV1; solve for NOPAT; find TI from NOPAT; solve for E from TI.
BV1 = 550,000 550,000(0.3333) = $366,685
EVA2 = 28,000 = NOPAT (0.14)(366,685)
NOPAT = $79,336
NOPAT = 79,336 = TI(1 0.35)
TI = $122,055
D2 = 550,000(0.4445)
= $244,475
122,055 = GI - E - D
= 700,000 - E - 244,475
E = $333,470
13.46 Te = 0.08 + (1 0.08)(0.34) = 39.3%
Answer is (b)
13.49
Answer is (d)
13.52
CFAT = GI E TI(Te)
26,000 = 30,000 TI(0.40)
TI = (30,000 26,000)/0.40 = $10,000
Taxes = TI(Te) = 10,000(0.40) = $4000
TI = GI - E D
10,000 = 30,000 D
D = $20,000
Answer is (d)
Chapter 14
Alternative Evaluation Considering
Multiple Attributes and Risk
14.1
Wi = 1/6 = 0.1667
14.4
Importance
9.0
1.0
3.0
6.0
10.0
4.8
33.8
Wi______
9/33.8 = 0.27
1/33.8 = 0.03
3/33.8 = 0.09
6/33.8 = 0.18
10/33.8 = 0.30
4.8/33.8 = 0.14
Estimates are for the future in engineering economic evaluations. Decision making under
risk is, therefore, always present in any conclusion.
0
0.12
1
0.56
2
0.26
3
0.032
4_
0 .022
5_
0.006
(82%)
P(Xi)
0.06
0.10
0.09
0.15
0.28
0.15
0.07
0.10
1.00
Xi P(Xi), $
36
80
90
180
392
240
126
200
1344