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Engineering Economy (16th Edition)

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Problem
The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years.
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The crane can be sold now for $8,000. If the crane is kept in service, it must be overhauled
immediately at a cost of $5,000. Operating and maintenance costs will be $3,000 per year after
the crane is overhauled. The overhauled crane will have zero MV at the end of the 8-year study
period. A new crane will cost $20,000, will last for 8 years, and will have a $4,000 MV at that
time. Operating and maintenance costs are $1,000 per year for the new crane. The company
uses a before-tax interest rate of 10% per year in evaluating investment alternatives. Should the Engineering Process Elem
company replace the old crane? Economy Dynamics... Chem
16th Edition 3rd Edition 4th Ed
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Step 1 of 4 right now
The Annual worth (AW) project is an equal series of amounts for N periods which are equivalent Joanna
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to the cash inflow or outflow at an interest rate which is usually equal to MARR.
Annie
Comment University of Birmi…
Matthew
University of Color…
Step 2 of 4
Here, cash inflow at equal interval is given and annual worth of the project needs to be calculated Find me a tutor
for the 16 year period.
The AW can be calculated from the following formula:
Where,
Where,
C is the capital recovery (Asset losing value minus the interest on the capital),
i% is the interest rate,
N is the number of stated years,
S is the salvage value of the machine or the asset, and
I is the initial investment.
Comment
Step 3 of 4
In the present case, the annual worth of the old crane is to be compared with the new crane for
the A corporation that has the remaining life of around 10 years. The crane can be solved at
$8,000 and needs overhaul of worth $5,000.
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Therefore the capital investment will be $13,000 for the old crane computed by adding the sale
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value and the overhaul cost.Solutions Expert Q&A
The annual operating Practice cost for the old machine
and maintenance Searchis 
$3,000. The calculation for the annual worth of the old crane is done as follows:
Therefore, the value of the old crane comes out to be in this case.
Comment
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Step 4 of 4 for problem
Similarly, the capital investment for the new challenger will be done by computing the capital
investment and the annual operating and maintenance cost. The capital investment for the new
crane or the challenger is $20,000 and the annual O&M cost is $1,000. The market value for the
new crane at the end of 10 year will be $4,000.
The calculation of the annual worth for the new crane is shown as follows:
Thus, the annual worth of new crane comes out to be in this case. On comparing the
AW of the defender that is old crane and the challenger, the AW of challenger is greater than AW
of defender. Therefore, the old crane should be replaced with the new crane.
Comment
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Chapter 9, Problem 12P Chapter 9, Problem 6P
The corporate average fuel economy (CAFE) A steam generation system at a biomass-fueled
standard for mileage is currently 27.5 miles per power plant uses an electrostatic precipitator (ESP)
gallon of gasoline (the defender) for passenger to clean its gaseous effluents. The power plant has
cars. To conserve fuel and reduce air pollution, consistently made use of the same type of ESP
suppose the U.S. Congress sets the CAFE over the past several years. The installed cost...
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Problem
A steam generation system at a biomass-fueled power plant uses an electrostatic precipitator

(ESP) to clean its gaseous effluents. The power plant has consistently made use of the same My Textbook Solutions
type of ESP over the past several years. The installed cost of a new ESP has been relatively
constant at $80,000. Records of operation and maintenance expenses indicate the following
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average expenses per year as a function of the age of the ESP. The MVs of the ESP are also
for problem
reasonably well known as a function of age.
Year 1 2 3 4 5 Engineering Process Elem

Economy Dynamics... Chem
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O&M expense $30,000 $30,000 $35,000 $40,000 $45,000
Market value 60,000 50,000 40,000 25,000 12,500

Determine the best time to replace the ESP if the MARR is 15% per year. Problem right now
Problem
Joanna
In a replacement analysis for a vacuum seal on a spacecraft, the following data are known about Georgia Tech
the challenger: the initial investment is $12,000; there is no annual maintenance cost for the first
three years, however, it will be $2,000 in each of years four and five, and then $4,500 in the sixth Annie
year and increasing by $2,500 each year thereafter. The salvage value is $0 at all times, and University of Birmi…
MARR is 10% per year. What is the economic life of this challenger?
Matthew
Step-by-step solution Find me a tutor
Step 1 of 3
Calculation of the approximate total cost, which is the sum of the loss in value, cost of capital,
and the annual operating and maintenance O&M expenses.
Comment
Step 2 of 3
Present worth in the last column is calculated as
For the present worth of the total cost till year 5, the equivalent uniform annual cost is
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calculated as Textbook Solutions Expert Q&A Practice Search 
Comment
Step 3 of 3
The is minimum in the year four, which is the economic life of the ESP. Thus, it should
be replaced after .
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A city water and waste-water department has a four-year-old sludge pump that was initially
purchased for $65,000. This pump can be kept in service for an additional four years, or it can be
sold for $35,000 and replaced by a new pump. The purchase price of the replacement pump is Continue to post
$50,000. The projected MVs and operating and maintenance costs over the four-year planning
horizon are shown in the table that follows. Assuming the MARR is 10%, (a) determine
the economic life of the challenger and (b) determine when the defender should be replaced.
Problem
Defender Challenger
Year MV at EOY O&M Cost MV at EOY O&M Cost
1 $25,000 $18,500 $40,000 $13,000 Engineering Process Elem

2 21,000 21,000 32,000 15,500 View all solutions
3 17,000 23,500 24,000 18,000

4 13,000 26,000 16,000 20,500
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Problem Georgia Tech
A steam generation system at a biomass-fueled power plant uses an electrostatic precipitator

(ESP) to clean its gaseous effluents. The power plant has consistently made use of the same Annie
type of ESP over the past several years. The installed cost of a new ESP has been relatively University of Birmi…
constant at $80,000. Records of operation and maintenance expenses indicate the following
average expenses per year as a function of the age of the ESP. The MVs of the ESP are also Matthew
reasonably well known as a function of age. University of Color…
Year 1 2 3 4 5 Find me a tutor
O&M expense $30,000 $30,000 $35,000 $40,000 $45,000
Market value 60,000 50,000 40,000 25,000 12,500
Determine the best time to replace the ESP if the MARR is 15% per year. Problem 1
Problem 1
In a replacement analysis for a vacuum seal on a spacecraft, the following data are known about
three years, however, it will be $2,000 in each of years four and five, and then $4,500 in the sixth
year and increasing by $2,500 each year thereafter. The salvage value is $0 at all times, and
Step 1 of 6
It is given that there are two options available. One is defender and other is challenger. The
before tax MARR is 10% and the analysis period of 4 years. The current price of the defender is
$35,000 and the initial cost of the challenger is $50,000.
The table below shows the market value and operating and maintenance cost at the end of
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Comment
Step 2 of 6
(a) It is required to determine the economic life of the challenger. The year in which the EUAC is
minimum is the economic life of the asset.
Following is the screenshot of the spreadsheet that shows the formulae used in calculation of
EUAC:
Comment
Step 3 of 6
The result image is as follows:
It is clear from the result image that the EUAC of the challenger is minimum in year-2. Hence,
the economic life of the challenger is 2 years.
Comment
Step 4 of 6
(b) In order to find when the defender should be replaced one first need to find EUAC.
Following is the screenshot of the spreadsheet that shows the formulae used in calculation of
EUAC of defender:
Comment
Step 5 of 6
The result image is as follows:
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It is clear from the result image that the EUAC of the defender is minimum in year-3. Thus, the
economic life of the defender is 3 years.
Comment
Step 6 of 6
Conclusion:
Under the economic life of defender, the EUAC of challenger is less than the EUAC of the
defender. Thus, the department should replace the defender now.
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The corporate average fuel economy (CAFE) standard for mileage is currently 27.5 miles per
gallon of gasoline (the defender) for passenger cars. To conserve fuel and reduce air
pollution, suppose the U.S. Congress sets the CAFE standard at 36 miles per gallon (the Continue to post
challenger) in 2010. An auto will emit on average 0.9 pounds of carbon dioxide (CO2) per mile
driven at 27.5 miles per gallon, and it will I emit 0.8 pounds of CO2 per mile driven at 36 miles
per gallon. Problem
a. How much fuel and carbon dioxide would be saved over the lifetime of a passenger car with
the new standard? Assume a car will be driven 99,000 miles over its lifetime. My Textbook Solutions
b. If C02 costs $0.02/lb to capture and sequester, what penalty does this place on the
defender? Should this penalty affect the CAFE replacement analysis?
Problem
Engineering Process Elem
A special purpose NASA fuel cell requires an investment of $80,000 and has no MV at any Economy Dynamics... Chem
time. Operating expenses in year k are given by Ck= $10,000 + $6,000 (k - 1). Obsolescence is 16th Edition 3rd Edition 4th Ed
reflected in increased operating expenses and is equivalent to $4,000 per year—this expense View all solutions
has not been included in the equation for Ck. Problem
a. Determine the economic life of the fuel cell if i = 0 %.

b. Repeat Part (a) when the $4,000 per year is ignored. What can you conclude about the
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influence of an expense that is constant over time on the economic life?
Joanna
Problem Georgia Tech
the challenger: the initial investment is $12,000; there is no annual maintenance cost for the first Annie
University of Birmi…
MARR is 10% per year. What is the economic life of this challenger? Matthew
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Step 1 of 4
The table below gives the details related to two different standards of corporate average fuel
economy (CAFE).
Current CAFE New CAFE
Mileage 27.5 miles per gallon 36 miles per gallon
Carbon Dioxide Emission 0.9 pounds 1.8 pounds
Comment
Step 2 of 4
(a)
If a car is driven 99,000 miles over its lifetime, the gallons of fuel required for two different
standards of CAFE is
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Current CAFE:
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New CAFE:
Thus, with new, fuel savings will be over the life of the car.
Comment
Step 3 of 4
For 99,000 miles over its lifetime, the carbon dioxide emission saved is
Thus, of carbon dioxide emission is saved.
Comment
Step 4 of 4
(b)
At the cost of $0.02 per pound to capture and sequester carbon dioxide, the penalty for
defender would be
Penalty of for not saving , carbon dioxide emission places an extra monetary burden
on the defender.
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Four years ago, the Attaboy Lawn Mower Company purchased a piece of equipment. Because
of increasing maintenance costs for this equipment, a new piece of machinery is being
considered for the assembly line. The cost characteristics of the defender (present equipment) Continue to post
and the challenger are shown below:
Defender Challenger
Purchase cost = My Textbook Solutions

Original cost = $9,000
$11,000
Maintenance = $500 in year one (four years ago) increasing by a uniform Maintenance =
gradient of $100 per year thereafter $150 per year
MV at end of life = 16th Edition 3rd Edition 4th Ed
MV at end of life = 0
$3,000 View all solutions
Estimated life = five

Original estimated life = nine years
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Suppose a $6,000 MV is available now for the defender. Perform a before-tax analysis, using a
beforetax MARR of 15%, to determine which alternative to select. Be sure to state all important Joanna
assumptions you make, and utilize a uniform gradient in your analysis of the defender. Georgia Tech
A special purpose NASA fuel cell requires an investment of $80,000 and has no MV at any
time. Operating expenses in year k are given by Ck= $10,000 + $6,000 (k - 1). Obsolescence is Matthew
reflected in increased operating expenses and is equivalent to $4,000 per year—this expense
has not been included in the equation for Ck. Problem
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a. Determine the economic life of the fuel cell if i = 0 %. MSU-IIT
b. Repeat Part (a) when the $4,000 per year is ignored. What can you conclude about the
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influence of an expense that is constant over time on the economic life?
Problem
Step 1 of 8
To determine whether to keep the existing machinery (defender) or to replace it with a new one
(challenger), we need to determine the equivalent uniform annual cost of the two
alternatives.
Comment
Step 2 of 8
The before-tax minimum average rate of return is .

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Comment
Step 3 of 8
Defender: Following details are given
Original Cost $9,000
$500 in year one, increasing by uniform gradient of $100

Maintenance
per year thereafter
Market value at the end of

0
life
Present market value -

$6,000
after 4 years
Original estimated life 9 years
Comment
Step 4 of 8
The maintenance cost at the end of 4 years is
Comment
Step 5 of 8
Assume that five years from now.
The equivalent uniform annual cost for the defender for the remaining 5 years of life
can be calculated as
Comment
Step 6 of 8
Challenger: Following details are given
Purchase Cost $11,000
Maintenance $150 per year
Market value at the end of life $3,000
Estimated life 5 years
Comment
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Step 7 of 8
The equivalent uniform annual cost for the challenger can be calculated as
Comments (2)
Step 8 of 8
: This implies that the equivalent uniform annual cost is minimized by

choosing . That is, the existing machine should be kept.
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An area can be irrigated by pumping water from a nearby river. Two competing installations are
being considered.
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Pump A 6 in. System Pump B 8 in. System 20 questions remaining
Operating load on motor 15 hp 10 hp
Efficiency of pump motor 0.60 0.75
Cost of installation $2,410 $4,820
Market value $80 $0 Engineering Process Elem

Useful life 8 years 8 years View all solutions
The MARR is 12% per year and electric power for the pumps costs $0.06 per kWh. Recall that 1
horsepower (hp) equals 0.746 kilowatts. (Problem, Problem 1)
a. At what level of operation (hours per year) would you be indifferent between the two right now
pumping systems? If the pumping system is expected to operate 2,000 hours per year, which
system should be recommended? Joanna
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b. Perform a sensitivity analysis on the efficiency of Pump A. Over what range of pumping
Matthew
efficiency is Pump A preferred to Pump B? Assume 2,000 hours of operation per year, and draw University of Color…
a graph to illustrate your answer.
Problem Maria
MSU-IIT
Refer to Example 11-2. Assuming gasoline costs $3.50 per gallon, find the breakeven
mileage per year between the hybrid vehicle and the gas-only vehicle. All other factors remain
the same. Find me a tutor
Problem 1
The Universal Postal Service is considering the possibility of fixing wind deflectors on the tops of
500 of their long-haul tractors. Three types of deflectors, with the following characteristics, are
being considered (MARR =10% per year):
Windshear Blowby Air-vantage
Capital investment $1,000 $400 $1,200
Drag reduction 20% 10% 25%
Maintenance per Year $10 $5 $5
Useful life 10 years 10 years 5 years
If 5% in drag reduction means 2% in fuel savings per mile, how many miles do the tractors have
to be driven per year before the windshear deflector is favored over the other deflectors? Over
what range of miles driven per year is air-vantage the best choice? (Note: Fuel cost is expected
to be $3.00 per gallon, and average fuel consumption is 5 miles per gallon without
the deflectors.) State any assumptions you make. (Problem)
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Step 1 of 3
a) To find out the level of operation at which the two pumping systems are equally efficient, we
need to form equivalent-worth equation (EUAC).
…… (1)
The cost of the electric power for the pump is $0.06 per kWh. The annual energy cost of can be
calculated as:
Assuming operating hours per year as X, the annual energy cost for Pump A is:
Similarly, the annual energy cost for Pump B is:
Finally, form the EUAC for both the pumps by inserting appropriate values in (1).
Equate to find the level of operation so that one is indifferent between the
two pumping systems.
Hence, the level of operation at which one is indifferent between the two pumping systems is
.
Comment
Step 2 of 3
Calculate EUAC for both pumping systems at .
Since, at annual operating hours of 2,000, the more efficient pump is

.
Comment
Step 3 of 3
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b) Assuming efficiency Solutions
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A as unknown Practice
. At annual operating hours are 2,000, the
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annual energy cost for Pump A is:
To determine such efficiency of Pump A that Pump A is preferred to Pump B, equate the EUAC
of the two pumping systems.
Thus, the efficiency of Pump A such that Pump A is preferred to Pump B is .
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Two traffic signal systems are being considered for A group of private investors borrowed $30 million to
an intersection. One system costs $32,000 for build 300 new luxury apartments near a large
installation and has an efficiency rating of 78%, university. The money was borrowed at 6% annual
requires 28 kW power (output), incurs a user cost of interest, and the loan is to be repaid in equal annual
$0.24 per vehicle, and has a life of 10... amounts over a 40-year period. Annual...
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Chapter 11, Problem 14P 1 Bookmark Show all steps: ON

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The managers of a company are considering an investment with the following estimated cash
flows. MARR is 15% per year.
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Capital investment $30,000
Annual revenues $20,000

Annual expenses $5,000
Market value $1,000

Useful life 5 years Economy Dynamics... Chem
View all solutions

The company is inclined to make the investment; however, the managers are nervous because
all of the cash flows and the useful life are approximate values. The capital investment is known
to be within ±5%. Annual expenses are known to be within ±10%. The annual revenue, market
value, and useful life estimates are known to be within ±20%. (Problem 1)
a. Analyze the sensitivity of PW to changes in each estimate individually. Based on your results, right now
make a recommendation regarding whether or not they should proceed with this project. Graph
your results for presentation to management. Joanna
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b. The company can perform market research and /or collect more data to improve the accuracy
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of these estimates. Rank these variables by ordering them in accordance with the need for more University of Color…
accurate estimates (from highest need to lowest need).
Problem 1 Maria
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being considered (MARR =10% per year): Find me a tutor
Problem
the same.
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Chapter 11, Problem 14P Step 1 of 7 1 Bookmark Show all steps: ON
a) The present worth of the project is estimated as:
That is,
Comment
Step 2 of 7
The capital investment is known to be within ±5 percent. Therefore, sensitivity to changes in

capital investment will be:
At :
At :
Assume the percent change be . The breakeven percent change is when ,

that is:
An increase of in capital investment cost.
Comment
Step 3 of 7
The annual expenses are known to be within . Therefore, sensitivity to changes in

annual expenses will be:
At :
At :
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that is:
An increase of 124% in annual expenses.
The annual revenue is known to be within . Therefore, sensitivity to changes in

annual revenue will be:
At :
At :

that is:
A decrease of in annual revenue.
Comment
Step 4 of 7
The market value is known to be within . Therefore, sensitivity to changes in annual

revenue will be:
At :
At :
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that is:
A decrease of in market value.
Comment
Step 5 of 7
The useful life is known to be within . Therefore, sensitivity to changes in annual

revenue will be:
At , :
At , :
At , with 40% decrease, the present worth is:
Similarly at , with 60% decrease, the present worth is:
So, by trial and error method the breakeven life is 2.5 years (a 50% decrease).
Comment
Step 6 of 7
It is feasible to proceed with the project if present worth is positive for values of factors
(changed individually) within given ranges. However, if all factors are at their worst values
together, that is, capital investment at , annual expenses at , annual revenues,
market value, and useful life at , the project is not economical as the
. The following graph depicts the result:
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Comment
Step 7 of 7
b) The variables are ranked on the basis of the breakeven percent change.
Highest Need Annual Revenues
Useful Life
Capital Investment
Annual Expense
Lowest Need Market Value
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Problem
Suppose that, for a certain potential investment project, the optimistic, most likely, and
pessimistic estimates are as shown in the accompanying table. (Problem 1) My Textbook Solutions
a. What is the AW for each of the three estimation conditions?
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for problem
b. It is thought that the most critical factors are useful life and net annual cash flow. Develop a
table showing the net AW for all combinations of the
Optimistic Most Likely Pessimistic 16th Edition 3rd Edition 4th Ed
View all solutions
Capital investment $90,000 $100,000 $120,000
Useful life 12 years 10 years 6 years Chegg tutors who can

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Market value $30,000 $20,000 $0 Joanna

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Net annual cash flow $35,000 $30,000 $20,000

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MARR (per year) 10% 10% 10%

Maria
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estimates for these two factors, assuming all other factors to be at their most likely values.
Problem 1
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In planning a small two-story office building, the architect has submitted two designs. The first
provides foundation and structural details so that two additional stories can be added to the
required initial two stories at a later date and without modifications to the original structure. This
building would cost $1,400,000. The second design, without such provisions, would cost only
$1,250,000. If the first plan is adopted, an additional two stories could be added at a later date at
a cost of $850,000. If the second plan is adopted, however, considerable strengthening and
reconstruction would be required, which would add $300,000 to the cost of a two-story addition.
Assuming that the building is expected to be needed for 75 years, by what time would the
additional two stories have to be built to make the adoption of the first design justified? MARR is
10% per year. (Problem)
Problem
the same.
Step 1 of 4
Annual worth refers to the power of a project to generate cash during the period of a single year.
It is used to evaluate the ability of a project to generate cash in a single year
The annual worth (AW) can be calculated as:
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Where,
i is the minimum attractive rate of return
N is the useful life
Comment
Step 2 of 4
a.
On the basis of the given information, calculate the annual worth of optimistic , most
likely , and pessimistic estimates:
Comment
Step 3 of 4
b.
Since all the factors accept useful life and net annual cash flow are assumed to be at their most
likely values, the net annual worth for all the combinations of the estimates for these two factors
(useful life and net annual cash flow) are calculated as:
All the calculated estimates are summarized in the table:
At useful life (O) and net annual cash flow (O):
At useful life (O) and net annual cash flow (M):
At useful life (O) and net annual cash flow (P):
At useful life (M) and net annual cash flow (O):
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At useful life (M) and net annual cash flow (M):
At useful life (M) and net annual cash flow (P):
At useful life (P) and net annual cash flow (O):
At useful life (P) and net annual cash flow (M):
Comment
Step 4 of 4
At useful life (P) and net annual cash flow (P):
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Extended Learning Exercise
Consider these two alternatives for solid-waste removal (Problem 1):

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Alternative A: Build a solid-waste processing facility. Financial variables are as follows:
Capital investment $108 million in 2008 (commercial operation starts in 2008)
Expected life of facility 20 years My Textbook Solutions
Annual operating expenses $3.46 million
Estimated market value 40% of initial capital cost at all times

Alternative B: Contract with vendors for solid-waste disposal after intermediate recovery. 16th Edition 3rd Edition 4th Ed
Financial variables are as follows: View all solutions
$17 million in 2008 (This is for intermediate

Capital investment
recovery from the solid-waste stream.)
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Expected contract period 20 years
Joanna
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Annual operating expenses $2.10 million
Annie
Repair costs to intermediate recovery University of Birmi…
$3.0 million
system every five years
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Annual fee to vendors $10.3 million
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Estimated market value at all times $0
Related Data:
MACRS (GDS) property class 15 yr (Chapter 7)
Study period 20 yr
Effective income tax rate 40%
Company MARR (after-tax) 10% per year
Inflation rate 0% (ignore inflation)
a. How much more expensive (in terms of capital investment only) could Alternative B be in order
to breakeven with Alternative A?
b. How sensitive is the after-tax PW of Alternative B to cotermination of both alternatives at the

end of year 10?
c. Is the initial decision to adopt Alternative B in Part (a) reversed if our company's annual
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B ($2.10 millionQ&A Practice
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unexpectedly double? Explain why 
(or why not).
d. Use a computer spreadsheet available to you to solve this problem.
Problem 1
being considered (MARR =10% per year):
Problem
the same.
Step 1 of 18
Annual worth refers to the power of a project to generate cash during the period of a single year.
It is used to evaluate the ability of a project to generate cash in a single year
The annual worth (AW) can be calculated as:
Where,
i is the minimum attractive rate of return
N is the useful life
Comment
Step 2 of 18
Using spreadsheet approach to solve the problem.
Consider Alternative A:
Assign column A to EOY, column B to BTCF, column C to depreciation, column D to taxable

income, column E to income tax, and column F to ATCF.
Enter the value of capital investment in cell B2. Enter the value of annual operating expenses in
cell B3. Select the content of cell B3 and drag it over the range B3:B22.
Enter the following formula in cell B23 to obtain BTCF due to market value of the facility after 20
years:
Comment
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Step 3 of 18
It is given that the facility in alternative A is a 15 year property class. On the basis of that enter
values in column C to obtain the depreciation in the value of the facility.
Enter the following formula in cell D3 to obtain the taxable income at EOY 1:
Select the formula of cell D3 and drag it over the range D3:D23 to obtain the taxable income for
20 years.
Comment
Step 4 of 18
Enter the following formula in cell E3 to obtain income tax at EOY 1:
Select the formula of cell E3 and drag it over the range E3:E23 to obtain the income tax for 20
years.
Enter the following formula in cell F2 to obtain ATCF for EOY 0:
Select the formula of cell F3 and drag it over the range F3:F23 to obtain ATCF at each EOY.
Comment
Step 5 of 18
Enter the following formula in cell F25 to obtain the present worth PW of all the cash flows in 20
years:
Comment
Step 6 of 18
On implementing the above mentioned formulae the following spreadsheet is obtained:
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Comment
Step 7 of 18
Similarly, make a spreadsheet for alternative B by entering the given information for alternative B.
It can be easily done by copying the spreadsheet used for alternative A. Copy the spreadsheet of
alternative A and change the values of capital investment and total annual expenses in column B
of the spreadsheet.
It is given that alternative A and alternative B both lies in the category of 15 year property class
so the formulae for depreciation will remain the same.
All the remaining entries will change automatically.
On implementing above explained procedure for alternative B the following spreadsheet is

obtained:
Comment
Step 8 of 18
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It can be observed that the present worth of alternative A is and the present
worth of alternative B is . So, alternative B is recommended over alternative A.
Now, use the spreadsheet of alternative B and apply hit and trial method to obtain the capital
investment amount at which the present worth of alternative B becomes equal to the present
worth of alternative A.
Enter different values of capital investment in cell B2 of the spreadsheet and check the value of
present worth in cell F25.
Comment
Step 9 of 18
The following spreadsheet shows the value of capital investment of alternative B at which the
present worth of the alternative B breakeven with alternative A:
Comment
Step 10 of 18
It can be observed in above spreadsheet that the capital investment of alternative B should be
$42,731,390 to breakeven with alternative A.
Extra capital investment for Alternative B is
Comment
Step 11 of 18
Thus, alternative B should be more expensive by $25,731,390 in order to breakeven with

Alternative A.
Comment
Step 12 of 18
Use the spreadsheet of alternative A and delete the entries in it after EOY 10.
  
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Update the entry in cell C12 to account for the depreciation at EOY 10.
Introduce another row for EOY 10 to consider the market value of alternative A at EOY 10.
The following spreadsheet is obtained when alternative A is terminated at EOY 10:
Comment
Step 13 of 18
Use the spreadsheet of alternative B and delete the entries in it after EOY 10.
Update the entry in cell C12 to account for the depreciation at EOY 10.
Introduce another row for EOY 10 to consider the market value of alternative B at EOY 10.
Comment
Step 14 of 18
The following spreadsheet is obtained when alternative B is terminated at EOY 10:
Comment
Step 15 of 18
The present worth of ATCFs for alternative B is greater than that of alternative A. So, alternative
B is recommended over alternative A.
Use the following expression to obtain the sensitivity of after-tax present worth of alternative B to
contamination at EOY 10:
  
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Thus, the sensitivity of after-tax present worth of alternative B to contamination at EOY 10 is

23.1%.
Comment
Step 16 of 18
Use the spreadsheet of alternative B to solve this part. It is given that annual operating expenses
for alternative B are doubled.
So enter the following formula in cell B3 to obtain BTCF for EOY 1:
Accordingly change the value of remaining BTCF.
On doing so spreadsheet will update it automatically and present worth of after-tax cash flows
will be displayed in cell F25 of the spreadsheet.
On implementing above mentioned procedure the following spreadsheet will be obtained:
Comment
Step 17 of 18
Compare the present worth of ATCFs for alternative A and alternative B (when annual expenses
of alternative B are doubled).
The present worth of ATCFs for alternative B (when annual operating expenses are doubled) is
greater than that of alternative A. So, alternative B is still recommended over alternative A.
Comment
Step 18 of 18
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Extended Learning Exercise Construct the spreacisheet used in Example. Use this
spreadsheet as a starting point to answer the following questions. Be sure to clearly state your
assumptions. (Problem 1) Continue to post
a. How sensitive is the decision to the amount of the down payment for the purchase option? If a 20 questions remaining
down payment of less than 20% is used, you will need to account for monthly mortgage
insurance (about $56 /month).
b. How sensitive is the decision to the type of mortgage acquired? You can look at different
repayment periods (15 or 20 years) as well as the impact of points paid on the loan. One point is
equal to 1% of the loan value and is paid as part of the closing costs.
c. Interest paid on a mortgage is tax deductible if you itemize deductions on your personal Engineering Process Elem
income tax return. Discuss how you would incorporate this and what impact it would have on the Economy Dynamics... Chem
decision to purchase versus rent a home.
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Problem 1
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Annie
Matthew
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Problem
the same.
Step 1 of 10
(a)
Make a spreadsheet as shown in the referred example.
In cell C24 of the spreadsheet enter $56 as the monthly payment that has to be paid to account
for insurance of mortgage.
Accordingly the value of present worth of total owning cost in purchasing will change and
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subsequently the Solutions
value of present worth ofExpert Q&Ahome
purchasing Practice
over rent will change. Search 
Enter different values of down payment percentage in cell C17 and obtain the corresponding
results in cell F27.
Comment
Step 2 of 10
Make a table in the lower part of the spreadsheet with first column for down payment percentage
and second column for present worth advantage of purchasing over rent. And enter the obtained
results in the table.
Comment
Step 3 of 10
On implementing above explained procedure the following spreadsheet is obtained:
Comment
Step 4 of 10
It can be deduced form above spreadsheet that present worth advantage of purchasing the
home over renting increases as down payment percentage decreases. Therefore,
decreasing down payment percentage does not affect the decision of purchasing rather it
becomes more favorable as down payment percentage decreases.
Comment
Step 5 of 10
(b)
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Use the spreadsheet in the referred example.
Practice Search 
Enter different values for loan repayment length in cell C19 and analyze the corresponding
results obtained in the spreadsheet.
Make a table in the spreadsheet that shows the variation in present worth advantage of
purchasing the home over renting it due to change in loan period.
Comment
Step 6 of 10
The following spreadsheet depicts the result obtained when loan period is for 15 years:
From the above spreadsheet it can be deduced that as the loan repayment period decreases
the present worth advantage of purchasing the home over renting also decreases. But the
alternative of purchasing the home is still favored when the loan period lies between 15 years to
30 years.
Comment
Step 7 of 10
Use the spreadsheet in the referred example.
Enter different values for loan interest rate in cell C18 and analyze the effect of changing loan
interest rate on the decision of purchasing or renting the home.
Make a table in the spreadsheet that shows the variation in present worth advantage of
purchasing the home over renting it due to change in loan interest rate.
Comment
Step 8 of 10
The following spreadsheet depicts the result obtained when loan interest rate is 8%:
  
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Comment
Step 9 of 10
It can be deduced from above spreadsheet that the given problem is quite sensitive to changes
in loan interest rate. When the loan interest rate is decreased by one point from 7% the
present worth advantage of purchasing home changes rapidly and favors the decision of
purchasing the home.
On the other hand as the loan interest rate is increased by one point from 7% the present
worth advantage of purchasing home becomes negative and favors the decision of
renting the home. When the loan interest rate is increased by another point present worth
changes rapidly and favors renting the home.
Comment
Step 10 of 10
(c)
When the interest paid on mortgage is tax deductible then overall lesser amount will be paid to
repay loan. As a result the present worth of purchasing the home will decrease consequently the
decision of purchasing home will be more favored over renting the home.
Comment

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The price to earnings (P/E) ratio is an after-tax metric reflecting growth potential of the common
stock of a corporation. P is the selling price (per share) of the common stock, and E is the after-
tax earnings per year of a share of stock. A high P/E ratio, for example, indicates that a firm is in
Continue to post
a high-growth industry (such as biotechnology) and that annual earnings are not as important to 20 questions remaining
investors as the growth rate of the price of common stock is. Because a corporation can be
assumed to have an indefinitely long life, the P/E ratio can be likened to the (P/A, i′%, N) factor
when N approaches infinity. For a certain transportation company, the P/E ratio is 12. What is the
implied IRR for this relatively stable company? (Problem) My Textbook Solutions
Problem
Refer to the associated graph. Identify when the WACC approach to project acceptability agrees
with the CAPM approach. When do recommendations of the two approaches differ? Explain why.

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Joanna
Georgia Tech
Rakesh
Aryabhatta Knowle…
Step 1 of 2
For a certain transportation company, the ratio is 12, the corporation can be assumed to
Annie
have long life, thus, the ratio has here N approaches infinity.
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Comment
Step 2 of 2
In this case, the IRR can be calculated as follow:
Thus, the IRR will be .
Comment
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A four-year-old truck has a present net realizable value of $6,000 and is now expected to have a
market value of $1,800 after its remaining three-year life. Its operating disbursements are
expected to be $720 per year.
Continue to post
An equivalent truck can be leased for $0.40 per mile plus $30 a day for each day the truck is
kept. The expected annual utilization is 3,000 miles and 30 days. If the before-tax MARR is 15%,
find which alternative is better by comparing before-tax equivalent annual costs
a. using only the preceding information (Problem); My Textbook Solutions
b. using further information that the annual cost of having to operate without a truck is $2,000.
(Problem)
Problem
Work Problem by comparing after-tax equivalent PWs if the effective income tax rate is 40%, the Economy Dynamics... Chem
present book value is $5,000, and the depreciation charge is $1,000 per year if the firm continues 16th Edition 3rd Edition 4th Ed
to own the truck. Any gains or losses on disposal of the old truck affect taxes at the full 40% rate, View all solutions
and the after-tax MARR is 5%.

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Joanna
Step 1 of 3 Georgia Tech
The value of a four-year-old truck is $6,000 and the expected value after three years is $1,800. Rakesh
The operating disbursement is $720 per year. Another equivalent truck is leased for $0.40 per
mile plus $30 per day. The expected annual utilization is 3,000 miles and 30 days. The MARR is
15%. Annie
Comment
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Step 2 of 3
a.
Using the given information, to determine the better alternative comparing before-tax equivalent
annual cost, calculate the annual equivalent cost for each alternative as follows:
Old Truck
Thus, the before-tax annual equivalent cost of the old truck is $2,829.6.
Leas option
Thus, the before-tax annual equivalent cost of lease truck is $2,100.
Since the annual equivalent cost of the old truck is more than the lease truck, hence lease truck
is better.
Comment
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Step 3 of 3
b.
Assume that the annual cost of operating without a truck is $2,000. Thus, EAC of operating
without a truck is least as compared to old truck and lease truck. Hence, the operating without
a truck is a better alternative.
Comment

Four proposals are under consideration by your Companies obtain the funds needed for capital
company. Proposals A and C are mutually investments from multiple sources. To evaluate
exclusive; proposals B and D are mutually potential projects, the cost of the different sources
exclusive and cannot be implemented unless of capital must be accounted for in the interest rate
proposal A or C has been selected. No more than used to discount cash flows and measure...
$140,000 can be spent at...
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The Shakey Company can finance the purchase of a new building costing $2 million with a bond
issue, for which it would pay $100,000 interest per year, and then repay the $2 million at the end
of the life of the building. Instead of buying in this manner, the company can lease the building by Continue to post
paying $125,000 per year, the first payment being due one year from now. The building would be
fully depreciated for tax purposes over an expected life of 20 years. The income tax rate is 40%
for all expenses and capital gains or losses, and the firm's after-tax MARR is 5%. Use AW
analysis based on equity (nonborrowed) capital to determine whether the firm should borrow and
buy or lease if, at the end of 20 years, the building has the following market values for the owner:
(a) nothing,
(b) $500,000. Straight-line depreciation will be used but is allowable only if the company
purchases the building. (Problem)
Problem
Work Problem by comparing after-tax equivalent PWs if the effective income tax rate is 40%, the Engineering Process Elem
present book value is $5,000, and the depreciation charge is $1,000 per year if the firm continues
to own the truck. Any gains or losses on disposal of the old truck affect taxes at the full 40% rate,
View all solutions
Problem 1
market value of $1,800 after its remaining three-year life. Its operating disbursements are Chegg tutors who can
expected to be $720 per year. right now
Joanna
kept. The expected annual utilization is 3,000 miles and 30 days. If the before-tax MARR is 15%, Georgia Tech
a. using only the preceding information; Rakesh

b. using further information that the annual cost of having to operate without a truck is $2,000. Annie
Find me a tutor
Step 1 of 3
On the basis of the use of equity money of the firm we will calculate annual worth for both buying
and lease the building
First we calculate for purchasing the building,
Where,
BTCF TI ATCF
Year Depreciation (B)
(A) (C) (D)
0 0 0 0 0
1-20
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If (a) 20
If (b) 20
Comment
Step 2 of 3
Now we calculate for leasing the building,
BTCF Depreciation TI ATCF

Year
(A) (B) (C) (D)
1-20
Comment
Step 3 of 3
Now comparing the Annual worth for both buying and leasing the building
Buy and (a)
Therefore, Lease.
Buy and (b)
Therefore leasing is better option for case (a), and buying is better option for case (b).
Comment

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The Capitalpoor Company is considering purchasing a business machine for $100,000.

An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all
repairs and service. If the machine is purchased, a comparable repair and service contract can Continue to post
be obtained for $1,000 per year.
The salesperson of the business machine firm has indicated that the expected useful service life
of this machine is five years, with zero market value, but the company is not sure how long the
machine will actually be needed. If the machine is rented, the company can cancel the lease at
the end of any year. Assuming an income tax rate of 25%, a straight-line depreciation charge of My Textbook Solutions
$20,000 for each year the machine is kept, and an after-tax MARR of 10%, prepare an
appropriate analysis to help the firm decide whether it is more desirable to purchase or rent.
(Problem)
Problem
Work Problem by comparing after-tax equivalent PWs if the effective income tax rate is 40%, the
present book value is $5,000, and the depreciation charge is $1,000 per year if the firm continues Economy Dynamics... Chem
to own the truck. Any gains or losses on disposal of the old truck affect taxes at the full 40% rate, 16th Edition 3rd Edition 4th Ed
and the after-tax MARR is 5%. View all solutions
Problem 1
market value of $1,800 after its remaining three-year life. Its operating disbursements are Chegg tutors who can
expected to be $720 per year. right now
kept. The expected annual utilization is 3,000 miles and 30 days. If the before-tax MARR is 15%, Joanna
Georgia Tech
a. using only the preceding information;

Rakesh
Annie
Step-by-step solution Find me a tutor
Step 1 of 9
Alternative 1: Lease
The cost of availing the business machine on rent is $35,000. The lease can be cancelled at the
end of any year.
Comment
Step 2 of 9
Alternative 2: Purchase
On the other hand, the cost of purchasing a new machine is $100,000 with a useful life of 5 years
and market value of 0 at the end. There are repair costs of $1,000 to be incurred every year. In
addition, there is a straight-line depreciation charge of $20,000 per year.
Comment
Step 3 of 9
The current effective income tax rate is . The table below shows the calculation of after-
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tax cash flow Textbook
for Solutions Expert Q&A
the two alternatives. Practice Search 
Lease
Comment
Step 4 of 9
Purchase
Comment
Step 5 of 9
The minimum average rate of return is .
Annual worth of alternative 1, (adjusted to end-of-year) can be calculated as
Comment
Step 6 of 9
Annual worth of alternative 2, can be calculated as
Since for the life of 5 years , purchasing the machine is preferable.
Comment
Step 7 of 9
To find the break-even life, the table below shows the calculation of after-tax cash flow
for purchasing the machine and keeping it for 3 years.
Highlighted cell represents the tax consequences of capital loss of disposing off machine after 3
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years. Textbook Solutions Expert Q&A Practice Search 
Comment
Step 8 of 9
Annual worth of alternative 2 with useful life of 3 years can be calculated as
Comment
Step 9 of 9
Since for the life of 3 years , leasing the machine is preferable.
Comment

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Four proposals are under consideration by your company. Proposals A and C are mutually
exclusive; proposals B and D are mutually exclusive and cannot be implemented unless proposal
A or C has been selected. No more than $140,000 can be spent at time zero. The before-tax Continue to post
MARR is 15% per year. The estimated cash flows are shown in the accompanying table. Form all
mutually exclusive combinations in view of the specified contingencies, and formulate this
problem as a linear integer programming model. (Problem)
Proposal
End of year
A B C D
0 −$100,000 −$20,000 −$120,000 −$30,000

1 40,000 6,000 25,000 6,000 16th Edition 3rd Edition 4th Ed
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2 40,000 10,000 50,000 10,000
3 60,000 10,000 85,000 19,000 Chegg tutors who can

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Problem
Joanna
A lathe costs $56,000 and is expected to result in net cash inflows of $20,000 at the end of each Georgia Tech
year for three years and then have a market value of $10,000 at the end of the third year. The
equipment could be leased for $22,000 a year, with the first payment due immediately. (Problem Rakesh
1) Aryabhatta Knowle…
a. If the organization does not pay income taxes and its MARR is 10%, show whether the
organization should lease or purchase the equipment. Annie
b. If the lathe is thought to be worth only, say, $18,000 per year to the organization, what is the Find me a tutor
better economic decision?
Problem 1
Work Problem by comparing after-tax equivalent PWs if the effective income tax rate is 40%, the
present book value is $5,000, and the depreciation charge is $1,000 per year if the firm continues
to own the truck. Any gains or losses on disposal of the old truck affect taxes at the full 40% rate,
Problem 2
market value of $1,800 after its remaining three-year life. Its operating disbursements are
expected to be $720 per year.
kept. The expected annual utilization is 3,000 miles and 30 days. If the before-tax MARR is 15%,
a. using only the preceding information;
Step 1 of 5
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Present Worth Textbook
of ProposalSolutions
A Expert Q&A Practice Search 
Comment
Step 2 of 5
Present Worth of Proposal B
Comment
Step 3 of 5
Present Worth of Proposal C
Comment
Step 4 of 5
Present Worth of Proposal D
Comment
Step 5 of 5
Formulation of problem as linear integer programming model
Objective function:-
Present worth of different proposals are coefficients of objective function.
Subject to Constraints

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10/11/2019 Solved: As the supervisor of a facilities engineering departmen... | Chegg.

Engineering Economy (16th Edition)

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The AW can be calculated from the following formula:

i% is the interest rate,

N is the number of stated years,

S is the salvage value of the machine or the asset, and

I is the initial investment.

Chapter 9, Problem 3P 10 Bookmarks Show all steps: ON

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Engineering Economy (16th Edition)

Chapter 9, Problem 6P 5 Bookmarks Show all steps: ON

A steam generation system at a biomass-fueled power plant uses an electrostatic precipitator

Year 1 2 3 4 5 Engineering Process Elem

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Market value 60,000 50,000 40,000 25,000 12,500

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Present worth in the last column is calculated as

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Year MV at EOY O&M Cost MV at EOY O&M Cost

1 $25,000 $18,500 $40,000 $13,000 Engineering Process Elem

2 21,000 21,000 32,000 15,500 View all solutions

3 17,000 23,500 24,000 18,000

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A steam generation system at a biomass-fueled power plant uses an electrostatic precipitator

Year 1 2 3 4 5 Find me a tutor

O&M expense $30,000 $30,000 $35,000 $40,000 $45,000

Market value 60,000 50,000 40,000 25,000 12,500

The result image is as follows:

The result image is as follows:

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© 2003-2019 Chegg Inc. All rights reserved.

Engineering Economy (16th Edition)

a. Determine the economic life of the fuel cell if i = 0 %.

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Current CAFE New CAFE

Mileage 27.5 miles per gallon 36 miles per gallon

Carbon Dioxide Emission 0.9 pounds 1.8 pounds

Thus, of carbon dioxide emission is saved.

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Engineering Economy (16th Edition)

Purchase cost = My Textbook Solutions

Estimated life = five

The before-tax minimum average rate of return is .

Defender: Following details are given

Original Cost $9,000

$500 in year one, increasing by uniform gradient of $100

Market value at the end of

Present market value -