Beirut Arab University

Faculty of Engineering
Department of Industrial Engineering and Management

Engineering Economy-INME221
Worksheet#7- MCQ – Breakeven and Sensitivity Analysis

1. A highway bridge is being considered for replacement. The new bridge would cost $X and would
last for 20 years. Annual maintenance costs for the new bridge are estimated to be $24,000. People
will be charged a toll of $0.25 per car to use the new bridge. Annual car traffic is estimated at
400,000 cars. The cost of collecting the toll consists of annual salaries for five collectors at $10,000
per collector. The existing bridge can be refurbished for $1,600,000 and would need to be replaced
in 20 years. There would be additional refurbishing costs of $70,000 every five years and regular
annual maintenance costs of $20,000 for the existing bridge. There would be no toll to use the
refurbished bridge. If the MARR is 12% , what is the maximum acceptable cost (X) of the new
bridge?

 $1,943,594
 $1,570,122
 $2,018,641
 $2,156,209
 $1,652,425

2. An analysis of accidents in a rural state indicates that widening a

highway from 30ft to 40ft will decrease the annual accident rate from
1,250 to 710 per million vehicle-miles. Calculate the average daily
number of vehicles that should use the highway to justify widening on
the basis of the following estimates: (i) the average loss per accident
is $1,200, (ii) the cost of widening is $117,000 per mile; (iii) the
useful life of the widened road is 25 years; (vi) annual maintenance
costs are 3% of the capital investment; and (v) MARR is 12% per year.
 78
 63
 34
 59
 27

3. Answer problems 3.1-3.3, using the following information. A

supermarket chain buys loaves of bread from its supplier at $0.8 per
loaf. The chain is considering two options to bake its own bread.

Machine A Machine B
Capital investment $10,000 $18,000
Useful life (years) 8 8
Annual fixed cost $2,000 $5,000
Variable cost per loaf $0.28 $0.2
Neither machine has a market value at the end of seven years, and the
Marr is 12% per year. Select the closest answer
3.1 What is the minimum number of loaves that must be sold per year to justify
installing Machine A instead of buying the loaves from the supplier?
 7,713
  22,076
 37,529
 75,059
 15,637

3.2 What is the minimum number of loaves that must be sold per year to justify
installing Machine B instead of buying from the supplier?
 37,529
 14,373
 22,076
 75,059
 7,506

3.3 If the demand for bread at this supermarket is 30,000 loaves per year, what
strategy should be adopted for acquiring bread? Both Machine A and
Machine B are capable of meeting annual demand

 Continue buying from the supplier

 Install Machine A
 Install Machine B
 Install both Machine A and Machine B

4. Answer problems 4.1-4.4 on the basis of the figure below and the most
likely estimates given as follows:

MARR 12% per year

Useful Life 5 years
Initial Investment $5,000
Receipts – Expenses (R-E) $1,500 per year

4.1 If the initial investment is increased by more than 9%, the project is profitable
 True
 False

4.2 If the profit (R-E) is decreades by 5%, this project is not profitable
 True
 False
 4.3 Variations in the profit and useful life of the project are inversely related
 True
 False

4.4 This project (based upon the most likely estimates) is profitable
 True
 False

4.5 An initial investment of $5,500 is profitable.

 True
 False

5. Two electric motors are being economically evaluated for use in a

submersible robotic device. Each is capable of delivering 90
horsepower to a necessary application that the device performs. Data
for the mutually exclusive motors are as follows.

Motor
General Electric Phillips
Initial Investment $2,500 $3,200
Electrical efficiency 0.74 0.89
Annual Maintenance $400 $600
Useful life (years) 10 10

The MARR is 12% per year. If the expected usage of the motor is 500
hours per year, what would the cost of electric power have to be
before the Phillips motor is favored over the General Electric motor?
Recall that 1 horsepower = 0.746 killowatts. Choose the closet answer
from those below

 $0.02 per kWh

 $0.09 per kWh
 $0.19 per kWh
 $0.05 per kWh