Engg 100: Engineering Economics

Homework #5
Due: October 13, 2020

1. A capitalized cost of $24,000 has been set aside to pay for the annual maintenance
costs for the main unispan on Hofstra’s campus. Given a 6.2% annual interest rate, what
is the annual expense of maintaining the unispan.

2. A certain industrial firm desires an economic analysis to determine which of two

different machines should be purchased. Each machine is capable of performing the
same task in a given amount of time. Assume an interest rate of 8%. The following data
are to be used in this analysis:
Machine X Machine Y
First cost $5000 $8000
Estimated life, in years 5 12
Salvage Value 0 $2000
Annual maintenance cost 0 $150

Which machine would you choose? Base your answer on equivalent annual cost.

3. The maintenance foreman of a plant in reviewing his records found that a large press
had the following maintenance cost record over the last five years:
5 yrs ago: $600
4 yrs ago: $700
3 yrs ago: $800
2 yrs ago: $900
Last year: $1000
After consulting with a lubrication specialist, he changed the preventive maintenance
schedule. He believes that this year maintenance will be $900 and decrease $100 a year
in each of the following four years. If his estimate of the future is correct, what will be
the equivalent uniform annual maintenance cost for the ten-year period? Assume interest
at 8%.

4. Joshua would like to purchase new tires at the end of the month, and has found the
following alternatives:

Tire Warranty Price per Tire

(Years)
1 $39.95
2 $59.95
3 $69.95
4 $90.00
Joshua feels that the warranty period is a good estimate of the tire life and that a 12%
nominal interest rate is appropriate. Using an annual cash flow analysis, which tire
should be purchased?