Engineering Economics, ENGR 610: Quiz-3&4, Take Home (15%)
Engineering Economics, ENGR 610: Quiz-3&4, Take Home (15%)
Problem-2
A chemical engineer is considering two styles of pipes for moving distillate from a refinery to the tank farm. A small pipeline will cost less to purchase (including
valves and other appurtenances) but will have a high head loss and, therefore, a higher pumping cost. The small pipeline will cost $1.7 million installed and will have an
operating cost of $12,000 per month. A larger-diameter pipeline will cost $2.1 million installed, but its operating cost will be only $8000 per month. Which pipe size is
more economical at an interest rate of 1% per month on the basis of an annual worth analysis? Assume the salvage value is 10% of the first cost for each pipeline at the
end of the 10-year project period.
Answer: CFD:
Problem-3
The cost of money is 10% per year.
Machine X Machine Y
Initial cost, $ –66,000 –46,000
Annual cost, $/year –10,000 –15,000
Salvage value, $ 10,000 24,000
Life, years 6 3
Use present worth and Annual worth analysis to choose the best alternative?
Answers: CFD:
For PV and AW
Problem-4
A $10,000 bond has an interest rate of 6% per year payable quarterly. The bond matures 15 years from now. At an interest rate of 8% per year, compounded quarterly,
the present worth of the bond is closest to:$-------------------------
Answer: CFD:
Problem-5
The cash flow associated with landscaping and maintaining a certain monument in Washington, D.C., is $100,000 now and $50,000 every 5 years forever. Determine its
perpetual equivalent annual worth (in years 1 through infinity) at an interest rate of 8% per year.
Answer: CFD:
Problem-6
The following cash flows has an interest rate of 10% per year, compounded semiannually.
Alternative X Alternative Y
First cost, $ –200,000 –800,000
Annual cost, $/year –60,000 –10,000
Salvage value, $ 20,000 150,000
Life, years 5 ∞
Use present worth and Annual worth analysis to choose the best alternative?
Answers: CFD:
For PV and AW
Problem-7
Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $130,000 with annual costs of
$49,000 and revenues of $78,000 in year 1, increasing by $1000 per year. A salvage value of $23,000 was realized when the process was discontinued after 8 years.
What rate of return did the company make on the process?
Answer: CFD:
Problem-8
ASM International, an Australian steel company, claims that a savings of 40% of the cost of stainless steel threaded bar can be achieved by replacing machined threads
with precision weld depositions. A U.S. manufacturer of rock bolts and grout-in fittings plans to purchase the equipment. A mechanical engineer with the company has
prepared the following cash flow estimates. Determine the expected rate of return per quarter and per year (nominal).
Problem-9
A permanent endowment at the University of Alabama is to award scholarships to engineering students. The awards are to be made beginning 5 years after the $10
million lump-sum donation is made. If the interest from the endowment is to fund 100 students each year in the amount of $10,000 each, what annual rate of return must
the endowment fund earn?
Answer: CFD:
Problem-10
Alternative R has a first cost of $100,000, annual M&O costs of $50,000, and a $20,000 salvage value after 5 years. Alternative S has a first cost of $175,000 and a
$40,000 salvage value after 5 years, but its annual M&O costs are not known. Determine the M&O costs for alternative S that would yield an incremental rate of return
of 20% per year.
Answer: CFD:
Problem-11
The incremental cash flow between alternatives Z1 and Z2 is shown below (Z2 has the higher initial cost). Use an AW-based rate of return equation to determine the
incremental rate of return and which alternative should be selected, if the MARR is 17% per year. Let k = year 1 through 10.
Incremental
Year Cash Flow, $(Z2 – Z1)
0 –40,000
1–10 9000 – 500k
Answer: CFD: