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Engineering Economics, ENGR 610: Quiz-3&4, Take Home (15%)

This document contains an engineering economics quiz with 11 problems related to concepts like present worth analysis, annual worth analysis, rates of return, and incremental analysis. The problems involve calculating costs, cash flows, and rates of return for various capital investment scenarios over multiple time periods, and determining the most economically favorable option based on the analysis.

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Sayyadh Rahamath Baba
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332 views2 pages

Engineering Economics, ENGR 610: Quiz-3&4, Take Home (15%)

This document contains an engineering economics quiz with 11 problems related to concepts like present worth analysis, annual worth analysis, rates of return, and incremental analysis. The problems involve calculating costs, cash flows, and rates of return for various capital investment scenarios over multiple time periods, and determining the most economically favorable option based on the analysis.

Uploaded by

Sayyadh Rahamath Baba
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Engineering Economics, ENGR 610

Quiz-3&4, Take Home (15%)


Apr.03 on Thurs..

Name: Instructor: Mutlu Ozer, S.2014


Problem-1
A multinational engineering consulting firm that wants to provide resort accommodations to certain clients is considering the purchase of a three-bedroom lodge in
upper Montana that will cost $250,000. The property in that area is rapidly appreciating in value because people anxious to get away from urban developments are
bidding up the prices. If the company spends an average of $500 per month for utilities and the investment increases at a rate of 2% per month, how long would it be
before the company could sell the property for $100,000 more than it has invested in it?
Answer: CFD:

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).

Quarter Cost, $ Savings, $


0 –450,000 —
1 –50,000 10,000
2 –40,000 20,000
3 –30,000 30,000
4 –20,000 40,000
5 –10,000 50,000
6–12 — 80,000
Answer: CFD:

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:

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