Assignment #2

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Western Michigan University *

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6360

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Civil Engineering

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Feb 20, 2024

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Uploaded by MasterWaterBuffalo3592

CCE 6360 | Assignment #2 1 WESTERN MICHIGAN UNIVERSITY DEPARTMENT OF CIVIL AND CONSTRUCTION ENGINEERING Construction Engineering Assignment #2 Time Value of Money Due date: Monday, February 12, 2024, at 6:30 pm (eLeaning) 1. Procter & Gamble is considering entering the car-wash franchise business, a $35 billion industry. The initial investment required by a franchise operator is $500,000. Average monthly sales are projected at $6,800, translating to a monthly profit of $3,800. Questions : a) If Procter & Gamble expects a 10% annual increase in sales for the car-wash franchise, calculate the total revenue and profit over a 5-year period. How would this affect the return on investment? b) Determine the break-even point for the franchise operation in terms of years, considering a constant discount rate of 8%? 2. In 2017, the annual cost of attending college was $26,851. Due to a 5% annual inflation rate, the projected cost in 2020 is $31,083. If a student plans to cover 40% of the costs through part-time work, calculate the total amount they would need to save or loan for the remainder over the 4- year period. 3. A company plans to install a solar panel system costing $100,000 with an expected lifespan of 25 years. The system is anticipated to reduce annual energy costs by $12,000. Additionally, there will be maintenance costs of $2,000 every 5 years. After 25 years, the system will have a salvage value of 20% of the initial cost. The company evaluates such investments using a discount rate of 6%. Questions: a) What is the present value of the total cost of owning and operating the solar panel system over its 25-year lifespan, including installation, maintenance, energy savings, and salvage value? b) Calculate the equivalent annual cost of the solar panel system over its lifespan, considering the discounted energy savings and the salvage value. Also comment on the viability of the investment. 4. A manufacturing company plans a major upgrade to its plant. The current value of the upgrade is estimated at $500,000. The upgrade includes new machinery, technological enhancements, and improved safety measures. The machinery is expected to last 15 years but will require a significant overhaul costing $200,000 in current dollars after 10 years. Annual maintenance costs are estimated at $20,000, starting from the second year. The technological enhancements are expected to save $40,000 per year in operational costs. Safety improvements are projected to reduce insurance premiums by $10,000 annually. After 15 years, the machinery will have a

CCE 6360 | Assignment #2 2 salvage value of 10% of the initial upgrade cost. The expected compound annual inflation rate is 3%, and the annual cost growth rate for the overhaul is 4%. The company uses a discount rate of 5% for its investment calculations. Questions: a) Calculate the present value of the total cost of the manufacturing plant upgrade over its 15- year lifespan, including the initial upgrade cost, overhaul cost, maintenance costs, and operational savings, considering the inflation and cost growth rates. b) Estimate the overhaul cost of the new machinery 10 years from now in current dollars. c) Calculate the future cost of the machinery overhaul 10 years from now in constant dollars. Please only consider the impact of how much more expensive the overhaul will become over time due to factors specific to the overhaul itself, rather than the changing value of money in the economy. 5. A company plans to install an advanced cooling system in its data center. The current annual electricity cost for cooling is $50,000. The new system is expected to reduce these costs by 20% annually. However, the electricity costs are anticipated to increase by 5% annually due to rising energy prices. Additionally, the new cooling system requires an upgrade every 8 years, costing $200,000 in current dollars, with an expected cost growth rate of 3% per year. The system has an estimated lifespan of 16 years. The company uses a discount rate of 6% for its long-term investments. Questions : a) Estimate the Present Worth of the Total Savings in Electricity Costs Over 16 Years: b) Calculate the Future Cost of the System Upgrade in Current Dollars: NOTES: I. This is an individual assignment and should be handled as such when attempting and submitting it. Cases of plagiarism in submissions will be handled according to University regulations. II. Upload soft copies of all your calculation and submit them to ELearning before the assignment deadline.

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