Situation4: Calculate the benefit cost ratio for a highway project with the following benefits and costs, The project life is 40 years, the interest rate is 10%, and the project's right of way is worth $5M in 40 years. $20M-----Construction Cost (includes acquiring right of way) $350K----Annual maintenance -------Repaving every 8 years. $1M------Annual value of lives saved (1 per year) $1.25M---Time savings for commercial traffic $20 0.25 hours 250,000 trips $3M-- hour trip year $1M------Time savings for commuter and recreational traffic/year $5 0.25 hours 800,000 trips hour Hint: Benefit cost ratio = trip year Annual benefit costs/ Total cost

Situation4: Calculate the benefit cost ratio for a highway project with the following benefits and costs, The project life is 40 years, the interest rate is 10%, and the project's right of way is worth $5M in 40 years. $20M-----Construction Cost (includes acquiring right of way) $350K----Annual maintenance -------Repaving every 8 years. $1M------Annual value of lives saved (1 per year) $1.25M---Time savings for commercial traffic $20 0.25 hours 250,000 trips $3M-- hour trip year $1M------Time savings for commuter and recreational traffic/year $5 0.25 hours 800,000 trips hour Hint: Benefit cost ratio = trip year Annual benefit costs/ Total cost

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the following two mutually exclusive projects being considered by an agency. The agency's MARR is 5% per year and the projects have a service life of 5 years. Initial cost Annual revenues Present Worth (PW) Answer the following questions. Project 1 $14,200 $3,832 O A. No B. Yes $2,391 Project 2 $21,700 $5,608 $2,580 a. Based on the PW, the project that is more economical is Project b. Calculate the IRR of each alternative (use the trial-and-error method) % (Round to the nearest one decimal place) The IRR of Project 1 is The IRR of Project 2 is % (Round to the nearest one decimal place) (Enter the project number). c. Perform the incremental IRR analysis to determine the project that is more economical: Incremental IRR =% (Round to the nearest one decimal place); Therefore, based on the incremental IRR, Project is more economical. d. Do the two methods produce the same recomendation for the most economical project?
Question 3 An engineer has received two bids for an elevator to be installed in a new building. The bids, plus his evaluation of the elevators, are as follows: Bid Alternative Westinghome Itis $45,000 $54,000 Service life (year) 10 15 Engineer's evaluation Annual operating cost $2,700 $2,850 Salvage value $3,000 $4,500 If the interest rate is 10%, using the net present value method, which bid should be accepted?
A pump has an initial cost of $20,000 and an annual maintenance cost of $550. The life of the pump is 15 years, and its salvage value is $4500. Assuming an annual effective interest rate of 4%, the equivalent uniform annual cost of the pump is most nearly? a. $1020 b. $1470 c. $2120 d. $2570
2. A company is planning to install a new automated concrete block making machine. Four different brands are available. The related cost information for these four brands are as follows Initial investment Useful life 5 Brand P1 P2 P3 P4 $24,000 $30,400 $49,600 $52,000 5 5 5 (years) Annual expenses Power $2,720 $2,720 $4,800 $5,040 labor $26,400 $24,000 $16,800 $14,800 Maintenance $1600 $1,800 $2,600 $3,000 Insurance $480 $608 $992 $1040 Percent of nondetective 95% 92% 96% 91% items Assume that each brand has the same capacity 120,000 units per year and has no market value at the end of useful life. Which brand should be selected if all non-defective units can be sold at a selling price of $0.875 per unit by finding Present worth, Annual worth and Future worth? Considering MARR 10 Percent, solve by spreadsheet.
6. You purchase a new piece of equipment for $65,000. Your net cash flow the first year is $18,000 but will increase by $2,500 per year the next year and the same for each year after. The equipment has a ten-year service life and a salvage value of $5,000. The interest rate is 9%. What is the annual capital cost and what is the equivalent annual savings?
We project unit sales for a new household-use laser-guided cockroach search and destroy system as follows: Unit Sales 100,500 112,500 135,500 141,500 94,500 Year 1 2 3 4 5 The new system will be priced to sell at $470 each. The cockroach eradicator project will require $2,100,000 in net working capital to start, and total net working capital will rise to 15% of the change in sales. The variable cost per unit is $340, and total fixed costs are $2,400,000 per year. The equipment necessary to begin production will cost a total of $22 million. This equipment is mostly industrial machinery and thus qualifies for CCA at a rate of 20%. In five years, this equipment will actually be worth about 20% of its cost. The relevant tax rate is 35%, and the required return is 16%. Based on these preliminary estimates, what is the NPV of the project? (Enter the answer in dollars. Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $…
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1. Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. The firm's MARR is 20% per year. The estimated cash flow for each alternative are as follows: Alternative A Alternative B Capital Investment $20,000 $30,000 Annual Expenses 4,000 2,000 Useful life (years) 5 10 Market Value (at end of useful life) $4,000 $6,000 Assume the study period is shortened to five years. The market value of alternative B after five years is estimated to be $12,000. Which alternative would you select using NPW-C? (Draw the cash flow diagram and solve).
Helio Co. owns a large gantry crane for moving around heavy items in their warehouse. The following analysis was done the forklift. What was the interest rate used in this analysis? Year Marginal Cost PWo Sum PWo Total AW 1 $6,500 $6,075 $6,075 $6,500 $7,150 $6,245 $12,320 $6,814 $7,865 $6,420 $18,740 $7,141 4 $8,652 $6,600 $25,340 $7,481 $9,517 $6,785 $32,125 $7,835 7.0% 10.0% 9.0% 5.0% 7.5% 2. 3.
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5. A small branch office of a contracting company is planning to purchase a new laser printer. Three vendors have supplied cost, useful life, and estimated salvage value data, shown in the following table. The MARR is 12%. Investment (first) cost Annual service cost Salvage value Useful life A $800 $180/yr $200 5 years Laser printer B $1,400 $150/yr $825 5 years C $900 $170/yr $100 5 years Draw cash flows for these alternatives. If the expected annual saving in labor is $500 regardless of which machine is purchased, what are the annual equivalent values of these alternatives.