Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 13P
a.
To determine
Two forumulations for MR’s problem.
b.
To determine
The feasible solutions for every problem formulation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Consider this situation faced by a first-semester senior in civil engineering who is exhausted from extensive job interviewing and penniless from excessive partying. Mary’s impulse is to accept immediately a highly attractive job offer to work in her brother’s successful manufacturing company. She would then be able to relax for a year or two, save some money, and then return to college to complete her senior year and graduate. Mary is cautious about this impulsive desire, because it may lead to no college degree at all!
a. Develop at least two formulations for Mary’s problem.
b. Identify feasible solutions for each problem formulation in Part (a). Be creative!
Consider this situation faced by a first-semester senior in mechanical engineering who is
exhausted from extensive job interviewing and penniless from excessive partying. Mary’s
impulse is to accept immediately a highly attractive job offer to work in her brother’s
successful manufacturing company. She would then be able to relax for a year or two, save
some money, and then return to college to complete her senior year and graduate. Mary is
cautious about this impulsive desire, because it may lead to no college degree at all.
Develop at least two formulations for Mary’s problem.
Identify feasible solutions for each problem formulation in (a).
Your company has invested $5 million in developing a new product, but the development process isn’t quite complete. You have just learned from your marketing team that other companies have introduced similar products. As a result of this competition, the expected sales of your new product once you have completed development and actually begun production is now just $3 million. Your production team tells you that it will cost another $1 million to finish development and make your product. The decision is now yours: should you give the go-ahead to complete development of the product? Why or why not? In the event that your production team’s cost estimate is inaccurate, what is the most that your company should pay to complete development? Why? Be sure to incorporate (and define) the relevant concept into your answer.
Knowledge Booster
Similar questions
- Jamie is considering leaving her current job, which pays $75,000 per year, to start a new company that develops applications for smartphones. Based on market research, she can sell about 50,000 units during the first year at a price of $4 per unit. With annual over-head costs and operating expenses amounting to $145,000, Jamie expects a profit "margin of 20 percent. This margin is 5 percent larger than that of her largest competitor, Apps Inc. a. If Jamie decides to embark on her new venture, what will her accounting costs be during the first year of operation? Her implicit costs? Her opportunity costs? b. Suppose that Jamie’s estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive account-ing profits? Positive economic profits? 2. Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in…arrow_forwardAfter graduation, you face a choice. You can work for a multinational consulting firm and earn a starting salary (including benefits) of $45,000, or you can start your own consulting firm using $6,000 of your own savings. If you keep your money in a savings account, you can earn an interest rate of 5 percent. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and revenues. Your expenses include $14,000 for rent, $1,600 for office supplies, $22,000 for labor, and $4,900 for telephone expenses. After operating your consulting firm for a year, your total revenues are $102,000. Instructions: Enter your answers as a whole number. a. What is your accounting profit? $ 44,500 8 b. What is your economic profit? $ 4,150arrow_forwardAssume that your rich aunt has given you $25,000 in a gift. You have come up with three ways to spend (or invest) the capital. First, you want (but do not need) a new car to make your home and social life brighter. Second, you can invest the money in the common stock of a high-tech company. Price is expected to grow by 20 percent a year, but this option is very risky. Third, you can put the money into a three-year deposit certificate with a local bank and receive 6 percent annually. The third alternative carries little risk. a. If you plan to buy the new vehicle, what is the cost of that option for the opportunity? Explain what you think in your own words.b. If you invest in the popular high-tech stock, what is the cost of that option for the opportunity? Explain what you think in your own words.arrow_forward
- Assume you are pursuing a bachelor’s degree and you have 40 hours to divide between work and school in a week. You choose the amount of time you spend on each based on the classes you take and the hours you request at work. The degree will take you 3 years to complete if you dedicate 40 hours a week and do not take summers off. Obviously, if you devote no time to school, you never get your degree. You have been going to school full time for two quarters. In the third quarter, you do not receive as much loan money as you anticipate and need. You decide to work 20 hours a week to make up the difference and take fewer classes. What is your opportunity cost? Make sure to include how this change will factor into the length of time it will take you to finish your degree.arrow_forwardShannon is the mother of a 3-year old. She currently stays home with her child. Before giving birth, Shannon worked as a marketing consultant making $36,000 annually. The cumulative opportunity cost of Shannon's decision to stay at home with her child is $ Shannon is offered a position with a marketing company that pays $36,000 annually. However, Shannon would need to spend an additional $1,500 per month for day care services for her child. The annual opportunity cost of Shannon turning this job down is $arrow_forwardYou are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald's or a Penn Station East Coast Subs franchise. McDonald's indicates that, based on the location where you are proposing to open a new restaurant, there is a 25 percent probability that aggregate 10-year profits (net of the initial investment) will be $16 million, a 50 percent probability that profits will be $8 million, and a 25 percent probability that profits will be -$1.6 million. The aggregate 10-year profit projections (net of the initial investment) for a Penn Station East Coast Subs franchise is $48 million with a 2.5 percent probability, $8 million with a 95 percent probability, and -$48 million with a 2.5 percent probability. Considering both the risk and expected profitability of these two investment opportunities, which is the better investment? Explain carefully.arrow_forward
- The buyer of a piece of real estate is often given the option of buying down the loan. This option gives the buyer a choice of loan terms in which various combinations of interest rates and discount points are offered. The choice of how many points and what rate is optimal is often a matter of how long the buyer intends to keep the property. Darrell Frye is planning to buy an office building at a cost of $988,000. He must pay 10% down and has a choice of financing terms. He can select from a 7% 30-year loan and pay 4 discount points, a 7.25% 30-year loan and pay 3 discount points, or a 7.5% 30-year loan and pay 2 discount points. Darrell expects to hold the building for four years and then sell it. Except for the three rate and discount point combinations, all other costs of purchasing and selling are fixed and identical. 1. If Darrell chooses the 2-point 7.5% loan, what will be his total outlay in points and payment after 48months? (Wells Fargo)arrow_forwardSuppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start an organic soap company. In the other, she will try to develop an Internet-based competitor to the local cable company. For the soap-making opportunity, she anticipates annual revenue of $465,000 and costs for the necessary land, labor, and capital of $395,000 per year. For the Internet opportunity, she anticipates costs for land, labor, and capital of $3,250,000 per year as compared to revenues of $3,275,000 per year. (a) Should she quit her current job to become an entrepreneur? (b) If she does quit her current job, which opportunity would she pursue?arrow_forwardWile E. Coyote has placed an order for 30 tons of TNT from Acme Enterprises. Acme can manufacture TNT using raw materials (Z) found in a remote underground mine. Acme needs 1/3 ton of Z to produce 1 ton of TNT and they are deciding where to locate their factory in order to minimize transportation costs. The mine and Wile E. Coyote's house are 50 miles apart. By train, the cost of shipping 1 ton of both TNT and Z is $2 per mile. However, Acme faces an additional cost because a river passes between the mine and Wile E. Coyote's house, and the river has no bridge. Wile E. Coyote's House River Mine Both Z and TNT must be loaded onto barges to cross the river, which is located 16 miles from the mine. Barge operators charge $1 per ton of TNT shipped across the river. However, since the raw material Z is highly explosive when mixed with water, barge operators charge Acme $195 to ship one ton of Z across the river. Using the above information, find the transport-cost-minimizing location for…arrow_forward
- A young software engineer is selling the rights to a new video game he has developed. Two companies have offered him contracts. The first contract offers $10,000 at the end of each year for the next five years, and then $20,000 per year for the following 10 years. The second offers 10 payments, starting with $10,000 at the end of the first year,$13,000 at the end of the second, and so forth, increasing by $3,000 each year(i.e.the tenth payment will be $10,000+(9×$3,000). Assume the engineer uses an i of 9%. Which contract should he choose? First Company or Second Company.arrow_forwardTable 22-21 Three longtime friends-Linda, Stella, and Lydia are deciding how they will spend their Sunday afternoon. They all agree that they should do one of the three things: go to a comedy club, play soccer, or go to a tennis tournament. They also agree that they will have two pairwise votes to determine how to spend their afteroon, with the majority determining the outcome on each vote. The first, second, and third choices for each person are as indicated in the following table. First choice Second choice Third choice Linda tennis tournament soccer comedy club Stella soccer comedy club tennis tournament Lydia comedy club tennis tournament soccer Refer to Table 23-2. If (1) the first vote pits "tennis tournament" against "comedy club," and (2) the second vote pits "soccer against the winner of the first vote, then the outcome is as follows: ⒸA "Tennis tournament" wins the first vote and "tennis tournament" wins the second vote, so they go to a tennis tournament OB. "Tennis…arrow_forwardAvedo is considering signing a contract with Pomas to write a novel, which would be due in one year's time, and the two parties are considering the terms of the contract. Everybody understands that the profits (after expenses but before paying Avedo) of the novel are uncertain, but depend on the effort that Avedo expends, as shown in the table below. High effort would require Avedo to hire a nanny for her toddler, which would cost her $20,000 per year. Avedo and Pomas are both risk-neutral. Pomas cannot observe Avedo's effort level. Choose correct answer/answers Probability of $200,000 in Avedo's effort level Probability of $50,000 in profits profits Low Effort 80% 20% High Effort 60% 40% With a profit split contract of 50%, Avedo would put in High Effort. The expected total profits are equal to $80,000 if Avedo puts in Low Effort. A fixed wage contract could induce High Effort as long as the wage is big enough to compensate for Avedo's cost of hiring a nanny. All of these responses…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning