
i.
Expected savings per year, expected life and

Answer to Problem 38P
Expected savings per year is $1980, expected life is 6 years and rate of return for the expected values is 12.18%.
Explanation of Solution
Given:
Cost of robot = $81000
Probability for optimistic annual savings of $22000 is 0.1
Probability for pessimistic annual savings of $18000 is 0.2
Probability for most likely annual savings of $20000 is 0.7
Probability for optimistic useful life of 4 year is 1/6
Probability for pessimistic useful life of 12 years is 2/3
Probability for most likely useful life of 5 year is 1/6.
Calculation:
Expected Savings (EAS):
=
Expected Saving - $19800
Expected Useful Life:
=
Hence, expected useful life is 6 years
Rate of return (RR) for optimistic:
Present value can be calculated as follows:
Interest rate = 12%
As calculated value is equal to actual Value, thus rate of return is 12.18%.
Conclusion:
Expected savings per year is $1980, expected life is 6 years and rate of return for the expected values is 12.18%.
ii.
Expected rate of return for combination of savings per year and life.

Answer to Problem 38P
Expected rate of return for combination of savings per year and life is 10.48%.
Explanation of Solution
Given:
Cost of robot = $81000
Probability for optimistic annual savings of $22000 is 0.1
Probability for pessimistic annual savings of $18000 is 0.2
Probability for most likely annual savings of $20000 is 0.7
Probability for optimistic useful life of 4 year is 1/6
Probability for pessimistic useful life of 12 years is 2/3
Probability for most likely useful life of 5 year is 1/6.
Calculation:
Expected rate of return for combination of savings per year and life:
Interest rate = 11%
When interest rate is substituted as 11%, then calculated value is less than the actual value. Thus decrease interest rate further. If 10.84% is substituted, then actual value is equivalent to calculated value.
Conclusion:
Thus, 10.84% is rate of return for combination of savings per year.
iii.
Answers for part a and b match or not.

Answer to Problem 38P
Answers donot match.
Explanation of Solution
Given:
Cost of robot = $81000
Probability for optimistic annual savings of $22000 is 0.1
Probability for pessimistic annual savings of $18000 is 0.2
Probability for most likely annual savings of $20000 is 0.7
Probability for optimistic useful life of 4 year is 1/6
Probability for pessimistic useful life of 12 years is 2/3
Probability for most likely useful life of 5 year is 1/6.
Concept used:
Since time period varies in part a and part b, rate of return for part a and part b are different.
Conclusion:
Answers donot match.
Want to see more full solutions like this?
Chapter 10 Solutions
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
- In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending ______ Group of answer choices Raises the interest rate so that net exports must fall to maintain equilibrium in the goods market. Cannot change the interest rate so that net exports must fall to maintain equilibrium in the goods market. Cannot change the interest rate so income must rise to maintain equilibrium in the money market Raises the interest rate, so that income must rise to maintain equilibrium in the money market.arrow_forwardSuppose a country with a fixed exchange rate decides to implement a devaluation of its currency and commits to maintaining the new fixed parity. This implies (A) ______________ in the demand for its goods and a monetary (B) _______________. Group of answer choices (A) expansion ; (B) contraction (A) contraction ; (B) expansion (A) expansion ; (B) expansion (A) contraction ; (B) contractionarrow_forwardAssume a small open country under fixed exchanges rate and full capital mobility. Prices are fixed in the short run and equilibrium is given initially at point A. An exogenous increase in public spending shifts the IS curve to IS'. Which of the following statements is true? Group of answer choices A new equilibrium is reached at point B. The TR curve will shift down until it passes through point B. A new equilibrium is reached at point C. Point B can only be reached in the absence of capital mobility.arrow_forward
- A decrease in money demand causes the real interest rate to _____ and output to _____ in the short run, before prices adjust to restore equilibrium. Group of answer choices rise; rise fall; fall fall; rise rise; fallarrow_forwardIf a country's policy makers were to continously use expansionary monetary policy in an attempt to hold unemployment below the natural rate , the long urn result would be? Group of answer choices a decrease in the unemployment rate an increase in the level of output All of these an increase in the rate of inflationarrow_forwardA shift in the Aggregate Supply curve to the right will result in a move to a point that is southwest of where the economy is currently at. Group of answer choices True Falsearrow_forward
- An oil shock can cause stagflation, a period of higher inflation and higher unemployment. When this happens, the economy moves to a point to the northeast of where it currently is. After the economy has moved to the northeast, the Federal Reserve can reduce that inflation without having to worry about causing more unemployment. Group of answer choices True Falsearrow_forwardThe long-run Phillips Curve is vertical which indicates Group of answer choices that in the long-run, there is no tradeoff between inflation and unemployment. that in the long-run, there is no tradeoff between inflation and the price level. None of these that in the long-run, the economy returns to a 4 percent level of inflation.arrow_forwardSuppose the exchange rate between the British pound and the U.S. dollar is £1 = $2.00. The U.S. government implementsU.S. government implements a contractionary fiscal policya contractionary fiscal policy. Illustrate the impact of this change in the market for pounds. 1.) Using the line drawing tool, draw and label a new demand line. 2.) Using the line drawing tool, draw and label a new supply line. Note: Carefully follow the instructions above and only draw the required objects.arrow_forward
- Just Part D please, this is for environmental economicsarrow_forward3. Consider a single firm that manufactures chemicals and generates pollution through its emissions E. Researchers have estimated the MDF and MAC curves for the emissions to be the following: MDF = 4E and MAC = 125 – E Policymakers have decided to implement an emissions tax to control pollution. They are aware that a constant per-unit tax of $100 is an efficient policy. Yet they are also aware that this policy is not politically feasible because of the large tax burden it places on the firm. As a result, policymakers propose a two- part tax: a per unit tax of $75 for the first 15 units of emissions an increase in the per unit tax to $100 for all further units of emissions With an emissions tax, what is the general condition that determines how much pollution the regulated party will emit? What is the efficient level of emissions given the above MDF and MAC curves? What are the firm's total tax payments under the constant $100 per-unit tax? What is the firm's total cost of compliance…arrow_forward2. Answer the following questions as they relate to a fishery: Why is the maximum sustainable yield not necessarily the optimal sustainable yield? Does the same intuition apply to Nathaniel's decision of when to cut his trees? What condition will hold at the equilibrium level of fishing in an open-access fishery? Use a graph to explain your answer, and show the level of fishing effort. Would this same condition hold if there was only one boat in the fishery? If not, what condition will hold, and why is it different? Use the same graph to show the single boat's level of effort. Suppose you are given authority to solve the open-access problem in the fishery. What is the key problem that you must address with your policy?arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education





