ENGINEERING ECO ANALYSIS W/STUDY GUIDE
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
13th Edition
ISBN: 9780190693053
Author: NEWNAN
Publisher: Oxford University Press
Question
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Chapter 14, Problem 72P
To determine

(a)

The labour cost for the year 1, 2 and 3.

Expert Solution
Check Mark

Answer to Problem 72P

Labour cost for year 1 is $89250.

Labour cost for year 2 is $93266.

Labour cost for year 3 is $97463.

Explanation of Solution

Given:

The increase in the price after 12 year is 55%.

Further increase in price for 8 year is 25%.

Calculation:

Calculate the future cost of structural steel for year 1.

F=P(1+i)n ...... (I)

Here, the future cost is F, the present value is P, the rate of interest is i and the time period is n.

Substitute $120000 for P and 0.043 for i and 1 for n in Equation (I).

F=$120000(1+0.043)1=$120000×1.043=$125160

Calculate the future cost of structural steel for year 2.

Substitute $125160 for P and 0.032 for i and 1 for n in Equation (I).

F=$125160(1+0.032)1=$125160×1.032=$129165

Calculate the future cost of structural steel for year 3.

Substitute $129165 for P and 0.066 for i and 1 for n in Equation (I).

F=$129165(1+0.066)1=$129165×1.066=$137690

Calculate the future cost of roofing material for year 1.

Substitute $14000 for P and 0.02 for i and 1 for n in Equation (I).

F=$14000(1+0.02)1=$14000×1.02=$14280

Calculate the future cost of roofing material for year 2.

Substitute $14280 for P and 0.025 for i and 1 for n in Equation (I).

F=$14280(1+0.025)1=$14280×1.025=$14637

Calculate the future cost of roofing material for year 3.

Substitute $14637 for P and 0.03 for i and 1 for n in Equation (I).

F=$14637(1+0.03)1=$14637×1.03=$15076

Calculate the future cost of heating Equipment for year 1.

Substitute $35000 for P and 0.016 for i and 1 for n in Equation (I).

F=$35000(1+0.016)1=$35000×1.016=$35560

Calculate the future cost of heating Equipment for year 2.

Substitute $35560 for P and 0.021 for i and 1 for n in Equation (I).

F=$35560(1+0.021)1=$35560×1.021=$36307

Calculate the future cost of heating Equipment for year 3.

Substitute $36307 for P and 0.036 for i and 1 for n in Equation (I).

F=$36307(1+0.036)1=$36307×1.036=$37614

Calculate the future cost of insulation material for year 1.

Substitute $9000 for P and 0.058 for i and 1 for n in Equation (I).

F=$9000(1+0.058)1=$9000×1.058=$9522

Calculate the future cost of insulation material for year 2.

Substitute $9522 for P and 0.06 for i and 1 for n in Equation (I).

F=$9522(1+0.06)1=$9522×1.06=$10093

Calculate the future cost of insulation material for year 3.

Substitute $10093 for P and 0.075 for i and 1 for n in Equation (I).

F=$10093(1+0.075)1=$10093×1.075=$10850

Calculate the future cost of labour for year 1.

Substitute $85000 for P and 0.05 for i and 1 for n in Equation (I).

F=$85000(1+0.05)1=$85000×1.05=$89250

Calculate the future cost of labour for year 2.

Substitute $89250 for P and 0.045 for i and 1 for n in Equation (I).

F=$89250(1+0.045)1=$89250×1.045=$93266

Calculate the future cost of labour for year 3.

Substitute $93266 for P and 0.045 for i and 1 for n in Equation (I).

F=$93266(1+0.45)1=$93266×1.045=$97463

Summarise the above calculated values in a tabular form.

Items Year 1 Year 2 Year 3
Structural concrete $125160 $129165 $137690
Roofing material $14280 $14637 $15076
Heating equipment $35560 $36307 $37614
Insulation material $9522 $10093 $10850
Labour $89250 $93266 $97463
Total $273722 $283467 $298693

Conclusion:

Labour cost for year 1 is $89250.

Labour cost for year 2 is $93266.

Labour cost for year 3 is $97463.

To determine

(b)

The average percentage increase in labour cost over the 3 year period.

Expert Solution
Check Mark

Answer to Problem 72P

The average percentage increase in labour cost over the 3 year period is 9.8%.

Explanation of Solution

Calculation:

Calculate the average percentage increase of labour cost.

(AverageIncreaseoflabourcost)=(labourcostforyearn)n ...... (II)

Substitute $89250 for labour cost for year 1, $93266 for Labour cost for year 2, $97463 for Labour cost for year 3 and 3 for n in Equation (II).

AverageIncreaseoflabourcost=$89250+$93266+$974633=$2799793=$93326

Calculate the average percentage increase of labour cost.

AverageIncreaseoflabourcost=(IncreasecostInitialcost)(Initialcost)×100% .... (III)

Substitute $93326 for Increasecost and $85000 for Initialcost in Equation (III).

AverageIncreaseoflabourcost=($93326$85000$85000)×100%=$8326$85000×100%=9.8%.

Conclusion:

Thus, the average percentage increase in labour cost over the 3 year period is 9.8%.

To determine

(c)

The present worth of the insulation cost.

Expert Solution
Check Mark

Answer to Problem 72P

The present worth of the insulation cost is $19632.

Explanation of Solution

Calculation:

Write the expression to calculate the present worth of the insulation cost.

PW=F1(1+i)1+F2(1+i)2+F3(1+i)3 ...... (IV)

Here, the present worth is PW.

Substitute $9522 for F1, $10093 for F2, $10850 for F3 and 0.25 for i in Equation (IV).

PW=$9522(1+0.25)1+$10093(1+0.25)2+$10850(1+0.25)3=$7617.6+$6459.52+$5555.2=$19632.

Conclusion:

Thus, the present worth of the insulation cost is $19632.

To determine

(d)

The future worth of the labour and insulation material cost portion of the project.

Expert Solution
Check Mark

Answer to Problem 72P

The future worth of the labour and insulation material cost portion of the project is $391843.

Explanation of Solution

Calculation:

Write the expression to calculate the future worth of labour and insulation cost.

FW=(PL1+PI1)(1+i)2+(PL2+PI2)(1+i)1+(PL3+PI3)(1+i)0 ..... (V)

Here, the future worth is FW, the future cost of the labour is PL and the future cost of the insulation material is PI.

Substitute $89250 for PL1, $9522 for PI1, $93266 for PL2, $10093 for PI2, $97463 for PL3, $100850 for PI3 and 0.25 for i in Equation (V).

FW=(($89250+$9522)(1+0.25)2+($93266+$10093)(1+0.25)1+($97463+$100850)(1+0.25)0)=$154331.25+$129198.75+$108313=$391843.

Conclusion:

Thus, the future worth of the labour and insulation material cost portion of the project is $391843.

To determine

(e)

The present worth of the total construction project.

Expert Solution
Check Mark

Answer to Problem 72P

The present worth of the total construction project is $553327.296.

Explanation of Solution

Calculation:

Write the expression to calculate the present worth of the total construction project.

PW=FT1(1+i)1+FT2(1+i)2+FT3(1+i)3 ...... (VI)

Here, the total construction cost is FT.

Substitute $273722 for FT1, $283467 for FT2. $298693 for FT3 and 0.25 for i in Equation (VI).

PW=$273722(1+0.25)1+$283467(1+0.25)2+$298693(1+0.25)3=$218977.6+$181418.88+$152930.816=$553327.296.

Conclusion:

Thus, the present worth of the total construction project is $553327.296.

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Chapter 14 Solutions

ENGINEERING ECO ANALYSIS W/STUDY GUIDE

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