Engineering Economy
Engineering Economy
8th Edition
ISBN: 9780073523439
Author: Leland T Blank Professor Emeritus, Anthony Tarquin
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 3, Problem 53P
To determine

Calculate the present value.

Expert Solution & Answer
Check Mark

Explanation of Solution

The initial cost (C) is 1,800,000 for the first 4 years. Time period 1 (n1) is 3. From year 6, the cost decreases (d) by $30,000 till 10th year. Time period (n) is 10. Interest rate (i) is 12%.

The present value (A) can be calculated as follows:

P=C((1+i)n11i(1+i)n1)+(C((1+i)nn11i(1+i)nn1)d×1i((1+i)nn11i(1+i)nn1nn1(1+i)nn1))(1(1+i)n1)=1,800,000((1+0.12)310.12(1+0.12)3)+(1,800,000((1+0.12)10310.12(1+0.12)103)30,000×10.12((1+0.12)10310.12(1+0.12)103103(1+0.12)103))(1(1+0.12)3)=1,800,000(1.40492810.12(1.404928))+(1,800,000(2.21068110.12(2.210681))30,000×8.3333(2.21068110.12(2.210681)72.210681))(11.404928)=1,800,000(0.4049280.168591)+(1,800,000(1.2106810.265282)30,000×8.3333(1.2106810.2652823.1664451))(0.71178)=1,800,000(2.401836)(+1,800,000(4.563751)30,000×8.3333(4.5637513.1664451))(0.71178)=4,323,304.8+(8,214,751.830,000×8.3333(1.397306))(0.71178)=4,323,304.8+(8,214,751.8349,325.1027)(0.71178)=4,323,304.8+5,598,453.4146=9,921,758.21

The present value is $9,921,758.21.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Please answer questions D-H, I have already answered A , B,C but it may help you to still solve them yourself. Thank you!
2. A firm’s production function is given by:Q = 10KLThe unit capital and labour costs are 2 and 1 pounds respectively. The firm is contracted to produce2000 units.(a) Write out the optimisation problem of the firm. (b) Express this problem using a Lagrangian function. (c) Find values of K and L which fulfil the contract with minimal cost to the firm. (d) Calculate the total cost to the firm.
3. Consider the following estimated regression equation, estimated using a sample of firms, where RDis total firm spending on research and development in USD ($), Revenue is total firm revenuein USD ($), and W ages is the firms’ total spending on wages in USD ($) (standard errors inparentheses):RDd = 1000(600)+ 0.5(0.1)Revenue + 1.5(0.5)W ages,(a) Interpret the coefficients on each of the explanatory variables. (b) Which of the three coefficients are statistically significant at the 5% level of significance? Howdo you know? A researcher runs a two-sided statistical test of the null hypothesis that both the coefficients onthe explanatory variables above are jointly equal to 0.25 (mathematically, that β1 = β2 = 0.25),and reports a p-value of 0.045.(c) What does this p-value mean for the outcome of the test? (d) What would an appropriate two-sided alternative hypothesis look like?
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education