ENGR.ECONOMIC ANALYSIS W/DASHBOARD
14th Edition
ISBN: 9780190063467
Author: NEWNAN
Publisher: OXF
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Question
Chapter 5, Problem 100P
To determine
Which of the alternatives is preferable.
Expert Solution & Answer
Answer to Problem 100P
The option to be selected is Solar Collector Field, since it results in a higher overall
Explanation of Solution
Given information:
Installation Cost:
Flat Solar Panels$87 Million
Mechanized Solar Panels $101 Million
Solar Collector Field $91 Million
Annual Operation and Maintenance costs (year 1):
Flat Solar Panels $2 Million
Mechanized Solar Panels $2.3 Million
Solar Collector Field $3 Million
Increase in Annual Operation and Maintenance costs (year 2 onwards):
Flat Solar Panels $250,000
Mechanized Solar Panels $300,000
Solar Collector Field $350,000
Annual Revenues in the form of Electricity
Flat Solar Panels $6.9 Million
Mechanized Solar Panels $8.8 Million
Solar Collector Field $9.7 Million
Annual Increase in Revenues:
Flat Solar Panels8%
Mechanized Solar Panels 8%
Solar Collector Field 8%
Useful Life: 20 Years
Rate of Interest for calculation: 10%.
Based on the above information, the following tables outlines the
Flat Solar Panels:
| Year | Cash Flows | Cash Inflows | Cash Flows | Net Cash Flows | P.V. @10% | Amount | |
| 0 | Electricity Benefits | $ - | Initial Cost | $ 87,000,000.00 | $ (87,000,000.00) | 1 | $ (87,000,000.00) |
| 1 | Electricity Benefits | $6,900,000.00 | Operating Costs | $ 2,000,000.00 | $ 4,900,000.00 | 0.9091 | $ 4,454,590.00 |
| 2 | Electricity Benefits (8% higher than last year) | $7,452,000.00 | Operating Costs($250,000 higher than previous year) | $ 2,250,000.00 | $ 5,202,000.00 | 0.8264 | $ 4,298,932.80 |
| 3 | Electricity Benefits (8% higher than last year) | $8,048,160.00 | Operating Costs($250,000 higher than previous year) | $ 2,500,000.00 | $ 5,548,160.00 | 0.7513 | $ 4,168,332.61 |
| 4 | Electricity Benefits (8% higher than last year) | $8,692,012.80 | Operating Costs($250,000 higher than previous year) | $ 2,750,000.00 | $ 5,942,012.80 | 0.683 | $ 4,058,394.74 |
| 5 | Electricity Benefits (8% higher than last year) | $9,387,373.82 | Operating Costs($250,000 higher than previous year) | $ 3,000,000.00 | $ 6,387,373.82 | 0.6209 | $ 3,965,920.41 |
| 6 | Electricity Benefits (8% higher than last year) | $ 10,138,363.73 | Operating Costs($250,000 higher than previous year) | $ 3,250,000.00 | $ 6,888,363.73 | 0.5645 | $ 3,888,481.33 |
| 7 | Electricity Benefits (8% higher than last year) | $ 10,949,432.83 | Operating Costs($250,000 higher than previous year) | $ 3,500,000.00 | $ 7,449,432.83 | 0.5132 | $ 3,823,048.93 |
| 8 | Electricity Benefits (8% higher than last year) | $ 11,825,387.45 | Operating Costs($250,000 higher than previous year) | $ 3,750,000.00 | $ 8,075,387.45 | 0.4665 | $ 3,767,168.25 |
| 9 | Electricity Benefits (8% higher than last year) | $ 12,771,418.45 | Operating Costs($250,000 higher than previous year) | $ 4,000,000.00 | $ 8,771,418.45 | 0.4241 | $ 3,719,958.57 |
| 10 | Electricity Benefits (8% higher than last year) | $ 13,793,131.93 | Operating Costs($250,000 higher than previous year) | $ 4,250,000.00 | $ 9,543,131.93 | 0.3855 | $ 3,678,877.36 |
| 11 | Electricity Benefits (8% higher than last year) | $ 14,896,582.48 | Operating Costs($250,000 higher than previous year) | $ 4,500,000.00 | $ 10,396,582.48 | 0.3505 | $ 3,644,002.16 |
| 12 | Electricity Benefits (8% higher than last year) | $ 16,088,309.08 | Operating Costs($250,000 higher than previous year) | $ 4,750,000.00 | $ 11,338,309.08 | 0.3186 | $ 3,612,385.27 |
| 13 | Electricity Benefits (8% higher than last year) | $ 17,375,373.81 | Operating Costs($250,000 higher than previous year) | $ 5,000,000.00 | $ 12,375,373.81 | 0.2897 | $ 3,585,145.79 |
| 14 | Electricity Benefits (8% higher than last year) | $ 18,765,403.71 | Operating Costs($250,000 higher than previous year) | $ 5,250,000.00 | $ 13,515,403.71 | 0.2633 | $ 3,558,605.80 |
| 15 | Electricity Benefits (8% higher than last year) | $ 20,266,636.01 | Operating Costs($250,000 higher than previous year) | $ 5,500,000.00 | $ 14,766,636.01 | 0.2394 | $ 3,535,132.66 |
| 16 | Electricity Benefits (8% higher than last year) | $ 21,887,966.89 | Operating Costs($250,000 higher than previous year) | $ 5,750,000.00 | $ 16,137,966.89 | 0.2176 | $ 3,511,621.59 |
| 17 | Electricity Benefits (8% higher than last year) | $ 23,639,004.24 | Operating Costs($250,000 higher than previous year) | $ 6,000,000.00 | $ 17,639,004.24 | 0.1978 | $ 3,488,995.04 |
| 18 | Electricity Benefits (8% higher than last year) | $ 25,530,124.58 | Operating Costs($250,000 higher than previous year) | $ 6,250,000.00 | $ 19,280,124.58 | 0.1799 | $ 3,468,494.41 |
| 19 | Electricity Benefits (8% higher than last year) | $ 27,572,534.54 | Operating Costs($250,000 higher than previous year) | $ 6,500,000.00 | $ 21,072,534.54 | 0.1635 | $ 3,445,359.40 |
| 20 | Electricity Benefits (8% higher than last year) | $ 29,778,337.31 | Operating Costs($250,000 higher than previous year) | $ 6,750,000.00 | $ 23,028,337.31 | 0.1486 | $ 3,422,010.92 |
| Net Present Value | $ (11,904,541.97) |
Mechanized Solar Panels:
| Year | Cash Flows | Cash Inflows | Cash Flows | Cash Outflows | Net Cash Flows | P.V. @10% | Amount |
| 0 | Electricity Benefits | $ - | Initial Cost | $ 101,000,000.00 | $ (101,000,000.00) | 1 | $ (101,000,000.00) |
| 1 | Electricity Benefits (8% higher than last year) | $ 8,800,000.00 | Operating Costs | $ 2,300,000.00 | $ 6,500,000.00 | 0.9091 | $ 5,909,150.00 |
| 2 | Electricity Benefits (8% higher than last year) | $ 9,504,000.00 | Operating Costs($300,000 higher than previous year) | $ 2,600,000.00 | $ 6,904,000.00 | 0.8264 | $ 5,705,465.60 |
| 3 | Electricity Benefits (8% higher than last year) | $ 10,264,320.00 | Operating Costs($300,000 higher than previous year) | $ 2,900,000.00 | $ 7,364,320.00 | 0.7513 | $ 5,532,813.62 |
| 4 | Electricity Benefits (8% higher than last year) | $ 11,085,465.60 | Operating Costs($300,000 higher than previous year) | $ 3,200,000.00 | $ 7,885,465.60 | 0.683 | $ 5,385,773.00 |
| 5 | Electricity Benefits (8% higher than last year) | $ 11,972,302.85 | Operating Costs($300,000 higher than previous year) | $ 3,500,000.00 | $ 8,472,302.85 | 0.6209 | $ 5,260,452.84 |
| 6 | Electricity Benefits (8% higher than last year) | $ 12,930,087.08 | Operating Costs($300,000 higher than previous year) | $ 3,800,000.00 | $ 9,130,087.08 | 0.5645 | $ 5,153,934.15 |
| 7 | Electricity Benefits (8% higher than last year) | $ 13,964,494.04 | Operating Costs($300,000 higher than previous year) | $ 4,100,000.00 | $ 9,864,494.04 | 0.5132 | $ 5,062,458.34 |
| 8 | Electricity Benefits (8% higher than last year) | $ 15,081,653.57 | Operating Costs($300,000 higher than previous year) | $ 4,400,000.00 | $ 10,681,653.57 | 0.4665 | $ 4,982,991.39 |
| 9 | Electricity Benefits (8% higher than last year) | $ 16,288,185.85 | Operating Costs($300,000 higher than previous year) | $ 4,700,000.00 | $ 11,588,185.85 | 0.4241 | $ 4,914,549.62 |
| 10 | Electricity Benefits (8% higher than last year) | $ 17,591,240.72 | Operating Costs($300,000 higher than previous year) | $ 5,000,000.00 | $ 12,591,240.72 | 0.3855 | $ 4,853,923.30 |
| 11 | Electricity Benefits (8% higher than last year) | $ 18,998,539.98 | Operating Costs($300,000 higher than previous year) | $ 5,300,000.00 | $ 13,698,539.98 | 0.3505 | $ 4,801,338.26 |
| 12 | Electricity Benefits (8% higher than last year) | $ 20,518,423.17 | Operating Costs($300,000 higher than previous year) | $ 5,600,000.00 | $ 14,918,423.17 | 0.3186 | $ 4,753,009.62 |
| 13 | Electricity Benefits (8% higher than last year) | $ 22,159,897.03 | Operating Costs($300,000 higher than previous year) | $ 5,900,000.00 | $ 16,259,897.03 | 0.2897 | $ 4,710,492.17 |
| 14 | Electricity Benefits (8% higher than last year) | $ 23,932,688.79 | Operating Costs($300,000 higher than previous year) | $ 6,200,000.00 | $ 17,732,688.79 | 0.2633 | $ 4,669,016.96 |
| 15 | Electricity Benefits (8% higher than last year) | $ 25,847,303.89 | Operating Costs($300,000 higher than previous year) | $ 6,500,000.00 | $ 19,347,303.89 | 0.2394 | $ 4,631,744.55 |
| 16 | Electricity Benefits (8% higher than last year) | $ 27,915,088.20 | Operating Costs($300,000 higher than previous year) | $ 6,800,000.00 | $ 21,115,088.20 | 0.2176 | $ 4,594,643.19 |
| 17 | Electricity Benefits (8% higher than last year) | $ 30,148,295.26 | Operating Costs($300,000 higher than previous year) | $ 7,100,000.00 | $ 23,048,295.26 | 0.1978 | $ 4,558,952.80 |
| 18 | Electricity Benefits (8% higher than last year) | $ 32,560,158.88 | Operating Costs($300,000 higher than previous year) | $ 7,400,000.00 | $ 25,160,158.88 | 0.1799 | $ 4,526,312.58 |
| 19 | Electricity Benefits (8% higher than last year) | $ 35,164,971.59 | Operating Costs($300,000 higher than previous year) | $ 7,700,000.00 | $ 27,464,971.59 | 0.1635 | $ 4,490,522.86 |
| 20 | Electricity Benefits (8% higher than last year) | $ 37,978,169.32 | Operating Costs($300,000 higher than previous year) | $ 8,000,000.00 | $ 29,978,169.32 | 0.1486 | $ 4,454,755.96 |
| Net Present Value | $ (2,047,699.18) |
Solar Collector Field:
| Year | Cash Flows | Cash Inflows | Cash Flows | Cash Outflows | Net Cash Flows | P.V. @10% | Amount |
| 0 | Electricity Benefits | $ - | Initial Cost | $ 91,000,000.00 | $ (91,000,000.00) | 1 | $ (91,000,000.00) |
| 1 | Electricity Benefits (8% higher than last year) | $ 9,700,000.00 | Operating Costs | $ 3,000,000.00 | $ 6,700,000.00 | 0.9091 | $ 6,090,970.00 |
| 2 | Electricity Benefits (8% higher than last year) | $ 10,476,000.00 | Operating Costs($350,000 higher than previous year) | $ 3,350,000.00 | $ 7,126,000.00 | 0.8264 | $ 5,888,926.40 |
| 3 | Electricity Benefits (8% higher than last year) | $ 11,314,080.00 | Operating Costs($350,000 higher than previous year) | $ 3,700,000.00 | $ 7,614,080.00 | 0.7513 | $ 5,720,458.30 |
| 4 | Electricity Benefits (8% higher than last year) | $ 12,219,206.40 | Operating Costs($350,000 higher than previous year) | $ 4,050,000.00 | $ 8,169,206.40 | 0.683 | $ 5,579,567.97 |
| 5 | Electricity Benefits (8% higher than last year) | $ 13,196,742.91 | Operating Costs($350,000 higher than previous year) | $ 4,400,000.00 | $ 8,796,742.91 | 0.6209 | $ 5,461,897.67 |
| 6 | Electricity Benefits (8% higher than last year) | $ 14,252,482.34 | Operating Costs($350,000 higher than previous year) | $ 4,750,000.00 | $ 9,502,482.34 | 0.5645 | $ 5,364,151.28 |
| 7 | Electricity Benefits (8% higher than last year) | $ 15,392,680.93 | Operating Costs($350,000 higher than previous year) | $ 5,100,000.00 | $ 10,292,680.93 | 0.5132 | $ 5,282,203.85 |
| 8 | Electricity Benefits (8% higher than last year) | $ 16,624,095.41 | Operating Costs($350,000 higher than previous year) | $ 5,450,000.00 | $ 11,174,095.41 | 0.4665 | $ 5,212,715.51 |
| 9 | Electricity Benefits (8% higher than last year) | $ 17,954,023.04 | Operating Costs($350,000 higher than previous year) | $ 5,800,000.00 | $ 12,154,023.04 | 0.4241 | $ 5,154,521.17 |
| 10 | Electricity Benefits (8% higher than last year) | $ 19,390,344.88 | Operating Costs($350,000 higher than previous year) | $ 6,150,000.00 | $ 13,240,344.88 | 0.3855 | $ 5,104,152.95 |
| 11 | Electricity Benefits (8% higher than last year) | $ 20,941,572.47 | Operating Costs($350,000 higher than previous year) | $ 6,500,000.00 | $ 14,441,572.47 | 0.3505 | $ 5,061,771.15 |
| 12 | Electricity Benefits (8% higher than last year) | $ 22,616,898.27 | Operating Costs($350,000 higher than previous year) | $ 6,850,000.00 | $ 15,766,898.27 | 0.3186 | $ 5,023,333.79 |
| 13 | Electricity Benefits (8% higher than last year) | $ 24,426,250.13 | Operating Costs($350,000 higher than previous year) | $ 7,200,000.00 | $ 17,226,250.13 | 0.2897 | $ 4,990,444.66 |
| 14 | Electricity Benefits (8% higher than last year) | $ 26,380,350.14 | Operating Costs($350,000 higher than previous year) | $ 7,550,000.00 | $ 18,830,350.14 | 0.2633 | $ 4,958,031.19 |
| 15 | Electricity Benefits (8% higher than last year) | $ 28,490,778.16 | Operating Costs($350,000 higher than previous year) | $ 7,900,000.00 | $ 20,590,778.16 | 0.2394 | $ 4,929,432.29 |
| 16 | Electricity Benefits (8% higher than last year) | $ 30,770,040.41 | Operating Costs($350,000 higher than previous year) | $ 8,250,000.00 | $ 22,520,040.41 | 0.2176 | $ 4,900,360.79 |
| 17 | Electricity Benefits (8% higher than last year) | $ 33,231,643.64 | Operating Costs($350,000 higher than previous year) | $ 8,600,000.00 | $ 24,631,643.64 | 0.1978 | $ 4,872,139.11 |
| 18 | Electricity Benefits (8% higher than last year) | $ 35,890,175.13 | Operating Costs($350,000 higher than previous year) | $ 8,950,000.00 | $ 26,940,175.13 | 0.1799 | $ 4,846,537.51 |
| 19 | Electricity Benefits (8% higher than last year) | $ 38,761,389.14 | Operating Costs($350,000 higher than previous year) | $ 9,300,000.00 | $ 29,461,389.14 | 0.1635 | $ 4,816,937.12 |
| 20 | Electricity Benefits (8% higher than last year) | $ 41,862,300.27 | Operating Costs($350,000 higher than previous year) | $ 9,650,000.00 | $ 32,212,300.27 | 0.1486 | $ 4,786,747.82 |
| Net Present Value | $ 13,045,300.56 |
Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of cash outflows. If the value is positive then the project may be accepted. While evaluation of two or more alternatives takes place, then the proposal with the higher net present value may be selected since it results in a greater cash inflow over the duration of the project.
In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of revenues in the form of electricity and cash outflows such as installation cost and operating cost.
Installation Costs in case of Flat Solar Panels are $87 Million, Mechanized Solar Panels + $101 Million and Solar Collector Field + $91 Million.
Annual Operation and Maintenance costs for year 1, in case of Flat Solar Panels+ $2 Million, Mechanized Solar Panels + $2.3 Million and Solar Collector Field + $3 Million.
Increase Annual Operation and Maintenance costs year 2 onwardsin case ofFlat Solar Panels+ $250,000, Mechanized Solar Panels + $300,000 and Solar Collector Field + $350,000.
Annual Revenues in the form of Electricity in case of Flat Solar Panels + $6.9Million, Mechanized Solar Panels + $8.8 Million and Solar Collector Field + $9.7 Million
Annual Increase in Revenues is 8% in case of all alternatives and the Useful Life is 20 Years. Rate of Interest for calculation is considered as 10%
Present value factor is calculated as 1/1.10 ^ N where N is the year of operation.
Conclusion:
Hence the option to be selected is Flat Solar Panels since it results in higher overall cash flow for a period of 20 years.
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KWAME NKRUMAH UNIVERSITY
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SCHOOL OF BUSINESS STUDIES
DEPARTMENT OF ECONOMICS AND FINANCE
ADVANCED MICRO-ECONOMICS (BEC 3701)
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Check instructions below:
LTE
1) Let u(q1,q2) = ln q₁ + q2 be the (direct) utility function, where q₁ and q2the two goods. Denote
P₁ and P2 as the prices of those two goods and let M be per period money income. Derive each of
the following:
a) the ordinary or Marshallian demand functions q₁ = d₂ (P₁, P₂, M) for i = 1,2 [3 Marks]
b) the compensated or Hicksian demand functions q₁ = h₂ (P₁, P2, M) for i = 1,2 [3 Marks]
c) the Indirect Utility Function uº = v(P₁, P2, M) [3 Marks]
d) the Expenditure Function E(P1, P2, U°) [3 Marks]
e) Draw a diagram of the solution. There should be two graphs, one above the other; the
first containing the indifference curves and budget constraint that characterize the
solution to the consumer's choice problem; the second characterizing the demand…
How would you answer the question in the News Wire “Future Living Standards”? Why?
al Problems
(v) T
(ix) F
1.
Out of total number of 2807 women, who were interviewed for employment in a textile
factory, 912 were from textile areas and the rest from non-textile areas. Amongst the married
women, who belonged to textile areas, 347 were having some work experience and 173 did
not have work experience, while for non-textile areas the corresponding figures were 199
and 670 respectively. The total number of women having no experience was 1841 of whom
311 resided in textile areas. Of the total number of women, 1418 were unmarried and of
these the number of women having experience in the textile and non-textile areas was 254
and 166 respectively. Tabulate the above information. [CA. (Foundation), May 2000
Exactly (14) of the total employees of a sugar mill were
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Chapter 5 Solutions
ENGR.ECONOMIC ANALYSIS W/DASHBOARD
Ch. 5 - Prob. 1QTCCh. 5 - Prob. 2QTCCh. 5 - Prob. 3QTCCh. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Prob. 4PCh. 5 - Prob. 5PCh. 5 - Prob. 6PCh. 5 - Prob. 7P
Ch. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Prob. 33PCh. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41PCh. 5 - Prob. 42PCh. 5 - Prob. 43PCh. 5 - Prob. 44PCh. 5 - Prob. 45PCh. 5 - Prob. 46PCh. 5 - Prob. 47PCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - Prob. 56PCh. 5 - Prob. 57PCh. 5 - Prob. 58PCh. 5 - Prob. 59PCh. 5 - Prob. 60PCh. 5 - Prob. 61PCh. 5 - Prob. 62PCh. 5 - Prob. 63PCh. 5 - Prob. 64PCh. 5 - Prob. 65PCh. 5 - Prob. 66PCh. 5 - Prob. 67PCh. 5 - Prob. 68PCh. 5 - Prob. 69PCh. 5 - Prob. 70PCh. 5 - Prob. 71PCh. 5 - Prob. 72PCh. 5 - Prob. 73PCh. 5 - Prob. 74PCh. 5 - Prob. 75PCh. 5 - Prob. 76PCh. 5 - Prob. 77PCh. 5 - Prob. 78PCh. 5 - Prob. 79PCh. 5 - Prob. 80PCh. 5 - Prob. 81PCh. 5 - Prob. 82PCh. 5 - Prob. 83PCh. 5 - Prob. 84PCh. 5 - Prob. 85PCh. 5 - Prob. 86PCh. 5 - Prob. 87PCh. 5 - Prob. 88PCh. 5 - Prob. 89PCh. 5 - Prob. 90PCh. 5 - Prob. 91PCh. 5 - Prob. 92PCh. 5 - Prob. 93PCh. 5 - Prob. 94PCh. 5 - Prob. 95PCh. 5 - Prob. 96PCh. 5 - Prob. 97PCh. 5 - Prob. 98PCh. 5 - Prob. 99PCh. 5 - Prob. 100PCh. 5 - Prob. 101P
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