ENGINEERING ECO ALANYSIS W/STUDY GUIDE
14th Edition
ISBN: 9780190072537
Author: NEWNAN
Publisher: Oxford University Press
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 101P
To determine
(a)
When the higher payments catch up in total dollars received with the lower payment that begins earlier.
Expert Solution
Answer to Problem 101P
The higher payments catch up in total dollars received with the lower payment that begins earlier in the 18 Year in case of higher payments collected.
Explanation of Solution
Given information:
Option A: Receive $2,000 per month from age 66 − 85 i.e. 19 Years
Option B: Receive $1,500 per month from age 62 − 85 i.e. 23 Years.
Based on the above information, the following tables express the total cumulative dollars received.
Annual Receipts (Option 1) = $2,000 × 12 = $24,000
Annual Receipts (Option 2) = $1,500 × 12 = $18,000
| Option 1: $2,000 from Age 66 - 85 | Option 2: $1,500 from Age 62 - 85 | ||||
| Age | Annual Receipt | Cumulative Receipt | Age | Annual Receipt | Cumulative Receipt |
| 66 | $24,000.00 | $24,000.00 | 62 | $18,000.00 | $18,000.00 |
| 67 | $24,000.00 | $48,000.00 | 63 | $18,000.00 | $36,000.00 |
| 68 | $24,000.00 | $72,000.00 | 64 | $18,000.00 | $54,000.00 |
| 69 | $24,000.00 | $96,000.00 | 65 | $18,000.00 | $72,000.00 |
| 70 | $24,000.00 | $120,000.00 | 66 | $18,000.00 | $90,000.00 |
| 71 | $24,000.00 | $144,000.00 | 67 | $18,000.00 | $108,000.00 |
| 72 | $24,000.00 | $168,000.00 | 68 | $18,000.00 | $126,000.00 |
| 73 | $24,000.00 | $192,000.00 | 69 | $18,000.00 | $144,000.00 |
| 74 | $24,000.00 | $216,000.00 | 70 | $18,000.00 | $162,000.00 |
| 75 | $24,000.00 | $240,000.00 | 71 | $18,000.00 | $180,000.00 |
| 76 | $24,000.00 | $264,000.00 | 72 | $18,000.00 | $198,000.00 |
| 77 | $24,000.00 | $288,000.00 | 73 | $18,000.00 | $216,000.00 |
| 78 | $24,000.00 | $312,000.00 | 74 | $18,000.00 | $234,000.00 |
| 79 | $24,000.00 | $336,000.00 | 75 | $18,000.00 | $252,000.00 |
| 80 | $24,000.00 | $360,000.00 | 76 | $18,000.00 | $270,000.00 |
| 81 | $24,000.00 | $384,000.00 | 77 | $18,000.00 | $288,000.00 |
| 82 | $24,000.00 | $408,000.00 | 78 | $18,000.00 | $306,000.00 |
| 83 | $24,000.00 | $432,000.00 | 79 | $18,000.00 | $324,000.00 |
| 84 | $24,000.00 | $456,000.00 | 80 | $18,000.00 | $342,000.00 |
| 85 | $24,000.00 | $480,000.00 | 81 | $18,000.00 | $360,000.00 |
| 82 | $18,000.00 | $378,000.00 | |||
| 83 | $18,000.00 | $396,000.00 | |||
| 84 | $18,000.00 | $414,000.00 | |||
| 85 | $18,000.00 | $432,000.00 | |||
From the above table, it can be seen that the cumulative collection in Year 23 is $432,000 in case of Option 2 and in case of Option 1 the cumulative collection in Year 18 is $432,000.
Conclusion:
Hence the year in which higher payments catch up in total dollars received with the lower payment that begins earlier is determined.
To determine
(b)
Which alternative has the higher Present value.
Expert Solution
Answer to Problem 101P
The alternative with the higher Present value is Option 1 i.e. Collect payments of $2,000 per month from age 66 − 85.
Explanation of Solution
Given information:
Option A: Receive $2,000 per month from age 66 − 85
Option B: Receive $1,500 per month from age 62 − 85.
Based on the above information, the following tables express the total cumulative dollars received.
Annual Receipts (Option 1) = $2,000 × 12 = $24,000
Annual Receipts (Option 2) = $1,500 × 12 = $18,000
| Option 1: $2,000 from Age 66 - 85 | Option 2: $1,500 from Age 62 - 85 | ||||||
| Age | Annual Receipt | P.V.Factor @ 6% | Present Value of Amount | Age | Annual Receipt | P.V.Factor @ 6% | Present Value of Amount |
| 1 | $24,000.00 | 0.9434 | $22,641.60 | 1 | $18,000.00 | 0.9434 | $16,981.20 |
| 2 | $24,000.00 | 0.8900 | $21,360.00 | 2 | $18,000.00 | 0.8900 | $16,020.00 |
| 3 | $24,000.00 | 0.8396 | $20,150.40 | 3 | $18,000.00 | 0.8396 | $15,112.80 |
| 4 | $24,000.00 | 0.7921 | $19,010.40 | 4 | $18,000.00 | 0.7921 | $14,257.80 |
| 5 | $24,000.00 | 0.7473 | $17,935.20 | 5 | $18,000.00 | 0.7473 | $13,451.40 |
| 6 | $24,000.00 | 0.7050 | $16,920.00 | 6 | $18,000.00 | 0.7050 | $12,690.00 |
| 7 | $24,000.00 | 0.6651 | $15,962.40 | 7 | $18,000.00 | 0.6651 | $11,971.80 |
| 8 | $24,000.00 | 0.6274 | $15,057.60 | 8 | $18,000.00 | 0.6274 | $11,293.20 |
| 9 | $24,000.00 | 0.5919 | $14,205.60 | 9 | $18,000.00 | 0.5919 | $10,654.20 |
| 10 | $24,000.00 | 0.5584 | $13,401.60 | 10 | $18,000.00 | 0.5584 | $10,051.20 |
| 11 | $24,000.00 | 0.5268 | $12,643.20 | 11 | $18,000.00 | 0.5268 | $9,482.40 |
| 12 | $24,000.00 | 0.4970 | $11,928.00 | 12 | $18,000.00 | 0.4970 | $8,946.00 |
| 13 | $24,000.00 | 0.4688 | $11,251.20 | 13 | $18,000.00 | 0.4688 | $8,438.40 |
| 14 | $24,000.00 | 0.4423 | $10,615.20 | 14 | $18,000.00 | 0.4423 | $7,961.40 |
| 15 | $24,000.00 | 0.4173 | $10,015.20 | 15 | $18,000.00 | 0.4173 | $7,511.40 |
| 16 | $24,000.00 | 0.3936 | $9,446.40 | 16 | $18,000.00 | 0.3936 | $7,084.80 |
| 17 | $24,000.00 | 0.3714 | $8,913.60 | 17 | $18,000.00 | 0.3714 | $6,685.20 |
| 18 | $24,000.00 | 0.3503 | $8,407.20 | 18 | $18,000.00 | 0.3503 | $6,305.40 |
| 19 | $24,000.00 | 0.3305 | $7,932.00 | 19 | $18,000.00 | 0.3305 | $5,949.00 |
| 20 | $24,000.00 | 0.3118 | $7,483.20 | 20 | $18,000.00 | 0.3118 | $5,612.40 |
| 21 | $18,000.00 | 0.2942 | $5,295.60 | ||||
| 22 | $18,000.00 | 0.2775 | $4,995.00 | ||||
| 23 | $18,000.00 | 0.2618 | $4,712.40 | ||||
| 24 | $18,000.00 | 0.2470 | $4,446.00 | ||||
| $275,280.00 | $225,909.00 | ||||||
Net present value is the difference of Sum of Present values of cash inflows and Sum of Present values of
In the given scenario, Present values are calculated by calculating the present values of cash inflows in the form of annual receipts.
Present value factor is calculated as 1/1.06 ^ N where N is the year.
From the above table, it can be seen that the net present value of Option 1 far exceeds the net present value of option 2.
Conclusion:
Hence the option with the higher net present value is determined.
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
Don't use ai to answer I will report you answer
how to caculate marginal?
how to solve the attachments?
Chapter 5 Solutions
ENGINEERING ECO ALANYSIS W/STUDY GUIDE
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
Knowledge Booster
Similar questions
- what is change in TC / change in Q? and what would be an example?arrow_forwardhow to solve the attachment?arrow_forwardProblem 3-ABC Challenges: Attrition, Balance and ComplianceCan television inform people about public affairs? Political scientists Bethany Albertson and Adria Lawrence (2009) conducted an experiment in which they randomly assigned people to treatment and control groups to evaluate the effect of watching TV on a person’s information level. Those assigned to the treatment group were told to watch a specific television broadcast and were later asked questions related to what they watched. Those in the controlgroup were not shown the TV broadcast but were asked questions related to the material in the TV broadcast. The dataset contains the following variables: : Dummy variable which =1 if a person reads news and 0 otherwise. : interest in political affairs (not interested=1 to very interested=4) : years of education : female dummy variable (female=1; male=0) : family income in thousands of dollars : information level (low information level=1 to high information level=4) =1 if the…arrow_forward
- Problem 2-Experiments/Randomized Control Trial Suppose you are interested in studying the effect of academic counselling on the years it takes for a student to obtain an undergraduate degree. You conduct a randomized control trial to answer the question. You randomly assign 2500 individuals in a university in New York to receive academic counselling and 2500 students to not receive any academic counselling. a. Which people are a part of the treatment group and which people are a part of thecontrol group? b. What regression will you run? Define the variables where required. c. Suppose you estimate = -0.3. Interpret it. d. You test for balance using the variables mentioned in the table below. Based on the results do you think that the treatment and control group are balanced? If your answer is “yes” then explain why. If your answer is “no”, then explain why and mention how will you address the issue of imbalance. e. Suppose that some unmotivated students in the control group decided to…arrow_forwardHow to calculate total cost?arrow_forwardProblem 1-Experiments/Randomized Control TrialSuppose you are interested in studying the effect of being a part of the labor union on anindividual’s hourly wage.You collect data on 1000 people and run the following regression. where is a dummy variable which is equal t to 1 for people who are a part of labor union and0 for others. a. Suppose you estimate . Interpret b. Do you think is biased or unbiased? Explain. Now suppose you conduct a randomized control trial to answer the same question. Yourandomly assign some individuals to be a part of the labor union and others to not be a partof the labor union. The first step you take is to ensure that the randomization was donecorrectly. Then you estimate the following equation: =1 if the student is assigned to be a part of Labor Union=0 if the student is assigned to not be a part of Labor Union c. Why is it important to ensure that the randomization is done correctly? d. Name any two variables that you can use to test if Treatment and…arrow_forward
- What is kiosk?arrow_forwardIf food is produced in the U.S., sold in the U.S. and consumed in the U.S., a reduction in its price will have which of the following effects ______? Two of the answers are correct. The consumer price index will decrease. None of the answers are correct. The GDP deflator will decrease.arrow_forwardhow to caculate verible cost?arrow_forward
- What is the deficit?arrow_forwardIdentify the two curves shown on the graph, and explain their upward and downward slopes. Why does curve Aintersect the horizontal axis? What is the significance of quantity d? What does erepresent? How would the optimal quantity of information change if the marginal benefit of information increased—that is, if the marginal benefit curve shifted upward?arrow_forward6. Rent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single-price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. 18 200 20 16 16 14 PRICE (Dollars per dose) 12 10 10 8 4 2 MC = ATC MR Demand 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Millions of doses per year) Monopoly Outcome Monopoly Profits Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering 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 Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher: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
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education