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
presentation on "Dandelion Insomnia." Poem
Don't used Ai solution
"Whether the regulator sells or gives away tradeable emission
permits free of charge, the quantities of emissions produced by
firms are the same."
Assume that there are n identical profit-maximising firms where
profit for each firm is given by π(e) with л'(e) > 0; π"(e) <
0 and e denotes emissions. Individual emissions summed over
all firms gives E which generates environmental damages
D(E). Show that the regulator achieves the optimal level of total
pollution through a tradeable emission permit scheme, where
the permits are distributed according to the following cases:
Case (i) the firm purchases all permits;
Case (ii) the firm receives all permits free; and
Page 3 of 5
ES30031
Case (iii) the firm purchases a portion of its permits and receives
the remainder free of charge.
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
- compare and/or contrast the two plays we've been reading, Antigone and A Doll's House.arrow_forwardPlease answer step by steparrow_forwardSuppose there are two firms 1 and 2, whose abatement costs are given by c₁ (e₁) and C2 (е2), where e denotes emissions and subscripts denote the firm. We assume that c{(e) 0 for i = 1,2 and for any level of emission e we have c₁'(e) # c₂' (e). Furthermore, assume the two firms make different contributions towards pollution concentration in a nearby river captured by the transfer coefficients ε₁ and 2 such that for any level of emission e we have C₂'(e) # The regulator does not know the resulting C₁'(e) Τι environmental damages. Using an analytical approach explain carefully how the regulator may limit the concentration of pollution using (i) a Pigouvian tax scheme and (ii) uniform emissions standards. Discuss the cost-effectiveness of both approaches to control pollution.arrow_forward
- Bill’s father read that each year a car’s value declines by 10%. He also read that a new car’s value declines by 12% as it is driven off the dealer’s lot. Maintenance costs and the costs of “car problems” are only $200 per year during the 2-year warranty period. Then they jump to $750 per year, with an annual increase of $500 per year.Bill’s dad wants to keep his annual cost of car ownership low. The car he prefers cost $30,000 new, and he uses an interest rate of 8%. For this car, the new vehicle warranty is transferrable.(a) If he buys the car new, what is the minimum cost life? What is the minimum EUAC?(b) If he buys the car after it is 2 years old, what is the minimum cost life? What is the minimum EUAC?(c) If he buys the car after it is 4 years old, what is the minimum cost life? What is the minimum EUAC?(d) If he buys the car after it is 6 years old, what is the minimum cost life? What is the minimum EUAC?(e) What strategy do you recommend? Why? Please show each step and formula,…arrow_forwardO’Leary Engineering Corp. has been depreciating a $50,000 machine for the last 3 years. The asset was just sold for 60% of its first cost. What is the size of the recaptured depreciation or loss at disposal using the following depreciation methods?(a) Straight-line with N = 8 and S = 2000(b) Double declining balance with N = 8(c) 40% bonus depreciation with the balance using 7-year MACRS Please show every step and formula, don't use excel. The answer should be (a) $2000 loss, (b) $8000 deo recap, (c) $14257 dep recap, thank you.arrow_forwardThe cost of garbage pickup in Green Gulch is $4,500,000 for Year 1. The population is increasing at 6%, the nominal cost per ton is increasing at 5%, and the general inflation rate is estimated at 4%.(a) Estimate the cost in Year 4 in Year-1 dollars and in nominal dollars.(b) Reference a data source for trends in volume of garbage per person. How does including this change your answer? Please show every step and formula, don't use excel. The answer should be $6.20M, $5.2M, thank you.arrow_forward
- Please show each step with formulas, don't use Excel. The answer should be 4 years, $16,861.arrow_forwardAssume general inflation is 2.5% per year. What is the price tag in 8 years for an item that has an inflation rate of 4.5% that costs $700 today? Please show every step and formula, don't use excel. The answer should be $1203, thank you.arrow_forwardThe average cost of a certain model car was $22,000 ten years ago. This year the average cost is $35,000.(a) Calculate the average monthly inflation rate (fm) for this model.(b) Given the monthly rate fm, what is the effective annual rate, f, of inflation for this model?(c) Estimate what these will sell for 10 years from now, expressed in today’s dollars. Please show all steps and formulas, don't use excel. The answer should be (a) 0.3877%, (b) 4.753%, (c) $55,682arrow_forward
- A mining corporation purchased $120,000 of production machinery and depreciated it using 40% bonus depreciation with the balance using 5-year MACRS depreciation, a 5-year depreciable life, and zero salvage value. The corporation is a profitable one that has a 22% combined incremental tax rate. At the end of 5 years the mining company changed its method of operation and sold the production machinery for $40,000. During the 5 years the machinery was used, it reduced mine operation costs by $32,000 a year before taxes. If the company MARR is 12% after taxes, was the investment in the machinery a satisfactory one? Please show every step with formulas and don't use excel. The answer should be 14.8%, thank you.arrow_forwardAn engineer is working on the layout of a new research and experimentation facility. Two operators will be required. If, however, an additional $100,000 of instrumentation and remote controls were added, the plant could be run by a single operator. The total before-tax cost of each plant operator is projected at $35,000 per year. The instrumentation and controls will be depreciated by means of a modified accelerated cost recovery system (MACRS). If this corporation (22% combined corporate tax rate) invests in the additional instrumentation and controls. how long will it take for the after-tax benefits to equal the $100,000 cost? In other words, what is the after-tax payback period? Please write out every step and formula, don't use excel. The answer should be 3.08 years, thank you.arrow_forwardThe effective combined tax rate in a firm is 28%. An outlay of $2 million for certain new assets is under consideration. Over the next 9 years, these assets will be responsible for annual receipts of $650,000 and annual disbursements (other than for income tax) of $225,000. After this time, they will be used only for stand-by purposes with no future excess of receipts over disbursements. (a) What is the prospective rate of return before income taxes? (b)What is the prospective rate of return after taxes if straight-line depreciation can be used to write off these assets for tax purposes in 9 years? (c) What is the prospective rate of return after taxes if it is assumed that these assets must be written off for tax purposes over the next 20 years, using straight-line depreciation? Please write out each step with formulas and don't use Excel. The answers should be (a)15.4% (b) 11.5% (c) 10.0%, thank youarrow_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