ENGINEERING ECONOMY DIGITAL ACCESS
ENGINEERING ECONOMY DIGITAL ACCESS
8th Edition
ISBN: 2810022611683
Author: Blank
Publisher: MCG
Question
Book Icon
Chapter 5, Problem 21P

(a):

To determine

Compare the projects based on the present worth.

(a):

Expert Solution
Check Mark

Explanation of Solution

Table -1 shows the cash flow of different projects.

Table -1

ProjectsBC
First cost (C)203,000396,000
Operating cost (MO) per year85,000119,000
Replacement cost (O) per year5,500 
Sludge hauling cost (S) per year less 37,000
Salvage value (SV)10% at C10% at C
Time period (n)510

MARR (i) is 6%.

The time period for project B should equate with project time period C. Thus, all the cash flows are repeated for other five years. The time period (n1) is 10 years and time period 2 (n2) is five years.

The present worth of project B (PWA) can be calculated as follows:

PWB=C(MO+O)((1+i)n11i(1+i)n1)+C+(C×0.1)(1+i)n2+(C×0.1)(1+i)n1=(203,000(85,000+5,500)((1+0.06)1010.06(1+0.06)10)+203,000+(203,000×0.1)(1+0.06)5+(203,000×0.1)(1+0.06)10)=(203,000(90,500)(1.79084810.06(1.790848))+203,000+20,3001.338226+20,3001.790848)=203,000(90,500)(0.7908480.107451)136,524.03+11,335.42=203,000(90,500)(7.36008)136,524.03+11,335.42=203,000666,087.24136,524.03+11,335.42=994,275.85

The present worth of project B is -$994,275.85.

The present worth of the project C (PWC) can be calculated as follows:

PWC=C(MOS)((1+i)n1i(1+i)n)+(C×0.1)(1+i)n=(396,000(119,00037,000)((1+0.06)1010.06(1+0.06)10)+(396,000×0.1)(1+0.06)10)=(396,00082,000(1.79084810.06(1.790848))+39,6001.790848)=396,00082,000(0.7908480.107451)+22,112.43=396,00082,000(7.36008)+22,112.43=396,000603,526.56+22,112.43=977,414.13

The present worth of project C is -$977,141.13. Since the present worth of project C is greater than project B, select project C.

(b):

To determine

Compare the projects based on the present worth.

(b):

Expert Solution
Check Mark

Explanation of Solution

The time period for project B should equate with project time period C. Thus, all the cash flows are repeated for other three years. The time period (n1) is eight years and time period 2 (n2) is five years.

The present worth of the project B (PWA) can be calculated as follows:

PWB=C(MO+O)((1+i)n11i(1+i)n1)+C+(C×0.1)(1+i)n2+(C×0.1)(1+i)n1=(203,000(85,000+5,500)((1+0.06)810.06(1+0.06)8)+203,000+(203,000×0.1)(1+0.06)5+(203,000×0.1)(1+0.06)8)=(203,000(90,500)(1.59384810.06(1.593848))+203,000+20,3001.338226+20,3001.593848)=203,000(90,500)(0.5938480.095631)136,524.03+12,736.4717=203,000(90,500)(6.209786)136,524.03+12,736.4717=203,000561,985.633136,524.03+12,736.4717=888,773.25

The present worth of project B is -$888,773.2513.

Time period (n) is eight years. The present worth of the project C (PWC) can be calculated as follows:

PWC=C(MOS)((1+i)n1i(1+i)n)+(C×0.1)(1+i)n=(396,000(119,00037,000)((1+0.06)810.06(1+0.06)8)+(396,000×0.1)(1+0.06)8)=(396,00082,000(1.59384810.06(1.593848))+39,6001.593848)=396,00082,000(1.59384810.06(1.593848))+24,845.5311=396,00082,000(6.209786)+24,845.5311=396,000509,202.452+24,845.5311=880,356.92

The present worth of project C is -$880.356.92. Since the present worth of project C is greater than project B, select project C.

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
Answer question 2 only.
1. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate fund, and the third is a (riskless) T-bill money market fund that yields a rate of 8%. The probability distributions of the risky funds have the following characteristics: Standard Deviation (%) Expected return (%) Stock fund (Rs) 20 30 Bond fund (RB) 12 15 The correlation between the fund returns is .10.
Frederick Jones operates a sole proprietorship business in Trinidad and Tobago. His gross annual revenue in 2023 was $2,000,000. He wants to register for VAT, but he is unsure of what VAT entails, the requirements for registration and what he needs to do to ensure that he is fully compliant with VAT regulations. Make reference to the Vat Act of Trinidad and Tobago and explain to Mr. Jones what VAT entails, the requirements for registration and the requirements to be fully compliant with VAT regulations.
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