ENGINEERING ECO ANALYSIS W/STUDY GUIDE
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
13th Edition
ISBN: 9780190693053
Author: NEWNAN
Publisher: Oxford University Press
Question
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Chapter 8, Problem 11P
To determine

i.

Choice Table for interest Rates from 0% to 25%.

Expert Solution
Check Mark

Answer to Problem 11P

Choice table for both specification plan has been made.

Explanation of Solution

Given:

Cost of resurfacing a road = $1.5 M

Annual Maintenance = $120K

Time period = 10 years.

Calculation:

Current Specification:

Current Plan Maintenance Cost Initial Cost Annuity = 1500000/13.1808 FV = A×(1.06^10)/0.6 Total Cost PV of Perpetuity = A/i
13.181
0.01 120000 113802 233802 23380200
0.02 120000 113802 233802 11690100
0.03 120000 113802 233802 7793400
0.04 120000 113802 233802 5845050
0.05 120000 113802 233802 4676040
0.06 120000 113802 233802 3896700
0.07 120000 113802 233802 3340029
0.08 120000 113802 233802 2922525
0.09 120000 113802 233802 2597800
0.1 120000 113802 233802 2338020
0.11 120000 113802 233802 2125473
0.12 120000 113802 233802 1948350
0.13 120000 113802 233802 1798477
0.14 120000 113802 233802 1670014
0.15 120000 113802 233802 1558680
0.16 120000 113802 233802 1461263
0.17 120000 113802 233802 1375306
0.18 120000 113802 233802 1298900
0.19 120000 113802 233802 1230537
0.2 120000 113802 233802 1169010
0.21 120000 113802 233802 1113343
0.22 120000 113802 233802 1062736
0.23 120000 113802 233802 1016530
0.24 120000 113802 233802 974175
0.25 120000 113802 233802 935208

Proposed Plan

Proposed Plan Maintenance Cost Initial Cost Annuity = 2100000/23.276 FV = A×(1.06^15-1)/0.6 Total Cost PV of Perpetuity = A/i
23.276
0.01 90000 90221.68758 180221.7 18022168.76
0.02 90000 90221.68758 180221.7 9011084.38
0.03 90000 90221.68758 180221.7 6007389.587
0.04 90000 90221.68758 180221.7 4505542.19
0.05 90000 90221.68758 180221.7 3604433.752
0.06 90000 90221.68758 180221.7 3003694.793
0.07 90000 90221.68758 180221.7 2574595.537
0.08 90000 90221.68758 180221.7 2252771.095
0.09 90000 90221.68758 180221.7 2002463.196
0.1 90000 90221.68758 180221.7 1802216.876
0.11 90000 90221.68758 180221.7 1638378.978
0.12 90000 90221.68758 180221.7 1501847.397
0.13 90000 90221.68758 180221.7 1386320.674
0.14 90000 90221.68758 180221.7 1287297.769
0.15 90000 90221.68758 180221.7 1201477.917
0.16 90000 90221.68758 180221.7 1126385.548
0.17 90000 90221.68758 180221.7 1060127.574
0.18 90000 90221.68758 180221.7 1001231.598
0.19 90000 90221.68758 180221.7 948535.1979
0.2 90000 90221.68758 180221.7 901108.438
0.21 90000 90221.68758 180221.7 858198.5124
0.22 90000 90221.68758 180221.7 819189.4891
0.23 90000 90221.68758 180221.7 783572.5548
0.24 90000 90221.68758 180221.7 750923.6983
0.25 90000 90221.68758 180221.7 720886.7504

Conclusion:

Choice table for both specification plan has been made.

To determine

ii.

Specification to be preferred when interest rate is 6%.

Expert Solution
Check Mark

Answer to Problem 11P

As the Present value of cash outflow is less in current specification, the current specification will be selected.

Explanation of Solution

Given:

Cost of resurfacing a road = $1.5 M

Annual Maintenance = $120K

Time period = 10 years.

Calculation:

Current Specification
Figures in Million $
Year Particulars Amount P.V Factor @ 6% Total
0 Resurface cost 1.5 1 1.50
1 Annual maintenance cost 0.12 0.904159 0.11
2 Annual maintenance cost 0.12 0.85298 0.10
3 Annual maintenance cost 0.12 0.804698 0.10
4 Annual maintenance cost 0.12 0.759149 0.09
5 Annual maintenance cost 0.12 0.716179 0.09
6 Annual maintenance cost 0.12 0.67564 0.08
7 Annual maintenance cost 0.12 0.637397 0.08
8 Annual maintenance cost 0.12 0.601317 0.07
9 Annual maintenance cost 0.12 0.567281 0.07
10 Annual maintenance cost 0.12 0.53517 0.06
Total 2.35
Proposed Specification
Figures in Million $
Year Particulars Amount P.V Factor @ 6% Total
0 Resurface cost 2.1 1 2.10
1 Annual maintenance cost 0.09 0.904159 0.08
2 Annual maintenance cost 0.09 0.85298 0.08
3 Annual maintenance cost 0.09 0.804698 0.07
4 Annual maintenance cost 0.09 0.759149 0.07
5 Annual maintenance cost 0.09 0.716179 0.06
6 Annual maintenance cost 0.09 0.67564 0.06
7 Annual maintenance cost 0.09 0.637397 0.06
8 Annual maintenance cost 0.09 0.601317 0.05
9 Annual maintenance cost 0.09 0.567281 0.05
10 Annual maintenance cost 0.09 0.53517 0.05
11 Annual maintenance cost 0.09 0.504878 0.05
12 Annual maintenance cost 0.09 0.4763 0.04
13 Annual maintenance cost 0.09 0.449339 0.04
14 Annual maintenance cost 0.09 0.423905 0.04
15 Annual maintenance cost 0.09 0.39991 0.04
Total 2.94

Conclusion:

As the Present value of cash outflow is less in current specification, the current specification will be selected.

To determine

iii.

Economic Difference between both specifications.

Expert Solution
Check Mark

Answer to Problem 11P

As Proposed Specification has High present Value compared to Current specification and there is relatively high difference between the Cost involvements in Current plan compared to proposed plan, so it leads to economic difference.

Explanation of Solution

Given:

Cost of resurfacing a road = $1.5 M

Annual Maintenance = $120K

Time period = 10 years.

Concept used:

As Proposed Specification has High present Value compared to Current specification and there is relatively high difference between the Cost involvements in Current plan compared to proposed plan, so it leads to economic difference.

Conclusion:

As Proposed Specification has High present Value compared to Current specification and there is relatively high difference between the Cost involvements in Current plan compared to proposed plan, so it leads to economic difference.

To determine

iv.

Impact on environment due to road surfacing.

Expert Solution
Check Mark

Answer to Problem 11P

  1. Alteration of landscape which leads to negative impact on wildlife in a number of deleterious ways.
  2. Mortality of wildlife due to destruction of their habitats.
  3. The debris from the tires of vehicles results to land pollution.
  4. Road noise affects birds negatively. Bird population declines due to proximity of road areas.

Explanation of Solution

Given:

Cost of resurfacing a road = $1.5 M

Annual Maintenance = $120K

Time period = 10 years.

Concept used:

  1. Alteration of landscape which leads to negative impact on wildlife in a number of deleterious ways.
  2. Mortality of wildlife due to destruction of their habitats.
  3. The debris from the tires of vehicles results to land pollution.
  4. Road noise affects birds negatively. Bird population declines due to proximity of road areas.

Conclusion:

  1. Alteration of landscape which leads to negative impact on wildlife in a number of deleterious ways.
  2. Mortality of wildlife due to destruction of their habitats.
  3. The debris from the tires of vehicles results to land pollution.
  4. Road noise affects birds negatively. Bird population declines due to proximity of road areas.

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