ENGINEERING ECO ANALYSIS W/STUDY GUIDE
13th Edition
ISBN: 9780190693053
Author: NEWNAN
Publisher: Oxford University Press
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Question
Chapter 8, Problem 19P
To determine
i.
Choice Table.
Expert Solution
Answer to Problem 19P
| Deluxe is profitable with positive NPW between | 0% to 14% |
| Regular is profitable with positive |
0% to 21% |
| Economy is profitable with positive NPV between | 0% to 24% |
Explanation of Solution
Given:
| Deluxe | Regular | Economy | |
| First Cost | $220,000 | $125,000 | $75,000 |
| Useful Life | 5 | 6 | 7 |
| Salvage Value | 16000 | 6900 | 3000 |
Calculation:
| Year | Prticulars | Deluxe | Regular | Economy | Incremental = Regular-Economy | Incremental = Deluxe-Regular |
| 0 | First Cost | ($220,000) | ($125,000) | ($75,000) | ($50,000) | ($95,000) |
| 1 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 3 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 4 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 5 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 6 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 7 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 8 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 9 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 10 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 11 | Annual Cost- Operating Cost | $41,000 | $30,000 | $20,000 | $10,000 | $11,000 |
| 12 | Annual Benefit-Operating Cost+Salvage Value | $57,000 | $36,900 | $23,000 | $16,900 | $20,100 |
| Incremental |
16.52% | 5.32% | ||||
| NPV of incremental cash flow at 15% MARR | $3,175.40 | ($35,473.19) |
| Interest Rate | NPV of Deluxe | NPV of Regular | NPV of Economy |
| 0% | $231,000.00 | $211,900.00 | $148,000.00 |
| 1% | $205,072.76 | $192,213.48 | $135,041.54 |
| 2% | $181,260.77 | $174,154.86 | $123,149.75 |
| 3% | $159,357.59 | $157,563.43 | $112,219.75 |
| 4% | $139,179.55 | $142,296.41 | $102,158.28 |
| 5% | $120,562.98 | $128,226.71 | $92,882.32 |
| 6% | $103,361.86 | $115,241.07 | $84,317.85 |
| 7% | $571,366.62 | $103,238.37 | $76,398.77 |
| 8% | $72,697.53 | ($90,833.33) | $69,065.93 |
| 9% | $59,012.81 | $81,829.69 | $62,266.41 |
| 10% | $46,297.50 | $72,270.24 | $55,952.70 |
| 11% | $34,467.13 | $63,384.71 | $50,082.16 |
| 12% | $23,445.66 | $55,114.56 | $44,616.41 |
| 13% | $13,164.59 | $47,407.05 | $39,520.92 |
| 14% | $3,562.05 | $40,214.65 | $34,764.51 |
| 15% | ($5,417.81) | $33,494.46 | $30,319.07 |
| 16% | ($13,825.58) | $27,207.71 | $26,159.14 |
| 17% | ($21,707.05) | ($93,461.54) | $22,261.70 |
| 18% | ($29,103.78) | $15,797.40 | $18,605.86 |
| 19% | ($36,053.50) | $10,613.20 | $15,172.69 |
| 20% | ($42,590.54) | $5,740.46 | $11,944.97 |
| 21% | ($48,746.12) | $1,155.36 | $8,907.02 |
| 22% | ($54,548.72) | ($3,163.82) | $6,044.58 |
| 23% | ($60,024.33) | ($7,236.86) | $3,344.64 |
| 24% | ($65,196.69) | ($11,081.83) | $795.31 |
| 25% | ($70,087.49) | ($14,715.22) | ($1,614.25) |
| 26% | ($74,716.63) | ($18,152.13) | ($3,893.99) |
| 27% | ($79,102.31) | ($21,406.38) | ($6,053.01) |
| 28% | ($83,261.26) | ($24,490.66) | ($8,099.65) |
| 29% | ($87,208.83) | ($27,416.58) | ($10,041.58) |
| 30% | ($90,959.14) | ($30,194.85) | ($11,885.84) |
| 31% | ($94,525.19) | ($32,835.27) | ($13,638.91) |
| 32% | ($97,918.95) | ($35,346.91) | ($15,306.75) |
| 33% | ($189,172.93) | ($37,738.10) | ($16,894.86) |
| 34% | ($104,232.93) | ($40,016.52) | ($18,408.32) |
| 35% | ($107,172.77) | ($42,189.29) | ($19,851.81) |
| 36% | ($109,979.71) | ($44,262.97) | ($21,229.66) |
| 37% | ($112,661.80) | ($46,243.62) | ($22,545.89) |
| 38% | ($115,226.53) | ($48,136.87) | ($23,804.20) |
| 39% | ($117,680.83) | ($49,947.94) | ($25,008.05) |
| 40% | ($120,031.14) | ($51,681.66) | ($26,160.62) |
| 41% | ($122,283.44) | ($53,342.52) | ($27,264.88) |
| 42% | ($124,443.30) | ($54,934.69) | ($28,323.60) |
| 43% | ($126,515.91) | ($56,462.06) | ($29,339.33) |
| 44% | ($128,506.07) | ($57,928.24) | ($30,314.47) |
| 45% | ($130,418.30) | ($59,336.59) | ($31,251.25) |
| 46% | ($132,256.78) | ($60,690.26) | ($32,151.74) |
| 47% | ($134,025.45) | ($61,992.17) | ($33,017.88) |
| 48% | ($135,727.96) | ($63,245.07) | ($33,851.49) |
| 49% | ($137,367.74) | ($64,451.51) | ($34,654.25) |
| 50% | ($138,948.00) | ($65,613.89) | ($35,427.76) |
| 51% | ($140,471.75) | ($66,734.45) | ($36,173.49) |
| 52% | ($141,941.80) | ($67,815.29) | ($36,892.85) |
| 53% | ($143,360.80) | ($68,858.38) | ($37,587.13) |
| 54% | ($144,731.22) | ($69,865.56) | ($38,257.56) |
| 55% | ($146,055.40) | ($70,838.58) | ($38,905.28) |
| 56% | ($147,335.54) | ($71,779.07) | ($39,531.39) |
| 57% | ($148,573.69) | ($72,688.55) | ($40,136.90) |
| 58% | ($149,771.80) | ($73,568.47) | ($40,722.76) |
| 59% | ($150,931.69) | ($74,420.19) | ($41,289.87) |
| 60% | ($152,055.10) | ($75,245.00) | ($41,839.09) |
| 61% | ($153,143.64) | ($76,044.09) | ($42,371.22) |
| 62% | ($154,198.86) | ($76,818.61) | ($42,887.01) |
| 63% | ($155,222.20) | ($77,569.64) | ($43,387.17) |
| 64% | ($156,215.04) | ($78,298.18) | ($43,872.39) |
| 65% | ($157,178.67) | ($79,005.21) | ($44,343.29) |
| 66% | ($158,114.32) | ($79,691.63) | ($44,800.49) |
| 67% | ($159,023.15) | ($80,358.31) | ($45,244.55) |
| 68% | ($159,906.27) | ($81,006.05) | ($45,676.02) |
| 69% | ($160,764.71) | ($81,635.62) | ($46,095.40) |
| 70% | ($161,599.47) | ($82,247.77) | ($46,503.18) |
| 71% | ($162,411.49) | ($82,843.19) | ($46,899.84) |
| 72% | ($163,201.65) | ($83,422.53) | ($47,285.79) |
| 73% | ($163,970.81) | ($83,986.42) | ($47,661.47) |
| 74% | ($164,719.77) | ($84,535.46) | ($48,027.26) |
| 75% | ($165,449.29) | ($85,070.21) | ($48,383.54) |
| 76% | ($166,160.11) | ($85,591.21) | ($48,730.66) |
| 77% | ($166,852.92) | ($86,098.98) | ($49,068.98) |
| 78% | ($167,528.38) | ($86,593.99) | ($49,398.81) |
| 79% | ($168,187.12) | ($87,076.72) | ($49,720.46) |
| 80% | ($168,829.74) | ($87,547.61) | ($50,034.23) |
| 81% | ($169,456.82) | ($88,007.08) | ($50,340.40) |
| 82% | ($170,068.89) | ($88,455.54) | ($50,639.23) |
| 83% | ($170,666.49) | ($88,893.36) | ($50,930.98) |
| 84% | ($171,250.11) | ($89,320.92) | ($51,215.90) |
| 85% | ($171,820.23) | ($89,738.57) | ($51,494.22) |
| 86% | ($172,377.30) | ($90,146.64) | ($51,766.16) |
| 87% | ($172,921.76) | ($90,545.45) | ($52,031.94) |
| 88% | ($173,454.02) | ($90,935.31) | ($52,291.75) |
| 89% | ($173,974.49) | ($91,316.52) | ($52,545.80) |
| 90% | ($174,483.55) | ($91,689.36) | ($52,794.28) |
| 91% | ($174,981.56) | ($92,054.09) | ($53,037.36) |
| 92% | ($175,468.88) | ($92,410.97) | ($53,275.21) |
| 93% | ($175,945.83) | ($92,760.26) | ($53,507.99) |
| 94% | ($176,412.75) | ($93,102.18) | ($53,735.88) |
| 95% | ($176,869.95) | ($93,436.97) | ($53,959.01) |
| 96% | ($177,317.71) | ($93,764.85) | ($54,177.54) |
| 97% | ($177,756.33) | ($94,086.02) | ($54,391.60) |
| 98% | ($178,186.08) | ($94,400.69) | ($54,601.33) |
| 99% | ($178,607.23) | ($94,709.04) | ($54,806.86) |
| 100% | ($179,020.02) | ($95,011.28) | ($55,008.30) |
Conclusion:
| Deluxe is profitable with positive NPW between | 0% to 14% |
| Regular is profitable with positive NPV between | 0% to 21% |
| Economy is profitable with positive NPV between | 0% to 24% |
To determine
ii.
Alternative to be selected when MARR=15%.
Expert Solution
Answer to Problem 19P
| Incremental from Regular to deluxe (Deluxe-Regular) is not profitable as incremental rate of return is less than 15% | 5.32% |
| Incremental from economy to Regular (Regular-Economy) is not profitable as incremental rate of return is less than 15% | 16.52% |
Explanation of Solution
Given:
| Deluxe | Regular | Economy | |
| First Cost | $220,000 | $125,000 | $75,000 |
| Useful Life | 5 | 6 | 7 |
| Salvage Value | 16000 | 6900 | 3000 |
Concept used:
| Incremental from Regular to deluxe (Deluxe-Regular) is not profitable as incremental rate of return is less than 15% | 5.32% |
| Incremental from economy to Regular (Regular-Economy) is not profitable as incremental rate of return is less than 15% | 16.52% |
Conclusion:
| Incremental from Regular to deluxe (Deluxe-Regular) is not profitable as incremental rate of return is less than 15% | 5.32% |
| Incremental from economy to Regular (Regular-Economy) is not profitable as incremental rate of return is less than 15% | 16.52% |
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Chapter 8 Solutions
ENGINEERING ECO ANALYSIS W/STUDY GUIDE
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