Engineering Economy
16th Edition
ISBN: 9780133582819
Author: Sullivan
Publisher: DGTL BNCOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 8, Problem 42P
(a):
To determine
Calculate the annual worth.
(b):
To determine
Calculate the annual worth in real dollar.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The General Mills
Company (GMC) purchased a milling
machine for $90,000, which it intends to use
for the next five years. This machine is
expected to save GMC $31,000 during the
first operating year. Then the annual savings
are expected to decrease by 2% each
subsequent year over the previous year due
to increased maintenance costs. Assuming
that GMC would operate the machine for an
average of 4,000 hours per year and that it
would have no appreciable salvage value at
the end of the five-year period, determine
the equivalent dollar savings per operating
hour at 9% interest compounded annually.
The equivalent net savings are $ per
operating hour.
solve it using manual computation; do not use Microsoft Excel
The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for $8,000. If the crane is kept in service, it must be overhauled immediately at a cost of $5,000. Operating and maintenance costs will be $3,000 per year after the crane is overhauled. The overhauled crane will have zero MV at the end of the 8-year study period. A new crane will cost $20,000, will last for 8 years, and will have a $4,000 MV at that time. Operating and maintenance costs are $1,000 per year for the new crane. The company uses a before-tax interest rate of 10% per year in evaluating investment alternatives. Should the company replace the old crane?
A client has an existing CAD/CAM system that costs $95,000 per year to lease (payable at the end of each year of use) and a new contract the client is considering entering will fix the price for over the next four years. The client is also considering purchasing a CAD/CAM system to replace its currently leased system (rather than renewing / entering a new lease contract). The new system will cost $450,000 to purchase and install. The system has an estimated life of five years, when it is expected to become obsolete, but it will have a salvage value of $25,000. The interest rate is projected to be 6% per year during the life of the project.
a. Draw a cash flow diagram for the next four years for the existing system (leased system) and a separate cash flow diagram for the system that is being considered for purchase.
b. For each option (leasing and buying), calculate the value of all cash receipts and disbursements at the end of the third year.
c. Compare the value of each option at…
Chapter 8 Solutions
Engineering Economy
Ch. 8 - Prob. 1PCh. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10P
Ch. 8 - Prob. 11PCh. 8 - Prob. 12PCh. 8 - Prob. 13PCh. 8 - A commercial building design cost 89/square-foot...Ch. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 19PCh. 8 - Prob. 20PCh. 8 - Prob. 21PCh. 8 - Prob. 22PCh. 8 - Prob. 23PCh. 8 - Prob. 24PCh. 8 - Prob. 25PCh. 8 - Prob. 26PCh. 8 - Prob. 27PCh. 8 - Prob. 28PCh. 8 - Prob. 29PCh. 8 - Prob. 30PCh. 8 - Prob. 31PCh. 8 - Prob. 32PCh. 8 - Prob. 33PCh. 8 - Prob. 34PCh. 8 - Prob. 35PCh. 8 - Prob. 36PCh. 8 - Prob. 37PCh. 8 - Prob. 38PCh. 8 - Prob. 39PCh. 8 - Prob. 40PCh. 8 - Prob. 41PCh. 8 - Prob. 42PCh. 8 - Prob. 43PCh. 8 - Prob. 44PCh. 8 - Prob. 45PCh. 8 - Prob. 46PCh. 8 - Prob. 47PCh. 8 - Prob. 48PCh. 8 - Prob. 49SECh. 8 - Prob. 50SECh. 8 - Prob. 51SECh. 8 - Prob. 52CSCh. 8 - Suppose the cost of electricity is expected to...Ch. 8 - Prob. 54CSCh. 8 - Prob. 55FECh. 8 - Prob. 56FECh. 8 - Prob. 57FECh. 8 - Prob. 58FECh. 8 - Prob. 59FECh. 8 - Prob. 60FECh. 8 - Prob. 61FE
Knowledge Booster
Similar questions
- The manager of Automated Products is contemplating the purchase of a new machine that will cost$300,000 and has a useful life of five years. The machine will yield (year-end) cost reductions toAutomated Products of $50,000 in year 1, $60,000 in year 2, $75,000 in year 3, and $90,000 in years4 and 5. What is the present value of the cost savings of the machine if the interest rate is 8 percent?arrow_forwardPlease do it on excelarrow_forwardThe present price (year 0) of kerosene is $4.30 per gallon, and its cost is expected to increase by 10% per year. (At the end of year 1, kerosene will cost $4.73 per gallon.) Mr. Garcia uses about 800 gallons of kerosene for space heating during a winter season. He has an opportunity to buy a storage tank for $600, and at the end of four years, he can sell the storage tank for $100. The tank has a capacity to supply four years of Mr. Garcia's heating needs. So, he can buy four years' worth of kerosene at its present price ($4.30), or he can invest his money elsewhere at 6% interest. Should he purchase the storage tank? Assume that kerosene purchased on a pay-as-you-go basis is paid for at the end of the year. (However, kerosene purchased for the storage tank is purchased now.)arrow_forward
- An area can be irrigated by pumping water from a nearby river. Two competing installations are being considered. The MARR is 12% per year and electric power for the pumps costs $0.06 per kWh. Recall that 1 horsepower (hp) equals 0.746 kilowatts. (11.2, 11.3) a. At what level of operation (hours per year) would you be indifferent between the two pumping systems? If the pumping system is expected to operate 2,000 hours per year, which system should be recommended? b. Perform a sensitivity analysis on the efficiency of Pump A. Over what range of pumping efficiency is Pump A preferred to Pump B? Assume 2,000 hours of operation per year, and draw a graph to illustrate your answer.arrow_forward06. J. Timberlake Corporation needs a special manufacturing machine for its production plant. The company may purchase the machine for P500 000.00 and have it installed at a cost of P50 000.00. The machine will incur an annual cost of P35 000.00 for maintenance and repair, and is expected to be used for eight years and then sold for P50 000.00. The company may also rent the machine at P115 000.00 per year payable at the end of each year. If the machine is rented, costs of installation and repair shall be shouldered by the lessor, however a fee of P20 000.00 per year payable at the end of each year will be charged for basic maintenance. If the company requires an 11% MARR on its investments, determine the better alternative using PW analysis. (Ans. It is advantageous to rent, - P694 726.57; - P708 417.97) 07. Same as problem number 6 except that the lease requires that rent payment be given in advance (at the start of each year). (Ans. It will be advantageous to purchase,- P708…arrow_forwardYour company is considering purchasing a new CNC machining center. The net benefits in the first year will be $50,000, increasing at a rate of $4,000 per year for the subsequent nine years (so the benefits are $50,000, $54,000, $58,000, etc.). You think the company can get a salvage value of $18,000 at the end of its 10-year useful life. If the MARR is 8%, how much can the company justify spending on the CNC machining center? Solve by present worth analysis.arrow_forward
- A company wants to renew its old natural gas fired boiler. According to the receivedprice offer, the new boiler is 400,000 TL in cash. The natural gas consumption of this boiler is 15m3/hour and the price of natural gas is 1.1 TL/m3. The annual real price escalation of natural gas is determined as 1%. The annual cost of the boiler operation and maintenance costs is 25,000 TL and the annual escalationvalue is 17%. By purchasing a new boiler, some of the costs of the old boiler will be saved. The old boiler has costs of 250,000 TL increasing by 15% annually. The new boiler will run for 6,000 hours a year. The annual discount rate is 24% and the annual inflation rate is 17%. Determine whether it is economically feasible to purchase the new boiler by using the annual worthmethod, taking into account the 10-year costs and savings. Use real ratesfor relevant parameters in calculations.arrow_forwardYour company manufactures circuit boards and other electronic parts for various commercial products. Design changes in part of the product line, which are expected to increase sales, will require changes in the manufacturing operation. The cost basis of new equipment required is $220,000 (MACRS five-year property class). Increased annual revenues, in year zero dollars, are estimated to be $360,000. Increased annual expenses, in year zero dollars, are estimated to be $239,000. The estimated market value of equipment in actual dollars at the end of the six-year analysis period is $40,000. General price inflation is estimated at 4.9% per year; the total increase rate of annual revenues is 2.5%, and for annual expenses it is 5.6%; the after-tax MARR (in market terms) is 10% per year (im); and t = 39%. (Refer to Chapter 7 and Problem 8.7) a. Based on an after-tax, actual-dollar analysis, what is the maximum amount that your company can afford to spend on the total project (i.e., changing…arrow_forwardSuppose the reader has an old car, which is a gas guzzler. It is 10 years old and could sell for $400 cash to a local dealer. Assume that your MV in two years is zero. For the foreseeable future, annual maintenance expenses will average $800, and the car will get only 10 miles per gallon. Gasoline costs $1.50 per gallon, and the car is used an average of 15,000 miles per year. You now have the opportunity to replace your old car with a better one that costs $8,000. If I bought it, I would pay cash. Maintenance costs are expected to be negligible since it has a two-year warranty. This car averages 30 miles per gallon. Use the IRR method to determine which alternative should be selected. Use a two-year analysis period and assume that the new vehicle can sell for $5,000 at the end of year two. The MARR is 15% per year. Mention any other assumptions you make.arrow_forward
- The capital investment for a new machine is $950,000. The estimated annual expense, in year zero dollars, is $92,600. This expense is estimated to increase at the rate of 5.7% per year (F). Assume that f= 4.5%, N = 7 years, MV at the end of year 7 is 10% of the capital investment, and the MARR (in real terms) is 10.05% per year. What uniform annual revenue (before taxes), in actual dollars, would the machine need to generate to break even?arrow_forwardA semiconductor chip maker purchased a small manufacturing process plant for $2,131,020. The money coming in from that purchase was determined to be $500,000 annually in before-tax cash flow during its 10-year use. The net cash flow after tax is $300,000. If the chip maker wants to realize a 10% return on its investment after tax, for how many more years should the plant operate? (hint, tables)arrow_forwardThe initial cost of a pickup truck is $12,748 and will have a salvage value of $4,360 after five years. Maintenance is estimated to be a uniform gradient amount of $121 per year, with zero dollar for first year maintenance. The operation cost is estimated to be $0.3 per mile for 351 miles per month. If the interest rate is 12%, what is the annual equivalent cost (AEC) for the truck?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:PEARSONEngineering 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 LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial 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