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Solution to every third end-of-chapter problem

Basics of Engineering Economy, 2ndedition

Leland Blank and Anthony Tarquin

Chapter 1

Foundations of Engineering Economy

1.1 If the alternative that is actually the best one is not even recognized as analternative, it obviously will not be able to be selected by using any economicanalysis tools.

1.4 The analysis techniques that are used in engineering economic analysis are onlyas good as the accuracy of the cash flow estimates.

1.7 In engineering economy, the evaluation criterion is financial units (dollars, pesos, etc.

1.1! Time value of money means that there is a certain worth in having money and that worth changes as a function of time.

1.1" The term that describes compensation for #renting$ of money is time value ofmoney, which manifests itself as interest.

1.1% &inimum attractive rate of return is the lowest rate of return (interest rate on apro'ect that companies or individuals consider to be high enough to induce them

to invest their money.

1.1 (a )quivalent cost in 1 year * "+,!!! "+,!!!(!.1! * -41,+!!

(b ince -41,%!! is less than -41,+!!, the firm should remodel 1ater (i.e. 1 year from now.

1.// 0ate of return * (42%%(1!!3 * 4.73

1./ 0ate of return * (/."2%(1!!3

* "+."3

1./+ mount of earnings in year one * 4!!,!!!,!!!(!./ * -1!!,!!!,!!!

1."1 The engineer is wrong, unless the &00 is e5actly equal to the cost of capital.6sually, the inequality 00 8 &00 9 cost of capital is used, and the &00 is

1

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established higher than the cost of capital so that profit, ris: and other factors areconsidered.

1."4 ; * < = i * 13= n * "

1.4 ; * -4!!,!!!= n * /= i * /!3 per year= < * >

1./ < * -1%,!!!,!!!= * -",+!!,!!!= i * 1+3 per year= n * >

1. The difference between cash inflows and cash outflows is :nown as net cashflow.

1.+ ssuming down is negative? down arrow of -4!,!!! in year = up arrow in year !identified as < *>= i * 13 per year.

1.%1 (a ;@ is ; (b

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1.7! nswer is (a

1.7" ; *