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ENGINEERING ECONOMY – 61471 and 67223

HOME WORK #5

ANSWER THE FOLLOWING QUESTIONS

Q1. A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of $26,000, an operating cost of $2,000, and a salvage value of $12,000 after 3 years. A Ford model will have a first cost of $29,000, an operating cost of $1,200, and a $15,000 resale value after 3 years. At an interest rate of 15% per year, which model should the consulting firm buy?

Q2. A large textile company is trying to decide which sludge dewatering process it should use ahead of its sludge drying operation. The costs associated with centrifuge and belt press systems are shown aside. Compare them on the basis of their annual worth values using an interest rate of 10% per year. Q3. A chemical engineer is considering two styles of pipes for moving distillate from a refinery to the tank

farm. A small pipeline will cost less to purchase (including valves and other appurtenances) but will have a high head loss and, therefore, a higher pumping cost. The small pipeline will cost $1.7 million installed and will have an operating cost of $12,000 per month. A larger-diameter pipeline will cost $2.1 million installed, but its operating cost will be only $8,000 per month. Which pipe size is more economical at an interest rate of 1% per month on the basis of an annual worth analysis? Assume the salvage value is 10% of the first cost for each pipeline at the end of the 10-year project period. Q4. An industrial engineer is considering two robots for purchase by a fiber-optic manufacturing company. Robot X will have a first cost of $85,000, an annual maintenance and operation (M&O) cost of $30,000, and a $40,000 salvage value. Robot Y will have a first cost of $97,000, an annual M&O cost of $27,000, and a $48,000 salvage value. Which should be selected on the basis of an annual worth comparison at an interest rate of 12% per year? Use a 3-year study period.

Q5. A mechanical engineer is considering two types of pressure sensors for a low- pressure steam line. The costs are shown below. Which should be selected based on an annual worth comparison at an interest rate of 12% per year? Q6. The machines shown aside are under consideration for an improvement to an automated candy bar wrapping process. Determine which should be selected on the basis of an annual worth analysis using an interest rate of 15% per year.

Q7. Two mutually exclusive projects have the estimated cash flows shown below. Use an annual worth analysis to determine which should be selected at an interest rate of 10% per year.

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Q8. What is the difference in annual worth between an investment of $100,000 per year for 100 years and an investment of $100,000 per year forever at an interest rate of 10% per year? Q9. How much must you deposit in your retirement account starting now and continuing each year through year 9 (i.e., 10 deposits) if you want to be able to withdraw $80,000 per year forever beginning 30 years from now? Assume the account earns interest at 10% per year. Q10. A stockbroker claims she can consistently earn 15% per year on an investor’s money. If she invests $20,000 now, $40,000 two years from now, and $10,000 per year through year 11 starting 4 years from now, how much money can the client withdraw every year forever, beginning 12 years from now, if the stockbroker delivers what she said and the account earns 6% per year from year 12 forward? Q11. The cash flow associated with landscaping and maintaining a certain monument in Washington, D.C., is $100,000 now and $50,000 every 5 years forever. Determine its perpetual equivalent annual worth (in years 1 through infinity) at an interest rate of 8% per year.

Q12. For the cash flow sequence shown aside (in thousands of dollars), determine the amount of money that can be withdrawn annually for an infinite period of

time, if the first withdrawal is to be made in year 10 and the interest rate is 12% per year. Q13. A company that manufactures magnetic membrane switches is investigating three production options that have the estimated cash flows aside. (a) Determine which option is preferable at an interest rate of 15% per year. (b) If the options are independent, determine which are economically acceptable. (All dollar values are in millions.)