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.

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 investors 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.)