Econ for Engineers

According to Descartes' rule of signs, there are many possible i* values for net cash flow series below. Which cash flow series will have 6 possible i* values?

+−−−+−+−−−+

A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows estimated. At an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using tabulated factors. First cost, $ -800,000 Equipment replacement cost in year 2, $ -300,000 Annual operating cost, $/year - 940,000 Salvage value, $ 250,000 Life, years 4

- 1,216,720

The costs associated with a small X-ray inspection system are $40,000 now and $24,000 per year, with a $6000 salvage value after 3 years. Determine the equivalent annual cost of the system if the real interest rate is 10% per year and the inflation rate is 4% per year. Note this answer must be negative Note: Let (A/P, 14.4%,3) = (0.43363) and (A/F, 14.4%,3) = (0.28963) And (A/P,10%,3) = (0.26343) and (A/F, 10%,3) = (0.21964)

- 38,607

White Oaks Properties builds strip shopping centers and small malls. The company plans to replace its refrigeration, cooking, HVAC, and other equipment with newer models in the entire center built 9 years ago. The original purchase price of the equipment was $638,000 nine years ago and the operating cost has averaged $420,000 per year. Determine the equivalent annual cost of the installed equipment, if the company can now sell it for $184,000. The company's MARR is 10% per year. Note: Your answer should be negative.

- 517,233

An interest rate of 21% per year compounded every 4 months is equivalent to what effective rate per year?

0.225

The Moller Skycar M400 is a flying car known as a personal air vehicle (PAV). The cost is $980,000, and a $100,000 deposit holds one of the first 100 vehicles. Assume a buyer pays the $880,000 balance 3 years after making the $100,000 deposit. At an interest rate of 10% per year, determine the effective total cost of the PAV in year 3 using tabulated factors.

1,013,100

A present sum of $5000 at an interest rate of 20% per year compounded semiannually is equivalent to how much money 8 years ago?

1,088

A project has an AW of Cost = 6,500,000(0.08) + 130,000 The AW of Benefits = $820,000. What is the b/c ratio? Write the answer to three decimal places.

1.26

(F/P, 10%, 6)

1.7716

Two methods can be used for new high-speed pumps. Method A costs $80,000 initially and will have a $15,000 salvage value after 3 years. The operating cost with this method will be $30,000 per year. Method B will have a first cost of $122,000, an operating cost of $8000 per year, and a $40,000 salvage value after its 3-year life. At the MARR of 12% per year. Give the Present Worth PW of Method B.

112,742

A professional photographer who specializes in wedding-related activities paid $16,000 for equipment that has a $2000 estimated salvage value after five years. He estimates that his costs associated with each event amount to $65 per day. If he charges $300 per day for his services, how many days per year must he be employed in order to break even at an interest rate of 10% per year?

17

When the inflation rate is 4% per year, how many inflated dollars will be required 20 years from now to buy the same things that $10,000 buys now? Do not consider the normal real interest rate

21,911

Determine the overall rate of return on a $150,000 investment that returns 15% on the first $50,000 and 25% on the remaining $100,000.

21.67%

Assume you are the CIO (chief investment officer) for Dragon Industries, LLP (LLP stands for Limited Liability Partnership). There is $1,000,000 set aside in a reserve fund to purchase new equipment. If $300,000 is invested at 30%, $200,000 at 25%, and the remaining $500,000 at 20% per year, what is the overall rate of return on the entire $1,000,000?

24%

Jerry has an arithmetic cash flow gradient series that is equal to $300 in year 1, $400 in year 2, and increases by $100 per year through year 9. Using an interest rate of 1= 10% per year, find the present worth of the cash flow series in year 0

3,669.85

If the preliminary cost for a concrete block, reinforced steel frame aircraft hangar is estimated to be $93.28 per square foot, what is the estimated cost of a 50,000 f^2 hangar?

4,664,000

A semiautomatic process has fixed costs of $40,000 per year and variable costs of $30 per unit. An automatic process has fixed costs of $88,000 per year and variable costs of $20 per unit. At what production level per year will the two alternatives break even?

4800 = 1000

A mechanical engineer who has a new company will repay his loan in a lump sum amount of $840,000 three years from now at the bank's interest rate of 10% per year. Find the present value.

631,092

A call center in India used by U.S. and U.K. credit card holders has a capacity of 3,000,000 calls annually. The fixed cost of the center is $850,000 with an average variable cost of $1.95 and revenue of $3.20 per call. Find the break-even point.

680,000

An asset owned by Photon Environmental was book depreciated by the straight line method over a 5-year period with book values of $296,000 and $224,000 in years two and three, respectively. Determine the salvage value used in the calculation.

80,000

How much can El Paso Electric Co. afford to spend now on an energy management system, if the software will save the company $21,300 per year for the next 5 years? Use an interest rate of 10% per year.

80,744

Mr.. Leo became quite well-to-do as founder and president of Carlson Auto Paint and Supply, Inc. (CAPS). Now, he wants to start a permanent fund to support research directed toward improved sustainability of painted surfaces at his alma mater. He plans to contribute money now so that $100,000 per year can be withdrawn each year forever, beginning in year 6. If the fund earns interest at a rate of 8% per year, how much money must be donated now? Note: (P/F,8%5) = 0.6806

850,750

ExxonMobil expects the cost of tubing for 6-inch, valves to increase by $3 every 3 months. If the cost for the first quarter is expected to be $80, what is the present worth of the costs for a 3-year time period at a MARR of 12% per year compounded quarterly?

950.06

All of the following are either private or public sector characteristics. Select the best answer. Large investment No profits Funding from fees Selection criteria not based on MARR Low interest rate Benefits and Disbenefits

All public

Given the choice, which method is easier to work a problem when comparing two alternatives?

Annual worth

How many items should you list under each piece (step)

As many as needed to describe the activity

All of the following are examples of cash outflows except:

Asset salvage value

What is one of the best things engineers should do in putting together an estimate?

Break it down into the smallest piece (step) possible

How do you convert inflated dollars into constant-value dollars?

By dividing by one plus the inflation rate per period for however many periods are involved.

As discussed in class, as engineers working in industry, most of us we will spend most of our time:

Calculating the cost of a project

Identify the following factors as either economic (tangible) or noneconomic (intangible); first cost, taxes, salvage value, inflation, profit, interest rate. Select only economic or non economic for the total problem

Economic

Identify the total group of interest rate statements as either nominal or effective: (a) 1.3% per month; (b) 1% per week compounded weekly; (c) APY of 15% per year compounded monthly; (d) effective 1.5% per month compounded daily; (e) 6.2% APY; (f) 3% per quarter; (g) effective 3% per quarter compounded monthly.

Effective

What does the term end-of-period convention mean?

End of interest period

Upon retirement as discussed in class what will be your biggest financial enemy?

Inflation

What is the major advantage that the annual worth method has over the present worth method?

It is easy, doesn't need a study period and no LCM is needed

Select the correct letter: The MARR is not calculated like an ROR. What is the MARR used for in economic analysis?

It is used to accept or reject projects

How does depreciation affect taxes?

It lowers taxes

All the cash flows below are examples of cash outflows to a commercial air carrier: fuel cost, pension plan contributions, maintenance, freight payments, cargo revenue, extra-bag charges, cost of snacks, web-based advertising, landing fees.

Neither it's a mixture of inflows and outflows

The annual worth of costs for four independent projects is shown below. On the basis of the results, the projects) to select are: Project AW A -500 B -2,000 C -3,000 D 7,500

Only D

If during an ROR evaluation of two mutually exclusive alternatives, multiple i* values are indicated by the rule of signs and the determination of the exact ROR value is not necessary, a way to avoid extra ROR computations is to use the MARR and calculate the:

PW

What is the main difference between mutually exclusive and independent alternatives?

When evaluating independent alternatives, more than one can be accepted, subject to budget limitations.

Select the best answer. For a B/C ratio, when is a project economically justifiable?

When the B/C ratio is greater than 1