Eceecon Problem Set 2

answer the problems correctly
1. An engineer and her husband operate a pet sitting service on the side. They want
to add a daily service of a photo placed online for pet owners who are traveling. The
estimates are: equipment and setup cost $600, and net monthly income over costs
$30. For a period of 2 years, will the service make at least 12% per year
compounded monthly?
2. The CFO of Marta Aaraa Cement Industries knows that many of the diesel-fueled
systems in its quarries must be replaced at an estimated cost of $20 million 10
years from now. A fund for these replacements has been established with the
commitment of $1 million at the end of next year (year 1) with 10% increases
through the 10th year. If the fund earns at 5.25% per year, will the company have
enough to pay for the replacements?
3. Burling Water Cooperative currently contracts the removal of small amounts of

hydrogen sulde from its well water using manganese dioxide ltration prior to the
addition of chlorine and uoride. Contract renewal for 5 years will cost $75,000
annually for the next 3 years and $100,000 in years 4 and 5. Assume payment is
made at the end of each contract year. Burling Coop can install the ltration
equipment for $150,000 and perform the process for $60,000 per year. At a
discount rate of 6% per year, does the contract service still save money?
4. Jamal bought a 5% $1000 20-year bond for $825. He received a semiannual

dividend for 8 years, then sold it immediately after the 16 th dividend for $800. Did
Jamal make the return of 5% per year compounded semiannually that he wanted?
5. Atari needs $4.5 million in new investment capital to develop and market
downloadable games software for its new GPS2-ZX system. The plan is to sell
$10,000 face-value corporate bonds at a discount of $9000 now. A bond pays a
dividend each 6 months based on a bond interest rate of 5% per year with the
$10,000 face value returned after 20 years. Will a purchase make at least 6% per
year compounded semiannually?
6. Nicole and Amy share an apartment and work at Pure H2 O Engineering, and they
have decided to drink more water each day. The recommended amount is eight 8-
ounce glasses, or 64 ounces, per day. This is a total of one gallon per day for the
two of them. Using this 1 gallon (or 3.78 liters equivalent) basis for three possible
sources of drinking water, determine the monthly cost and present worth value for
one year of use. For each source, the average cost and amount of source water
estimated to be used to get a gallon of drinking water is tabulated. Let i 6% per
year compounded monthly and assume 30 days per month.
7. The Bureau of Indian Affairs provides various services to American Indians and
Alaskan Natives. The Director of Indian Health Services is working with chief
physicians at some of the 230 clinics nationwide to select the better of two medical
X-ray system alternatives to be located at secondary-level clinics. At 5% per year,
select the more economical system.
8. Chevron Corporation has a capital and exploratory budget for oil and gas
production of $19.6 billion in one year. The Upstream Division has a project in
Angola for which three offshore platform equipment alternatives are identied. Use
the present worth method to select the best alternative at 12% per year.
9. An environmental engineer must recommend one of two methods for monitoring

high colony counts of E. coli and other bacteria in watershed area hot spots.
Estimates are tabulated, and the MARR is 10% per year
a. Use present worth analysis to select the better method.

b. For a study period of 3 years, use PW analysis to select the better method.
10. The manager of engineering at the 900- megawatt Hamilton Nuclear Power
Plant has three options to supply personal safety equipment to employees. Two are
vendors who sell the items, and a third will rent the equipment for $50,000 per
year, but for no more than 3 years per contract. These items have relatively short
lives due to constant use. The MARR is 10% per year.
11. Akash Uni-Safe in Chennai, India, makes Terminater re extinguishers. It needs

replacement equipment to form the neck at the top of each extinguisher during
production. Select between two metal-constricting systems. Use the corporate
MARR of 15% per year with (a) present worth analysis, and (b) future worth
analysis.
12. If energy usage guidelines expect future increases in deep freeze efciency,
which one of two energy efciency improvements is more economical based on
future worth at an interest rate of 10% per year? A 20% increase is expected to add
$150 to the current price of a freezer, while a 35% increase will add $340 to the
price. The estimated cost for energy is $115 per year with the 20% increase in
efciency and $80 per year with the 35% increase. Assume a 15-year life for all
freezer models.
13. The president of GE Healthcare is considering an external long-term contract

offer that will signicantly improve the energy efciency of their imaging systems.
The payment schedule has two large payments in the rst years with continuing
payments thereafter. The proposed schedule is $200,000 now, $300,000 four years
from now, $50,000 every 5 years, and an annual amount of $8000 beginning 15
years from now. Determine the capitalized cost at 6% per year.
14. A specially built computer system has just been purchased by Progress
Greenhouse Products to monitor moisture level and to control drip irrigation in
hydroponics beds that grow cluster tradiro tomatoes. The systems rst cost was
$97,000 with an AOC of $10,000 and a salvage value on the international market of
$20,000 after 4 years, when Progress expects to sell the system. Determine the
capitalized cost at 12% per year and explain its meaning
15. A pipeline engineer working in Kuwait for BP (formerly British Petroleum) wants
to perform a capitalized cost analysis on alternative pipeline routingsone
predominately by land and the second primarily undersea. The undersea route is
more expensive initially due to extra corrosion protection and installation costs, but
cheaper security and maintenance reduce annual costs. Select the better routing at
10% per year.
16. UPS Freight plans to spend $100 million on new long-haul tractor-trailers. Some
of these vehicles will include a new shelving design with adjustable shelves to
transport irregularly sized freight that requires special handling during loading and
unloading. Though the life is relatively short, the director wants a capitalized cost
analysis performed on the two nal designs. Compare the alternatives at the MARR
of 10% per year
17. A water supply cooperative plans to increase its water supply by 8.5 million
gallons per day to meet increasing demand. One alternative is to spend $10 million
to increase the size of an existing reservoir in an environmentally acceptable way.
Added annual upkeep will be $25,000 for this option. A second option is to drill new
wells and provide added pipelines for transportation to treatment facilities at an
initial cost of $1.5 million and annual cost of $120,000. The reservoir is expected to
last indenitely, but the productive well life is 10 years. Compare the alternatives at
5% per year.1
18. Carlotta, the general manager for Woodsome appliance company Plant #A14 in
Mexico City has 4 independent projects she can fund this year to improve surface
durability on stainless steel products. The project costs and 12%-per-year PW values
are available. What projects are acceptable if the budget limit is (a) no limit, and (b)
$60,000?
19. State the primary difference between mutually exclusive alternatives and
independent projects for the equal-service requirement when economic evaluation
is performed.
20.
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answer the problems correctly

3. Burling Water Cooperative currently contracts the removal of small amounts of

4. Jamal bought a 5% $1000 20-year bond for $825. He received a semiannual

9. An environmental engineer must recommend one of two methods for monitoring

a. Use present worth analysis to select the better method.

11. Akash Uni-Safe in Chennai, India, makes Terminater re extinguishers. It needs

13. The president of GE Healthcare is considering an external long-term contract

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