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    Chapter 05 Problems & Final Answers

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    Mostafa Fouad

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    Chapter 05 Problems & Final Answers

    Uploaded by

    Mostafa Fouad
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    Chapter 05 Problems & Final Answers

    Uploaded by

    Mostafa Fouad

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    © All Rights Reserved
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    of 3

    Chapter 5 Problems

    Types of Projects:

    5.3 ( a) How many alternatives are possible from four independent projects identified as: W, X, Y, and Z?
    ( b) List all of the possibilities.

    Answer: 24 = 16

    Alternatives - Equal Lives:


    5.14 The supervisor of a community swimming pool has developed two methods for chlorinating the pool. If
    gaseous chlorine is added, a chlorinator will be required that has an initial cost of $8000 and a useful life of 5
    years. The chlorine will cost $650 per year, and the labor cost will be $800 per year. Alternatively, dry chlorine
    can be added manually at a cost of $1000 per year for chlorine and $1900 per year for labor. Which method
    should be used on the basis of a present worth analysis if the interest rate is 10% per year?

    Answer: Dry chlorine, PW = $10,993

    5.16 A pipeline engineer working in Kuwait for the oil giant BP wants to perform a present worth analysis on
    alternative pipeline routings - the first 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 reduces annual costs. Perform the analysis for the engineer at 15% per year.
    Land Undersea
    Installation cost, $ million -215 -350
    Pumping, operating, security, $ million per year -22 -2
    Replacement of valves and appurtenances in year 25, $ million -30 -70
    Expected life, years 50 50

    Answer: Land, $362.44 M

    Alternatives - Different Lives:


    5.17 An electric switch manufacturing company has to choose one of three different assembly methods. Method A
    will have a first cost of $40,000, an annual operating cost of $9000, and a service life of 2 years. Method B
    will cost $80,000 to buy and will have an annual operating cost of $6000 over its 4-year service life. Method
    C will cost $130,000 initially with an annual operating cost of $4000 over its 8-year life. Methods A and B
    will have no salvage value, but method C will have some equipment worth an estimated $12,000. Which
    method should be selected? Use present worth analysis at an interest rate of 10% per year.

    Answer: Method C, $145.74 K

    5.22 An engineer is considering two different liners for an evaporation pond that will receive salty concentrate from
    a brackish water desalting plant. A plastic liner will cost $0.90 per square foot initially and will require
    replacement in 15 years when precipitated solids will have to be removed from the pond using heavy
    equipment. This removal will cost $500,000.
    A rubberized elastomeric liner is tougher and, therefore, is expected to last 30 years, but it will cost $2.20 per
    square foot. If the size of the pond is 110 acres (1 acre = 43,560 square feet), which liner is more cost effective
    on the basis of a present worth comparison at an interest rate of 8% per year?

    Answer: Plastic liner, $5,829,321

    5.24 A chemical processing corporation is considering three methods to dispose of a non-hazardous chemical
    sludge: land application, fluidized-bed incineration, and private disposal contract. The estimates for each
    method are shown. Determine which has the least cost on the basis of a present worth comparison at 10% per
    year for the following scenarios:
    a) The estimates as shown
    b) The contract award cost increases by 20% every 2-year renewal
    Land Application Incineration Contract
    First cost, $ -130,000 -900,000 0
    Annual operating cost, $ per year -95,000 -60,000 -120,000
    Salvage value, $ 25,000 300,000 0
    Life, years 3 6 2

    Answer: a) Contract, $522.64 K


    b) Land Application, $608.53 K

    Future Worth Comparison:


    5.27 Two processes can be used for producing a polymer that reduces friction loss in engines. Process T will have
    a first cost of $750,000, an operating cost of $60,000 per year, and a salvage value of $80,000 after its 2-year
    life. Process W will have a first cost of $1,350,000, an operating cost of $25,000 per year, and a $120,000
    salvage value after its 4-year life. Process W will also require updating at the end of year 2 at a cost of $90,000.
    Which process should be selected on the basis of a future worth analysis at an interest rate of 12% per year?

    Answer: Process T, $2,227.33 K

    5.29 Two manufacturers supply MRI systems for medical imaging. St. Jude’s Hospital wishes to replace its current
    MRI equipment that was purchased 8 years ago with the newer technology and clarity of a state of-the-art
    system. System K will have a first cost of $1,600,000, an operating cost of $70,000 per year, and a salvage
    value of $400,000 after its 4-year life. System L will have a first cost of $2,100,000, an operating cost of
    $50,000 the first year with an expected increase of $3000 per year thereafter, and no salvage value after its 8-
    year life. Which system should be selected on the basis of a future worth analysis at an interest rate of 12%
    per year?

    Answer: System L, $5,922,079

    Capitalized Cost:
    5.31 A wealthy businessman wants to start a permanent fund for supporting research directed toward sustainability.
    The donor plans to give equal amounts of money for each of the next 5 years, plus one now (i.e., six donations)
    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 each time?
    Answer: $170.39 K

    5.32 Bob, a philanthropist, is not sure what rate of return his gifts may realize once donated to his favorite charity.
    Determine the capitalized cost of $10,000 every 5 years forever, starting 5 years from now at an interest rate
    of (a) 3% and (b) 8% per year. (c) Explain the significant difference between the two capitalized costs.

    Answer: (a) $62.79 K


    (b) $21.31 K

    5.37 Because you are thankful for what you learned in engineering economy, you plan to start a permanent
    scholarship fund in the name of the professor who taught the course. You plan to deposit money now with the
    stipulation that the scholarships be awarded beginning 12 years from now (which happens to be the exact time
    that your daughter plans to begin college). The interest that is accumulated between now and year 12 is to be
    added to the principal of the endowment. After that, the interest that is earned each year will be awarded as
    scholarship money. If you want the amount of the scholarships to be $40,000 per year, how much must you
    donate now if the fund earns interest at a rate of 8% per year?

    Answer: $214.45 K

    5.38 A patriotic group of firefighters is raising money to erect a permanent (i.e., infinite life) monument in New
    York City to honor those killed in the line of duty. The initial cost of the monument will be $150,000, and
    the annual maintenance will cost $5000. There will be an additional one-time cost of $20,000 in 2 years to
    add names of those who were missed initially. At an interest rate of 6% per year, how much money must
    they raise now in order to construct and maintain the monument forever?

    Answer: $251.13 K

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