Solution to every third end-of-chapter problem
Basics of Engineering Economy, 2nd edition
Leland Blank and Anthony Tarquin
Chapter 1
Foundations of Engineering Economy
1.1
If the alternative that is actually the best one is not even recognized as an
alternative, it obviously will not be able to be selected by using any economic
analysis tools.
1.4
The analysis techniques that are used in engineering economic analysis are only
as good as the accuracy of the cash flow estimates.
1.7
In engineering economy, the evaluation criterion is financial units (dollars, pesos,
etc).
1.10
Time value of money means that there is a certain worth in having money and that
worth changes as a function of time.
1.13
The term that describes compensation for “renting” of money is time value of
money, which manifests itself as interest.
1.16
Minimum attractive rate of return is the lowest rate of return (interest rate) on a
project that companies or individuals consider to be high enough to induce them
to invest their money.
1.19
(a) Equivalent cost in 1 year = 38,000 + 38,000(0.10)
= $41,800
(b) Since $41,600 is less than $41,800, the firm should remodel 1ater (i.e. 1 year
from now).
1.22
Rate of return = (45/966)(100%)
= 4.7%
1.25
Rate of return = (2.3/6)(100%)
= 38.3%
1.28
Amount of earnings in year one = 400,000,000(0.25)
= $100,000,000
1.31
The engineer is wrong, unless the MARR is exactly equal to the cost of capital.
Usually, the inequality ROR ≥ MARR > cost of capital is used, and the MARR is
established higher than the cost of capital so that profit, risk and other factors are
considered.
1
1.34
F = P + Pni
100,000 = 1000 + 1000(n)(0.1)
99,000 = 1000(n)(0.10)
n = 990 years
1.37
P(1.20)(1.20) = 20,000
P = $13,888.89
1.40
F = P + P(n)(i)
3P = P + P(n)(0.20)
n = 10 years
1.43
All engineering economy problems will involve i and n
1.46
P = $50,000; F = ?; i = 15%; n = 3
1.49
F = $400,000; n = 2; i = 20% per year; P = ?
1.52
P = $16,000,000; A = $3,800,000; i = 18% per year; n = ?
1.55
The difference between cash inflows and cash outflows is known as net cash
flow.
1.58
Assuming down is negative: down arrow of $40,000 in year 5; up arrow in year 0
identified as P =?; i = 15% per year.
1.61
(a) FV is F (b) PMT is A
1.64
For built-in spreadsheet functions, a parameter that does not apply can be left
blank when it is not an interior one. For example, if no F is involved when using
the PMT function, it can be left blank because it is an end parameter. When the
parameter involved is an interior one (like P in the PMT function), a comma must
be put in its position.
1.67
(a) Assuming that Carol’s supervisor is a trustworthy and ethical person himself,
going to her supervisor and informing him of her suspicion is probably the
best of these options. This puts Carol on record (verbally) as questioning
something she heard at an informal gathering.
(b) Another good option is to go to Joe one-on-one and inform him of her
concern about what she heard him say at lunch. Joe may not be aware he is on
the bid evaluation team and the potential ethical consequences if he accepts
the free tickets from Dryer.
1.70
Answer is (a)
(c) NPER is n
2
(d) IRR is i
(e) PV is P
1.73
F = P(1+i)n
16,000 = 8000(1 + i)9
21/9 = 1 + i
1.08 = 1 + i
i = 0.08
(8%)
Answer is (b)
1.76
2P = P + P(n)(0.05)
1 = 0.05n
n = 20
Answer is (d)
3