Claris Water Company makes and sells filters for water drinking fountains for the public. The filter sells for $50. Recently a make/buy analysis was done based on the need for new manufacturing equipment. The equipment first cost of $200,000 and $25,000 annual operation cost comprise the fixed cost, while Claris’s variable cost is $20 per filter. The equipment has a 5-year life, no salvage value, and the MARR is 6% per year. The decision to make the filter was based on the breakeven point and the historical sales level of 5000 filters per year. (a) Determine the breakeven point. (b) An engineer at Claris learned that an outsourcing firm offered to make the filters for $30 each, but this offer was rejected by the president as entirely too expensive. Perform the breakeven analysis of the two options and determine if the “make” decision was correct. (c) Develop and use the profit relations for both options to verify the preceding answers. (d) Use a spreadsheet to verify the answers to parts (b) and (c) above by plotting the profit lines.
> A mini-wind tunnel for calibrating vane or hotwire anemometers costs $3750 in 2011 when the Marshall and Swift (M&S) equipment cost index value was 1490.2. If True-Tech Instruments estimated the cost of a wind tunnel twice as large to be $10,200 in 2016,
> Estimate the cost in 2018 of a 1000-horsepower steam turbine air compressor if a 200-horsepower unit costs $160,000 in 1999. The exponent in the cost capacity equation is 0.35 and the equipment cost index increased by 35% over that time period.
> The cost for construction of a desulfurization system for flue gas from boilers at a 600 MW power plant was estimated to be $250 million. If a similar system for a smaller plant had a cost of $55 million and the exponent in the cost-capacity equation is
> The estimated cost for a multi tube cyclone system with a capacity of 60,000 cubic feet per minute is $450,000. (a) If the $200,000 actual cost for a 35,000 cubic feet per minute system was used in the cost-capacity equation, what was the value of the ex
> The cost for implementing a manufacturing process that has a capacity of 6000 units per day was $550,000. If the cost for a plant with a capacity of 100,000 units per day was $3 million, what is the value of the exponent in the cost-capacity equation?
> If the capital budget limit is $120,000, the MARR is 10% per year, and all projects have a 10-year life, rank and select from the independent projects using the (a) PI measure, (b) IROR measure, and (c) PW at the MARR. (d) Are different projects selected
> What is the value of the exponent in the cost capacity equation if a pump half the size of a similar, but larger one, costs exactly half as much as the larger one?
> Estimate the cost of a 0.75 million gallon per day (MGD) induced-draft packed tower for air-stripping trihalomethanes from drinking water if the cost for a 2-MGD tower is $153,200. The exponent in the cost capacity equation is 0.58.
> When competition is the dominant factor in pricing a product or service, what is the best cost estimation strategy to adopt?
> What is the fundamental difference between estimating costs using a CER and a cost index?
> A quadrupole mass spectrometer can be purchased today for $85,000. The owner of a mineral analysis laboratory expects the cost to increase exactly by the specialty laboratory equipment cost index over the next 10 years. (a) If the specialty equipment inf
> A survey of total project construction costs for a wide range of buildings (hospitals, schools, banks, nursing homes, etc.) in 2006 found that the average cost was $13,136,431. The mechanical and electrical portions of that cost were $2,511,893 and $1,58
> An engineer who owns a construction company that specializes in large commercial projects noticed that material costs increased at a rate of 2% per quarter over the past 2 years. If a material cost index were created for that 2-year period with the value
> The Marshall and Swift (M&S) equipment cost index started with a base value of 100 in 1926. Determine the average (compound) percentage increase per year between 1926 and 2011 when the index value was 1490.2.
> A consulting engineering firm is preparing a preliminary cost estimate for a 40-MW advanced combined cycle natural gas-fired power plant. The firm, which completed a similar project in 2012 with a total cost (construction and equipment) of $809.2 million
> The cost of a piece of equipment was $67,900 when the relevant cost index was 1457.4. Determine the index value when the same equipment was estimated to cost $83,400?
> An estimated 6 billion gallons of clean drinking water disappear each day across the United States due to aging, leaky pipes, and water mains before it gets to the consumer or industrial user. The American Society of Civil Engineers (ASCE) has teamed wit
> Identify the following cost elements as first-cost (FC) components or annual operating cost (AOC) components for a piece of equipment in a chemical processing plant: rent, direct labor, equipment overhaul, overhead, supplies, insurance, equipment cost, u
> AB Jackson Industries installed a compressor and pump system in 2010 at a cost of $87,200. If the FRED equipment cost index applies, what will be the estimated cost now for a similar system when the index value is 273?
> The FRED CPI Index (Table 15–3) can be used to predict the price of household items over the years. In 2011, Sandy and Malcolm purchased a combo clothes washing machine and dryer for $800. Assume it is now 2018 and the combo system has
> Equipment necessary to manufacture adjustable ball-lock pins for pulling two components together had a cost of $185,000 when the FRED Equipment Cost Index was 210.0. What was the estimated cost of a similar system in 2015 when the index value was 245.9?
> Oil spill cleanup costs for a nation or region can be estimated by taking the average cost for the specified region and multiplying it by various “modification factors” that are a function of oil type (light crude, heavy crude, No. 4 fuel, etc.), spill s
> The Department of Defense uses area cost factors (ACFs) to compensate for differences in construction costs in different parts of the country (and world). The area cost factor for Waianae, Hawaii is 2.19 and for Moody, Alabama is 0.83. If a cold-storage
> A labor crew for placing concrete consists of one labor foreman at $26.70 per hour, one cement finisher at $29.30 per hour, five laborers at $24.45 per hour each, and one equipment operator at $33.95 per hour. Such a crew, called a C20 crew, can place 16
> Estimate the total cost of a house (from purchasing a lot to furnishing it) using the following estimates: Cost Data House Data Purchasing a lot = $2.50/ft2………… Lot size = 100 × 150 ft Construction =
> Low, medium, and high cost estimates for a 30,000 ft2 apartment building in zip code 79912 are $3,111,750, $3,457,500, and 4,321,875, respectively. (a) What is the cost per square foot for the medium cost estimate, and (b) what is the percent increase be
> The cost for 4′′ diameter auger holes in earth is $18.85 per linear foot, but if they are cased, the cost is $69.18 per linear foot. What is the estimated cost for a 570-foot cased 4′′ boring?
> Selex Aerospace is considering five independent projects to improve net revenue as estimated below. (All estimates have been divided by $1000.) The company’s MARR is 15% per year. Use a handbased solution and a spreadsheet-based analysi
> Rank the following estimate types in terms of accuracy of the estimate from least accurate (1) to most accurate (5): partially designed, design 60% to 100% complete, order of magnitude, scoping/ feasibility, detailed estimate.
> The federal-level Pell Grant program provides financial aid to needy college students. The grant increases annually to account for inflation. The maximum total Pell Grant award increased from $5550 to $5,730 from 2013 to 2015. (a) What was the average in
> For many years, college cost (including tuition, fees, room, and board) increases have been higher than the inflation rate, averaging 5% to 8% per year. According to the College Board’s Trends in College Pricing, the average total costs in 2015 dollars w
> The lease cost for a specialized highway design software package is estimated to be $13,000 for each of years 1, 2, and 3 (future dollars). (a) Calculate the CV amount today (year 0) of each future cost estimate at the inflation rate of 6% per year. (b)
> In an effort to reduce pipe breakage, water hammer, and product agitation, a French chemical company plans to install several chemically resistant pulsation dampeners. The cost of the dampeners today is €106,000, but the chemical company has to wait unti
> Determine today’s purchasing power of $1,000,000 thirty years in the future, if if = 15% per year and f = 5% per year.
> Factors that increase costs and prices—especially for materials and manufacturing costs sensitive to market, technology, and labor availability—can be considered separately using the real interest rate, i, the inflation rate, f, and additional increases
> How many future dollars 10 years from now will have the same buying power as $10,000 today? The market interest rate is 12% per year and the inflation rate is 7% per year.
> The cost of constructing a roundabout (R/A) in a low-traffic residential neighborhood 5 years ago was $625,000. A civil engineer designing another R/A that is almost the same design estimates the cost today will be $740,000. If the cost had increased onl
> A salesman from Industrial Water Services (IWS), who is trying to get his foot in the door of Westco Refining, offered electro-dialysis equipment for $2.5 million. This is $800,000 more than the price offered by a competing saleswoman from AG Enterprises
> There are five independent projects that must be evaluated on the basis of the profitability index. (a) Given an investment limit of $35 million and a MARR of 10% per year, select from the projects. (b) Write the spreadsheet function for a project, speci
> A doctor is on contract to a medium-sized oil company to provide medical services at remotely located, widely separated refineries. The doctor is considering the purchase of a private plane to reduce the total travel time between refineries. The doctor c
> A grandfather is planning to leave his only granddaughter well off when she reaches the age of 25. He plans to deposit a lump sum now, which is her second birthday, such that she will have enough money to live comfortably without working. He wants her to
> Compare the alternatives below on the basis of their capitalized costs with adjustments made for inflation. Use i =12% per year and f = 3% per year.
> In an inflationary period, what is the difference between (a) inflated dollars and “then-current” future dollars, and (b) “then-current” future dollars and constant-value future dollars?
> Because retail supermarket corporations operate on a low ROR, it is common to use a market MARR of about 3% per year. What real return rate is implied from a market interest rate of 3% per year when the annual inflation rate is 4% per year? Explain your
> Calculate the inflation-adjusted interest rate when the annualized inflation rate is 7% per year and the real interest rate is 4% per year.
> The new CEO of a high-tech incubator company wants to entice venture capitalists by promising a growth rate of 40% per year for at least 3 years. Therefore, the company’s MARR was set at 40%. If this ROR was actually realized, but the CEO did not account
> Cellgene Biometrics, a small biotech company, uses a MARR of 40% per year when evaluating new investments. If the inflation rate is 9% per year, what will the real rate of return be, provided it realizes its optimistic MARR objective?
> α-β, Inc., a high-tech company in San Diego, whose stock trades on the NYSE exchange, uses a MARR of 25% per year. If the chief financial officer (CFO) said the company expects to make a real rate of return of 20% per year on its investments over the nex
> If a 3D printer increased in cost at exactly the inflation rate, what was the inflation rate if the printer costs exactly twice as much now as it did 10 years ago?
> During periods of hyperinflation, prices increase rapidly over short periods of time. One of the worst cases of hyperinflation in history occurred in Zimbabwe in 2008 where prices doubled every day. If that rate continued for just 1 week, how much would
> In 2015, a retired person in the United States who received maximum social security benefits got $2699 per month, which represented a 1.7% cost of living adjustment (COLA) over 2014. (a) Determine the monthly benefit in 2018 if the COLA adjustments are 1
> Emissions of heat-trapping carbon dioxide (CO2) reached an all-time high of 36.9 gigatons in 2014, a 2.5% increase over 2013. The International Energy Agency said this further reduces the chance that the world could avoid a dangerous rise in global avera
> The Bank of England has an inflation calculator website that uses the UK price index to show how the cost of goods and services has changed since 1750. The website reveals that something that cost £10,000 in 1920 cost £7984 in 1940. What was the average
> The Bureau of Labor Statistics has a website (www.bls.gov) that contains a Consumer Price Index inflation calculator that uses the average CPI to adjust the purchasing power of money over different periods of time. The CPI index value has been calculated
> Jack has tracked the annual inflation rate (shown below) for a top-rated sportsman-level fishing outfit that he has always hoped to own. It cost $1000 ten years ago, but he could not afford it over the intervening years. (a) Estimate the cost now, which
> An engineer who is now 65 years old began planning for retirement 40 years ago. At that time, he thought that if he had $1 million when he retired, he would have more than enough money to live his remaining life in luxury. Assume the inflation rate over
> A multinational security software company is planning an overseas expansion that will cost $50 million of today’s dollars 3 years from now. Due to a robust economy in Europe, the cost is expected to increase by 15% per year in each of the next 3 years. A
> A recently graduated mechanical engineer wants to build a reserve fund as a safety net to pay his expenses in the unlikely event that an unexpected emergency arises. His aim is to have $45,000 developed over the next 3 years, with the proviso that the am
> For a present sum of $750,000, what is the annual worth (in then-current dollars) in years 1 through 5 if the market interest rate is 10% per year and the inflation rate is 5% per year?
> The Ecology Group wishes to purchase a piece of equipment for recycling of various metals. Machine 1 costs $123,000, has a life of 10 years, an annual cost of $5000, and requires one operator at a cost of $24 per hour. It can process 10 tons per hour. Ma
> Verify the 5-year recovery period rates for MACRS given in Table 16–2. Start with the DDB method in year 1, and switch to SL depreciation when it offers a larger recovery rate. Solve by hand and spreadsheet using B = $1 and S = 0.
> In wisely planning for your retirement, you invest $12,000 per year for 20 years into a 401-k investment account. (a) How much can you withdraw each year for 10 years, starting 1 year after your last deposit, if you want a real return of 10% per year whe
> A European-based cattle genetics engineering research lab is planning for a major expenditure on research equipment. The lab needs $5 million of today’s dollars so that it can make the acquisition 4 years from now. The inflation rate is steady at 5% per
> A DSL company has made an equipment investment of $40 million with the expectation that it will be recovered in 10 years. The company has a MARR based on a real rate of return of 12% per year. If inflation is 7% per year, how much must the company make e
> Aquatech Microsystems spent $183,000 for a communications protocol to achieve interoperability among its utility systems. The company uses a real interest rate of 15% per year on such investments and a recovery period of 5 years. (a) What is the annual w
> A UK-based life insurance company will pay a cash-value sum of £500,000 when the insured reaches the age of 65. The insured will be 65 years old 27 years from today. (a) Determine the cash value of the £500,000 in CV purchasing power, assuming inflation
> Mid-Valley Industrial Extension Service, a state-sponsored agency, provides water quality sampling services to all business and industrial firms in a 10-county region. Last month, the service purchased all necessary lab equipment for full in-house testin
> A top-of-the-line 3D printer costs $40,000 today. The manufacturer plans to raise the price so that a real rate of return of 5% per year is realized. In a period of 4% per year inflation, how much will the printer cost 3 years from now in terms of CV dol
> You just made an investment in an insurance policy that is guaranteed to pay you $1.8 million 20 years from now provided you live that long. What will be the purchasing power of that amount with respect to today’s dollars if the market interest rate is 8
> An offshore services company is considering the purchase of equipment that has a cost today of $96,000. Inflation is a concern. The manufacturer plans to raise the price exactly in accordance with the inflation rate that may be somewhere between 1% and 8
> To retire at a decent age and move to Hawaii, an engineer plans to trust her account to an investment firm that promises to make a real rate of return of 10% per year when the inflation rate is 4% per year. If the account currently is valued at $422,000
> Rincon, LLC is considering a project that will require an initial investment of $750,000 with estimated net income of $135,000 per year for 10 years. (a) Determine the IROR, PI, and PW values at MARR = 12% per year. (b) For which of these measures is the
> The Nobel Prize is administered by The Nobel Foundation, a private institution that was founded in 1900 based on the will of Alfred Nobel, the inventor of dynamite. In part, his will stated: “The capital shall be invested by my executors in safe securiti
> A multinational engineering consulting firm that wants to provide resort accommodations to special clients is considering the purchase of a three bedroom lodge in upper Montana that will cost $250,000. The property in that area is rapidly appreciating i
> According to NACE’s April 2014 Salary Survey, engineering majors held 8 of the top 10 spots on the list of top-paid majors for the Class of 2014 bachelor’s degree graduates. Graduates in petroleum engineering were the highest paid at $93,500, earning $28
> A manufacturer of diaphragm seals has identified the cash flows shown for manufacturing and sales functions. Determine the no-return payback period. First cost of equipment, $......................... −130,000 Annual expenses, $ per year…………………. −45,000
> How do you convert a unit of inflated currency (e.g., a dollar) into a constant-value currency statement?
> A plant manager is not sure whether he will get the approval to buy new equipment for automating an engine assembly line now or at some future time within the next 3 years. In order to have the money whenever he is given the go-ahead, he has asked you to
> The company you work for signed a contract with a security firm to control access to company grounds and corporate offices. The contract amount was for $140,000 for the first year, renewable each year for up to a total of 5 years at the same cost plus a
> (a) What is the approximate number of years you would have to sell a mobile phone app to break even if income is estimated to be $50,000 per year, expense is $15,000 per year, your initial investment is $280,000, and your MARR is 10% per year? (b) Find t
> Accusoft Systems is offering small business owners a software package that keeps track of many accounting functions from bank transactions to sales invoices. The site license will cost $39,000 to install and will require a fee of $6000 every 3 months. If
> If the cost of gasoline is $2.50 per gallon, how far out of your way (one way) could you afford to drive (in miles) to a service station that has gasoline at $2.25 per gallon if your vehicle gets 30 miles per gallon and you will fill up with 20 gallons o
> For some years, the City of Armstrong Power Authority has used 4-20 mA technology to measure parameters such as pressure, temperature, flow rates, and speed of various machinery and systems installed in its generation facilities. It now plans to use the
> Darnell Enterprises constructed an addition to its building at a cost of $70,000. Extra annual expenses are expected to be $1850, but extra income will be $14,000 per year. How long will it take for the company to recover its investment at an interest ra
> A company that manufactures automatic blow down control valves (for applications where boilers are operated unsupervised for 24 to 36 hours) has fixed cost of $160,000 per year and variable cost of $400 per valve. If the company expects to sell 12,000 va
> Determine the IROR and profitability index at 12% per year for an industrial smart-grid system that has a first cost of $400,000, an AOC of $75,000 per year, estimated annual savings of $192,000, and a salvage value of 20% of its first cost after a 5-yea
> The Board of Directors at Senico Systems is considering investment in five independent projects, all of which can be considered to last indefinitely. The MARR is 12% per year. (a) Determine which projects should be selected on the basis of IROR if the in
> Process X is estimated to have a fixed cost of $40,000 per year and a variable cost of $60 per unit in year 1, decreasing by $5 per unit per year thereafter. Process Y will have a fixed cost of $70,000 per year and a variable cost of $10 per unit in year
> Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an initial cost of $125,000, a life of 8 years, a $5000 salv
> Freeport McMoRan engineers estimated that the capital investment necessary for recovering valuable metals (nickel, silver, gold, etc.) from a copper refinery’s wastewater would be $150 million. The equipment is expected to have a useful life of 10 years
> An online commercial directory service must decide between composing the ads for its clients inhouse or paying a production company to compose them. To develop the ads in-house, the company will have to purchase computers, printers, and a database manage
> The costs and revenue projections for a new product are estimated. What is the estimated profit at aproduction rate of 20% above breakeven? Fixed cost = $500,000 per year Production cost per unit = $200 Revenue per unit = $250
> Two membrane systems are under consideration for treating cooling tower blowdown to reduce its volume. A low-pressure seawater reverse osmosis (SWRO) system will operate at 500 psi and produce 720,000 gallons of permeate per day. It will have a fixed cos
> For some years, the City of Armstrong Power Authority has used 4-20 mA technology to measure parameters such as pressure, temperature, flow rates, and speed of various machinery and systems installed in its generation facilities. It now plans to use the
> Microsurfacing is part of a pavement restoration and maintenance program that seals the surface of a street that has minor cracking to prevent water from penetrating into the base material. The annual cost of the equipment (truck, tank, valves, etc.) is
> Handheld fiber optic meters with white light polarization interferometry are useful for measuring temperature, pressure, and strain in electrically noisy environments. The fixed costs associated with manufacturing are $800,000 per year. If variable costs
> An independent over-the-road (OTR) truck driver owner paid $68,000 for a used tractor-trailer. The salvage value of the rig after 5 more years of use is expected to be $36,000. The operating cost is $0.50 per mile and the base mileage rate (i.e., revenue
> Process A has a fixed cost of $160,000 per year and a variable cost of $50 per unit. For Process B, 10 units can be produced in 1 day at a cost of $200. If the company’s MARR is 10% per year, what will the annual fixed cost have to be for Process B in or
> A construction company can purchase a used backhoe for $90,000 and spend $450 per day in operating costs. The equipment will have a 5-year life with no salvage value. Alternatively, the company can lease the equipment for $800 per day. How many days per
> Pure gasoline has an energy density of 115,600 BTU per gallon while ethanol has an energy density of 75,670 BTU per gallon. If gasoline costs $3.50 per gallon, (a) what would the cost of pure ethanol have to be in order for the energy costs of the two fu
