Lennon Hearth Products manufactures glass-door fireplace screens that have two types of mounting brackets for the frame. An L-shaped bracket is used for relatively small fireplace openings and a Ushaped bracket is used for all others. The company includes both types of brackets in the box with their product and the purchaser discards the one not needed. The cost of these two brackets with screws and other parts is $3.50. If the frame of the fireplace screen is redesigned, a single universal bracket can be used that will cost $1.20 to make. However, initial costs of retooling ($6000) and inventory write downs ($8000) will be incurred immediately. If the company sells 1200 fireplace units per year, should the company keep the old brackets or go with the new ones, assuming the company uses an interest rate of 15% per year and it wants to recover its investment in 5 years.Use the present worth method for your evaluation.
> You have been asked to compare the alternatives on the basis of a present worth comparison. The PW of alternative A is closest to: (a) $−724,320 (b) $−530,520 (c) $−388,950 (d) $−72,
> An engineer analyzed four independent alternatives by the present worth method. On the basis of her results, the alternative(s) she should select are: (a) Only D (b) Can’t tell from this information (c) All of them (d) None of them
> The capitalized cost of machine Y is closest to: (a) $17,726 (b) $86,590 (c) $177,260 (d) $207,720
> In comparing the alternatives on a future worth basis, the FW of machine X is closest to: (a) $23,160 (b) $40,560 (c) $58,950 (d) $71,860
> In comparing the alternatives on a present worth basis, the PW of machine X is closest to: (a) $23,160 (b) $40,560 (c) $58,950 (d) $72,432
> The cost of maintaining a permanent monument is expected to be $70,000 now and $70,000 every 10 years forever. At an interest rate of 10% per year, the capitalized cost is nearest: (a) $−11,393 (b) $−58,930 (c) $−84,360 (d) $−113,930
> An upgraded version of a CNC machine has a first cost of $200,000, an annual operating cost of $60,000, and a salvage value of $50,000 after its 8-year life. At an interest rate of 10% per year, the capitalized cost is closest to: (a) $−93,116 (b) $−100
> The capitalized cost of an initial investment of $200,000 and annual investments of $30,000 forever at an interest rate of 10% per year is closest to: (a) $−230,000 (b) $−300,000 (c) $−500,000 (d) $−2,300,000
> When comparing mutually exclusive alternatives that have different lives by the present worth method, it is necessary to: (a) Always compare them over a period equal to the life of the longer-lived alternative (b) Always compare them over a time period o
> Western Energy makes quarterly deposits into an account reserved for purchasing new equipment 2 years from now. The interest paid on the deposits is 12% per year, compounded monthly. (a) Identify the interest period, compounding period, and compounding f
> An engineer is trying to decide which process to use to reduce sludge volume prior to disposal. Belt filter presses (BFP) will cost $203,000 to buy and $85,000 per year to operate. Belts will be replaced one time per year at a cost of $5500. Centrifuges
> One way to recover invested capital with interest is to collect the principal P over n years as P∕n and also collect the interest on the unrecovered balance. Assume you borrowed $6000 at 10% per year interest with a repayment period of 3 years to purchas
> The present worth of an alternative that provides infinite service is called its: (a) Net present value (b) Discounted total cost (c) Capitalized cost (d) Perpetual annual cost
> Petrobras, the Brazilian energy company, has identified two alternatives to provide potable water to offshore platforms—purchase and operate the equipment, or contract long term with Manal and Associates, an international oilfield servi
> Hannifin CNG Fuel Dispensers needs to purchase replacement equipment to streamline one of its production lines for a new contract, but may sell the equipment before its expected life is reached at an estimated market value for used equipment. At MARR = 1
> Charlie’s Truck Repair and Service has a new contract that requires him to purchase and maintain new equipment for work on 18-wheeler trucks and heavy road equipment. Two separate vendors have made quotes and estimates for Charlie. Use
> Use a spreadsheet and a study period of 8 years to select alternative A or B in Problem 5.20. Problem 5.20 Compare two alternatives, A and B, on the basis of a present worth evaluation using i = 10% per year and a study period of 8 years.
> You wish to evaluate four independent projects that all have a 10-year life at MARR = 15% per year. Preliminary estimates for first cost, annual net income, and SV have been made. (a) Accept or reject each project using a present worth analysis. On your
> Leonard Motors is trying to increase its international export business. It is considering several alternatives. Two were available earlier (per Problem 5.11), but a new one has recently been proposed by a potential internationally partnering corporation,
> An automaton asset with a high first cost of $10 million has required capital recovery (CR) of $1,985,000 per year. The correct interpretation of this CR value is that: (a) the owner must pay an additional $1,985,000 each year to retain the asset. (b) e
> Find the F, P, and A values for the negative cash flows shown in the diagram.
> Cost increases imposed by design changes introduced at different times during advancing stages of the product life cycle (PLC) usually rise dramatically as the change is introduced later in the life cycle of the product. Though the numbers vary from one
> Three methods to dispose of nonhazardous waste have been developed—land application, fluidizedbed incineration, and private disposal contract. Use AW analysis and an associated scatter chart of AW versus i values to select the economica
> A company that makes food-friendly silicone (for use in cooking and baking pan coatings) is considering the independent projects shown, all of which can be considered to be viable for only 10 years. If the company’s MARR is 15% per year
> Compare two alternatives, A and B, on the basis of a present worth evaluation using i = 10% per year and a study period of 8 years.
> As you came to work this morning, your department head asked you to perform an analysis of installing MAP/TOP in the manufacturing planning division of the company. (MAP/TOP is a business and manufacturing environment communications integration software
> Problem 6.9 described Google’s rental agreement for an airbase in California. It included the following estimates: P = $1.16 billion; M&O = $0.0063 billion per year; refurbishment cost = $0.0026 billion in year 4; n = 60 years; and i = 15% per year. (a)
> Lotus Development has a software rental plan called SmartSuite that is available on the World Wide Web. A number of programs are available at $2.99 for 48 hours. If a construction company uses the service every week for an average of 48 hours, what is th
> The cost of upgrading a section of Grand Loop Road in Yellowstone National Park is $1.7 million. Resurfacing and other maintenance are expected to cost $350,000 every 3 years. What is the capitalized cost of the road at an interest rate of 6% per year?
> Metropolitan Water Utilities purchases surface water from Elephant Butte Irrigation District at a cost of $100,000 per month in the months of February through September. Instead of paying monthly, the utility makes a single payment of $800,000 at the end
> Northwest Iron and Steel is considering getting involved in electronic commerce. A modest e-commerce package is available for $30,000. The company wants to recover the cost in 2 years. Find the equivalent amount of new revenue that must be realized every
> You plan to deposit $100 per week into a fund that pays interest of 6% per year, compounded quarterly. Identify the interest period, compounding period, and number of times interest is compounded per interest period.
> Determine the capitalized cost of a permanent roadside historical marker that has a first cost of $78,000 and a maintenance cost of $3500 once every 5 years. Use an interest rate of 8% per year.
> Hemisphere, LLC is planning to outsource its 51-person information technology (IT) department to Dyonyx. Hemisphere’s president believes this move will allow access to cutting-edge technologies and skill sets that would be cost prohibitive to obtain on i
> The optical products division of Panasonic is planning a $3.5 million building expansion for manufacturing its powerful Lumix DMC digital zoom camera. If the company uses an interest rate of 16% per year, compounded quarterly for all new investments, wha
> A delivery car had a first cost of $30,000, an annual operating cost of $12,000, and an estimated $4000 salvage value after its 6-year life. Due to an economic slowdown, the car will be retained for only 2 years and must be sold now as a used vehicle. (a
> Radio Frequency Identification (RFID) is a technology used by drivers with “speed passes” at toll booths and ranchers who track livestock from “farm to fork.” Thrift-Mart is implementing the technology to track products within its stores. The RFID-tagged
> Jennifer and Rex both receive a dividend from their 401(k) retirement plan every 6 months. The earning rates for this year have been 5% per year, compounded quarterly for Jennifer, and 4.85% per year, compounded monthly for Rex. Rex felt good about this
> Head & Shoulders shampoo insured a spokesman football player’s long hair for $1 million with Lloyd’s of London. The insurance payout would be triggered if he lost at least 60% of his hair during an on-field event. The insurance company placed the odds of
> In an effort to have enough money to finance his passion for top-level off-road racing, a mechanical engineering graduate decided to sell some of his “toys." At time t = 0, he sold his chopper motorcycle for $18,000. Six months later, he sold his Baja pr
> Pollution control equipment for a pulverized coal cyclone furnace is estimated to cost $190,000 two years from now and an additional $120,000 four years from now. If Monongahela Power wants to set aside enough money now to cover these future costs, how m
> The patriot missile, developed by Lockheed Martin, is designed to detect, identify, and shoot down aircraft and other missiles. The Patriot Advanced Capability- 3 was originally promised to cost $3.9 billion, but due to extra time needed to develop compu
> Identify the following interest rate statements as either nominal or effective: (a) 1.3% per month; (b) 1% per week, compounded weekly; (c) nominal 15% per year, compounded monthly; (d) effective 1.5% per month, compounded daily; and (e) 15% per year, co
> Because testing of nuclear bombs was halted internationally in 1992, the Department of Energy has developed a laser system that allows engineers to simulate (in a laboratory) conditions in a thermonuclear reaction. Due to soaring cost overruns, a congres
> The Terra Max truck currently being manufactured by Oshkosh Truck Co. is a driverless truck that is intended for military use. Such a truck frees personnel to more effectively perform non driving tasks, such as reading maps, scanning for roadside explosi
> A friend tells you she has saved for 7 years and has a present sum of $10,000, which earned at the rate of 8% per year, compounded quarterly. (a) Determine the equivalent amount she had to start with 7 years ago. (b) Write the EFFECT function to find the
> If the VF Corporation deposits $20 million of its retained earnings in an aggressive stock ownership fund for only 1 year, what will be the difference in the total amount accumulated (i.e., F) at 18% per year, compounded monthly versus 18% per year simpl
> A machine used to shread cardboard boxes for composting has a first cost of $10,000, an AOC of $7000 per year, a 3-year life, and no appreciable salvage value. Assume you were told that the service provided by the machine will be needed for only 5 years,
> Videotech specializes in online security software development. It wants to have $65 million available in 3 years to pay stock dividends. How much money must the company set aside now in an account that earns interest at a rate of 12% per year, compounded
> Your brother, a new college graduate, wants to be his own boss. He wants to open a restaurant in a small strip center or acquire and operate a food truck, an increasingly popular mode of eating, especially in larger cities. The restaurant space can be re
> In order to find the future worth, F, from a present amount, P, 5 years from now at an interest rate of 12% per year, compounded quarterly, what interest rate must be used in the F∕P factor, (F∕P,i%,n), when n is (a) 5, (b) 10, and (c) 20?
> Eckelberger Products, Inc. makes high-speed recorders with high-speed scanning. The small company has been growing at an average rate of 75% per year for the past 4 years. The CEO asked you to convert the past growth rate into a monthly rate for its annu
> For an APR of 10% per year, if interest is compounded quarterly, determine the nominal rate per (a) 6 months, and (b) 2 years.
> Equipment maintenance costs for manufacturing explosion-proof pressure switches are projected to be $125,000 in year 1 and increase by 3% each year through year 5. What is the equivalent annual worth of the maintenance costs at an interest rate of 10% pe
> It is anticipated that the needs for UPW (ultrapure water) at the new Angular Enterprises site will continue for a long time, as much as 50 years. This is the rationale for using capitalized cost as a basis for the economic decision between desalinated s
> Compare three alternatives on the basis of their capitalized costs at i = 10% per year.
> A medium-size municipality plans to develop a software system to assist in project selection during the next 10 years. A life-cycle cost approach has been used to categorize costs into development, programming, operating, and support costs for each alter
> For the cash flows shown, determine the equivalent uniform annual worth in years 1 through 5 at an interest rate of 18% per year, compounded monthly.
> The cost associated with maintaining rural highways follows a predictable pattern. There are usually no costs for the first 3 years, but thereafter maintenance is required for restriping, weed control, light replacement, shoulder repairs, etc. For one se
> A company that makes modular bevel gear drives with a tight swing ratio for optimizing fork-lift vehicles was told that the interest rate on a loan would be an effective 3.5% per quarter, compounded monthly. The owner, confused by the terminology, asked
> An international textile company’s North America Division must decide which type of fabric cutting machines it will use—straight knife or round knife. The estimates are summarized below. Compare them on the basis of an
> A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of $36,000, an operating cost of $4000, and a salvage value of $15,000 after 3 years. A Ford model will have a first cost of $32
> Two methods can be used for producing solar panels for electric power generation. Method 1 will have an initial cost of $550,000, an AOC of $160,000 per year, and $125,000 salvage value after its 3-year life. Method 2 will cost $830,000 with an AOC of $1
> Polymer Molding, Inc. is considering two processes for manufacturing storm drains. Plan A involves conventional injection molding that will require making a steel mold at a cost of $2 million. The cost for inspecting, maintaining, and cleaning the molds
> Airodyne Wind, Inc. has wind tunnels that can operate vertically or horizontally for evaluating the effects of air flow on a component’s PCB response and reliability. The company expects to build a new tunnel that will be outfitted with multiple sensor p
> The Toro Company is expanding its El Paso, Texas plastic molding plant as it continues to transfer work from Juarez, Mexico contractors. The plant bought a $1.1 million precision injection molding machine to make plastic parts for Toro lawn mowers, trimm
> U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $13 million now and another $10 million 1 year from now. If total operating costs will
> After you have conducted a future worth comparison of alternatives, what do you multiply the FW values by in order to obtain the AW values of the alternatives?
> Environmental recovery company Rex Chem Partners plans to finance a site reclamation project that will require a 4-year cleanup period. If the company borrows $4.1 million now, how much will the company have to get at the end of each year in order to ear
> In order to provide drinking water as part of its 50-year plan, a west coast city is considering constructing a pipeline for importing water from a nearby community that has a plentiful supply of brackish ground water. A full-sized pipeline can be constr
> One of two methods must be used to produce expansion anchors. 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 $120,000,
> You have been asked to evaluate two alternatives, X and Y, that may increase plant capacity for manufacturing high-pressure hydraulic hoses. The parameters associated with each alternative have been estimated. Which one should be selected on the basis of
> What is meant by the term equal service alternative?
> When evaluating projects by the present worth method, how do you know which one(s) to select if the proposals are (a) independent, and (b) mutually exclusive?
> A rapidly growing city is dedicated to neighborhood integrity. However, increasing traffic and speed on a through street are of concern to residents. The city manager has proposed five independent traffic calming options: 1. Stop sign at corner A 2. Stop
> Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $250 million. Annual upkeep is expected to amount to $800,000. The turf will have to be replaced every 10 y
> An aggressive stockbroker claims an ability to consistently earn 12% per year on an investor’s money. A client invests $10,000 now, $30,000 three years from now, and $8000 per year for 5 years starting 4 years from now. (a) How much money can the client
> Assume that 25 years ago your dad invested $200,000, plus $25,000 in years 2 through 5, and $40,000 per year from year 6 on ward. At a very good interest rate of 12% per year, determine (a) the CC value, and (b) the annual retirement amount that he can w
> How much money was deposited 35 years ago at 10% per year interest if it is sufficient to provide a perpetual income of $10,000 per year beginning now, year 35?
> Blue Whale Moving and Storage recently purchased a warehouse building in Santiago. The manager has two good options for moving pallets of stored goods in and around the facility. Alternative 1 includes a 4000-pound capacity, electric forklift (P = $−30,0
> What is the present worth difference between an investment of $10,000 per year for 50 years and an investment of $10,000 per year forever at an interest rate of 10% per year?
> The Golden Gate bridge is maintained by 38 painters and 17 ironworkers (who replace corroding steel and rivets). If the painters get an average wage of $120,000 per year (with benefits) and the ironworkers get $150,000 per year, what is the capitalized
> A small strip-mining coal company is trying to decide whether it should purchase or lease a new clamshell. If purchased, the “shell” will cost $150,000 and is expected to have a $65,000 salvage value after 6 years. Alternatively, the company can lease a
> Define the term capitalized cost and give a real world example of something that might be analyzed using a capitalized cost evaluation technique.
> The Department of Energy is proposing new rules mandating either a 20% increase or a 35% increase in clothes washer efficiency in 3 years. The 20% increase is expected to add $100 to the current price of a washer, while the 35% increase will add $240 to
> A remotely located air sampling station can be powered by solar cells or by running an electric line to the site and using conventional power. Solar cells will cost $12,600 to install and will have a useful life of 4 years with no salvage value. Annual c
> You and your partner have become very interested in cross-country motorcycle racing and wish to purchase entry-level equipment. You have identified two alternative sets of equipment and gear. Package K has a first cost of $160,000, an operating cost of
> Compare the alternatives C and D on the basis of a present worth analysis using an interest rate of 10% per year and a study period of 10 years.
> (a) What is the difference between a service alternative and revenue alternative? (b) What is another name of a service alternative?
> NASA is considering two materials for use in a space vehicle tracking station in Australia. The estimates are shown below. Which should be selected on an economic basis of present worth values at an interest rate of 10% per year?
> An electric switch manufacturing company is trying to decide between three different assembly methods. Method A has an estimated first cost of $40,000, an annual operating cost (AOC) of $9000, and a service life of 2 years. Method B will cost $80,000 to
> Dexcon Technologies, Inc. is evaluating two alternatives to produce its new plastic filament with tribological (i.e., low friction) properties for creating custom bearings for 3-D printers. The estimates associated with each alternative are shown below.
> Two methods can be used to produce expansion anchors. 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 in year 1, increasing by $4000 each year. Method B will have a
> The Owner of Blue Bayou Café usually pays his appliance (refrigerators, dish washers, and freezers) maintenance contract by the year. If he projects the annual costs shown, find the equivalent A value for years 1 through 5.
> For the cash flows shown, determine the future worth in year 5.
> Oil from a specific type of marine microalgae can be converted into biodiesel that may serve as an alternate transportable fuel for automobiles and trucks. If lined ponds are used to grow the algae, the construction cost is $13 million and the M&O cost i
> Brady and Sons uses accounts receivable as collateral to borrow money for operations and payroll when revenues are low. If the company borrows $300,000 now at an interest rate of 12% per year, compounded monthly, and the rate increases to 15% per year, c
> How much money can a production company that makes fluidized bed scrubbers spend now instead of spending $150,000 in year 5 if the interest rates are estimated to be 10% per year in years 1 to 3 and 12% per year in years 4 and 5?
> A very optimistic hedge fund investor expects his single-deposit investment to triple in value in 5 years. (a) What is the required effective monthly rate, compounded continuously? (b) What is the corresponding effective annual rate needed?
> How long will it take for a lump-sum investment to double in value at an interest rate of 1.5% per month, compounded continuously? Solve by (a) formula and (b) spreadsheet function.
