Question: Solve the capital budgeting problem in Problem

> 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

> A rotational molding operation has fixed costs of $10,000 per year and variable costs of $50 per unit. If the process is automated via conveyor, its fixed cost will be $22,800 per year but its variable cost will be only $10 per unit. Determine the number

> State two assumptions when doing capital rationing using a PW analysis for unequal-life projects.

> A professional photographer who specializes in wedding-related activities paid $48,000 for equipment that will have a $2000 salvage value after 5 years. He estimates that his costs associated with each event amount to $65 per day. If he charges $300 per

> A manufacturing process at Simplicity XP has a fixed cost of $40,000 per month. A total of 100 units can be produced in 1 day at a cost of $3000 for materials and labor for the day. If the company’s MARR is 12% per year, compounded monthly, how many unit

> The fixed cost at Harley Motors is $5 million annually. The main product has revenue of $89 per unit and $45 variable cost. Estimate the following: (a) Breakeven quantity per year; and (b) annual profit if 100,000 units are sold, and if 200,000 units are

> The landfill for Wellsburg has an area of 30 acres available for receiving waste from the city of 40,000 people who generate 25,000 tons of municipal solid waste (MSW) per year. If the fixed cost of the landfill is $300,000 per year and the operating cos

> The CFO for Woodsome Appliance Company Plant #A14 in Mexico City has five independent projects she can fund this year to improve surface durability on stainless steel products. The project investments and 18%-per-year PW values are as shown. What project

> An engineer at Suncore Micro, LLC calculated the present worth of mutually exclusive bundles, each comprised of one or more independent projects. (a) Select the acceptable bundle if the capital investment limit is $50,000 and the MARR is 15% per year. (b

> Five independent projects (1, 2, 3, 4, and 5) will be evaluated for investment by General Electric, Energy Division. Develop all of the acceptable and nonacceptable mutually exclusive bundles based on the following two selection restrictions developed by

> Abel and Family Perfumes wants to add one or more of four new products to its current line of colognes. Historically, Abel has used a 5-year project recovery period and a MARR of 20% per year. (a) Determine which of the four options the company should un

> The capital fund for new investment at Systems Corporation is limited to $75,000 for next year. You have been asked to recommend one or more of three projects as economically acceptable for investment at the corporate MARR of 15% per year. Perform the an

> Visit the U.S. Internal Revenue Service website at www.irs.gov and answer the following questions about depreciation and MACRS by consulting Publication 946, How to Depreciate Property. (a) What is the definition of depreciation according to the IRS? (b)

> Identify each of the following costs associated with owning an automobile as direct (D) or indirect (I). Assume a direct cost is one that is directly attributable to the number of miles driven. (a) License plate, (b) Drivers license, (c) Gasoline, (d) Hi

> For the last 10 years, Am-Mex Coal has used the cost depletion factor of $2500 per 100 tons to write off the investment of $35 million in its Pennsylvania anthracite coal mine. Depletion thus far totals $24.8 million. A new study to appraise mine reserve

> Use linear programming, a spreadsheet, and the Solver tool to select from the independent, unequal- life projects in Problem 12.18. Data from Problem 12.18:

> Youngblood Shipbuilding Yard just purchased $1 million in capital equipment for ship repairing functions on dry-docked ships. Estimated salvage is $150,000 for any year after 5 years of use. Compare the depreciation and book value for year 3 for each of

> Blackwater Spring and Metal utilizes the same computerized spring forming machinery in its U.S. and Malaysian plants. The first cost was $750,000 with S = $150,000 after n = 10 years. MACRS depreciation with n = 5 years is applied in the United States an

> Fairfield Properties owns real property that is MACRS depreciated with n = 39 years. They paid $3.4 million for an apartment complex and hope to sell it after 10 years of ownership for 50% more than the book value at that time. Compare the expected selli

> Bison Gear and Engineering of St Charles, Illinois, makes sensorless and brushless dc gear motors suited for foodservice equipment, factory automation, alternative energy systems, and other specialty machinery applications. The company purchased an asset

> The manager of a plant that manufactures stepper drives knew that MACRS and DDB were both accelerated depreciation methods, but out of curiosity, he wanted to know which one would provide the faster write-off in the first 3 years for equipment that has a

> A company report stated that a $140,000 asset purchased 3 years ago has a current MACRS book value that is 57.6% of the asset’s basis. (a) Determine the recovery period used. (b) Determine the depreciation next year using the VDB spreadsheet function.

> Del Norte Brick Co. is located near the intersection of Texas, New Mexico, and Mexico. Improved access to the company’s property is via a small bridge across the Rio Grande. The cost of the bridge was $770,000. Determine the depreciation and book value f

> (a) What is meant by half-year convention? (b) Where does it show up in the MACRS depreciation rate table? What is its effect?

> Halcrow Yolles purchased equipment for new highway construction in Manitoba, Canada, costing $500,000 Canadian. Estimated salvage at the end of the expected life of 5 years is $50,000. Various acceptable depreciation methods are being studied currently.

> Bristol-Myers-Squibb purchased a tablet-forming machine in 2010 for $750,000. The company planned to use the machine for 10 years and then sell it for $50,000; however, due to rapid obsolescence, it will be retired after only 6 years in 2016. (a) Determi

> Formulate the linear programming model, develop a spreadsheet, and solve the capital rationing problem in Example 12.1 with an investment limit of (a) $20 million, as presented, (b) $13 million, and (c) $30 million. Data from example 12.1:

> Air handling equipment that costs $12,000 has a life of 7 years with a $2000 salvage value. (a) Calculate the straight line depreciation charge for each year. (b) Write the spreadsheet function to determine the annual depreciation. (c) Determine the book

> Historically, The Travel Club has distributed advertising costs to its resort sites in Europe on the basis of the size of the resort budget. For this year, in round numbers, the budgets and allocation of $1 million advertising indirect costs are as follo

> The municipal water and desalinization utility in a California city currently allocates some costs for maintenance shop workers to pumping stations based on the number of pumps at each station. At the last Director’s Semiannual Meeting,

> CarryALL, Inc., makes and sells small cargo trailers to individuals and small businesses. Since its opening in 1990, it has allocated indirect costs (IDC) to its three manufacturing plants based on direct materials cost per unit. Each plant builds differ

> The Mechanical Components Division manager asks you to recommend a make/buy decision on a major automotive subassembly that is currently purchased externally for a total of $3.9 million this year. This cost is expected to continue rising at a rate of $30

> At Williams Corp., all indirect costs are allocated by accounting. One department manager obtained records for her department of allocation rates and actual charges for the prior 3 months and estimates for this and next month (May and June; see the table

> The Director of Street Maintenance wants to allocate his annual IDC budget of $1.2 million to the three divisions around the city. The recorded amounts for this year are as follows: The Director plans to use the allocation and information from last year

> Nicole is an engineer on temporary assignment at a refinery operation in Seaside. She has reviewed a cost estimate for $430,000, which covers some new processing equipment for the ethylene line. The equipment itself is estimated at $250,000 with a constr

> Estimate the cost in 2011 of chemical processing equipment if the cost of a unit one-fourth its size was $60,000 in 2005. The exponent in the cost capacity equation is 0.24. Use the M&S equipment cost index to update the cost.

> The net annual operating cost (AOC) for a water treatment filtration plant for a semi-conductor fabrication line was estimated to be $1.5 million per year. The estimate was based on the $200,000 per year cost of a 1-MGD plant. The exponent in the cost-ca

> A capital-budgeting problem is defined as follows: three projects are to be evaluated at a MARR of 12.5% per year. No more than $3.0 million can be invested. (a) Use a spreadsheet to select from the independent projects. (b) After some study, it was dete

> The cost of a high-quality 250-horsepower compressor was $14,000 when recently purchased. What would a 600-horsepower compressor be expected to cost?

> In 2015, Mariam, an engineer with Total Petroleum, decided to invest in stocks of a corporation that concentrates on crude oil production and refined products, though the price of oil is a very volatile commodity during recent years. She found the Global

> If the PCI editor at Chemical Engineering (CE) decides to update the Plant Cost Index so that the year 2010 has a base value of 100 instead of the current value of 550.8, determine the PCI values for 2014 and for 2015.

> In 2009, the Office of the Under Secretary of Defense projected that a critical International Defense Construction Cost Index would increase from its value then of 3423 to 4098 in 2016. If the actual value in 2016 was 5167, (a) what was the actual buildi

> Two people developed first-cut cost estimates to construct a new 130,000 square foot building on a university campus. Person A applied a general purpose per unit cost estimate of $180 per square foot for the estimate. Individual B was more specific: she

> A company has been invited to invest $1 million in a partnership and receive a guaranteed total of $2.5 million after 4 years. By corporate policy, the MARR is always established at 4% above the real cost of capital. The real interest rate paid on capita

> An engineer deposits $10,000 into an account when the market interest rate is 10% per year and the inflation rate is 5% per year. If the account is left undisturbed for 5 years, (a) How much money will be in the account? (b) What will be the purchasing p

> An engineer planning for her son’s college education made deposits into a separate high-risk brokerage account every time she earned extra money from side consulting jobs. The deposits and their timings are as follows: Year…………….. Deposit, $ 0……………………………

> As an innovative way to pay for various software packages that your company sells, a high-tech service company has offered to pay your company in any one of three ways: (1) pay $450,000 now; (2) pay $1.1 million 5 years from now; or (3) pay $200,000 now

> The two machines shown are being considered for a chip manufacturing operation. Assume the MARR is a real return of 12% per year and that the inflation rate is 7% per year. Which machine should be selected on the basis of an annual worth analysis if the

> Using a spreadsheet, (a) work Problem 12.19 as stated, and (b) expand the bundles to allow up to three projects and no more than $25,000 invested. Data from problem 12.19:

> (a) Calculate the perpetual equivalent annual worth in future dollars for years 1 through ∞ for income of $50,000 now and $5000 per year thereafter. Assume the market interest rate is 8% per year and inflation averages 4% per year. All amounts are quoted

> Joan, the project manager, asks you to evaluate alternatives A and B on the basis of their PW values using a real interest rate of 10% per year and an inflation rate of 3% per year (a) without any adjustment for inflation, and (b) with inflation consider

> A regional infrastructure building and maintenance contractor must decide to buy a new compact horizontal directional drilling (HDD) machine now, or wait and buy it 2 years from now when a large pipeline contract will require the new equipment. The HDD m

> The company you work for is considering a new product line projected to have the net cash flows (NCF) shown. The values are in future dollars, which have been inflated by 5% per year. Because the plant manager is unsure how the present worth is calculate

> Some of the following future cash flows have been expressed in then-current (future) dollars and others in CV dollars. Use an interest rate of 10% per year and an inflation rate of 6% per year. (a) Find the present worth. (b) Use a spreadsheet to find th

> Find the present worth of earthmoving equipment that has a first cost today of $150,000, an annual operating cost of $60,000, and a salvage value of 20% of the first cost after 5 years; these estimates being in future dollars. Assume the interest rate is

> For years, Jake has practiced the “buy now, pay later” philosophy of money management. For example, he purchased a car 3 years ago with a 6-year (72 month) loan at 7% per year interest. He has refinanced the loan each year at a higher interest rate; 7.5%