ENGINEERING ECONOMY – 61471 and 672

ENGINEERING ECONOMY – 61471 and 67223
HOME WORK #4

ANSWER THE FOLLOWING QUESTIONS

Q1. Two methods can be used for producing 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, an operating cost of $8,000 per year, and a $40,000 salvage value after its 3-year life.
At an interest rate of 12% per year, which method should be used on the basis of a present worth analysis?

Q2. Sales of bottled water in the United States totaled 16.3 gallons per person in 2004. Evain Natural Spring Water
costs 40¢ per bottle. A municipal water utility provides tap water for $2.1 per 1,000 gallons. If the average person
drinks 2 bottles of water per day or uses 5 gallons per day in getting that amount of water from the tap, what are the
present worth values of drinking bottled water or tap water per person for 1 year? Use an interest rate of 6% per year,
compounded monthly, and 30 days per month.

Q3. A company that manufactures amplified pressure transducers is trying to decide between the machines shown
below. Compare them on the basis of their present worth values, using an interest rate of 15% per year.
Variable Speed Dual Speed
First cost, $ -250,000 -224,000
Annual operating cost, $/year -231,000 -235,000
Overhaul in year 3, $ - -26,000
Overhaul in year 4, $ -140,000 -
Salvage value, $ 50,000 10,000
Life, years 6 6

Q4. NASA is considering two materials for use in a space vehicle. The costs are shown below. Which should be
selected on the basis of a present worth comparison at an interest rate of 10% per year?

Material JX Material KZ
First cost, $ -205,000 -235,000
Maintenance cost, $/year -29,000 -27,000
Salvage value, $ 2,000 20,000
Life, years 2 4

Q5. Two processes can be used for producing a polymer that reduces friction loss in engines. Process K will have a
first cost of $160,000, an operating cost of $7,000 per quarter, and a salvage value of $40,000 after its 2-year life.
Process L will have first cost of $210,000, an operating cost of $5,000 per quarter, and a $26,000 salvage value after
its 4-year life. Which process should be selected on the basis of a present worth analysis at an interest rate of 8% per
year, compounded quarterly?

Q6. Two methods are under consideration for producing the case for a portable hazardous material photoionization
monitor. A plastic case will require an initial investment of $75,000 and will have an annual operating cost of
$27,000 with no salvage after 2 years. An aluminum case will require an investment of $125,000 and will have
annual costs of $12,000. Some of the equipment can be sold for $30,000 after its 3-year life. At an interest rate of
10% per year, which case should be used on the basis of a present worth analysis?

Q7. Three different plans were presented for operating a small weapons production facility. Plan A would involve
renewable 1-year contracts with payments of $1 million at the beginning of each year. Plan B would be a 2-year
contract, and it would require four payments of $600,000 each with the first one to be made now and the other three
at 6-month intervals. Plan C would be a 3-year contract, and it would entail a payment of $1.5 million now and
another payment of $0.5 million 2 years from now. Which plan is better on the basis of a present worth analysis at an
interest rater of 6% per year, compounded semiannually?