Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
Question
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Chapter 5, Problem 72P
To determine

i.

Present Worth Alternative is being used.

Expert Solution
Check Mark

Answer to Problem 72P

Using Present Worth Method, Alternative 1 should be selected.

Explanation of Solution

Given:

Interest Rate = 8%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Alternative 1

Present Worth =

$500+$135(P/A,8%,10)$500(P/F,8%,5)PW=$500+($135×6.7101)($500×0.6806)PW=$500+$905.86$340.3PW=$65.56

The Present worth of alternative 1 is $65.56

Alternative 2

Present Worth:

$600+$100(P/A,8%,10)[($600$250)(P/F,8%,5)]+$250(P/F,8%,10)$600+($100×6.7101)[$350×0.6806]+($250×0.4632)$600+$671.01$238.21+$115.8$51.4

The Present Worth of Alternative 2 is -$51.4

Alternative 3:

PW=$700+$100(P/A,8%,10)+$180(P/F,8%,10)PW=$700+$671.01+$83.37PW=$54.38

Alternative 4:

The Present worth of alternative 4 is $0

The Present worth of alternative 1 is numerically higher.

Conclusion:

So, using Present Worth Method, Alternative 1 should be selected.

To determine

ii.

Present Worth Alternative is being used.

Expert Solution
Check Mark

Answer to Problem 72P

Interest Rate is 12%.

Explanation of Solution

Given:

Interest Rate is 12%.

Concept used:

RATE OF RETURN: It is a return which usually an investor gets on speculation. Investment can be done on shares, bonds etc. If rate of return is calculated for a fiscal year, then it is termed as annual rate of return.

Calculation:

Alternative 1

Present Worth =

PW=$500+$135(P/A,12%,10)$500(P/F,12%,5)PW=$500+($135×5.6502)($500×0.5674)PW=$500+$762.77$283.7PW=$20.93

The Present worth of Alternative 1 is -$20.93

Alternative 2

PW=$600+$100(P/A,12%,10)[($600$250)(P/F,12%5)]+$250(P/F,12%,10)PW=$600+(100×5.6502)$198.59+$80.5PW=$153.07

The Present Worth of Alternative 2 is -$153.07

Alternative 3

PW=$700+$100(P/A,12%,10)+$180(P/F,12%,10)PW=$700+$565.02+$57.96PW=$77.02

The Present Worth of Alternative 3 is -$77.02

Alternative 4

The Present Worth of Alternative 4 is $0.

Conclusion:

The Present Worth of Alternative 4 is numerically higher.

So, using Present Worth Method, Alternative 4 should be selected.

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Chapter 5 Solutions

Engineering Economic Analysis

Ch. 5 - Prob. 8PCh. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Prob. 19PCh. 5 - Prob. 20PCh. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Prob. 33PCh. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41PCh. 5 - Prob. 42PCh. 5 - Prob. 43PCh. 5 - Prob. 44PCh. 5 - Prob. 45PCh. 5 - Prob. 46PCh. 5 - Prob. 47PCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - Prob. 56PCh. 5 - Prob. 57PCh. 5 - Prob. 58PCh. 5 - Prob. 59PCh. 5 - Prob. 60PCh. 5 - Prob. 61PCh. 5 - Prob. 62PCh. 5 - Prob. 63PCh. 5 - Prob. 64PCh. 5 - Prob. 65PCh. 5 - Prob. 66PCh. 5 - Prob. 67PCh. 5 - Prob. 68PCh. 5 - Prob. 69PCh. 5 - Prob. 70PCh. 5 - Prob. 71PCh. 5 - Prob. 72PCh. 5 - Prob. 73PCh. 5 - Prob. 74PCh. 5 - Prob. 75PCh. 5 - Prob. 76PCh. 5 - Prob. 77PCh. 5 - Prob. 78PCh. 5 - Prob. 79PCh. 5 - Prob. 80PCh. 5 - Prob. 81PCh. 5 - Prob. 82PCh. 5 - Prob. 83PCh. 5 - Prob. 84PCh. 5 - Prob. 85PCh. 5 - Prob. 86PCh. 5 - Prob. 87PCh. 5 - Prob. 88PCh. 5 - Prob. 89PCh. 5 - Prob. 90PCh. 5 - Prob. 91PCh. 5 - Prob. 92PCh. 5 - Prob. 93PCh. 5 - Prob. 94PCh. 5 - Prob. 95PCh. 5 - Prob. 96PCh. 5 - Prob. 97PCh. 5 - Prob. 98PCh. 5 - Prob. 99PCh. 5 - Prob. 100PCh. 5 - Prob. 101P
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