Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 14P
To determine
Calculate the expected present worth.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
[A] Suppose that a drug company has developed an ointment that can be used to treat sores and reduce scarring. Surveys indicated that the ointment, which costs $10,000 for a full course of treatment, can improve the quality of life from 0.6 to 0.7 for patients with this problem. Assume that this population has a life expectancy of 70 years. No need to worry about discounting.
1. What is the Incremental Cost-Utility Ratio (ICUR) for taking the ointment over doing nothing for a typical 20-year-old patient? [Hint: This patient has only 50 years of life remaining.]
2. If the cost-effectiveness threshold is $5,000 per QALYS, will the 20-year-old patient choose to get the ointment? What about a 60-year-old patient?
[B] Is it appropriate to evaluate a healthcare intervention using various methods of economic evaluation as discussed in this course, or should we choose one primary method that best fits the analysis?
The research department at a manufacturing company has developed a new process that it believes will result in an improved product Management must decide whether to go
ahead and market the new product. The new product may or may not be better than the old one. If the new product is better and the company decides to market it, sales should
increase by $50,000. If it is not better and they replace the old product with the new product on the market, they will lose $24,000 to competitors. If they decide not to market the
new product, they will lose a total of $30,000 if it is better and just research costs of $10,000 if it is not. Answer parts a through c below.
(a) Prepare a payoff matrix.
(Type an integer or decimal for each matrix element. Do not include the $ symbol in your answer.)
(b) If management believes there is a probability of 0.4 that the new product is better, find the expected profits under each strategy and determine the best action. Select the
correct answer below and fill…
Sandra and Mary live next to each other. Sandra has a dog that she walks
every day. Sandra has to walk past Mary's front lawn and her dog always pees
on Mary's flowers, which causes them to eventually die. Mary will move in a
few months but, until then, she estimates she will spend $100 on flowers to
replace the ones that die as a result of the daily visits from Sandra's dog. The
only solution to this problem is a $50 fence that can be put around Mary's
flowers that will protect them from Sandra's dog.
a. What term do economists use for the consequences of Sandra's daily walks
in this setting?
b. Is it socially optimal to have the fence put around the flowers in this case?
Why or why not?
c. What does the Coase theorem say about how the social optimum could be
achieved? Explain what an agreement between Sandra and Mary would look
like if Mary has the right to not be bothered by her neighbour's dog.
Chapter 12 Solutions
Engineering Economy (17th Edition)
Ch. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - A new snow making machine utilizes technology that...Ch. 12 - Prob. 4PCh. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Prob. 8PCh. 12 - Prob. 9PCh. 12 - Prob. 10P
Ch. 12 - Prob. 11PCh. 12 - Prob. 12PCh. 12 - Prob. 13PCh. 12 - Prob. 14PCh. 12 - Prob. 15PCh. 12 - Prob. 16PCh. 12 - Prob. 17PCh. 12 - Prob. 18PCh. 12 - Prob. 19PCh. 12 - Prob. 20PCh. 12 - Prob. 21PCh. 12 - Prob. 22PCh. 12 - If the interest rate is 8% per year, what decision...Ch. 12 - Prob. 24PCh. 12 - Prob. 25PCh. 12 - Prob. 26SE
Knowledge Booster
Similar questions
- Assume a patient has a particular disease. The quality weight (q) associated with the disease is 0.5, meaning the patient has 0.5 quality-adjusted life year (QALY) from living one year with the disease. The patient with such a disease can only live for 10 years (without treatment). Now a drug has been developed to treat this disease. With the drug, the quality of life (q) can be improved to 0.8 and patients can live for 15 years. (1) Calculate the QALYs gained due to the treatment (relative to no treatment). Assume no discounting of future years. Please show all your calculations (points will be deduced if the answer contains only one number without steps). (2) If the drug costs $49,000, what is the incremental cost-effectiveness ratio of the treatment compared with no treatment? Please show all your calculations (points will be deduced if the answer contains only one number without steps). (3) Assume it is agreed that a QALY is worth $5000 (the patient is willing to pay up to $5000…arrow_forwardKim works as a physiotherapist. She currently earns a salary of $6479 per month. The only costs associated with working as a physiotherapist are fixed costs (e.g. maintaining her licence to practice physiotherapy) of $289 per year. Due to changes in the health care sector, Kim is deciding whether she should become a general practitioner instead. She estimates her salary as a general practitioner will be $8563 per month. What is Kim's monthly economic loss from working as a physiotherapist? Assume the same fixed costs apply to both the physiotherapist and general practitioner options, because the licences for physiotherapists and general practitioners cost the same amount of money. Answer as a positive number to the nearest whole value (with no decimal places, $or - signs, spaces or commas).arrow_forwardYou have been using Drug A as a standard of care for chemotherapy and now Drug B, a new chemo drug, is being considered for procurement by the hospital. Drug A prolongs life by 1 year and reduces quality of life of your patients by 35% due to its side effects. For you to decide to replace Drug A with Drug B it must have a quality adjusted life year in excess of: a. 0.5 b. 0.45 c. 0.6 d. 0.65arrow_forward
- The government of a subtropical country is evaluating the costs and benefits of protecting a rainforest versus cutting it down for timber. The estimated value of the wood is $270$270 million. If the same forest is used as a national park, it may attract 0.030.03 million additional tourists per year. Statistically, each tourist spends $1,600$1,600 inside the country during their stay.How long will it take tourism to exceed the estimated value of the wood in the rainforest? Enter your answer in the box below and round to two decimal places if necessary.arrow_forwardA European consortium has spent a considerable amount of time and money developing a new supersonic aircraft. The aircraft gets high marks on all performance measures except noise. In fact, because of the noise, the consortium’s management is concerned that the US government may impose restrictions on some of the American airports where the aircraft can land. Management judges a 50–50 chance that there will be some restrictions. Without restrictions, management estimates its (present discounted) profit at $125 million; with restrictions, its profit would be only $25 million. Management must decide now, before knowing the government’s decision, whether to redesign parts of the aircraft to solve the noise problem. The cost of the redesign program is $25 million. There is a 0.6 chance that the redesign program will solve the noise problem (in which case, full landing rights are a certainty) and a 0.4 chance it will fail. Using a decision tree, determine the consortium’s best course of…arrow_forwardAn individual (with log-utility) wants to maximize her happiness level over her adolescence and adult periods. At the age 18 the individual inherits one hundred thousand dollars and must decide how much to consume now (when she is young, period t) and how much to save for her adulthood (period t +1) to maximize the sum of utility over different life stages. The bank will pay interest rate of 5% of every dollar she deposits. The individual discounts future utilities at B = 0.8. What is the optimal consumption in the t+1 period? 46666.67 46672.66 46669.67 46675.67arrow_forward
- An internal study at Mimeo Corporation—a manufacturer of low-end photocopiers— revealed that each of its workers assembles three photocopiers per hour and is paid $6 for each assembled copier. Although the company does not have the resources needed to supervise the workers, a full-time inspector verifies the quality of each unit produced before a worker is paid for his or her output. You have been asked by your superior to evaluate a new proposal designed to cut costs. Under the plan, workers would be paid a fixed wage of $16 per hour. Would you favor the plan? Explain.arrow_forwardThe University Eye Institute in upper New-York state is a state-of-the-art ophthalmology center that specializes in a sophisticated laser surgery to correct myopia. Current annual volume is 1000 operations. A major customer of the center is the United Health Insurance system. United currently sends the University Eye Institute 200 patients per year or 20% of the total. United pays $2,500 per operation as does every payor. The United Health Insurance Company is satisfied with the quality and service provided by the University Eye Institute and has proposed that they send the Center an additional 100 patients (operations) per year. United proposes that the fee be reduced to $2,000 for the additional 100 patients and for the prior 200 patients. Assume the fee paid by payors other than United Health remains the same. a) What is the marginal revenue per patient if the proposal is accepted? b) What is the marginal cost per patient if the proposal is accepted? Here are some cost data to…arrow_forwardIn preparing for the upcoming holiday season, Fresh Toy Company (FTC) designed a new doll called The Dougie that teaches children how to dance. The fixed cost to produce the doll is $100,000. The variable cost, which includes material, labor, and shipping costs, is $29 per doll. During the holiday selling season, FTC will sell the dolls for $37 each. If FTC overproduces the dolls, the excess dolls will be sold in January through a distributor who has agreed to pay FTC $10 per doll. Demand for new toys during the holiday selling season is extremely uncertain. Forecasts are for expected sales of 60,000 dolls with a standard deviation of 15,000. The normal probability distribution is assumed to be a good description of the demand. FTC has tentatively decided to produce 60,000 units (the same as average demand), but it wants to conduct an analysis regarding this production quantity before finalizing the decision. Determine the equation for computing FTC's profit for given values of the…arrow_forward
- The state government has passed a regulation requiring that individual sources install filters to capture emissions of inhalable particles. The regulation will require the that installation of the filters start within the upcoming year. The rule is expected to provide improved respiratory health outcomes for the state's citizens. The benefits and costs (shown in the table below) of the rule will be reckoned at the end of each of the next 12 years. The government has analyzed the costs and benefits of the regulation at an annual discount rate of 3%. Determine the annual and total net benefits of the project for each year of the 12 year period, and the net present value of the completed project, as determined in the EPA's current cost-benefit evaluation of the project.. 1 2 3 4 5 6 7 8 9 10 11 12 Benefits 51,278 45,367 52,876 62,448 53,749 39,723 41,804 46,735 44,286 37,873 51,244 47,836 Costs 43,956 32,556 29,864 39,874 36,843 29287 48,536 52,467 36,118 35,122 39,204 41,344arrow_forwardA corporation is trying to decide whether to buy the patent for a product designed by another company. The decision to buy will mean an investment of $8 million, and the demand for the product is not known. If demand is light, the company expects a return of $1.3 million each year for three years. If demand is moderate, the return will be $2.5 million each year for four years, and high demand means a return of $4 million each year for four years. It is estimated the probability of a high demand is 0.4, and the probability of a light demand is 0.2. The firm's (risk-free) interest rate is 12%. Calculate the expected present worth of the patent. On this basis, should the company make the investment? (All figures represent after - tax values.)arrow_forwardYou are given the following situations: (I) A whole life insurance policy is calculated using Canadian male smoker mortality rates and i = 3.5%, with death benefit $100,000 (II) A whole life insurance policy is calculated using Canadian male non-smoker mortality rates and i = 3.5%, with death benefit $100,000 (III) A whole life insurance policy is calculated using i = 5% and the 2017 CSO table, with death benefit $100,000 (IV) A whole life insurance policy is calculated using i = 7% and the 2017 CSO table, with death benefit $100,000 With respect to the net single premium, which of the following statement is true? A. NSPĮ > NSPII and NSPIII > NSP¡y B. NSPĮ NSPI and NSPmNSP¡yarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you