Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Question
Chapter 6, Problem 20P
(a):
To determine
Calculate the value of X.
(b):
To determine
Calculate the minimum value of X.
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Students have asked these similar questions
Another method to deal with the unequal life problem of projects is the equivalent annual annuity (EAA) method. In this method the annual cash flows
under the alternative investments are converted into a constant cash flow stream whose NPV is equivalent to the NPV of the comparative project's
Initial stream.
Consider the case of Three Waters Boatbuilders:
Three Waters Boatbuilders is considering a three-year project that has a weighted average cost of capital of 10% and a net present
value (NPV) of $85,647. Three Waters Boatbuilders can replicate this project indefinitely.
The equivalent annual annuity (EAA) for this project is
The EAA approach to evaluating projects with unequal lives does not
do a good job of taking inflation into account.
Consider the cashflow (n = 10 years, MARR = e = 14%)
Cash Flow A
Investment
Revenues
P 180,000 P 350,000 per year
Expenses
P 400,000 per year
for the first 3 years,
decreasing by P
50,000 per year
thereafter
a. Calculate the Internal Rate of Return (IRR) of each project.
b. Calculate the External Rate of Return (ERR) of each project.
Salvage
Value
P 40,000
The Mowbot company wants to add a new
product line. This will require spending
$750,000 on new equipment and tooling. The
new product line is expected to sell 1,500
units per year for five years. Each unit will
generate $180 in gross profit. At the end of
five years, the equipment will be sold for an
estimated salvage value of $120,000.The
Mowbot company evaluates projects using a
minimum rate of return (MARR) of 18%. Use
present worth analysis to determine whether
this is a viable project. Show the equivalence
formula(s) you use as well as your final
solution.
Chapter 6 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 6 - Prob. 1PCh. 6 - Prob. 2PCh. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Consider the cash flows in Table P6.7 for the...Ch. 6 - Prob. 8PCh. 6 - Prob. 9PCh. 6 - The repeating cash flows for a certain project are...
Ch. 6 - Beginning next year, a foundation will support an...Ch. 6 - Prob. 12PCh. 6 - Prob. 13PCh. 6 - Prob. 14PCh. 6 - Prob. 15PCh. 6 - Prob. 16PCh. 6 - Prob. 17PCh. 6 - Prob. 18PCh. 6 - The Geo-Star Manufacturing Company is considering...Ch. 6 - Prob. 20PCh. 6 - Prob. 21PCh. 6 - Prob. 22PCh. 6 - Prob. 23PCh. 6 - Prob. 24PCh. 6 - Prob. 25PCh. 6 - Prob. 26PCh. 6 - Prob. 27PCh. 6 - Prob. 28PCh. 6 - Prob. 29PCh. 6 - Prob. 30PCh. 6 - Prob. 31PCh. 6 - Prob. 32PCh. 6 - Prob. 33PCh. 6 - Prob. 34PCh. 6 - Prob. 35PCh. 6 - Prob. 36PCh. 6 - Prob. 37PCh. 6 - Prob. 38PCh. 6 - Prob. 39PCh. 6 - Prob. 40PCh. 6 - Prob. 41PCh. 6 - Prob. 42PCh. 6 - Prob. 43PCh. 6 - Prob. 44PCh. 6 - Prob. 45PCh. 6 - Prob. 46PCh. 6 - Prob. 47PCh. 6 - Prob. 48PCh. 6 - Prob. 49PCh. 6 - Prob. 50PCh. 6 - Prob. 51PCh. 6 - Prob. 52PCh. 6 - Prob. 53PCh. 6 - Prob. 1STCh. 6 - Prob. 2STCh. 6 - Prob. 3STCh. 6 - Prob. 4ST
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- A piece of new equipment has been proposed by engineers to increase theproductivity of a certain manual welding operation. The investment cost is $25,000, and the equipment will have a market value of $5,000 at the end of a study period of five years. Increased productivity attributable to the equipment will amount to $8,000 per year after extra operating costs have been subtracted from the revenue generated by the additional production. A cash-flow diagram for this investment opportunity is given below. If the firm’s MARR is 20% per year, is this proposal a sound one? Use the PW method.arrow_forwardYour company is planning to undertake another project requiring initial investment of $70 million and is expected to generate $10 million net cash flow in Year 1, $13 million in Year 2, $16 million in year 3, $18 million in Year 4 and $22 million in Year 5. The payback value of the project will:arrow_forwardConsider the two investments with the following sequences of cash flows Compute for i* for each investment What are the NPW of each alternatives with an MARR of 15% If A & B are mutually exclusive, which project is more economically desirable? (Incremental)arrow_forward
- The Asia Corporation manufactures compressors for commercial airconditioning systems. A new compressor design is being evaluated as a potential replacement for the most frequently used unit. The new design involves major changes that have the expected advantage of better efficiency. From the perspective of a typical user, the new compressor would have an increased investment of $8,600 relative to the present unit and an annual expense savings dependent upon the extent to which the design goal is met in actual operations. Estimates by the multidisciplinary design team of the new compressor achieving four levels (percentages) of the efficiency design goal and the probability and annual expense savings at each level are as follows: Based on a before-tax analysis (MARR =18% per year, analysis period of 6 years, and a salvage value of zero) and E(PW) as the decision criterion, is the new compressor design economically preferable to the current unit?arrow_forwardThe Ford Motor Company is considering three mutually exclusive electronic stability control systems for protection against rollover of its automobiles. The investment period is four years (equal lives), and the MARR is 10% per year. Data for fixturing costs of the systems are given below. Which alternative should the company select? Capital Alternative IRR Investment A BC с 19.7% 19.9% 19.3% The AW of the alternative A is $ $12,000 $15,700 $8,000 Annual Receipts Less Expenses $4,000 $5,400 $2,750 Salvage Value $3,250 $3,500 $1,600 (Round to the nearest dollar.)arrow_forwardFor the four alternatives described in the table, which project or projects should be selected, using ROR method and MARR of 13% ? (Use only capital letters for alternatives names exactly as in table. For Ai*, use number followed by % immediately (no space)) 1- if they are independents: 2- If they are mutually exclusive: fill in the steps below based on the comparison with MARR = 13% Step 1: Exclude alternative Overall Incremental Rate of Return, % ROR, % A from competition First Alternative Cost, $ B D -80.000 14 -60.000 16 12 Step 2: |(challenger) VS|| -40.000 17 11 14 17 23 D -30,000 12 35 (defender), Ai* = -----> select Step 3: ( challenger) VS (defender), Ai* = selectarrow_forward
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