Principles of Engineering Economic Analysis
6th Edition
ISBN: 9781118163832
Author: John A. White, Kenneth E. Case, David B. Pratt
Publisher: Wiley, John & Sons, Incorporated
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Textbook Question
Chapter 8, Problem 8P
Consider the following cash flow profile and assume MARR is 10 percent/year.
| EOY | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| NCF | -$101 | $411 | -$558 | $253 | $2 | $8 | -$14 |
a. Determine the
b. Is this project economically attractive?
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Margaret has a project with a $28 000 first cost that returns $5000 per year over its 10-year life. It has
a salvage value of $3000 at the end of 10 years. If the MARR is 5 percent, what is the payback period
of this project?
Ctrl) -
Select the correct answer from the terms provided to complete the sentences below. There are more answers than questions, therefore some of the items will remain unused.
1 Higher
Reinvestment rate
3
MARR
-100% to plus Infinity 6
Cash flow series
Cumulative cash
flows
8
Zero to one
Lower
10
/"rate
11 Principal amount
Non-conventional
12
Equal to or less than
13
Match each of the options above to the items below.
For an Investment, the Interest rate is the rate of interest earned on the
When the algebraic signs on the net cash flows change more than once, the cash flow sequence is called
When there is more than one sign change in the net cash flows, multiple values are possible in the range of
The total number or real values is always
the number of sign changes in the cumulative cash flow sequence.
The composite rate of return assumes that net positive cash flows not Immediately needed by the project are reinvested at the
Norstrom's criterion uses the
to determine if a unique rate may…
Consider the following analysis of two alternatives, X & Y:
YR
X
Y
0
-200
-1000
1
50
250
2
50
250
3
50
250
4
50
250
5
100
300
The MARR is 10%. Calculate the incremental rate of return in percent to the nearest 0.1 percent.
Chapter 8 Solutions
Principles of Engineering Economic Analysis
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- K Most likely estimates for a project are as follows. MARR Useful life Initial investment Receipts - Expenses (R-E) Determine whether the statement "This project (based upon the most likely estimates) is profitable." is true or false. Click the icon to view the relationship between the PW and the percent change in parameter. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 15per year. Choose the correct choice below. False True 15% per year 4 years $3,500 $1,600/year TUBarrow_forwardNeed AsapIllustrate the cashflow diagram and compute for the payback period for a project with the following characteristics, if the minimum attractive rate of return (MARR) is 10%? First Cost $20,000 Annual Benefits $8,000 Annual Maintenance $2,000 in year, then increasing by $500 per year Salvage Value $2,000 Useful Life10 yearsarrow_forwardQuestion 3 A project with the following costs are under consideration to determine its profitability. Using the IRR comparison, and an annual MARR of 10% compounded semiannually, determine if the project should be executed First cost $45,000 Semiannual operating cost $10,000 Semiannual income $20,000 Salvage value $20,000 Life in years 4 years Oa. IRR = 17% semiannual Ob. IRR= 18.7% semiannual O IRR = 16.9% semiannual Od. IRR 15.3% semiannualarrow_forward
- Need Asap Illustrate the cashflow diagram and compute for the payback period for a project with the following characteristics, if the minimum attractive rate of return (MARR) is 10%? First Cost $20,000 Annual Benefits $8,000 Annual Maintenance $2,000 in year, then increasing by $500 per year Salvage Value $2,000 Useful Life10 yearsarrow_forwardGiven cash flows for two alternatives as shown in table below, choose the most attractive alternative if MARR = 8%. Year 0 1 2 3 through ∞ Alt. A -$42K $3.6K $3.6K $3.6K Alt. B -$54K $4.7K $4.7K $4.7K Group of answer choices Alt. A Alt. B Select neither Select eitherarrow_forwardCalculate the present worth from the given project summary. Capital Costs = $37,000; Revenue = $15,000/year; Operation and Maintenance Costs = $7,100/year; Salvage Value = $17,000; Project Lifetime = 3 years; Effective Interest Rate = 0.03. %3Darrow_forward
- Question 4 A local company is considering in investing in new, more productive equipment Data concerning the three best aternatives are show below. The useful life of the equipment is 20 years and MARR =9K What is the incremental return on the first incremental pair (ahen andered by increasing investment) RRI Ars What is the incremental IRR on the second pair? Ars Which alternative would you select? Ans. X B C Initial S66.000.00 $55,000.00 $23.500.00 $17,32000 investment $7.830.00 Annual net $6.093.00 $3.177.00 $165300 income Salvage value $4.500.00 $3.23200 $1.73a0 1237% S8.230.00 10.40% 7.465 9.35% IRRarrow_forwardProject 1 involves an outlay of $2.5m and gets an annual net income of $1m for 5 years. Project 2 involves an outlay of $10m but gets no income until year 5. year project 1 project 2 0 -2.5 -10 1 1 0 2 1 0 3 1 0 4 1 0 5 1 15 Use the payback method to decide which is the most attractive project. __________ What is the accounting rate of return for project 1? Write your answer as a percent using the percent symbol. ________ What is the accounting rate of return for project 2? Write your answer as a percent using the percent symbol. _________ Decide which is the most attractive project using the accounting rate of return method. ________________arrow_forward11_The sign of various amounts at different points in time in a cash flow diagram is to be decided based on the type of the decision problem Select one:TrueFalsearrow_forward
- Illustrate the cashflow diagram and compute for the payback period for a project with the following characteristics, if the minimum attractive rate of return (MARR) is 10%? First Cost $20,000 Annual Benefits $8,000 Annual Maintenance $2,000 in year, then increasing by $500 per year Salvage Value $2,000 Useful Life 10 yearsarrow_forwardThe company's interest rate (MARR) is 12%. Which extruder should the Styrofoam Company choose? Use Annual Cash Flow Analysis. Given a MARR of 10%, use incremental analysis to determine which of the following alternatives should be selected (if any). Each has an expected life of ten years. Plan 1 2 3 4 Null First Cost $220,000 $100,000 $265,000 $180,000 $0 Annual Benefit 39,000 15,000 51,000 26,000arrow_forwardP8) Consider the cash flow given below. MARR = 10% Time 0 Cash flow -500 3 4 5 6 320 120 -150 1 2 320 120 -150 a. Find the undiscounted payback period. b. Find the discounted payback period. 7 320 8 9 -150 120 10 11 220 220arrow_forward
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