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1-2

(a) Yes. The choice of an engine has important money consequences, so it

would be suitable for engineering economic analysis.

(b) Yes. Important economic and social consequences. Some might argue that the

social consequences are more important than the economics.

(c) ? Probably there are a variety of considerations much more important than the

economics.

(d) No. Picking a career on an economic basis sounds terrible.

(e) No. Picking a wife on an economic basis sounds even worse.

1-18

(a) Maximize the difference between output and input.

(b) Minimize input.

(c) Maximize the difference between output and input.

(d) Minimize input.

1-25

“In decision making the model is mathematical.”

1-26

The situation is an example of the failure of a low-cost item that may have major

consequences in a production situation. While there are alternatives available, one

appears so obvious that that foreman discarded the rest and asks to proceed with

the replacement.

One could argue that the foreman, or the plant manager, or both are making

decisions. There is no single “right” answer to this problem.

1-59

Saving = 2 [$185.00 + (2 × 90 miles) ($0.60/mile)] = $586.00/week

2-2

(a) 500 parts

Average cost = $13

Marginal cost = $13

(b) 1500 parts

Average cost = ((1000)($13) + (500)($12)) / 1500 = $ 12.67

Marginal cost = $12

(c) 2500 parts

Average cost = ((1000)($13) + (1500)($12)) / 2500 = $12.40

Marginal cost = $12

(d) 3500 parts

Average cost = ((1000)($13) + (2000)($12) + 500($11)) / 3500 = $12.14

Marginal cost = $11

10 − $197 = $59.000) (0. the cost.50) + $24 + $110 = $165.50) = $1.10 = $556.20 = 12.000 batch: 1.0 = $1.01) = 100 are scrapped in mfg.000 .10 (b) Overall Batch Cost = $197 (10.0 = 3.655.10 per map 2-12 x = units/year By hand = Painting Machine $1.000 (h) Average Cost @ 3.0 = $1.20x x = $15. each should be judged in terms of value to the homeowner vs.7/3.0) + 5.000 + 0. The student can visually verify this from the figure.900 (d) Variable Costs (II) = 0.90 per map Marginal Cost (II) = $0.167 units 2-22 This is an example of a “sunk cost. On this basis the stock plan house appears to be the preferred alternative.000 + $0. (10.000 − 589) $59.000 − 100) (0.10 or = Unit Sales Price − Unit Cost = $197 (1.3/3.000 (c) Variable Costs (I) = 0.000 (c) Of the 10. (10.000 (g) System II is recommended if the annual need for maps is >5.” The $7. of maps dispensed per year (a) Fixed Cost (I) = $1.1) (3.9) (3. 2-36 (a) Unit Profit = $197 (0.100 (e) Set Total Cost (I) = Total Cost (II) $1.000) = $1.10 (d) Unit Cost = 63 ($0.90 x = $5.0 = 5. Since either home is really an individual plan selected by the homeowner. 2.77 per map Marginal Cost is the variable cost for each alternative.23 per map TC(II) = (0.000 + 0.02) = 192 of sold product are not returned Total = 589 of original batch are not sold for profit Overall Batch Profit = (10.500 units 12.40 x = $15.000 maps dispensed per year.30)= $59.000 (b) Fixed Cost (II) = $5.000 is a past cost and should not be allowed to alter a subsequent decision unless there is some real or perceived effect. (9.900 − 297) (0.500 / 3 = 4. (f) System I is recommended if the annual need for maps is <5. thus: Marginal Cost (I) = $0.000 maps: TC(I) = (0.3) − $197 = $256.970.0) + 1.000 (165.50 Batch Cost with Contract = 10.10 x thus x = 5.2-6 x = no.190.000/1.03) = 297 of finished product go unsold 3.

50) ($3.75)/log (2.15) Total 2-49 T (25) = 0.5 Overhaul 0 0 0 0 −5 0 0 0 3-2 $2.442 $11.000 = $315.5 −2.000 (0.20/unit Material Cost = ($43.892 Trade-In Value $3.22 (250) = $291 (12/3)0.841 (1.582 (c) n = 20.000 (0.20/units) = $1.0)) = 0.00 2.5 −2.06)n.00 6.60/unit Total Mfg.5 −2.5/0.10)−5 = $150.5 −2.970.000) = $6.600 3-16 F = P (1 + i)n Solve for P: P = F/(1 + i)n P = F (1 + i)−n P = $150.75/unit Overhead Cost = (0.31/unit Unit Selling Price = $7.000 − $1. F = $3.00 Capital Costs −20 0 0 0 0 0 0 2 O&M 0 −2.75)0.000 SungSam can afford to pay up to $315. i.000 for the contract.10 × 3) = $2.BC with contract = $1.500) = $4. (a) n = 5.135 3-18 Use F = P (F/P.Difference in Batch Cost: = BC without contract.15) $3.012 . Cost = $6.20) ($6.80 (3.86/unit 2-53 Year 0.5 −2.6209) = $93.00 7. F = $6.414 (d) n = 50.316 = $254 = $6. n) = P (1 + i)n = 2000 (1 + 0.15) $250 (0.00 5.16 hr/unit) = $3.55/unit Profit = (0.55/unit) = $1.000 + $2. F = $36.676 (b) n = 10.000 (0.6 (3.655.00 1.000 (1 + 0. F = $2.60 (25log (0.00 4.75/25 units) = $1.16 hours/unit Labor Cost = ($20/hr) (0.00 3.500 (0.5 −2.840 = Net Cost = $4. 2-41 Equipment Varnish Bath Power Scraper Paint Booth Cost of New Equipment minus (75/50)0.

120.10797 = 10.80% .000/$9.120) = $1.01)12 = $1. 4) (1) Q10 = P (F/P.604 3-22 Use F = P (F/P.000 (1.0526 = 5.08) = 25 years 3-31 Calculator Solution 1% per month F = $1.83 Compound interest table solution 1% per month F = $1.848)/log(1.000.14% 3-40 Effective Interest Rate = (1 + i)m − 1 = (1.00 12% per year F = $1.12)1 = $1. F = $10. F = $678. 10) (2) Since P is between and Q6 is not.08)n .316)/log(1.26% Nominal Interest Rate = 5.500.0175)12 − 1 = 0. 5%.36)/log(1. n = log(2.127.1255 = 12.2314 = 23. n = log(4.120.72)/log(1.08) = 4 years (b) F = 2720.126.000 (1.0526 i = .08) = 13 years (c) F = 4316.127) = $1.00 Savings in interest = $6. i = ?. 5%.52% Effective Interest Rate = (1 + .00 3-37 Either: Q10 = Q6 (F/P.83 12% per year F = $1.03)4 − 1 = 0.000 (1 + 0.00 Savings in interest = $7. n = log(6.55% 3-46 P = $9. 8%. solve Equation (2). Q10 = $60 (1.500 = 1.629) = $97. (a) F = 1360. n) = 1000 (1 + 0. n = 1 six-month interest period F = P (1 + i) (1 + i) = F/P = $10.000 (1 + 0.74 3-39 Effective Interest Rate = (1 + 0.(e) n = 100.26% (2) = 10.0526)2 − 1 = 0. n = log(1.08) = 19 years (d) F = 6848.

14% 4-60 Present worth of gradient series: P = $100 (P/G. 10) (F/P. 4) = $100 (4. 5) = $100 (1.2155) = $94. 8%.000 − $27.312) + $40 (4. 60) = $3.8573) = $386.578.469) = $42. 4) P' = $80 (3. 4) + $40 (P/G.549) (1.749) = $35. 3) = $100 (3.51 J = $400.61 4-83 . 2) = $331 (1. 3) = $400.512 − $27.40 4-8 F = $2.4021) = $161. 2) = $450. 10%. 8%.955) = $21.611) = $161.622 i too low i = 15% $1. 8%.304) (1.310) = $331 P’ = $331 (F/P.574) = $27.000 By trial and error: Try i = 12% $1.378) = $437.10 4-7 P = $3. i%. 8%.96 + 186 = 450.35 4-71 Assuming end of year payment for maintenance costs: P' = $80 (P/A.80 (A/F.96 (0.210) = $400.51 (A/P. 10%.05 Alternate Solution: One may observe that J is equivalent to the future worth of $100 after five interest periods.560 4-46 FW = FW $1000 (F/A.512 i too high Using Interpolation: i = 12% + 3% (($28.000 (14. 8%.622)) = 12.80 D = $437. or: J = $100 (F/P. 4) = $437.000 (20.487) (1. 10%.96 P = P' (P/F.51 (0. 5) = $2. 10%.000 + $480 (P/A. 10)(F/P.000 (17. 4) = $28.80 (0. i%. 10%.000(F/A.622)/($35.4-2 F = $100 (F/A. 10%.650) = 264.000 + $480 (44. 1%.

57 (1. 1. X. 0) = $2.10)15 (1+0.446) = $717.286.500 (A/P.371.889. 10%. 60) = $635 (b) $635 = $24.5%. we must first solve for P and then F.50 $1.000 (P/G.818 F = P (F/P. 15) + 5.00 (1.00 (F/P.13% 4-101 (a) r = I x m = (1. 1) = $2.08)−1 = $8. i%.333 (1.99 (F/P.(a) P = 50. 10%.07 – 0. 7%.040. P = ? n = 6 i = 10% g = 8% P = A1(P/A.333 F = P (F/P.328.54% ia = (1 + 0.000) (52. 10%.0154)12 – 1 = 20.100) = $2. g%.0125)12 – 1 = 16.07 (b) Here. n) = $7.620. 4) = $1.331) = $2. g%.500 (6) (1.72 $1.25%) (12) = 15% (b) ia = (1 + 0.68 $1.500.60 (F/P. i% = g%.712 4-90 (a) Since the book only gives a geometric gradient to present worth factor.38 $2. i%.818 (F/P.500 (5.464) = $2.80 $2.00 (1.08)] = 5.212) = $7. i%.08)6 (1. 10%. 10%.852. 7%.08% .73 (F/P. 6) = $8.898. n) = [(1 − (1 + g)n (1 + i)−n)/(i − g)] = [(1 − (1.224 4-99 (a) A = P (A/P. 60) 635 / 24500 = 0.07)-15 --------------------------------------------0. 10%.620.587) = $13. 15) = 50.210) = $2. hence the geometric gradient to present worth equation is P = A1 n (1 + i)−1 = $1.853 As a check.10 = $856.000 (P/A.203.749.73 (1.611) = $2.413. 15) = 50.000 1 – (1+0. 7%.99 (1.0259 ~ 1. 2) = $1.630 (b) P = 50.244.10 − 0. 5) = $1500. 6) = $13.212 P = $1.203. solve with single payment factors: $1.040. n) (P/A.203.60 (1.00 (F/P.108) + (5. 3) = $1. 8%.99 Total Amount = $13. 10%. 10%.749.000 (9.000 (P/A.10)−6)/(0.000) = $2.57 (F/P.

1.000 [(1.25%. 32) = $3.363 . 2.0252(1.000 (21.0252)32 – 1]/[0.7878) = $65.52% Compute the present worth of the 32 quarterly payments: P = A (P/A.© A = $10.000 (A/P.0278) = $278 4-111 Compute the effective interest rate per quarterly payment period: iqtr = (1 + 0.000 (0. 48) = $10.0252 = 2.10/12)3 – 1 = 0.0252)32] = $3.52%.

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