Department of Mechanical Engineering

Engineering Economics (Fall-2019)

Assignment # 4
Due Date: 04-11-19 (For Section A & C) 05-11-2019 for Section B

Note:
1- Draw diagrams to explain the system where necessary.
2- Do the assignment by hand.
3- Late assignments will not be accepted.

Q-1 The tabulation of the incremental cash flows between alternatives A and B is
shown on the next page. Alternative A has a 3-year life and alternative B a 6-year life. If
neither alternative has a salvage value, what is (a) the first cost of alternative
A and (b) the fi rst cost of alternative B?

Q-2 Chem-Tex Chemical is considering two additives for improving the dry-weather
stability of its lowcost acrylic paint. Additive A has a fi rst cost of $110,000 and an
annual operating cost of $60,000. Additive B has a first cost of $175,000 and an annual
operating cost of $35,000. If the company uses a 3-year recovery period for paint
products and a MARR of 20% per year, which process is economically favored? Use an
incremental ROR analysis

Q-3 Hewett Electronics manufactures amplified pressure transducers. It must decide

between two machines for a finishing operation. Select one for them on the basis of AW-
based rate of return analysis. The company’s MARR is 18% per year.

Q-4 A WiMAX wireless network integrated with a satellite network can provide
connectivity to any location within 10 km of the base station. The number of sectors per
base station can be varied to increase the bandwidth. An independent cable operator is
considering three bandwidth alternatives. Assume a life of 20 years and a MARR of 10%
per year to determine which alternative is best using an incremental rate of return
analysis.

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Q-5 The five alternatives shown here are being evaluated by the rate of return method.

(a) If the alternatives are mutually exclusive and the MARR is 26% per year, which
alternative should be selected?
(b) If the alternatives are mutually exclusive and the MARR is 15% per year, which
alternative should be selected?
(c) If the alternatives are independent and the MARR is 15% per year, which
alternative(s) should be selected?

Q-6 From the following estimates, determine the B/C ratio for a project that has a 20-
year life. Use an interest rate of 8% per year.

Q-7 Calculate the B/C ratio for the following cash flow estimates at a discount rate of
7% per year

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Q-8 A project had a staged investment distributed over the 6-year contract period. For
the cash flows shown (next page) and an interest rate of 10% per year, determine the
profitability index and determine if the project was economically justified.

Q-9 The two alternatives shown are under consideration for improving security at a
county jail in Travis County, New York. Determine which one should be selected, based
on a B/C analysis, an interest rate of 7% per year and a 10-year study period.

Q-10 A project to control flooding from rare, but sometimes heavy rainfalls in the arid
southwest will have the cash fl ows shown below. Determine which project should be
selected on the basis of a B/C analysis at i 8% per year and a 20-year study period.

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