Faculty of Engineering

Department : Building and Construction Engineering

Course : Engineering Economy
Course Code : ENG233

Exercise 6

1. A company purchased a piece of equipment 3 years ago with an initial value of

LE15,000, salvage value of LE3,000, annual operating cost of LE2,000, and estimated
life of 10 years. Calculate the book value of the machine now using the straight-line,
sum-of years digits and sinking fund depreciation method. Assume interest rate 10%.

2. A backhoe will be purchased for a cost of LE109,750. After a useful life of 5 years, it is
assumed the equipment will be sold for LE35,000. Assume interest of 8% for borrowing
money, 4% for risk and 2% for taxes, insurance and storage. Calculate the annual
ownership cost and the cost per hour assuming the equipment will be used 1800 hr/year.

3. Calculate the ownership cost per hour for a dump truck powered by a 120-hp gasoline
engine based on the following data:
- Purchase price = LE175,000
- Freight charges = LE2,000
- Estimated salvage value = LE57,500
- Operation factor = 40%
- Useful life = 5 years
- Hours used per year = 1800
- Maintenance and repair = 130% of annual depreciation
- Tire cost = LE5,000
- Tire life = 4,000 hours
- Maintenance and repairs (tires) = 15% of tire depreciation
- Gasoline fuel price =LE4.0/gallon
- Fuel consumption = 0.06 gallon/hp/hr
- Lube oil cost = 10% of fuel
- Interest rate (i) = 10%

Engineering Economy Dr. Emad Elbeltagi

 4. When studying the different alternative air conditioning systems for a building, there
were two available systems with their information as shown in the table below. It is
required to calculate the decision of selecting any of the two systems to if the interest rate
ranges from 8% to 15%. Use the EUAW method.

Alternative A B
Initial cost LE100,000 LE150,000
Annual costs LE2,000 LE1,500
Salvage value LE5,000 LE10,000
Maintenance at mid-age LE20,000 -
Age (years) 8 12

5. Find the breakeven point for the following two alternatives. Assume that the investment
rate is 10%. Which one do you select if the expected production is 2000 m3/year?

Alternative Equipment A Equipment B

Initial cost LE23,000 LE8,000
Maintenance cost/year LE3,500 LE1,500
Salvage value LE4,000 -
Labor cost/hr LE12 24
Age (years) 10 5
Production (m3/hr) 8 6

Engineering Economy Dr. Emad Elbeltagi