ENGINEERING ECONOMY, LELAND BLANK * ANTHONY TARQUINSolutions to end-of-chapter problems Engineering Economy, 7° edition Loland Blank and Anthony Tarquin Chapter 5 Present Worth Analysis ‘3. Mutually exclusive alternatives accomplish the same thing. Therefore, aly one isto be selected, 2 they ae compared against cach othe. Independent projecs accomplish clilerent things. Taetefore, none, ene. more than one, crall of them can be selected. they fareonly compated agains the doting aber native ‘52 (a) The doneting shnstve means thatthe stam quo should ho mass. Tha 6 IF none of the allematives under consideration ae econceicallystactiveallof therm shoaldbe rejected, (6) Do-nothing isnot an eplion when te alternatives being evahastel are east akematves, which meats tat one of thn mus. be seloted. ‘53. (a) Number of aernatives= 2" = 16 (b)Poxsiities: DN, WX, ¥,Z, WX, WY, WZ, XY, XZ, YZ, WXY, WXZ, WZ, XY7, WxYZ ‘54 Revenue aleratves have cash inflows and outflows, while cst alternatives have only S85 Equal sere means that alternatives must provide service forthe same period of time, and therefore, end at me same time, ‘56 Equal sonice can be satisfied by using a specified planning period cy using the least common multiple betacen the lives ofthe dicentives BT PWraome = 304 (14~ 5\PIAION 5) + 20PF10%.5) 593.7908) 200.209) 3389 (3.99,00) PWonea 2yPIA. 1085) 23.7908) 170 ($4,170,000) Selec l-bouse praducion. SB PW =-41,900-28,000(F/A,10%4) :009)— 28,013,169) ‘S130057Select Machine B 59 (a) PWy =15,000- D000(P/A. 24.5) + 2000P/F 126.5) {000 - 900043.6048) + 2000105674) $46.08 Wy =-38,000- TOODIP/A,12%.5) + 20.0000F, 12%) 59.000 ~ 700013, 6048) + 20,000.0.5573) S880 ‘Solect Matetat X (b) Letfius cot of Y be Xy. Set PWy = 46,308 46 308 = -Xy - 7000 P/A.12% 5) + 20.0001 F 129.5) = -Xy- 7001. 6048) + 2000040.5674) 32.422 Selec Y itn cnet = 832422 ‘8.10 Find P, foreach stock and solect higher one Pav = 30,0001 — [1 + 006,41 + 0.08)P)1008- 0.06), ‘Ss133839 Pay =20,000(1 [U1 40,1211 +0.08)1 (008-0. 99.710) Select Clas A stook 11 PW = 952,000. 1,300,000 -126,000(P/A 67.50), 982,000 -1300,000 -126000(15.7519) =3-4234,000 Wa = 1366000) -9000(151.18)- 340.000 -81,500+ S00.000P/F.6%.5) 3,612,120 + 50010-7873) 234470 Select Plan BISO(PIAST. 12) 30019 5851) 14078 37000) 400000 .45,12) 004 +4000 0.62%) #513502 Donat install conrazatet pipe S13 PW =-133,000 300010 108,30), 155,000 - 300019.4269) 193281 PWan = $210,000 ast the 250 man pipe SU PWosene = -BIDD-(650+ SOOKP/A.1D%.5) 000 (14809379038) = 513407 PWuy =~ (100 + 1900407. 108 5) 2500)3.7908) = 5:10.993, ‘Ade dry chlorine BS PW = 35.00 + 15 000 PROTSH50) 35,000 + 15 000(0.6387) 525,20 1500 -349(P/A.075%00) 150) Mo(a8 1734), SAN3I3 Select the Nissan Leaf S16 In $ millon unis, PW 15 ~220PIA.15%.50)— 30M 13%.25) 215 ~3216.6605)—3010.0304), FSH 5.302.450)We, =-250~ 287A,15%.50)— TOP 15% 13) — 216.6615) 100.0302) 305489 (S.365,489,000) Seloc land route by a PW muginof ony $3 milion S17 PW, = 40.0001 (PIE10%.2) + (PH.10%,4) + (PAP 10%,6)}—9000P/A.109%,8) = 40.0000 [1 +0824 + 0.6830. 0.5645] ~ 900015 3345) S057 PW =-80000(1 + (P/F 10% 4) — 600A. 10% 8 = S00U0|1 +0.6830) - 400053319) $156 649 We =-120,000 - 4000187, 104.8) + 12.000,PIF10%.8) 30.60 4000.5.3348) + 1200004665) 25-145. Select Mat C S18 PW, = $1000 000 550000001A.105.10) 5.000.000 -$'50).000(5. 146) =$:8,795300 5:10,.000 ~25,000,000(P/F. 10% 2) ~ 30000, 000,PYF.10%.7), 5,08) ~ 25,08, 8264) -30.000.00105192) 41055000 Select Plan A 5.19 a) PWx = 250,000 — 6, 0000/4, 10% 6) -180,000(P/F 10%,3) + 70,00007F 10%,6) "= 251,000 60,000(43553)-180,000(07513) + 76.00005635) $607.37 PW = 450,000 = 0, 0000P/A. 10,6) + 95,DO1RAF 1089) 13 0 — 1, 000643553) + 95 000.5645) SSSUSHS Select Machine ¥( Spreadhcet solution 5.20 Sotho PWs elation aqual to $3316, and solve forthe fist cost Xs (a positive number) ‘with wpachase in year 51a $1 milion unis, 3316 = XL + PH 2%5)) + P.12%.10) .SOTHX: “1 945.6502) + 0.085% 9AP/A,12%,10) + OOSNS[PIF.129%-5) 152295 =-10.9514 433.16 Xs 14.576 ($14,576,000) Select seawater option for ny first cost <$14.576 million S21. PW) =-26.000~ SOOUIP/A10%.6)-26,0000PF.10%3) 2,009 500014 3554) - 250000.7513) $81,310 3.000 4OU/A 10,6) 250KPIF.106.3) 88,000 - 1400(43853)- 2800(0.7513) = 8.90976 Select Pn 1 ‘522 Compare PW of coats over 30 yeas €,90)(110)(3,560) - 0.90). 10,3560) + 50000] PIF.8%,15) 431244 [4.312.140 + 500,000)0.3152) $5,892 PWren 2.204 110483.560) =S-10541.520 PWrateent Select plastic hner290(P/A.8%.50) 2991122535) 2OUPIA 86:50) 20/6; 85,50) 290(12.2335) -20(139.5028) 286240 Fan Y made the fr beter dead (unless fan X's seuts are much beter) (o) Let Mc = mortgage” cos for fan X for equivalence of plans 5340 = Mg 290/4.8%,50) 1M, =4)-290(123835) =s22 Fan X sheuld pay only $2792, net $130,000, '824 (0) PWions =-150,090 85 0901P/A, 105% 6)~ 105.000.PF. 108.425.0000 10806) 130.090 - 85,00014.3583) - 108,000(0.75 13) + 2500005648) = S.608,528 900,000 — €,000(°YA. 10% 6) + 300,0001/F. 10% 6) 900,000~ 60,00014.3553) + 300,00040.5645) =5:991,958 PW = =120,0001P/A.10806) 120 00014 3583) S5226%5 Seles private disposal contact (o) Recaleulate PW far te contact sberative with 20% increases each 2 yeu. PWecsae = -12D001P/A.10%.2) 1200001 204PAA. 10% 2HPAF 108,29 120.0041 2A 0, 29,1 4) 11,000(.735)-144.000(1 7385 0.8264 -172,$00(1.7385)0.6830) =S-610515 Select land application the selection changed ‘525 (a) Use LCM of 12 years and sleet L ()) UsePW over ie of each altemative and sleet I, and with PW 5.526 FWy -£0.000(F/P.15%.3)~ 30,000TF/A.15%.3) + 40,000 1) 5299) ~ 30000034725) + 40,000 ASS887 Wy 7, D00E/P 15,3) -27,000(F/A. 154.3) + 80,000 97 000415200) "27,000(3.4728) + $0000 =S-101,285 Selec sobotX. £27 FW =-150, 0008/8, 1% 4) ~ 60,00018/4, 12% 4) 7 CON1FP.12%.2)+ 80.000 = 750,000) 1.5735) - 6000(4.793) 650,000(1 2544) + 80,000, $2200331 FWe = 350,000 (F129 4) -25,000(F7A 12% 4) 90,0004? 12%.2) + 120000 1/350,00041.5735) ~25.60014.7793) - 99.0001 2544) + 120600 =32.236,508 Select proces. hy 3 small margin of only $9273 in FW. 528 FWp = 23.000(F.8%6) _ 4000/A.8%,6) 20,000.F/. 86.3) +3000 23,000 86D) -4000,7.3359) ~ DUC 2597) +3000 = 598,036 FWo DOOUFIP 8%.6)- 25001F/A.8%.6) + 1000 KK 859) ~2500.7.5359) + 1000 soasa7 Select altinstive Q 829 FW =-1,600,000(8/,12%.8) - 70,0007 12,8) ~ 1,200,0001FP.124%4) + 400,000 ‘=. 60,0002 434) 70,090(12.2997) —1200,00(1.5735) + 400.000 36310780 Fw, 2.100, 00058.129%-8)~ S0.KOUFIA 129.8) - SODDUPAG, 1296.8 URI 2568) 10,000.44) ~ 50,000 12.2097) ~ 300014 4714)2.4360) $392207 Select system L ‘530 FWous =-1.300.0000F"P.10%.5) 100.000, 000(87P 107.4) 1.300,00041.6105)— 16,000,000(1.4641) =S1a8s03650)FW eu =-1.300.000(°/P 107.6) - 100,000,000 1 300.000.7716) 108,000.00 =S1.305080, Difference = 148,503 650 - 10,303,080 '$46200,570 higher cost forold contact) 831. €C= 100000008 \(PF.8%5) 1.250,000(0.6806) Sau070) 532) C= 10 00UA 365/003 10,000(0.18835)/003 62783 o (.000AMF 8% 5.0.08 = -10,000(0.7 046008; 521.508 {¢) Whoa money ezms atthe lower 3% rt, itis mavestay to stat with more 533 cC. 00000 - 35,0000) 12 75.000.A/F.12%,5 0.12 = 300,000 - 291.667 — 75 000(0.15741 0.12 690088 5.4. USC widenily he contractor option (a) €Ce=-Smitiowo.t2 41.67 milion otwoen the thc options let the contactor {b) FindP, snd of the geometicsrckent(g = 2%), then CC. P, = 50000001 - 4.027112)" 40.12 002) 00000019.5959), 24,53 lion A=D(AP.12¢50) = 48.53 milion 0.12022) $5.96 milkon por year (ce=Ai = -596 million .12 =$40.70 milion Now, sleet groundwater (CC%y=S-48.01) source by arebsivoly small magi‘535 For M, ist find AW an Uien divide by to fine CC. AW y=S0.00014/%. 10% 3)~ 50.0004 SOODUAVE. 10% 3) 154) 08010.26380) ~ 50,00 + ROUUD 16380) 38.260 CC = 38.2600.10 5 5882.600 (€C= - 800,000 — 12,0001010, ‘3920007 Select ecnstive M 536.0 100/0.10- $000:A/F 10% 490.10 1000.10 ~ S44 21547y0.10 2820774 837 CC=(-410000.08)0PF.87.11) (-1,0000.08(04289) =s2i4450 538 CC=-15000 - 5000.06 20,0000 65.2) 150.000 ~ 5000.06 ~20,000(0 8500) 28251133 539 Answer iste) 540 Answeris (a) SAL Answers) SA2 Answerise) Sa3 FW 28,00 FF 8% 6) -20,D90IEYP 8,3) 4,000,856) + 5000 DOI. S868) 20,0001. 2597) «00017 3359) + 5000 S-88.036 ‘Answer is (a) 1. 000(P/A.10%.15) — 200000.101PF.10%.15) 50.00 — 10,00007 e061) ~ 20.0000.1040.2394) =suaa, Answer is(6)S45 CC= (-4020000.10(P.10%.4) 41,0000. 10406830), = 8273200 Aner ist) BAG Answeris(b) SAT Answeris(b) S48 Answerit) 549 Answeris 8 PWy = -95,000~15,0000P/A, 109.4) + 30,000 105.4) $5.00 18.0003, 1698) + 30,000,0.5830) =5:122.059 Answer 60>) 551 CC=10,000 [10,000.48 10%5)/0.10 14000 [10,0000.16380 0.10 =$ 390 Answer is(e) [582 CC=-11,000 -3000.F/4,10%,5) - LOOK 1ONPAE 105.9) 10,00 500013.7908) -(104.1090.6208) 35.163 Answer is(b) 10Solution to Case Study, Chapter 5 ‘There int alveysadeintve name to case study cxrciss, Hee a example respontes COMPARING SOCIAL SECURITY BENEFITS 1. Tot payment are shawn nro 30 ofthe spends 2 Faure wont alsa 6% pat yearare shown nso 29. lee Pena. Pans Pane Pon Seg races] taal ace rar pe ae “| os EY Lear 5 “8 tml ax x0] Rim gi fe of fsun| so eae oem gh & ia| itm ien| me. sa] im ee ae 8 Shae| Stan an| me: hn| im bala, sof ias| aw Pere] ne: Btw] Bm ef roe| itm een] me: | Bm tr 24 2ime| ta jate| mw: tol oy Sa Bao fie| Xa tare] Bm! ate] Bm uaa, se ¢ Bu| ha se| me! em] Bm mar ze 3 Gin| Xam devi] mm! sia] Bio tau hes fase Aan Sve] Aye: eta] mI peo? io tml ame ean] i = a a | 3 ra Pacis ‘a3 ae se n3. Ps of FW values by year ae shown inthe ty seater) graph below. Fume Were $1,000 etseteese Age yoor 4, Develop feasine plane For the couple and use the sumined EW values to detnmine whic isthe largest Spouse Spouse #2__W. « ‘A 170704 A B 1663982 a © 1617716 8 B 162080 B © ismass B D 1671308 © © issias »Solutions to end-of-chapter problems Engineering Economy, 7° edition Leland Blank and Anthony Tarquin Chapter 6 Annual Worth Analysis G1. Muliply by (MP.sén), where nis oqual tho LCM or stated study patio, (62 Thice assumptions in the AW method are (1) The services provided ae nee fora eas tbe LCM of the lives ofthe ateratves ino {@) The vlacted atemative will he repeated in succeeding life cycles {G) Alleah Flows will be th same in all stceceding ite cycles, whieh mesn that they will ange only by the inflation or deflation ae, 6.3 The AW cvcrone lie eye of each atterative can be use to compe them because thei AW values forall succeeding life cycles wil have exavly the same valueas the fis. SOOKA/P, 10% 3) -25 + 10001. 10%,3) = 5040120211) 25-4 10001030211) Ws 64 AW. AWy: {000(WP.10%,6) -25 -000,PIF10%,3)(AP.10%.5) + 1000.AIR.10%,6) -$00K0-22961) 25 ~40000.7513)0.23961) + 1000(0.12961), SAT 36 [AW values re the same: sight ciference duo round-0t 6s AW, 20000-1054) 1.00010.31587 1748 12000 + 40018, 10% 4) 12.000 + 400040.21527) 17.448 =-20.000(MP. 107.6) ~ 12.000 - (20.000 - 4000). 10% 4 VAP. 10%6) + SAME. 10%.6) 9.000 22951) ++ 81012861) £00 «(20,01 = 400040,68300.22961) (0.129618 $5338 12.756 66 AW =-1310000P 85.90) 290 13014008173) = 290 S-10916 per yer67 Find PW and convert AW PW =-15,000-15,00018/A. 8% 9)- 290(F1A.895.9 515,000 = 13, 00062469) - 290122333) ‘$97957 AW = 97.751 NPS'50) =97.75H 008174) $7991 pe yeat G8. AW =-11000(A/P.8%,8) — 1,300 S600 PASAKATP IS) +45, 0000. 85.8) ‘= 115 000(0.17401) - 10.500 - 36000.7350)0.17201) + 45,000(048401) $2674 per year 69 AW = 20001P/F 8% S)AVP. 8% 8) — SOF. 82), 2000(0-6806(0.17401) ~ 8000 48077) 6.10 (9) CR=-283 0004/7. 125510) + 50,0001. 12°% 10) 285,000(0 17688) + 50,0000.0860) $847 500paryew Ar revenue of $52,000 per yew; yes, heed (b) AW=-285.000(4/8. 12%. 100+ SOOD0.AIF.12%.10) +52.000- 10.000 10001135, 10) 285, 00010 17688) + 0,000,036) + 42,000- 1000133847) 5-9.175 per year AW wat negative G11 (a) CR=-S0QOOHAVP 8 20) + (09)500000MF 87.20) 400,000(0 10185) + 450,000(0.02185) $441,003 per year (6) 41,098 501, 000(A/P 8% 10) - SCAN 10) 500, 000H0.14903) - S063) §= (74515 - 41,093 )0.00603) = S48 166 Sales rice must beat east 96.8% of purchase price 10 years eae. 12 eR. Sik DOO(AIP 23% 5) 4.75 DOOUAIE 24%6,5) TS1OULKO.36198) +75,000(0 12225) $-263.800 por year(Cash flow diagzams we shown het (CR = $263,868 per yea Capital recovery MRI purchase and sale -75Q00¢A!P 10% 4) ~ 32.00 + 9000(AF.10%4) 75,0000, 31347) = 32,000-4 9D0H0.215347) 855.721 AWy =-HODUNAIP 1054) 24,000 + 1DOUUVE ID 4) 140,000(0.31847)~ 24,000 + 19.00000.21547) =S.64072 Use Method X 614 AWp =[-52,780- 2200 4 7500 + 0.512200] 10.10%.) +040(52,780)F 1053) (26.340 (0.4011) + 15,112030211) 8.6646 Wiens =-2500(A/P.108.3)- £200 2500(0:40211)~ 4200 5.205 ‘The company should lease the car G15 AWscgu= GOUAIP 10%) 6OOUPIA 10 3)A0P 10664) = 6000, 031547) 600024865)(0.1547) =5-6000 AWine= 22, 000(A/P 1084) 220000031547) 6.980 Buy the single-user license616 AWpmunoe= 3.800.000:4/-65.20) 5,800,00010.0871 8) “The city should lease the restrooms 617 (a) AWse=-16,60014, 10%) — 2400 1 60810 26580) = 2400) S677 par year AW,2e= 31. 000(4/P 108.5) — 1600 "= 31,000(026380)~ 1000 S9178per year Use he solr eels Pind 25340) - 1000 Pie =S21.906 G18 AW yy =-33000,A/P 10%,3) — 80004 SO001AMF10%.3) 3,000, 0.40211) $0004 40000.50211) 200061 AW = 51 O00( AP. 10%.6) 3500+ 11, D0HA/P.105,6) 51,000(0.22961)~ 3800 + 11,000(0.12562) 137 Select he UE system 619a)—AWye= $S.000/MP 8%) 30.0004 4000.83) = §5,000(0.38803) - 36,000 + 40,0000. 30803) = 550.61 AW wh = 125 000(A/P 84.5) ~27.000 + 33 000(A/F.8%.5) 125.000(025046) ~ 27.000 + 33,0000.17046) 552602 Sele robot osboy(©) Spreabsheet ant Goal Seck indicate that Watcheye's fist cost must bes $-116,935, zx 2 ec ‘Found wsing Goal Seok | 1 Year Joedoy _ watcneye when cell C9 was set egal 2{_ 9 =85,000 116,95 to cell BY at $50,662, aaa 30,000, 27,000 S Awars% 50,602 _-50,662 620 AW, = 250,000(AP 10% 3) — 4,000 + 20,00048.10%3) 350,600, 0.40211) ~ 40,000 + 200002021 1), 134.885 AWs =-370.500(A/P.10%5)~ 50.0004 30.000(/F.10%.5) 310 S001, 26384) 50,000-4 30,0040, 16380) S124 ‘Sloot Machine R 621 AW iy =-39,000(A9.1254)— [17,000 + 1200.A1G 126 4)] + 23.0000A/F 128.4) 38,000(0.32823) ~ 17,000 + 120041.3589}] + 23,000(0.20923) S.26658 39,0001 AP, 25) ~ [17,000 + 200(G. 126 5) + 18 000CAFE. 1265) 30,000(0.27741) [17,000 + 1200 1.7746}] + 18 0000.18741) $27,115 pe year Keep the loader for years (622 (0) CR ena = M0000. 10%) + 13,000.A1F.10%.5) 80,000(0 26380) + 13,0040. 16380), 18,075 per yest (CR jag =-62.000(NP.10%.5) + 2000(A/F 10%.5) = 2. 0440.26380) + 200(0.16380) = S-16.028 per year Capita recovery for Aut i ower by $2847 per year-80.0001ALP.10%5)~ [21,000 + $00(A/G,10%5)] + 13.000/A/F.10%.5) 50,009(0.26580) ~ [21,000 + S00UT B101)] + 1300440 1638) =S-40880 per year Pons == 2.000 21.0001 (14 068)40 + 0.10)F}40.10--0.08) + 2000AE,10%5) = 62,000 —21,000|4'3831) + 20000.16380) 2153718 0) AWsait S8A0P 108.9) 198, 71810 26380) = S-40'5Sipee year Wace Seloct Auto by ateatvely small margin 200,00040.10) ~ 100,000(VF. 109.7) 20000 - 100.0000. 10541) S041 per year 623 AW 624 AW = 5MI0.10) 2M, 10% 100.10) [(100.0004.10 (PI, 105 10)}0.10) SHM(.10)- 2M(D.5885)0.10) | 1OD.C00/0.1040.3855))0.10) “615,650 po year (625 First find PW for years I Ucush 10 atl convert w AW. [150,000(P/A. 105%) + 25 0C01FIG.10%.4) KPA, 1082) pw = 225,000F/A, 10% 4) PIF 10%. 8) [180,00013.1699) + 25.000(4.3781) 1108268), 225,000(3.1600 05648) = $196,009 626 AWeou = 25,000 407.1063) 9000 + 3000(MF.10%.3) = 28000(0-40211) 9000 + 3000(0.30211) = $18,146 per year AWram = =130000(0.10) -2500 15.300 pet year Seles the Towra systa7 AW 30,000,000(0.10)~ 50,000 - 1,000,000 Aa. 10%5) 30.40, 00010 10)~ $0,000 1,000.0000.16380) =5:5215.800 628 (2) AWy= 0.000(A/P.108.3) 40,0004 7000/VF 105.3) -90, 0004040211) ~ 46,000 + 70004030211) = S74.015, AWy= -400.000(/P.10%,10) -20,000 +25,000(/F.10%.10) 040 16275)~ 20.000 + 25.0040.06275) S88331 AW, =-6$0,000(0.10) 13,000. 8000008. 108.10) {650,40 10) — 13,090 -80000(0.46275) = 5-85.000, Select Aberative X (©) Geal Seok (right feat, row 2) fn the neque fst costs for Y =S-341,91 2 and Z-=S.500 364 by setng doth AW values to AW, =5.74,076 and soling (629 ‘The aterratives ate Al, A2, BL, HD and C. Use a4 sgn for eos AW u = (100,000+ [190,000 + 60,000P/A, 1059 P/F 1061) (NPD. 10) 100.9005 [190,000 + 60.0005.7590)](.9091)} (016275) 95511 Was = (200,000 190 000(P/A.10% 2455. 0004P/A, 10%. PAP.10% 21 |AVP.10%.10) 772,22710.16275) 125,680AW = (50000 (215.000 + 45.0000A.10%9].PH.10%.1) (AVP.10%.10) 451,085)(0.16279) 2875392 AW: = (1000004265 QOO(PiA, 10 2}+30,000(P/A, 106 8).PAE 10662) }(AVP.1O5.10) 692,170) 0.16275) = S112651 Selec kemative 51 {630 Firstfindshe present south ofall ois and then coavettto annual worth over 20 years PW =-6.6-35(PI.74,1) -2.(P/F7%,2) —9.1P/F 73) — 18.PE IEA) “2LGPIR I) -17PIA 75.5 NPIB.TGS) 1428/4 TR AONE T&.IOY 2 HPA TINK ILI 66 — 310.9556) ~ 210 8734) ~9,1(0.8163)~ [8:60.7629) - 21.60.7150) 14 1812¥0.7130) = 14.217 023690.3083)- 2.112.024 310.3160) 1s1.710.860, ‘Annual LCC =-151,710860(WP.7%.20) = -151,710.8600.09839) 1.319.988 per yeu {631 First finthe present wouh of all ots snd then convert 1 annual worth over 20 years PW. 26(PIR 6.1). 200612) 751 6%.3). LOOP 6%) GHPIE6. 5) — 136A 65615) DIE65) 3. 1PI6%.10) 32IPE 6.18) == 2608434) 210.8900) -7 500.8396) 10.00.7821) -6.3(0.7493) 1.36(9.712(07473)- 3.005884) 3.10383) =$.36,000921 Annus LOC =-s6000821.A/F.6%,20) ~36,000921008718) ‘S-3.138560 per year 632 Amnual LOC =-750,000(A0.64,20) -72,000-24.000 ~ 1SD.00K (PA 6 5) + PPG 10) + PIE 6%15)(NP6%20) 7500440 0871 8)- 72,000 - 24,000, = 150,00010.7473 + 0.5584 +0.4173}0.08718) 8.183807Anust LOC 12.000( 7.65.20) ~ 36.000 - 1900001008718) 36.000 = 12.000 5 5-145,998 Select Propotal B 633 PW = 250,000 —150,0000A,87,4) -45,000 -35,000(0%A 8.2) ~50.000(P/A,8.10)~ 30000(P1A8%.5) = 250,000 ~ 150,000(3.3121) — 45.000 ~35.600(1.7833), =30,00016,7101) = 30,000.39927) $41.309317 ‘Annual LEC 300 517A 86.10) 1300,5170.14908) = 5.195157 10,000 ~ 45,000 - 3.000(P/A, 81,3) ~80.000(8/A. 8.10) = 4000018743910) 10,090 = 45,090 - 39.0002, 5771) ~80,006.7101) - 49.0015 7101) 937.518 Annual LOC, )37S25.NP 810) = 937 325(0.14903) 5439719 Annual LCC =8-178000 Sols Atomative N 634 Answer 638 Answeris) 636 Answer isa 6.37 Answer is) 638 Answoris() 639 Answerit) 640 AW: 50,0004 67.15) 1100-000 = 550,00010.10295) +100.000 $9372 Answer is(b)GAL Answerit) 6642 ansuer sc 643 Ansneris tt) G44 Answeris(@) GAS. AW = 4C001A/F 154) ~ 5000 + 32.0000.15 7.4), 49 0010 33027) ~ 5000 + 32,0000.20027 126002 Answers (d) 646 AW =-51,000(0.12)— (20,0000.12)]7F 126,15) (012), 50.000(0.12)—[20,00010.12})0.18270.12) 25.9654 Answer is(0) GAT Answers) 10Solution to Case Study, Chapter 6 ‘There is nt avays a definitive mswer to cae study exercises, Here are example responses ‘THE CHANGING SCENE OF AN ANNUAL WORTH ANALYSIS 1. Spreadshoot and chat ae below, Revised costs and savings ate columns FH. n2 Incell G18, thenew AW = $17,904. Tis is only slightly larger than the PowsUp AW =S17.558, Select Lloy’s, butonly by a small margin. 3. New CR is $7173 (call B17), an increase fom $7025 previously dovermined »Solutions to end-of-chapter problems Engineering Economy, 7° edition Loland Blank and Anthony Tarquin Chapter 7 Rate of Return Analysis: One Project ‘74 (a) Thovotua would be 100%, ifthe entre initia investipeat Wore lost with ne vet. (by The rewma would be infinite if money were received and there was no unrecovered ane 22. mevest charged on prinetpat Antares principal = 1,0004403)(0.10) Ancerest charged on recovered balance: ‘Anu paymen 00,0004. 10%) {.ovo,p0040 40311) =5402,110 Inert, year 1 =1,000,000(0.10) 100,000 100.000 - 402.110 Inert year 2 Balance, oar 2 17.390 (1.10) 400.110 54550) ‘Total imrest pad = 100,000 + 69.780 4 36557 206.346 Differsce = 390.000 - 205.346 =S9n6s4 12% per yea, compounued quately7A Amun of each payment = 50,000 MP.10%.5) 50,0000 26580) S313 1% Uncovered blanco ster payment SOUOUEIP 100.3) 13,100(F/A.10%,3) 50,000(1.3810)13.1908.3100) 822891 TS (a) Payment = 50,000000110 + $0,000,0000.10) $10,000,009 per year (oy Total inerest paid = [5.000,000(0.10)10) = $50,000,000 Interest pais oqul to the original amount ofthe loan, 16 Profit = (24,112,054 -8432.3720015) = $7.899,841 6 WPA) 000.000 + 7839.8 NPFALS) as Findi fim equation, ble, or spreabsbec 1=69.19% (opeadsheet using RATE function) a o WIAs.10) 3.1 + (2X0 20P/A,.10) i500 Find which intcest table hae 7.7500 in PA cola a iis berwean 466 and 5 L=49% (spreadsheet equation, crtable imerpokuion) as = toxcanodns scr, (A 6 200= WRC KO, 10yPIA 58,20) 07 20085 Gpreaiteet RATE finckon or itemetation) 19 Han (0 =-3000~200(P/A,, 40/1) 901A, 3.5) + TOOKPIFS 8) By ual anc enor ad inepolition Thy 98:0 =-3000-20012,7232909924) -90(2.7281) 0.7885) + 70008768) 1027.10,1hy 10:0 =-3000 -20012.4848(0.9081) - 90(2.4869%0,5209) + 70010.4565) 315.60 1027.10 + 5) 1382.70 +379 =829% Spreulshect: Enter neteash ows in cells B2 though B10) and the function = IRRIB2BI() tp ciplay i= 899% 7A0 0-200 1000(P..2) (PIR42) =0.28571 Salve by equation or spreadsheet S7.1%per year (RATE n spreadsheet) AN =-17,.0004 2500187915) + 1D90UG 1.3) + ODF.) Solve fori by til andenororspeadshet i-n28 (spreadshect) 2% per month (RATE function en spreaéshees) TAS 1.064247 = 100424700..15) (PRLS) =0@285, ‘Solve fo by wil aniersor o sreveset 123.1% per year (preadibect) Ad 0 = 65220PIA\.A) + (87925 -35.220\P/AL3INPIRA) (0652207414) + 22705ND/A3 INPIE A) ‘Salve by tial and enor “Try 60% 1-295 908.4 259,4801= $6466 too low Ty T% 12209184 21707=-S3844 too high 85% per yeur (opreadihoot)TAS (a) Eifecvedivident mie = 5.3801 — «>» Dividend swings per year =53M0.055800.39) Fatal dividend savings = 997,99020) 19,959,800 (6) F=997 990(FIA 6% 20) =99799036.7856), ${67117 aillion 19 S1 millon unis, 0-100 - 40001) + 200/10) 02-140 +0710) (PIAj.10)= 7.000 rom and 8% tables ii lihlly over 7% ov per year (RATE fron on spreadsheet) ‘717 Spanding $60,000 now will sult in savings of $28,000 in yors (3 and 6 0 = 0,000 + 28000 + 28,000(0:8..3) + P16) 2,400 + 28 000)( IF .3) + PHP.) Soke fr by tal amd enor oe sprendibest 3.14 per year ‘ARR funtion on spesdshoet) AS Hand: $1 million wis, (= $00 + 1.8(0.)2500)P/P.,2) + 50041.8)0.9NP/ALS\PIPA.5) —104PIA,10) 0 500+ 4502) + SIOP/ALS PLS) - 1OPIAIO, Salve for by ma and error 142% per yearSpredsere lporvouns 79 3 years = 3152) = 156 necks 0. WA. 156) 546000) + CODIPIA L156) 50.0000 Solve fr by wind enor or space (oi = 189% por weok (RATE function on spreaahet) {) vominal at = 1.89482) = 98-39% per year 7.20 Hand: Fit the equivter valve of bath ses in year 10 0 4. c00 ov 0\FA 8,10) 27000 Solve fori by el andenor Try SH 0 = 4900000125779) + 270.0000 05 = 136884 too low {Dy 6% 0 = 4NQGOL. 1808) +270.000006= 772.32 toa 153% peryew“Spreadsheet: This sa good application of the Cal Seek tool Rests 20% per year Re beeebeseee | ij 721 Anencowentionl cash low series is one whan the sins en tenet cash flows change ‘more thar ance 722 NCF svicgs indicating oui ROR roots can oveu for + Large phase-out cos after a postive NCF series, c.g, environmental cleanup 1+ Large upgrade or senvestment in milf surounde by paskiveNNCF series 4+ Unexpected mids expenditure, e.p.,cnetime repair cost on ail Well equipment 723 Describe something that had a lange, possibly unexpected negative cash flow necestary to act ofit 724 Descartes rule of signs sates thatthe otal numberof reaaumber coo sequal to ec less ‘han the wnber of sign change in the net cash Nw series 725 (2) Four (5) One (6) Seven 726 According to Norstica’s criterion, thre is only one postive toot in arate ofr ‘equation when th cumulative cashflows (1) stat cut negatively, and (2) thesis enly one Sign change in them,727 ‘The net cas How changes signs four tes so there ae our possible {* values. 728 _Yew 1 yg NCES SS 8a “Tho sign changes, indicating tote arethvce possible i* values, 729 The act cash foe changes sgn thive mes and Nerstomn's criterions aohelp sathere are thyee posible values. 730 “ 2 4 4 NCES “and 50000002000 LO cunGeS a0 11,000, “300030001000, ‘Answer is $1000 731 (a) Yew __0 NCES a0 203 4 ss 380 ‘hares oly anechange in sgn inthe not cashflow: theres only one i Value (b) O= 20 2(PIRL 1) - 6PARL2) + 21(PARA3) + 30UPMELA) + 1IPIRLS) +40(EIFL 6) Solve fori by wil andertor or spreadsheet 33% ARR function en preadsheen 72 Pei Descartes’ re of signs: 2 signchanges [Norsttom's eierion: cevies starts porkive; no help ‘Thote are two positive rocts: 12.2% and 251.3%. Since both ate postive, neither is valid,733 (2) Plt shows totes at appronimately 35% and AP. (0) IRR nation Gow 11) displays 34.1% and 61.4% using guess wf 100% 10 get second value {c) Deseutes rule of signs: 2sign changes [Norstoms citerion: series starts postive; no help Since both routs ae poshve, technique ef nex section is necessary to find ene 190 However, with MARK = 30%, PW = S90 (spreadshee), Therere, use 34.1% as mst relate tts poi 734 ee (a) Descartet" sul of signs: 2sign changes NNowsiom"s ezrin: sores starts nogatve: 1 sign change ‘Those is one posive root {) IRR fonction finds iy =-11.4% and y= 17.9%. See spremlsiet for PW values fotser 17 Se a8 te contre738 Novsroar sittin preiets one postive ret. "The rates of OF and 31.6% are found, B5S535 55) 736 ‘The inveamet rate used when psive ner eas fleas ste generated in peat. The borrowing rte is use when negeve net csh lows ate gener i pee. ‘737 ‘The investment rat is usualy higher than the barowing rte bscause viable companies can iavestmoecy st «higher arate of rtum than the rate at which they borzow it Ht Hey can't, so that they wot bea basins very Long 738 Follow testes of the modified ROR procedure 32,.0008/8 1091) 25 00040, 107.2) 52,000(0:8081) 25,000(0-4268) 40751 Pw Ws = 16. CFP 18%) + TREC = 16,000(1.6830) + 70.000, 96.288 96 288 = 497910818) Use imtpotatin in factor ables rspesesheet find 1-286 peryear ——(aprashoct) 739 Hand: Plow thestes ofthe moditied ROR procedure 9008 - 2000487 8% 2) -70OD(PAE 83) QU - 20004018873) 7000-7988), 16.271 Pw$5) + 1200046, 15% 2) + 700KEP, 15%) 8D 142 011.4) + 12,000(1 3225) + 700(1.1800) + $00, 25.72 25722= 1627108.) (PPL 6 = 15808, Use berpotation in fasior mbes or syressheet 0 fd 2% por yout (preadibect) Spreadsheejwaction.Eotet NCF values (22:28) and = MIRR(B2:B8,8%15%) to dsplay 79% pr yet. 7.40 (a) ‘Thete are three changes in sgn on the net cashflow, so tere are three possible rate ‘of rerum ves, () PWo= SUAS) - SOOUPIA,8%,2) PIE 8-7) S000,4.6229) 3000(1.7833),0.5835), 28-4507 FWon= 52.0008/P 125.3) + 20.000 52,0001 4629) + 20000, S93035 45,3072, 10) =93.085 WEPPL 10) =20539 Use imemolation in factor abies cr spreadsheat to find Fe1S peeves ——qrextsheen 10yo 0 {2 tao sta Spar IN $6 a0 Se eee es) a5 am gm 5) am 0 5 use foe |e (dy The IRR function displays i° =3.78%. tis the sameas ROIC = 3.78% because the FW Value (column Cabuve) never becomes positive: heron. oaly the ROIC is used in the HF neti, The ROIC value is independent ofthe reinvestment re, i= 20Geand i J, Follow the steps of the modified ROR procadat, Wy 00,000 -30.000(P/F 9,3) 1.00 20°24 P20.) + 159 000(FIA.20%.7) 16,0002. 2000 4.2998) + 16,000(12.9159) 3580071 = 423.166 + 35800740IF 10) (PAR. n0= 04182 Soke hy formuls oF spreaheet 25.8% per year (sqreashoey n742 (a) Descines’ mle of sien: sion changes [Norstom’s criterion: seres starts negative: I sign change, therefore, one positive ret (>) D= 58 + 30PIR.L1) +84(PRI2)- IDPABA) DIR) Solve fori by trial and error spreadsheet. 8.6% per year (sprealsheet) A nepive wot of 56.0% \sdseate. () Apply ae investment procodure stops because the imesment rate j= 15 is mot equal to P ie of 2,05 pot yea Hard slation Sept Fu=-65 Foc 0: sei" SOMI4ED430 Fy O.uKe |" FQ 4)484 R50, use (5 must bo> 0, becaue last two tems arenegative) FQ.4015)-10 — Fy>Crusei,(Fymustbe> 0, because las term is =) al #045)-12 Sep? Set and solve fori" by wand er. y= 656517430 65-65)" + 30\1= i) 84 2265-661" + 30-652 65" 4 305" 484 265i"? 100" + 9 4654"? =1004"4 4990.15) 10 S174 35.4 10 si" aba 15i" + 464)(1.15) 32.51" 4 533-12 Soveby quadkae equation lal and ener o spreasbea, 2.6% per year (sprescshoe) »‘Spreudshectsoluion: Using the format aud functions of Figure 7-12." = 262%. Before Goal Seek ‘Alter Gal Sek (oa Sectempdae 73 Descartes’ rule of signs: sign changer "Norstom's citron sevies starts parte; no help Apply the ROIC proceduse with, = 146, ‘Step 12) =3000 Fur Ouse 30004 +014)-2000 Sia F,>0 mek 142001 + 0.14) +1000 = 2618.30 Fret usei, RK 26188011 +014) ~6000 3018.57 Fi 0:08 19000—R0K0 1" — 18,0001 16.000"? - $0003" 1.15) - 15,000 18.400 9 57505" 12,000 — $000i" — 18000 16820-9200" - 20,7007 ‘Set F,=0 an solve for by tral and rer or spreader the ROIC approach e 55.7% per year ‘A spreashoot inthe format of Figue 7-12 wil also indicate at EROR of 35.7% per yar AS 1250= (5, 000)(0¥, b= 10% per yea, payable semianmually 100.088 200 evety three months 748 1= 50.0000.084 = $1000 per quarter ind Pot al fmure payments for 15 years P= 1000/A,1.5%,50) +50,000(PIF.1 $560) = 1000393803) + $0,0000.4003) = $5985 749 1= 200000.082 $00 ger sie mons Find Pot al fume payments for 16 years rnP= SO0IA.64.22) + 20000PIF.64.32) 001140880) + 20.0006. 1930) = 14.367 780 1= 9.125 900(004)4 =$01 250 por quarter P= 91250(/A,1 8.72) = 91 25043.8447) = 000899) 751 Since tbeamoant paid by te investor is equal 10 he face valeof the bond. therate of ‘lum ix qual the bond intrest rate of We per yeu 782 1= sopo1006y2 = 5150 (0 = 4800. 1500PA:.40) + $0000.40) 2"eper sx months ‘spreadsheet 783 0 =-2000 + 1,000(07F3.15) (PIRIA5)=C.2000 151.3% per year (spreadsheet) 200000000342 62500 por sie mone b= 23500000 - 625,D00.P/A,,60) .25.000,000P/R..60) i= 27% persix months (speadsheen) 785 I= 10908 S201 perquarier (2) 0 = 000 + 200(P/A.i20)P/R8) + 7OO0PIRI28) ‘Solve for iby tual and or o exter cash flows and use IRR function on spreadsheet 2.58% per quarer —(sprembsee (b) Nominal annual |=0.0255) 10.2% per year, compounded quarterly 6756 (a)1= 100000000.12V4 53,000 per quarter By spending'S11 milion nox, the company wil ave S300 0 every thise mnths for 25 years and will save $1,000,001 a that time. The ROR ilstion is (© = 1,000,000 + 300,00040'A.i%,100) + 10,000.000(P2i%.100) 1=271% per quaner (spreadsheet) >) Nomina | per year= 2.718 0.88% per year 787 1= sooo.10)2 5250 per sic mons (0 =-5000+ 250(PYA..8) + 5500 PIRI.) Salve fort byl antenor or spressheet i=601%persixmonts (epeatsheot) 788 Answoris(b) 759 Ausneristd) 760 Answer ist) 761 Answeris(a) 742 Answoris(b) 743 Answeristh) 764 NCES 5000 48000-2000 +6000 GmNck S000 F000 1909 Hoe Cunm ative NCF starts out nogatively and changes sign only once, Answer (2) 745 -41.000 + = 9000 x =$50000 Answer isa) 766 Answers) 767 Aneweris (dy 6768 Answeris(e) 769 Answers) 7 Answer is (a) 71 Answers) 722 1= 10,000.08 Answer isd) 713 500. p.0ocys " Answer isd) 74 Answers) 725 Answers) ”Solution to Case Study, Chapter 7 “There is nt avays a definitive mswer o cae study exercises, Here are example responses DEVELOPING AND SELLING AN INNOVATIVE IDEA “ ravers 2 © r eth sl NEF wih sale Me wh nee ven ons “Sooeco” "“Songoe years ners ea ese sesees eaaes ees ary 1 (ay 479%; 0) 7.0% 2. (@)22.78; (9) 188% 349% 4. Descartes rue of signs 3 Syn charges [Novsttom nterio; eerie tars nepative; 3 sign changes Could be upto 3 roo in the range 2100, 15. Comtimue the NCE series stating in year 13. Nest 12 yours o€ NCP a 12% has PW =8284(01, This is thealferbaved on these eatimstes, Discuss why this ste conrect amount w eerSolutions to end-of-chapter problems Engineering Economy, 7° edition Loland Blank and Anthony Tarquin Chapter 8 Rate of Return Analysis: Multiple Alternatives, ‘81 The rate ofcotum on the mcremental cad flow column represents thera of return onthe increment of ivesnnen between the two alternatives ‘82 The allernaive at shouldbe selected is the one that reguzes Ue lower inal invest, 83 He mstitchide the fst and third altematives in an incremental nails ‘84 (a) The increment of investment erwoon the abort vs is loss than 12% (b) Altomative X should be selocted boceuse the ROR on theincrenent of ivestmont is less tan the MARR, 8S. (a) The ROR on te increment is Less than the MARR {b) Soler alremanive A. 6 Canmotdermine which ane should be selected pacauss even though tc kn tha the ROR on te increment of investment is los than 22% por yea, its uot known iit is equal toor grever than the company’s MARR of 19°, An inevemental ROR analysis must be conte, 8.7 Overall ROR (030180.000) + 0.20¢50.0000)/130,000 182% 88 50.000(015) + (100,000 -30.000)RORz») 10,000(030) ROR 6 6A) 89 Overall ROR = [100,000(0.24) + 300,000(0.18) +200.000(0.30)7.600,000 23 2s), ‘810 (a) year 0 Incremental CF) = 73,000 (12.00) 61000 00) = 12.000 130004 12.000 $2500Sal Yau x vex 035000 90000 5,000 1 331.600 19800 412.200 2 S3160035.000 19.400) 447.200 5 S160 +1900 412.200 4 Ls30 1920068, 30, 196,400 150,60 436,300 812 Year AltemiveQ Alternative P -P ° “ASL “500 35000 1 43.000 13.400 29,600 2 43.000 13400 29.600 5 45000 13.400-30.000s3000 75,600 4 48000 13400 28600 5 43.000 200 29,500 6 4300018000 13,4903,000 34,600 ‘Sum = +154,600, 13 (a) Your 3 CF represent the first cost of Aplus the incremental ference inthe nal cess Let Phe the is cst A. Py = $27,000 an (6) 16000 = Sie ~ (423.000) ‘Stil = $39,000, AIS @) 14000 =-65.000- Phase Prana = 551,000 (b) $000 =Pre- (21,000) Pa: = $1600 (0) 2000 = 6000 - Sanne816 (2)0 = 4600 + 11001014 Ai 8) +2000 R.A. 10) Solve for hy trial and erororspreacsneet a 1.9% peryear—_(RATEuneton on spreatsheet) war 1,9 per year < MARR 6 sect Anematve P3 IT (a) The incerental ROR equation i TILL + 43,0001, Ai,20) + 77.OUUPIF, A520) Solve for Ai* by tial and ctor or spreadsbost APS 18% peryear (RATE funtion en speadshee) (Ista the tk ant seen since 1 896 < MARR= 69%, aus 45010 + 15,001(P1A Ai" 6) + 45 000PAR.Ai3) + ADORE AIR 6) Soke fri by hand using tial and wor or epreadshoct Hand: ey i= 40% PW 5,000 + 15,0042. 1680) + 45,000(0.364) + 6D0010.1328) S715 Gwolew) ty yes PW = 4000+ 15,000(1,8248) + 5 00010.2958) + 60000.0878) = S374 ( toohighy By izerpolaton. Si* = 45.66 por your Spreads a je eines Yer Vs Rubber — Wer 0 30,000 95,000 45,000 1 -200.000 25.000 35,000 2 100.000 85.000 35,000 4 -200.000 85.000 35,000 5 400000 -#5,000 35,000 ‘ 000 74,000 21,000 0 ung Fonction 4528 ‘By IRR function, Al* = 43.2% per year Concusin: Sine Ai* > MARR =21%, sect the fiber- impregnated rubber alternative aaus 0=-700,000 + 68.000(8/A.".20) (PIA ni 20) = 10.7692 Solve fr At hy til and ent or spreadsheet A = 6.8% per your (RATE function on spreashet) ‘Alt > MARR of 6 per year; select design 4R, the more expensive one {820 Wrie rate of retum equation for increment between B and A 0 = 65,000 +25.000(P1A.Ai".3) (PIAAie3)= 2.6000 ‘Solve fo A® by intopoation in intrest tables cr speadshect, Ai* =7.5%-< MARR of 209%; select aitive A (spreatsheen ‘821. (a) Constuc tabulation to get incremental cashflow. Incremental at low, $1000 Yew (AL 0 190 80 1 2 ai 1s 2 9430-1580 TE 1K 3 “92 a4 18 4 n+ +m s 1304 18(PAAIA)+ DOPRAI2) 4 HORA Sprecher: Eater notemental cash flows and use IRR function to display Ais = 273% Since 77.3% MARR = 2: select type AL (spreaishoey{and (Plots are developed using and Ai values, Decisions the same to select Al aeayaiy Huson eines 822 0=.900,000+ AOCIP/A.AU 3) ‘0= 900-000 + AOC $889) AOC = $566,430 Requtedreduction= 566.430 400.000 S164 per year £823 (a) U =-56,000,AP.Ait 9) + 800 + (12,000 SOU) AUE.AI" 9) Solve for Ai" by tial and error or spreadsbost AIS = 8.5% < MARR: select Dryloe (spreadsheet)(©) The maximum MARRis Si 5%, Any MARR> 8.5% inlictes selection of Dislo. AWversus Bi X24 Vatialespoe has the rg intial imesnent 0 =-25,0001A.0, Ait.) +4000 + 4000(A7E,Ai,6) ‘Solve fr Ai* by tral an torr preuset ‘AW*=218% (RATE naion) [Ait MARR = 18%; celct variable ped, the higher ineestnet alternate ‘826 Find ROR for incerta cs flow over LCM of 4 yr (0=-31.000,AP.Ai*4) -5000-+ 40.0007 "2K. Ai*.4) + IROOM A 4) ‘Solve fr AV" hy anderorr spresesheet Av kw (spreader) A" ) Graph of AW of costs versus | values Sm 3s Jaa So I Me 388 fo SA aR £827 (a) He wed overall * values rather than inremental i* values. (0) Detemine Ai and compare each MARR pos al leeene Cones AGE [inenf Got WES] NS “sho “50K S505) OE zmo “bia teu] sone som doom) Ie zie bso tes] gem wom moe) Be dime $300 tesco] Sem s8000 poe dome tsa tes] 80m 38000 3350 dye $3a9 6500] oN s80m SoM] BE la x [ae Vis A = 25.19% MAR RE select B (c) Rauing inconsistency oscuis For evenue alternative comparison whew the MARR Set lower than Ai. AU MARR= 20%. this occas ad Ais incerrecty selected if ‘vert ROR vale ate ised i the hiss of lection. ‘828 Do-nothing atti,{829 Revere ateruties;calcubte overall ROR first and compare to MARR =10%. (elimina (eliminate) Rank raining atemative by ineseasing inal investment: DN, #8 DN vs 88; 0=-61,000 + 7500(P/A, Ait. 20) WIA, AI 20)= 81333, ‘Sob for A by tal and enor or spreadsheet ai 10.7% per year (RATE funcion) ‘Ait > MARR. 09%; selec 88 Mops 830 Revenue stersties; csoulae overall ROK fits and compare to MARR =13% Thea rank remaining alertives acoordng to iereasing inal investment (including DN) and ‘compare intemertally. ROR values detsnminad by RATE function, lgeni® =126% —(climinate) igmeat =-27% (eliminate) igest= 43% (dliminae) Tees? =178% ein) WGenayspn: 0 0,01) + 310.0000." 39+ 120000878 AL 3) air Se; seloctiGen ‘831 Costalterstives. Rank altematives asconng fo increasing inital investment and compare incrementally: 2.1, 3,5. 4A" vals determined by RATE Function ona spreadsheet. 2000+ S300P/A, Ai") ols: elimina 2 3 vs: 0= 3800. 1000/4, ai*.4) Aiv<0% eliminate 3 Set) = -10,000+4 SOOBIA. Si.) ‘Aiv<0%: —eliminaie 5 av 0 -18,000-4 33000074, A 4) 6.4%; eliminate 4 ‘Sloot machine 1832 Rank stsmatives according wo increasing inal investment (incuding DN) and ‘compareinerementally: DN. D.A. CEB. () DN sD Ae EMARR climinate D DNes A:Ai 10% MARR eliminate DN vs: Ai ‘MARR climinate C DN sE: Ait= 12% >MARR eliminate DN EnsB:Ai*=18% >MARR climinate E There, select (b) DNs DA =11% to MARR; select Do. sothing () Retin B,D and E since ther overall ROR> MARR B vs D=385% eliminate B Ds E=68%:etiminne E ‘Thecore, see. (e)Setee 8, D,and 834 Ranking:DN, D, A,C,E, B, Use Si* =AA/AP as theinersmental measure; MARR is 149% 4s. DN: A* = 16.7%:ellainae DN. keep D Ave De Ait = secvann0 12.444; eliminate A, kegp D Cos. D:_ Ait = 000/600 = 15% liminete D, keep C Eys.C: ait = 8007000: 496; liinate E, heep © Bas.C: A =2100/14.000= 15%; eliminate C. keep Selec835 (2) Rank alermtives:E.D.CBA; diminate ED and A because overall ROR SMARR ©4614; cine B: lect atersaiver (b) Ranksltematives: E1D,CB.Asoliminate E because overall ROR < MARR ys Di Ait = 356, ciminate D Bys Ait = 149, climiaateC ANS B Ait = 129% clminate B (Note that Ai? exactly equals MARR) Seles sternative A ‘836 Only machites 2 and 3 have overall ROR preter than 26; ccement betweon 2 and 3 (So 2eempurson isnot justifies selet machine 2 897 (a) Selec jects A and B (0) Musto incremental aalyss between A and B using AlY= AA/AP Ave Bal 00,000) = 79 por year Ait MARR =7.5%: eliminate A, seloet project B 838 Answers) 839 Answer ul) 40 Answers) $1 Anowerist) AD Answeris() 843 Your A ° H.000 1 42300 41500 2 00 41500 3 20 41500 4 42500 41500 5 42500 “41500 Sun = 43500 Answer is (b} Add Answer sta) AAS Answerit) 10846 Answeris(e) AT Answer) U8 Answers) nSolution to Case Studies, Chapter 8 ‘Sometimes, thae is not adefintive answer b acuse study exercise. Heveareexample responses ROR ANALYSIS WITH ESTIMATED LIVES THAT VARY 1 PW ar 1256 shown in vow 29, Selec server #2 (=) withthe largest PW value 2 #1(a=3) scliminated. I has i* < MARR = 126, Porfonn an incremental analysis of #1 (a 4 and #2 =5), Columna H shows Ai* = 19.5%. Now perform at incremenial comparison (Of for a= Sand n= 8, This is uct necessary since no eta investaent is aestay to expand cash low by te years. The Ai i fit. Iti ebvies: sect #2 (n= 8) 3. PW 200086 > S005. Ai* i infinity. as shown incell KAS, wheve an enor for IRRIK4:K44) ‘sineated actin an 18) ecg yet date oe) noes aaa Sa ao aes — Shooto im ia om om|sm cm’ am [om ow im sm sm lam se’ tm [em oe Bie ee Sie ee ee [eae Sele ae as as i Saw ies {ie ie ae [aoa [ite ie le fete ge ee oe [sm nm jam oe oe ano at Soe ‘erie | a »Solution to Case Studies, Chapter 8 ‘Sometimes, thae is not adefintive answer to wcuse study exetise, Here ate example responses, HOW A NEW ENGINEERING GRADUATE CAN HELP 11S FATHER 1. Cash laws foreach option ate summatized atop ofthe spreadsheet Rows 9-19 show anual stints fo pions in increasing order of inal investment 3,2, 1,45 =e = ——— = gg alam ae i ay es ee eee Seepe ate ale hele rte ——— ee ; 2 ote eet : : eee : : pe ere i pee — 7 oe ea : z | ae = : » [Malple i valiss: Only fr option #2: there are 3 sigh changes in cash flow and cumulative cashflow sres. No values ofer than H.1 9 ate found inthe Oto 100% sang. 43. Doincreaemal ROR analysis after removing #1 and #2, See row 22. 440.3 compasion ‘ies 48.9%, 3-10-a no return becuse al incremental cash lows are Doe Iegative, PW at 2 ie S7RS for #4, whic isthe atect PW, Awe alsothe Largest for Conclusion Select option #4 —tade-cut with fisnd, rT4. PW xs chants forall 5 options are onthe spreadshes i i i 2 Options ———_Appronimate ‘empared__meakeven Vand? 26% Sand 3 7 Qands 8 Vand 5 2 Sand 4 50 5. Force the ircakoven tale of retura between epticns M4 and #8 w be equal b MARR = 25%. Use ial and enor (Gal Seek with a trget cell oF G22 0 equal 25% and changing cell of Ch template at righ). Make the values ‘a years § though # of option #3 equal to the value in cll C6, so they ceflectthe changes. The answar obuined should be about $1090, which is actually $1,056,000 for cach of years Required ninimuan sling price is 41090,000) ‘non comer tothe citen appraised value of $2 mon. 1“