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IEEN 5329 Advanced Engineering Economy Analysis Fall 2020 Final 1
IEEN 5329 Advanced Engineering Economy Analysis
Fall 2020
Final
1. (20 points) A Yellow Pages directory company must decide whether it should compose the ads for its clients inhouse or pay a production company to compose them. To develop the ads inhouse, the company will have to purchase computers, printers, and other peripherals at a cost of $15,000. The equipment will have a useful life of 5 years, after which it will be sold for $3000. The employee who creates the ads will be paid $40,000 per year. In addition, each ad will have an average cost of $9 to prepare for delivery to the printer. Alternatively, the company can outsource ad development at a fee of $22 per ad regardless of the quantity. The current interest rate is 8% per year. What is the breakeven amount of ads?
2. (20 points) A company wants to buy a new machine, but there are some uncertainties related to the estimation of the cash flow. Following information is given.
|
|
p = 0.2 |
p = 0.35 |
p = 0.45 |
|
First cost |
$52,000 |
$44,000 |
$32,000 |
|
Annual savings |
$4,000 |
$6,000 |
$5,000 |
|
Annual costs |
$8,000 |
$7,000 |
$5,000 |
|
Salvage value |
$6,000 |
$4,500 |
$5,000 |
The machine is expected to have a useful life of 6 years. MARR is 8%. Determine the NPW of the machine. Hint: calculate the expected value of each cash flow first.
3. (10 points) A division of Hanes has the following data at the end of a year.
Total revenue is $45 million. Depreciation is $8.5 million. Operating expenses is $28 million For an effective federal tax rate of 35% and state tax rate of 6.5%, determine
CFAT.
4. (25 points) Solve problem 1 using Solver.
5. (25 points) The independent project estimates below have been developed by the engineering and finance managers. The corporate MARR is 15% per year, and the capital investment limit is $6.5 million. Use the PW method and Solver to select the economically best projects.
|
Project |
Project Cost, $ Millions |
Life, Years |
NCF, $/year |
|
1 |
-2.5 |
10 |
460,000 |
|
2 |
-3.0 |
5 |
650,000 |
|
3 |
-1.8 |
8 |
510,000 |
|
4 |
-1.6 |
4 |
720,000 |
- (20 points) A centrifuge is required in a chemical separation process. Two centrifuges (A and B) are available and summarized below. The net annual revenues for B are not known. If the MARR is 12% per year compounded quarterly and salvage values can be ignored, what is the minimum value of X to make B the better choice?
Year Centrifuge A Centrifuge B
0 -$30,000 -$25,000
1-5 $8,000 $X
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