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IEEN 5329 Advanced Engineering Economy Analysis Fall 2020 Final 1

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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

 

 

 

 

 

 

 

 

 

 

 

6. (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