Copyright 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent

Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.1 Solutions to end-of-chapter problems Engineering Economy, 8 th edition Leland Blank and Anthony Tarquin

Chapter 1 Foundations of Engineering Economy

Basic Concepts

1.1 Financial units for economically best.

1.2 Morale, goodwill, dependability, acceptance, friendship, convenience, aesthetics, etc.

1.3 Measure of worth is a criterion used to select the economically best alternative. Some measures are present worth, rate of return, payback period, benefit/cost ratio.

1.4 The color I like, best fuel rating, roomiest, safest, most stylish, fastest, etc.

1.5 Sustainability: Intangible; installation cost: tangible; transportation cost: tangible; simplicity: intangible; taxes: tangible; resale value: tangible; morale: intangible; rate of return: tangible; dependability: intangible; inflation: tangible; acceptance by others:

intangible; ethics: intangible.

1.6 Examples are: house purchase; car purchase, credit card (which ones to use); personal loans (and their rate of interest and repayment schedule); investment decisions of all types; when to sell a house or car.

Ethics 1.7 This problem can be used as a discussion topic for a team-based exercise in class.(a) Most obvious are the violations of Canons number 4 and 5. Unfaithfulness to the client and deceptive acts are clearly present.(b) The Code for Engineer’s is only partially useful to the owners in determining sound bases since the contractor is not an engineer. Much of the language of the Code is oriented toward representation, qualifications, etc., not specific acts of deceit and fraudulent behavior. Code sections may be somewhat difficult to interpret in construction of a house.(c) Probably a better source would be a Code for Contractor’s or consulting with a real estate attorney.

1.8 Many sections could be identified. Some are: I.b; II.2.a and b; III.9.a and b.

1.9 Example actions are:

• Try to talk them out of doing it now, explaining it is stealing • Try to get them to pay for their drinks NOTE: (For Complete File, Download link at the end of this File) 1 / 4

Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.2 • Pay for all the drinks himself • Walk away and not associate with them again

1.10 This is structured to be a discussion question; many responses are acceptable. Responses can vary from the ethical (stating the truth and accepting the consequences) to unethical (continuing to deceive himself and the instructor and devise some on-the-spot excuse).

Lessons can be learned from the experience. A few of them are:

• Think before he cheats again.• Think about the longer-term consequences of unethical decisions.• Face ethical-dilemma situations honestly and make better decisions in real time.

Alternatively, Claude may learn nothing from the experience and continue his unethical practices.

Interest Rate and Rate of Return 1.11 Extra amount received = 2865 - 25.80*100 = $285 Rate of return = 285/2580

= 0.110 (11%)

Total invested + fee 2865 + 50 = $2915 Amount required for 11% return = 2915*1.11

= $3235.65

1.12 (a) Payment = 1,600,000(1.10)(1.10) = $1,936,000 (b) Interest = total amount paid – principal

= 1,936,000- 1,600,000

= $336,000

1.13 i = [(5,184,000 – 4,800,000)/4,800,000]*100% = 8% per year

1.14 Interest rate = interest paid/principal

= (312,000/2,600,000)

= 0.12 (12%)

1.15 i = (1125/12,500)*100 = 9% i = (6160/56,000)*100 = 11% i = (7600/95,000)*100 = 8% The $56,000 investment has the highest rate of return

1.16 Interest on loan = 45,800(0.10) = $4,580 Default insurance = $900 Set -up fee = 45,800(0.01) = 458 Total amount paid = 4,580 + 900 + 458 = $5938 2 / 4

Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.3 Effective interest rate = (5,938/45,800)*100 = 12.97%

Terms and Symbols

1.17 P = ?; F = 8*240,000 = $1,920,000; n = 2; i = 0.10

1.18 P = $ 20,000,000; A = ?; n = 6; i = 0.10

1.19

P = $2,400,000; A = $760,000: n = 5; i = ?

1.20 P = $1,500,000; F = $3,000,000: n = ?; i = 0.20

1.21 F = $250,000; A = ?: n = 3; i = 0.09

Cash Flows

1.22 W ell drilling: outflow ; maintenance: outflow ; water sales: inflow ; accounting: outflow ; government grants: inflow; issuance of bonds: inflow; energy cost: outflow; pension plan contributions: outflow; heavy equipment purchases: outflow; used-equipment sales: inflow; stormwater fees: inflow; discharge permit revenues: inflow.

1.23 Let Rev = R evenues; Exp = Expenses

Year 1 2 3 4 5 Total Rev , $1000 521 685 650 804 929 Exp , $1000 610 623 599 815 789

NCF, $1000 -89 62 51 -11 140 153

Exp/Rev,

% 117 91 92 101 85

(a) Total NCF = $153,000 (b) Last row of the table shows the answers

1.24 Month Receipts, $1000 Disbursements, $1000 NCF, $1000 Jan 300 500 -200 Feb 950 500 +450 Mar 200 400 -200 Apr 120 400 -280 May 600 500 +100 June 900 600 +300 July 800 300 +500 Aug 900 300 +600 Sept 900 200 +700 Oct 500 400 +100 Nov 400 400 0 Dec 1800 700 +1100 3 / 4

Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.4

+3,170

Net cash flow = $3,170 ($3,170,000)

1.25 End -of-period amount for March: 50 + 70 = $120; Inter est = 120*0.03 = $3.60 End -of-period amount for June: 120 + 120 + 20 = $260; Interest = 260*0.03 = $7.80

End -of-period amount for September: 260 + 150 + 90 = $500; Interest = $15.00

End -of-period amount for Dec: 500 + 40 + 110 = $650; Interest = $19.50

1.26

1.27

Equivalence

1.28 (a) i = (5000-4275)/4275 = 0.17 (17%)

(c) Price one year later = 28,000 * 1.04 = $29,120

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