Engineering Economic Analysis

I

Problems 175

Use a 10-year analysis period for the four mutually

exclusive alternatives. At the end of 5 years, Alterna-

tives 1 and 2 may be replaced with identical alterna-

tives (with the same cost, benefits, salvage value, and

useful life).

(a)If an 8% interest rate is used, which alternative

should be selected?

(b)If a 12% interest rate is used, which alternative

should be selected?

5-74 Assume monthly car payments of $500 per month for

A 4 years and an interest rate of 1/2% per month. What

• initial principal or PW will this repay?
  5-75 Assume annual car payments of $6000 for 4 years and
  .- or PW will this repay?an interest rate of 6% per year. What initial principal

5-76 Assume annual car payments of $6000 for 4 years

_and an interest rate of 6.168% per year. What initial

principal or PW will this repay?

5-77 Why do the values in Problems 5-74, 5-75, and

_5-76 differ?

5-78 Assume mortgage payments of $1000 per month for

L 30 years and an interest rate of 1/2% per month. Whatinitial principal or PW will this repay?.

5-79 Assume annual mortgage payments of $12,000 for

A 30 years and an interest rate of 6% per year. Whatinitial principal or PW will this repay?

TABLEP5-82

Year 0 1 2 3 4 5 6 7

Net cash ($) 0 -120,000 -60,000 20,000 40,000 80,000 100,000 60,000

5-73 A cost analysis is to be made to determine what, if

anything, shoqld be done in a situation offering three

"do-something" and one "do-nothing" alternatives.

Estimates of the cost and benefits are as follows.

5-80 Assume annual mortgage payments of $12,000 for

JIL30 years and an interest rate of 6.168% per year. What

• initial principal or PW will this repay?
  5-81 Why do the values in Problems 5-78, 5-79, and
  .5-80 differ?
  5-82 Ding Bell Imports requires a return of 15% on a,ll
  .projects. If Ding is planning an overseas developmentproject with the cash flows shown in Table P5-82,
  what is the project's net present value?
  5-83 Maverick Enterprises is planning a new product.
  .-Annual sales, unit costs, and unit revenues are as tab-
  ulated; the first cost of R&D and setting up the as-
  sembly line is $42,000. Ifiis 10%, what is the PW?

5-84 Northern Engineering is analyzing a mining project.

_Annual production, unit costs, and unit' revenues

are in the table. The first cost of the mine setup is

$8 million. Ifiis 15%, what is the PW?.

Uniform End-of- Useful

Annual Useful-Life Life

Alternatives Cost Benefit Salvage Value (years)

1 $500 $135 $ 0 5

(^26001002505)
(^370010018010)
(^40000)
Year Annual Sales C.ost/unit Price/unit
(^1) $ 5000 $3.50 $6
(^26000) 3.25 5.75
(^39000) 3.00 5.50
(^4) 10,000 2.75 5.25
5 8000 2.5 4.5
(^64000) 2.25 3
Annual Cost Price
Year Production (tons) per ton per ton
(^1) 70,000 $25 $35
(^2) 90,000 (^2034)
(^3) 120,000 22 33
(^4) 100,000 24 34
(^5) 80,000 26 35
(^6) 60,000 28 36
(^7) 40,000 (^3037)