Engineering Economic Analysis

(Chris Devlin) #1
300 OTHERANALYSISTECHNIQUES

newspaper vending machines cost $45 each. It is ex-
pected that the annual revenue from selling the same
quantity of newspapers will increase $12 per vending
machine. The useful life of the vending machine is
unknown.
(a)To determine the sensitivity of rate of return to
useful life, prepare a graph for rate of return
versus useful life for lives up to 8 years.
(b) If the newspaper requires a 12% rate of return,
what minimum useful life must it obtain from the
vending machines?
(c) What would be the rate of return if the vending
machines were to last indefinitely?
9-52 Data for two alternatives are as follows:

Cost
Uniform annual benefit
U sefullife, in years

A
$800
230
5

B
$1000
230
X

If the MARR is 12%, compute the value of X that
makes the two alternatives equally desirable.
9-53 What is the cost of Alt. Bthat will make it at the
breakeven point with Alt.A,assuming a 12% interest
rate?

Cost
Uniform annual benefit
Salvage value
U sefullife, in years

A
$150
40
100
6

B
$X
65
200
6

9-54 Consider two alternatives:

Cost
Uniform annual benefit
~sefullife, in years

A
$500
75
Infinity

B
$300
75
X

Assume that Alt.Bis not replaced at the end of its
useful life. If the MARR is 10%, what must be the
useful life ofBto make AlternativesAandBequally
desirable?

9-55 Jane Chang is making plans for a summer vacation.
She will take $1000 with her in the form of traveler's
checks. From the newspaper, she finds that if she pur-
chases the checks by May 31, she will not have to pay
a service charge.That is, she will obtain$1000worth
of traveler's checks for $1000. But if she waits and
buys the checks until just before starting her summer


trip, she must pay a 1% service charge. (It will cost
her $1010 for $1000 of traveler's checks.)
Jane can obtain a 13% interest rate, compounded
weekly, on her money. To help with her planning, Jane
needs to know how many weeks after May 31 she can
begin her trip and still justify buying the traveler's
checks on May 31. She asks you to make the compu-
tations for her. What is the answer?
9-56 Fence posts for a particular job cost $10.50 each to in-
stall, including the labor cost. They will last 10 years.
If the posts are treated with a wood preservative they
can be expected to have a 15-year life. Assuming a
10% interest rate, how much could one afford to pay
for the wood preservativetreatment?.
9-57 A piece of property is purchased for $10,000 and
yields a $1000 yearly net profit. The property is sold
after 5 years. What is its minimum price to breakeven
with interest at 1O%?.
9-58 Rental equipment is for sale for $110,000. A prospec-
tive buyer estimates he would keep the equipment for
12 years and spend $6000 a year on maintaining the.
equipment. Estimated annual net receipts from equip-.
ment rentals would be $14,400. It is estimated rental.
equipment could be sold for $80,000 at the end of
12 years. If the buyer wants a 7% rate of return on
his investment, what is the maximum price he should
pay for the equipment?
9-59 A motor with a.200-horsepower output is needed
in the factory for intermittent use. A Graybar motor
costs $7000, and has an electrical efficiency of 89%.
A B1ueball motor costs $6000 and has an 85% ~ffi-
ciency. Neither motor would have any salvage value,
as the cost to remove it would equal its scrap value.
The annual maintenance cost for either motor is
estimated at. $300 per year. Electric power costs
$O.072/kilowatt-hour (1 hp=0.746 kW). If a 10%
interest rate is used in the calculations, what is the
minimum number of hours the higher initial cost
Graybar motor must be used each year to justify its
purchase?
9-60 PlanArequires a $100,000 investment now. PlanB
requires a~ $80,000 investment now and an additional
$40,000 investment at a later time. At 8% interest,
compute the breakeven point for the timing of the
$40,000 investment.
9-61 A low-carbon-steel machine part, operating in a cor-
rosive atmosphere, lasts 6 years, and costs $350 in-
stalled. If the part is treated for corrosion resistance.


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