196 ANNUAL CASH FLOW ANALYSISAfter consulting with a lubrication specialist, he
changed the preventive maintenance schedule. He be-
liev~s that this year maintenance will be $900 and
will decrease $100 a year in each of the following
4 years. If his estimate of the future is correct, what
will be the equivalent uniform annual maintenance
cost for the 10-year period? Assume interest at 8%.
(Answer: $756)
6-13 A firm purchased some equipment at a very favorable
price of $30,000. The equipment resulted in an an-
nual net saving of $1000 per year during the 8 years
it was used. At the end of 8 years, the equipment was
sold for $40,000. Assuming interest at 8%, did the
equipment purchase prove to be desirable?
6-14 When he started work on his twenty-second birthday,
D. B. Cooper decided to invest money each month
with the objective of becoming a millionaire by the
time he reaches age 65. If he expects his invesnnents
to yield 18% per annum, compounded monthly, how
much should he invest each month? (Answer: $6.92
a month.)
6-15 Linda 0' Shay deposited $30,000 in a savings account
as a perpetual trust. She believes the account will earn
7% annual interest during the first 10 years and 5%
interest thereafter. The trust is to provide a uniform
end-of-year scholarship at the university. What uni-
form amount could be used for the student scholarship
each year, beginning at the end of the first year and
continuing forever?
6-16 A machine costs $20,000 and has a 5-year useful life.
At the end of the 5 years, it can be sold for $4000. If
annual interest is 8%, compounded semiannually,
what is the equivalent uniform annual cost of the
machine? (Anexactsolution is expected.)
6-17 The average age of engineering students at gradu:'
ation is a little over 23 years. This means that the
working career of most engineers is almost exactly
500 months. How much would an engineer need to
save each month to become a millionaire by the end
of his working career? Assume a 15% interest rate,
compounded monthly.6-18 The Johnson Company pays $200 a month to a trucker
to haul wastepaper and cardboard to the city dump.
The material could be recycled if the company were to
buy a $6000 hydraulic press bailer and spend $3000 a
year for labor to operate the bailer. The bailer has an
estimated useful life of 30 years and no salvage value.
Strapping material would cost $200 per year for the
estimated 500 bales a year that would be producec
A wastepaper company will pick up the bales at th
plant and pay Johnson $2.30 per bale for them. USI
an annual cash flow analysis in working this problem
(a) If interest is 8%, is it economical to install ant
operate the bailer?
(b)Would you recommend that the bailer be
installed?
6-19 An engineer has a fluctuating future budget for th~
maintenance of a particular machine. During each 01
the first 5 years, $1000 per year will be budgeted.
During the second 5 years, the annual budget will be
$1500 per year. In addition, $3500 will be budgeted
for an overhaul of the machine at the end of the fourth
year, and another $3500 for an overhaul at the end of
the eighth year.
The engineer asks you to compute the uniform
annual expenditure that would be equivalent to these
fluctuating amounts, assuming interest at 6% per year.
6-20 An engineer wishes to have $5 million by the time he
retires in 40 years. Assuming 15% nominal interest,
compounded continuously, what annual sum must he
set aside? (Answer: $2011)
6-21 Art Arfons, a K-State-educated engineer, has made
a considerable fortune. He wishes to start a per-
petual sch?larship for engineering students at K-
State. The scholarship will provide a student with an
annual stipend of $2500 for each of 4 years (fresh-
men through senior), plus an additional $5000 during
the senior year to cover entertainment expenses. As-
sume that students graduate in 4 years, a new award
is given every 4 years, and the money is provided at
the beginning of each year with the first award at the
beginning of year one. The interest rate is 8%.
(a)Determine the equivalent uniform annual cost
(EUAC) of providing the scholarship..
(b)How much money must Art donate to K-State?
6-22 Jenny McCarthy is an engineer for a municipal power
plant. The plant uses natural gas, which is currently
provided from an existing pipeline at an annual cost
of $10,000 per year. Jenny is considering a project to
construct a new pipeline. The initial cost of the new
pipeline would be $35,000, but it would reduce the
annual cost to $5000 per year. Assume. an analysis
period of 20 years and no salvage value for either the
existing or new pipeline. The interest rate is 6%.
(a) Determine the equivalent uniform annual cost
(EUAC) for the new pipeline?
(b) Should the new pipeline be constructed?--:-'