Engineering Economic Analysis

Problems 297

Cost.

Uniform annual benefit

A

$800

142

C

$150

33.5

B

$300

60

9-32 An investor is considering buying some land for

$100,000 and constructing an office building on it.

Three different buildings are being analyzed.

Building Height

2 Stories 5 Stories 10 Stories

Cost of building $400,000 $800,000

(excluding cost

of land)

Resale value* of 200,000 300,000

land and

building at end

20-year

analysis period

Annual rental 70,000 105,000

income after all

operating

expenses have

been deducted

$2,100,000

400,000

256,000

*Resale value to be considered a reduction in cost, rather

than a benefit.

Using benefit-cost ratio analysis and an 8% MARR,

determine which alternative, if any, should be

selected.

9-33 Using benefit-cost ratio analysis, determine which

one of the three mutually exclusive alternatives should

be selected.

First cost

Uniform annual benefit

Salvage value

A

$560

140

40

C

$120

40

o

B

$340

100

o

Eachalternative has a 6-year useful life. Assume a

10% MARR.

9-34 Consider four alternatives, each of which has an
8-year useful life;

Cost

Uniform annual benefit

Salvage value

ABC D

$100.0 $80.0 $60.0 $50.0

12.2 12.0 9.7 12.2

75.0 50.0 50.0 0

If the MARR is 8%, which alternative should be

selected? Solve the problem by benefit-cost ratio

analysis.

9-35 Usingbenefit-cost ratio analysis,a 5-yearuseful life,

and a 15%MARR, determinewhic~ of the following

alternativesshould be selected.

9-36 Five mutually exclusive investment alternatives have

been proposed. Based on benefit-cost ratio analysis,

and a MARR of 15%, which alternative should be

selected?

~M ABC D E F

o -$200 -$125 -$100 -$125 -$150 -$225

1-5 +68 +40 +25 +42 +52 +68

9-37 Able Plastics, an injection-molding firm, has negoti-.

ated a contract with a national chain of department.

stores. Plastic pencil boxes are to be produced for a

2-year period. AJ:>lePlastics has never produced the

item before and, therefore, requires all new dies. If

the firm invests $67,000 for speciai removal equip-

ment to unload the completed pencil boxes from' the

molding machine, one machine operator can be elimi-

nated. This would save $26,000 per year. The removal

equipment has no salvage value and is not expected to

be used after the 2-y~ar production contract is com-

pleted. The equipment, although useless, would be

serviceable for about 15 years. You have been asked

to do a payback period analysis on whether to pur-

chase the special removal equipment. What is the pay-

back period? Should Able Plastics buy the removal

equipment?

9-38 A cannery is considering installing an automatic case-

sealing machine to replace current hand methods.

If they purchase the machine for $3800 in June, at

the beginning of the canning season, they will save

$400 per month for the 4 months each year that the

plant is in operation. Maintenance costs of the case-

sealing machine are expected to be negligible. The

case-sealing machine is expected to be useful for five

annual canning seasons and will have no salvage value

at the end of that time. What is the payback period?

Calculate the nominal annual rate of return based on

the estimates.

...

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A B C D E-

Cost $100 $200 $300 $400 $500

Uniform 37 69 83 126 150

annual

benefit