Engineering Economic Analysis

Problems 469

will cost $160 per month; insurance and maintenance

also inflating at 5% ,will cost $50 per month. The

home will appreciate in value about 6% per year.

Assuming a nominal interest rate of 15.5%, which

alternative will be more attractive to the couple on the

basis of the present worth analysis?(Note:Realtor's

sales commission here is 5%.)

35 Given the following data, calculate the present worth
of the investment.

First cost=$60,000 Project life=10 years

Salvage value= $15,000 MARR= 25%

General price inflation=4% per year

Annualcost 1=$4500in Year1 and.

inflating at 2.5% per year

Annual cost 2=$7000 in Year 1 and

inflating at 10.0% per year

Annual cost 3=$10,000 in Year 1 and

inflating at 6.5% per year

Annual cost 4=$8500 in Year 1 and

inflating at -2.5% per year

J6 Here is some information about a professor salary

INDEX

Year

1991

1992

1993

1994

1995

1996

1997

1998

PSI

82

89

100

b

107

116

Change in PSI

3.22%

8.50

a

4.00

c

d

5.17

7.58

e

132

(a\ Calculate the unknown quantitiesa, b, c, d, ein

me table. Review Equation 14..:3.

(b)What is thebase yearof the PSI? How did you

determine it?

(c) Given the data for the PSI, calculate theaverage

annual price increase in salaries paid to profes-

sors for between 1991 and 1995 and between

1992 and 1998.

7 From the data in Table 14-1 in the text calculate the

average annual inflation rateof first class postage as

measured by the LCI for the following years:

(a)End of 1970 to end of 1979

(b)End of 1980 to end of 1989

(c) End of 1990 to end of 1999

8 From the data in Table 14-1 in the text, calculate the

overall rate changeof first-class postage as measured

by the LCI for the following decades:

(a)The 1970s (1970-1979)

(b)The 1980s (1980-1989)

(c)The 1990s (1990-1999)

14-39 From the data in Table 14-2 in the text calculate the

average annual inflation rateas measured by the CPI

for the following years:

(a)End of 1973 to end of 1982

(b)End of 1980 to end of 1989

(c) End of 1985 to end of 2002

14-40 Homeowner Henry is building a fireplace for the

house he is constructing. He estimates that his fire-

place will require 800 bricks. Answer the following:

(a)If the cost of a chimney brick in 1978 was $2.10,

calculate the material cost of Henry's project in

1998. The chimney brick index (CBI) was 442 in
      1970 and is expected to be 618 in 1998.
      (b)Estimate the material cost of a similar fireplace
      to be built in the year 2008. What assumption did
      you make?
      14-41 If a composite price index for the cost of vegetarian
      foods called eggs, artichokes and tofu (EAT) was
      at a value of 330 ten years ago, and has averaged
      an increase of 12% per year after that, calculate the
      current value of the index.
      14-42 As the owner of Beanie Bob's Basement Brewery,
      you are interested in a construction project to increase
      production to offset competition from your crosstown
      rival, Bad Brad's Brewery and Poolhall. Construc-
      tion cost percentage increases, as well as current cost
      estimates, for required construction costs are given
      in the table below over a three year period. Use a
      market interest rate of 25%, and assume that general
      price inflation is 5% over the 3-year period.

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Cost If

Incurred Cost Percentage Increase

Item Today Year 1 Year 2 Year 3

Structural $120,000 4.3% 3.2% 6.6%

metal/concrete

Roofing materials 14,000 2.0 2.5 3.0

Heating/plumbing 35,000 1.6 2.1 3.6

equipment/fixtures

Insulation material 9,000 5.8 6.0 7.5

Labor 85,000 5.0 4.5 4.5

(a)What would the costs be for labor in Years 1,2,

and 3?