Engineering Economic Analysis

For an unlimited supply of money, and replace-

mentAssumption2, whichproject alternativesshould

Pea' ly select? Solve the problem by present worth

methods.

For an unlimited supply of money, and replace-

mentAssumption2, whichprojectalternativesshould

Peabody select? Solve the problem by rate of re-

:urn methods.(Hint:By careful inspection of the

l.lternatives,you should be able to reject about half

)f them. Even then the problem requires lengthy

;alculations.)

"or a capital budget of $55,000, and replace-

nent Assumption 2, which project alternatives

:hould Peabody select? (Answer: Alternatives

.E, 2A, 3F, 4A,and5A)

\. financier has a staff of three people whose job it

s to examine possible business ventures for him.

Periodically they present their findings concerning

business opportunities. On a particular occasion, they

presented the following investment opportunities:

Project A:This is a project for the utilization of

the commercial land the financier already owns.

There are three mutually exclusive alternatives.

·Ai. Sell the land for $500,000.

·A2. Lease the property for a car-washing business.

An annual income, after all costs (property taxes,

etc.) of $98,700 would be received at the end of

each year for 20 years. At the end of the 20 years,

it is believed that the property could be sold for

$750,000.

·A3. Construct an office building on the land. The

building will cost $4.5 million to construct and will

not produce any net income for the first 2 years.

The probabilities of various levels of rental income,

--- --- ----- - ---

------

1\\.'''''

It. :

,:

1

f' '

.,

"

t

Problems 535

End-of-Useful-Life

Useful Salvage Value Computed Rate

Life (years) (thousands) of Return

(^2) $20 10%
16 5 18
(^4012)
(^8015)
(^21525)
16 2 18
8 0 20
8 2 15
4 0 18
16 10 12
16 0 15
16 0 10
16 0 15
4 0 15
16 15 15
8 0 20
16 0 18
16 5 18
8 0 15
8 5 15
4 0 15
8 5 12
Unifonn
ect Cost Annual Benefit
IOSal (thousands) (thousands)
:ct 1
t.A $40 $13.52
t.B 10 1.87
t.e 55 18.11
t.D 30 6.69
t.E 15 3.75
ct 2
t.A 10 1.91
.B 5 1.30
:.e 5 0.97
:.D 15 5.58
ct 3
:.A 20 2.63
:.B 5 0.84
.e 10 1.28
.D 15 2.52
.E^10 3.50
.F 15 2.25
;t4
.A 10 2.61
.B 5 0.97
.e 5 0.90
.D 15 3.34
:t 5
.A 5 0.75
B 10 3.50
e 15 2.61