Download engineering economics – problem titles and more Study notes Engineering in PDF only on Docsity!
Engineering Economics PDA 2001 1 Problem Titles
Professional Development Associates
ENGINEERING ECONOMICS – PROBLEM TITLES
Econ 00 Introduction Econ 01 Future Amount Given Present Amount Econ 02 Annual Amount Given Present Amount Econ 03 Uniform Series Amount Given Future Amount Econ 04 Compounding Within a Year Econ 05 Effective Interest Econ 06 Continuous Compounding Econ 07 Annual Cost Econ 08 Present Worth Econ 09 Positive Gradient Econ 10 Negative Gradient Econ 11 Alternatives With Different Lives – Repeatability Econ 12 Alternatives With Different Lives – Cotermination Econ 13 Existing Salvage Value Econ 14 Benefit / Cost Analysis Econ 15 Internal Rate of Return Econ 16 Inflation Econ 17 Straight Line Depreciation Econ 18 MACRS Depreciation Econ 19 Break Even Analysis Econ 20 Probability Analysis Econ 21 Economic Order Quantity
2 PDA 2001 Engineering Economics
This page intentionally left blank.
4 PDA 2001 Engineering Economics Introduction
Benefit cost analysis can be used for a single alternative and also for comparing alternatives. These problems are best analyzed by converting all benefits and all costs into equivalent annual amounts. In this manner, any differences in the lives of alternatives can be ignored. Some problems may look like they only have costs and no benefits. In this case, look for a reduction in some common cost to be the benefit in comparing alternatives.
Some specialized elements of cash flows that you could see on the exam include gradients ( positive and negative ), continuous compounding , effective interest , alternatives with different lives , and inflation. Carefully review these problem solutions on the CD if you are unfamiliar with them.
You are likely to be tested on depreciation. Depreciation is used to estimate the book value of an item at some point in time. It is also used to reduce taxes. The two types of depreciation mentioned in the FE Reference Handbook are straight line and MACRS. Straight line is very simple. Modified Accelerated Cost Recovery System was started by the IRS to both simplify tax accounting and create favorable cash flow in the early years of a new company. Carefully look over these depreciation techniques.
Some other types of analysis that do not rely on interest rate are break even analysis , probability analysis , and economic order quantity. You may see one or more of these problems on your exam, so carefully review the principles behind them.
Engineering Economics PDA 2001 5
Professional Development Associates
PROBLEMS
Econ 01
(A) $23, (B) $34, (C) $50, (D) $344,
At age 30 you invest $5,000 into a mutual fund. If the fund averages an 8% annual return, your investment is worth how much at age 55?
Econ 02
(A) $20, (B) $22, (C) $24, (D) $26,
Tom’s retirement account in a company currently totals $416,384. What perpetual income can Tom and his heirs receive per year if he retires now and the money is invested in an annuity earning 6% interest?
Engineering Economics PDA 2001 7
Econ 05
(A) 6.5% (B) 6.6% (C) 6.7% (D) 6.8%
You are considering investing in a 5-yr CD (certificate of deposit) with an annual yield of 6.5% and monthly compounding. If you invest $5,000, your effective interest earned is most nearly:
Econ 06
(A) $1, (B) $1, (C) $1, (D) $1,
An investment option is available with continuous compounding at 5% interest. If you invest $8,000 now, how much interest income will you earn if you cash out in 3.5 years?
8 PDA 2001 Engineering Economics
Econ 07 A lift station sewage pump initially costs $20,000. Annual maintenance costs are $300. The pump salvage value is 10 percent of the initial cost in 20 years. Using 4% interest, the annual cost of the pump is most nearly:
(A) $1,200 (B) $1,705 (C) $1,772 (D) $1,
Econ 08
(A) -$410 (B) $3,130 (C) $4,060 (D) $5,
A computerized wood lathe, costing $17,000, will be used to make ornamental parts for sale. Receipts are estimated at $28,000 per year with costs running $25,000 per year. The salvage value is $2,000 at the end of 10 years. If the MARR is 8%, what is the present worth of this investment?
10 PDA 2001 Engineering Economics
Econ 11 Two alternatives are available for producing logos on sport shirts. Costs are shown below. Interest is 4%. Machine A Machine B Initial Cost $54,000 $74, Salvage Value $8,100 $7, Operating Costs $2,100/yr $1,400/yr – 1s t^ 10 years $1,800/yr – 2nd^ 10 years Life 15 years 20 years
Econ 11, cont.
Q1: The annual cost for machine A (ACA) is:
(A) $6,350 (B) $6,550 (C) $6,750 (D) $6,
Q2: The annual cost for machine B (ACB) is:
(A) $6,360 (B) $6,560 (C) $6,760 (D) $6,
Engineering Economics PDA 2001 11
Econ 12 A product can be manufactured with two different processes. Costs associated with each process are as shown. Interest is 6%. Process Q Process R Initial Cost $26,000 $44, Salvage Value - $600 $4,400 @ yr 20 $24,200 @ yr 10 Operating Costs $1,900/yr $1,500/yr Receipts $6,000/yr $6,000/yr Life 10 years 20 years
Econ 12, cont.
Q1: The present worth of process Q (PWQ) over 10 years is:
(A) $2,640 (B) $3,040 (C) $3,440 (D) $3,
Q2: The present worth of process R (PWR) over 10 years is:
(A) $2,630 (B) $3,030 (C) $3,430 (D) $3,
Engineering Economics PDA 2001 13
Econ 14
(A) 1 (B) 2 (C) 3 (D) 4
Four alternatives for a manufacturing process have annual benefits and costs as shown. Alt. Benefits C o s t s 1 5 8 , 0 0 0 5 0 , 0 0 0 2 5 1 , 0 0 0 4 1 , 0 0 0 3 4 7 , 0 0 0 3 8 , 0 0 0 4 5 7 , 0 0 0 4 6 , 0 0 0
Which is the best alternative?
Econ 15
(A) 2% (B) 4% (C) 6% (D) 8%
You purchase 1,000 shares of stock at $15.00 per share. The stock pays quarterly dividends of $125 for two years at which time you sell the stock at the trading price of $16.50 per share. The yearly return on your investment is most nearly:
14 PDA 2001 Engineering Economics
Econ 16 A project requiring an initial cost of $200, has the following operating and maintenance costs in “then-current” dollars. End of Year O&M Costs 1 30, 2 31, 3 32, 4 34, 5 35,
Econ 16, cont.
If inflation averages 4% and the MARR is 6%, determine the present cost of the project.
(A) $308, (B) $322, (C) $322, (D) $337,
Econ 17
(A) $12,000 (B) $13,333 (C) $18,000 (D) $20,
An elevator system for a 20-yr old high-rise office building cost $400,000 when first installed. The system was designed to last 30 years, with salvage at 10% of initial cost. Depreciation is straight line. Q1: The allowable depreciation charge per year is:
Q2: The current book value is: (A) $133,333 (B) $160,000 (C) $240,000 (D) $266,
16 PDA 2001 Engineering Economics
Econ 20 A recent hurricane caused a dam on a small lake to fail. The town is considering two alternatives to replace the dam. Each design has different costs, storage capacities, life, and estimated damages when floods exceed the storage capacities. Interest is 6%.
Alt. Cost
Maximum Capacity Life
Flood Damage A $450,000 1M acre-ft 40 yrs $800, B $975,000 1.5M acre-ft 50 yrs $600,
Econ 20, cont. Rainfall data and flood routing analysis show the probability associated with water flow into the lake. Flow (M acre-ft)
Probability 0.0 to 0.5 62% 0.6 to 1.0 20% 1.1 to 1.5 11% 1.5 to 2.0 6% 2.1 or more 1%
Econ 20, cont.
Q1: The equivalent uniform annual cost (EUAC) of alternative A is:
(A) $144,925 (B) $173,925 (C) $248,925 (D) $333,
Q2: The equivalent uniform annual cost (EUAC) of alternative B is:
(A) $103,815 (B) $169,815 (C) $206,815 (D) $283,
Engineering Economics PDA 2001 17
Econ 21 A tire manufacturer uses 10,000 tons of special additive uniformly throughout the year. It costs $50 to place each order, with storage costs running $1.30/ton/yr. Q1: How many tons should the manufacturer order at a time? (A) 777 (B) 877 (C) 977 (D) 1077 Q2: How frequently should orders be placed? (A) 26 days (B) 28 days (C) 30 days (D) 32 days
Engineering Economics PDA 2001 19 Letter Answers
Professional Development Associates
ENGINEERING ECONOMICS – LETTER ANSWERS
Answers Econ 01 Future Amount Given Present Amount B Econ 02 Annual Amount Given Present Amount C Econ 03 Uniform Series Amount Given Future Amount A Econ 04 Compounding Within a Year B Econ 05 Effective Interest C Econ 06 Continuous Compounding D Econ 07 Annual Cost B Econ 08 Present Worth C Econ 09 Positive Gradient C Econ 10 Negative Gradient B Econ 11 Alternatives With Different Lives – Repeatability B, C Econ 12 Alternatives With Different Lives – Cotermination D, A Econ 13 Existing Salvage Value C, D Econ 14 Benefit / Cost Analysis D Econ 15 Internal Rate of Return D Econ 16 Inflation B Econ 17 Straight Line Depreciation A, B Econ 18 MACRS Depreciation C, B, A Econ 19 Break Even Analysis C Econ 20 Probability Analysis B, A Econ 21 Economic Order Quantity B, D
