IEEN 5329 Advanced Engineering Economy Analysis

IEEN
5329 Advanced Engineering Economy Analysis
Fall
2012

Name ________________________________ Score
_____________________________

Please solve problems 1 to 4 using hand calculation. Show
all your work on the paper. Solve the last problem using Excel and email your
file to IEEN5329@gmail.com.

1. The expansion of the Wideplace Mall is delayed over the
issue of parking. There is not enough
now to support the new facility and more must
be added. Let’s suppose that there are 3
options: buying more land, filling
wetlands at the rear of the site, or building a multilevel garage on the
present lot. Assume a forty-year
planning horizon and an interest rate of 9% per year. Use present worth analysis and the data below
to determine which option should be selected.

PurchaseLand

Fill Wetlands

Garage

Initial Cost, $

$12,000,000

$19,000,000

$44,000,000

Annual Benefit,
$ per year

0

0

4,000,000
(parking fees)

Annual Cost,
$ per year

200,000

160,000

2,900,000

2. Your company needs a small front-end loader for handling
bulk materials at the Wideplace plant.
It can be leased from the dealer for three years for $4050 per year
including all maintenance. It can also
be purchased for $14,000. You expect the
loader to last for six years and to have a salvage value of $3000. You predict that maintenance will cost $400
the first year and increase by $200 per year in each year after the first. Your MARR is 15% per year. Use AW analysis to
determine whether to lease or buy the loader.

3. For the cash flow series below, calculate the composite
rate of return, using a reinvestment rate of 14% per year.

Year

Cash Flow, $

0

3000

1

-2000

2

1000

3

-6000

4

3800

4. The State Department of Excessive Spending (DES) is
planning to build a new office building for the Bureau of Eternal Taxation
(BET) near Wideplace. Four proposed sites are to be evaluated. Any of these sites will save the state
$750,000 per year because the space for BET will no longer need to be rented
from the private sector. As required,
the DES uses benefit/cost ratio analysis with a 6% per year interest rate and
assumes that the building and its benefits will last for 40 years. Which, if any, site should DES choose?

Site

Here

Near

Far

Farther

Initial Cost

$8,600,000

$8,100,000

$7,500,000

$6,800,000

Annual
Operating Cost

$160,000

$ 200,000

$240,000

$300,000

5. The following two alternatives are mutually
exclusive. Which one will you select if
your MARR is 15% per year? Use rate of return analysis.

Alternative

Initial Cost

Annual Benefit

Life, years

Ordinary (O)

$30,000

$9,000

5

Above average
(AA)

33,000

9,000

6

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