IES 341 Engineering Economy (Section 2)

Semester 2, 2017
Dr. Wanwipa Siriwatwechakul

Homework 6
Due date: April 5, 2017 at 4 pm.
Note: The questions are taken from the textbook, Basics of Engineering Economy by L. Blank & A. Tarquin.

Chapter 7
1. Question 7.11 Calculate the conventional B/C ratio for the cash flow estimates shown at a discount rate
of 8% per year

Item Cash Flow

PW of benefit, $ 3,800,000
AW of disbenefit, $ per year 65,000
First cost, $ 1,200,000
Maintenance and Operating Cost, $ per year 300,00
Life of the project, years 20

2. Question 7.15 From the following data, calculate the (a) conventional and (b) modified B/C ratios,
(B D + S)/C, using an interest rate of 6% per year and study period of 40 years. Is this project
economically justified?

To the People To the Government

$200,000 now and $100,000 per $1.2 million now and $200,000
Benefit Cost:
year for forty years three years from now
Disbenefit $18,000 per year Savings: $90,000 five years from now

Chapter 8
3. Question 8.10 Benjamin used regression analysis to fit quadratic relations to monthly revenue and cost
data with the following results:
= 0.007 + 32
= 0.004 + 2.2 + 8
Plot R and TC. Estimate the quantity Q at which the maximum profit should occur. Estimate the amount of
profit at this quantity.
4. Question 8.18 An engineer can lease a fully equipped computer and color printer system for $800 per
month or purchase one for $8,500 now and pay a $75 per month maintenance fee. If the nominal
interest rate is 15% per year, determine the months of use necessary for the two to break even.
5. Question 8.19 Paul is a chemical engineer at an east coast refinery that produces JP-4 jet fuel. He is
evaluating two equivalent methods that may assist in the reduction of vapor emission during the
processing cycle. If MARR is 12% per year, determine the annual breakeven gallonage for a study
period of a) 1 year, b) 3 years and c) 5 years.

Method A B
Fixed cost, $ per year 400,000 750,000
Variable cost, $ per 60 40 the first year, decreasing by 3
1000 gallons each year thereafter
1
6. Question 8.38 Determine if the selection of system 1 or 2 is sensitive to variation in the return required
by management. The corporate MARR ranges from 8% to 16% per year on different projects.

System 1 System 2
Fixed cost, $ -50,000 -100,000
AOC, $ per year -6,000 -1,500
Salvage value, $ 30,000 0
Rework at midlife, $ -17,000 -30,000
Life, years 4 12