Exam II Study Guide
Exam II Study Guide CEE 270
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This 7 page Study Guide was uploaded by Nathaniel Bautz on Saturday March 28, 2015. The Study Guide belongs to CEE 270 at University of Massachusetts taught by Bernd Schliemann in Spring2015. Since its upload, it has received 250 views. For similar materials see System Analysis and Economic Civil Engineering in Civil and Environmental Engineering at University of Massachusetts.
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Date Created: 03/28/15
as of 3132015 BFS CEE 270 Systems Analysis amp Economics Practice Problem Set Solutions from Blank amp Tarquin 7th edition for Exam 2 1 Income from recycling paper and cardboard at the US Army Fort Benning Maneuver Center has averaged 3000 per month for 25 years What is the future value of the income after the 25 years at an interest rate of 6 per year compounding quarterly A 30003 9000 per quarter F 9000FA 1510 9000107027 96324 2 Determine the present worth in year 0 of the annual cash flows shown Use a MARR of 15 Year 1 2 3 4 5 6 7 8 9 10 Cash Flow 90 90 90 85 80 75 70 65 60 55 P 90PA 152 90PA 158 5PG 158PF 152 9006257 9044873 512480707561 40449 3 An effective method to recover water used for regeneration of ion exchange resins is to use a reverse osmosis system in a batch treatment mode Such a system involves recirculation of the partially treated water back into the feed tank causing the water to heat up The water can be cooled using one of two systems a singlepass heat exchanger or a closedloop heat exchange system The singlepass system good for 3 years requires a small chiller costing 920 plus stainless steel tubing connectors valves etc costing 360 The cost of water treatment charges electricity etc will be 310 per hour The closed Ioop system will cost 3850 to buy will have a useful life of 5 years and will cost 128 per hour to operate What is the minimum number of hours per year that the cooling system must be used in order to justify purchase of the closedloop system The MARR is 10 per year and the salvage values are negligible 920 360AP 103 310X 3850AP 105 128X 1280040211 310X 3850026380 128X 182X 50093 X 275 hours per year 4 The maintenance cost for furnaces at a copper smelting plant have been constant at 140000 per year for the past 5 years If the interest rate was 8 per year for the first 3 years and then it increased to 10 in year 4 and 5 what is the equivalent future worth in year 5 of the maintenance cost F 140000FA 83FP 102 140000FA 102 1400003246412100 14000021000 843940 as of 3132015 BFS 5 The manager of canned food processing plant must decide between two different labeling machines Machine A will have the first cost of 42000 an annual operating cost of 28000 and a service life of 4 years Machine B will cost 51000 to buy and will have an annual operating cost of 17000 during its 4 year life At an interest rate of 10 per year which should be selected on the basis of a present worth analysis PWA 42000 28000PA 104 42000 2800031699 130757 PWB 51000 17000PA 104 51000 1700031699 104888 Select Machine B 6 Two processes can be used for producing a polymer that reduces friction loss in engines Process K which is currently in place has a market value of 165000 now an operating cost of 69000 per year and a salvage value of 50000 after 1 more year and 40000 after its maximum 2year remaining life Process L the challenger will have a first cost of 230000 an operating cost of 65000 per year and salvage values of 100000 after 1 year 70000 after 2 years 45000 after 3 years and 26000 after its maximum expected 4year life The company s MARR is 12 per year You have been asked to determine which of the two processes to select when a 2year study period is used For 2year study period PWK 165000 69000PA 122 40000PF 122 165000 69000169005 40000079719 249726 PWL 230000 65000PA 122 70000PF 122 230000 65000169005 70000079719 284050 Process K is selected 7 Identify the following as flows as a benefit disbenefit or cost a Loss of income to local businesses because if a new freeway b Less travel time because of a loop bypass c 400000 annual income to local businesses because of tourism created by a national park d Cost of fish from a hatchery to stock a lake at the state park e Less tire wear because of smoother road surfaces f Decrease in property values due to the closure of a government research lab g School overcrowding because of a military base expansion h Revenue to local motels because of an extended weekend holiday a Disbenefit e Benefit b Benefit f Disbene t c Benefit g Disbenefit 1 Cost h Benefit as of 3132015 BFS 8 A project to extend irrigation canals into an area that was recently cleared of mesquite trees a nuisance tree in Texas and large weeds is projected to have a capital cost of 2000000 Annual maintenance and operation costs will be 100000 per year Annual favorable consequences to the general public of 820000 per year will be offset to some extent by annual adverse consequences of 400000 to a portion of the general public If the project is assumed to have a 20year life what is the BC ratio at an interest rate of 8 per year B 820000 D 400000 C 2000000AP 820 100000 2000000010185 100000 303700 BC 820000 400000303700 138 9 Four mutually exclusive revenue alternatives are being compared using the BC method Which alternative if any should be selected Show your methodology for full credit Alternative Initial Cost BC Ratio vs Incremental BC When Millions DN Compare with Alternative A B C D A 30 087 238 130 138 B 38 118 058 113 C 52 104 145 D 81 116 Ranking is A B C D Eliminate A because BC lt 10 B vs DN BC 118 Eliminate DN C vs B ABC 058 Eliminate C D vs B ABC 113 Eliminate B Select D 10 The cost of maintaining a certain permanent monument in Washington DC occurs as periodic outlays of 1000 every year and 5000 every 4 years Calculate the capitalized cost of the maintenance using an interest rate of 10 per year CC 1000010 5000AF 104010 1000010 5000021547010 20774 11 For the cash flows shown determine the rate of return Year 0 1 2 3 4 5 Expense 17000 2500 2500 2500 2500 2500 Revenue 0 5000 6000 7000 8000 12000 0 17000 2500PAi5 1000PGi5 3000PFi5 Solve for i by trial and error or spreadsheet i 122 spreadsheet as of 3132015 BFS 12 Xerox s iGenX highspeed commercial printers cost 15 billion to develop The machines cost 500000 to 750000 depending on what options the client selects Spectrum Imaging Systems is considering the purchase of a new printer based on recent contracts it received for printing weekly magazine and mailout advertising materials The operating costs and revenues generated are related to a large extent to the speed and other capabilities of the copier Spectrum is considering the four machines shown below The company uses a 3year planning period and a MARR of 15 per year Determine which copier the company should acquire on the basis of an incremental rate of return analysis Copier Initial Investment Operating Cost per Year Annual Revenue Salvage Value per Year iGenl 500000 350000 450000 70000 iGen2 600000 300000 460000 85000 iGen3 650000 275000 480000 95000 iGen4 750000 200000 510000 120000 Revenue alternatives calculate overall ROR rst and compare to MARR 15 Then rank remaining alternatives according to increasing initial investment including DN and compare incrementally ROR values determined by RATE function i iGen 1 126 eliminate i iGen 2 27 eliminate i iGen 3 43 eliminate i iGen 4 178 retain iGen4 vs DN 0 750000 310000PAAi3 120000P Ai3 Ai 178 select iGen4 13 In 2010 Brazil began construction of the Belo Monte hydroelectric dam on the Xingu River which feeds the Amazon River The project is funded by a consortium of investors and is expected to cost 11 billion It will begin producing electricity in 2015 Even though the dam will provide clean energy for millions of people environmentalists are sharply opposed They say it will devastate wildlife and the livelihood of 40000 people who live in the area to be flooded Assume that the funding will occur evenly over the 5year period from 2010 through 2014 at 22 billion per year The disbenefits are estimated to be 100000 for each displaced person and 1 billion for wildlife destruction Assume that the disbenefits will occur evenly through the 5year construction period and anticipated benefits will begin at the end of 2015 and continue indefinitely Use an interest rate of 8 per year to determine what the equivalent annual benefits must be to ensure a BC ratio of at least 10 Convert annual benefits designated as A in years 6 through infinity to an A value in years 1 through 5 Let B indicate billion B A008AF85 D 40000100000 1B5 1B per year for 5 years C 11B5 22B per year for 5 years 10 B DC 10 A008AF85 1B22B 10 A008017046 1B22B 22B 017046A008 1B A 15018 billion per year as of 3132015 BFS 14 A group of engineers responsible for developing advanced missile detection and tracking technologies such as shortwave infrared thermal infrared detection target tracking radar etc recently came up with six proposals for consideration The present worth in billions of the capital requirements and benefits is shown for each alternative in the table Determine which ones should be undertaken if they are a independent and b mutually exclusive Alternative A B C D E F PW of capital 80 50 72 43 89 81 PW of benefits 70 55 76 52 85 84 a BCA 7080 088 BCB 5550 110 BCC 7672 106 BCD 5243 121 BCE 8589 095 BCF 8481 104 Select all alternatives that have BC 2 10 Select B C D and F b Rank acceptable alternatives ie BC 2 10 by increasing cost D B C F and do incremental analysis B vs D ABC 55 5250 43 043 Eliminate B C vs D ABC 76 5272 43 083 Eliminate C F vs D ABC 84 5281 43 084 Eliminate F Select alternative D 15 An effective method to recover water used for regeneration of ion exchange resins is to use a reverse osmosis system in a batch treatment mode Such a system involves recirculation of the partially treated water back into the feed tank causing the water to heat up The water can be cooled using one of two systems a singlepass heat exchanger or a closedloop heat exchange system The singlepass system good for 3 years requires a small chiller costing 920 plus stainless steel tubing connectors valves etc costing 360 The cost of water treatment charges electricity etc will be 310 per hour The closedloop system will cost 3850 to buy will have a useful life of 5 years and will cost 128 per hour to operate What is the minimum number of hours per year that the cooling system must be used in order to justify purchase of the closedloop system The MARR is 10 per year and the salvage values are negligible 920 360AP103 310X 3850AP105 128X 1280040211 310X 3850026380 128X 182X 50093 X 275 hours per year as of 3132015 BFS 16 National Parcel Service has historically owned and maintained its own delivery trucks Leasing is an option being seriously considered because costs for maintenance fuel insurance and some liability issues will be transferred to Pacific Leasing the truck leasing company The study period is no more than 24 months for either alternative The annual lease cost is paid at the beginning of each year and is not refundable for partially used years Use the first cost and net cash flow estimates to determine the payback in months with a nominal 9 per year return for the a purchase option and b lease option Purchase P 30000 now Monthly cost 1000 Monthly revenue 4500 Lease P 10000 at the beginning of each year months 0 and 12 Monthly cost 2500 Monthly revenue 4500 Monthly i 912 075 Solve PW relations for 11p a Purchase PW 30000 3500PA075np PA075np 85714 np 89 months interpolation For spreadsheet solution enter NPER075350030000 to display 89 b Lease PW 100001PF07512 2000PA075np Since 2000 per month Will payback during the first year the second 10000 can be neglected PW 10000 2000PA075np PA075n 50 n 51 months interpolation For spreadsheet solution enter NPER075200010000 to display 51 17 Lee Company of Westbrook Connecticut manufactures pressure relief inserts for thermal relief and lowflow hydraulic pressure relief applications where zero leakage is required A machine purchased 3 years ago has been bookdepreciated by the straight line method using a 5year useful life If the book value at the end of year 3 is 30000 and the company assumed that the machine would be worthless at the end of its 5year useful life a what is the book depreciation charge each year and b what was the first cost of the machine a If the machine Will have BV 0 at the end of 5 years the SL book depreciation charge for each of the last 2 years Will have to be Dt 300002 15000 per year b 15000 B 05 B 75000 18 modified The manager of a Glidden Paint manufacturing plant wants to determine the writeoff in the first 3 years for a recently purchased mixer that has a first cost of 300000 a 5year recovery period and a 60000 salvage value The annual MACRS depreciation rates are 20 32 and 192 for years 1 2 and 3 respectively MACRS BV3 300000 300000020 032 0192 300000 213600 86400 as of 3132015 BFS 19 J B Hunt nc an overland freight company has purchased new trailers for 150000 and expects to realize a net 80000 in gross income over operating expenses for each of the next 3 years The trailers have a recovery period of 3 years Assume an effective tax rate of 35 and an interest rate of 15 per year a Show the advantage of accelerated depreciation by calculating the present worth of taxes for the MACRS method versus the classical SL method Since MACRS takes an additional year to fully deprecate the basis assume no CFBT beyond year 3 but include any negative tax as a tax savings b Show that the total taxes are the same for both methods a For SL depreciation With n 3 years Dt 50000 per year Taxes TI035 Year CFBT D TI Taxes 13 80000 50000 30000 10500 PWtax 10500PA153 1050022832 23974 For MACRS depreciation use Table 162 rates Year CFBT d D TI Taxes 1 80000 3333 49995 30005 10502 2 80000 4445 66675 13325 4664 3 80000 1481 22215 57785 20224 4 0 741 11115 11115 3890 PWtax 10502PF151 3890PF154 23733 MACRS has only a slightly lower PWtax value b Total taxes are the same SL is 310500 31500 MACRS is 10502 3890 31500 20 Bart is an economic consultant to the textile industry In both a small business and a large corporation he performed economic evaluations that have an average 18 per year beforetax return If the stated MARR in both companies is 12 per year after taxes determine if management at both companies should accept the projects The beforetax return is used to approximate the aftertax return Effective tax rates are 34 for the larger corporation and 28 for the small company Small company Aftertax ROR 0181 028 01296 1296 Conclusion Accept at aftertax MARR 12 Large corporation Aftertax ROR 0181 034 01188 1188 Conclusion Reject at aftertax MARR 12
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