Engineering Economy (16th Edition) - Standalone
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
1
, Engineering Economy (16th Edition) - Standalone
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
Solutions to end-of-chapter problems
Engineering Economy, 8th edition
Leland Blank and Anthony Tarquin
Chapter 1
Foundations of Engineering Economy
Basic Concepts
1.1 Financial units for economically best.
1.2 Morale, goodwill, dependability, acceptance, friendship, convenience, aesthetics, etc.
1.3 Measure of worth is a criterion used to select the economically best alternative. Some
measures are present worth, rate of return, payback period, benefit/cost ratio.
1.4 The color I like, best fuel rating, roomiest, safest, most stylish, fastest, etc.
1.5 Sustainability: Intangible; installation cost: tangible; transportation cost: tangible;
simplicity: intangible; taxes: tangible; resale value: tangible; morale: intangible;
rate of return: tangible; dependability: intangible; inflation: tangible; acceptance by others:
intangible; ethics: intangible.
1.6 Examples are: house purchase; car purchase, credit card (which ones to use); personal loans
(and their rate of interest and repayment schedule); investment decisions of all types; when to
sell a house or car.
Ethics
1.7 This problem can be used as a discussion topic for a team-based exercise in class.
(a) Most obvious are the violations of Canons number 4 and 5. Unfaithfulness to the client
and deceptive acts are clearly present.
(b) The Code for Engineer’s is only partially useful to the owners in determining sound
bases since the contractor is not an engineer. Much of the language of the Code is
oriented toward representation, qualifications, etc., not specific acts of deceit and
fraudulent behavior. Code sections may be somewhat difficult to interpret in
construction of a house.
(c) Probably a better source would be a Code for Contractor’s or consulting with a real
estate attorney.
1.8 Many sections could be identified. Some are: I.b; II.2.a and b; III.9.a and b.
1.9 Example actions are:
• Try to talk them out of doing it now, explaining it is stealing
• Try to get them to pay for their drinks
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
2
, Engineering Economy (16th Edition) - Standalone
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
• Pay for all the drinks himself
• Walk away and not associate with them again
1.10 This is structured to be a discussion question; many responses are acceptable. Responses
can vary from the ethical (stating the truth and accepting the consequences) to unethical
(continuing to deceive himself and the instructor and devise some on-the-spot excuse).
Lessons can be learned from the experience. A few of them are:
• Think before he cheats again.
• Think about the longer-term consequences of unethical decisions.
• Face ethical-dilemma situations honestly and make better decisions in real time.
Alternatively, Claude may learn nothing from the experience and continue his unethical
practices.
Interest Rate and Rate of Return
1.11 Extra amount received = 2865 - 25.80*100 = $285
Rate of return = 285/2580
= 0.110 (11%)
Total invested + fee 2865 + 50 = $2915
Amount required for 11% return = 2915*1.11
= $3235.65
1.12 (a) Payment = 1,600,000(1.10)(1.10) = $1,936,000
(b) Interest = total amount paid – principal
= 1,936,000- 1,600,000
= $336,000
1.13 i = [(5,184,000 – 4,800,000)/4,800,000]*100% = 8% per year
1.14 Interest rate = interest paid/principal
= (312,000/2,600,000)
= 0.12 (12%)
1.15 i = (1125/12,500)*100 = 9%
i = (6160/56,000)*100 = 11%
i = (7600/95,000)*100 = 8%
The $56,000 investment has the highest rate of return
1.16 Interest on loan = 45,800(0.10) = $4,580
Default insurance = $900
Set-up fee = 45,800(0.01) = 458
Total amount paid = 4,580 + 900 + 458 = $5938
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
3
, Engineering Economy (16th Edition) - Standalone
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
Effective interest rate = (5,938/45,800)*100 = 12.97%
Terms and Symbols
1.17 P = ?; F = 8*240,000 = $1,920,000; n = 2; i = 0.10
1.18 P = $20,000,000; A = ?; n = 6; i = 0.10
1.19 P = $2,400,000; A = $760,000: n = 5; i = ?
1.20 P = $1,500,000; F = $3,000,000: n = ?; i = 0.20
1.21 F = $250,000; A = ?: n = 3; i = 0.09
Cash Flows
1.22 Well drilling: outflow; maintenance: outflow; water sales: inflow; accounting: outflow;
government grants: inflow; issuance of bonds: inflow; energy cost: outflow; pension plan
contributions: outflow; heavy equipment purchases: outflow; used-equipment sales:
inflow; stormwater fees: inflow; discharge permit revenues: inflow.
1.23 Let Rev = Revenues; Exp = Expenses
Year 1 2 3 4 5 Total
Rev, $1000 521 685 650 804 929
Exp, $1000 610 623 599 815 789
NCF, $1000 -89 62 51 -11 140 153
Exp/Rev, % 117 91 92 101 85
(a) Total NCF = $153,000
(b) Last row of the table shows the answers
1.24 Month Receipts, $1000 Disbursements, $1000 NCF, $1000
Jan 300 500 -200
Feb 950 500 +450
Mar 200 400 -200
Apr 120 400 -280
May 600 500 +100
June 900 600 +300
July 800 300 +500
Aug 900 300 +600
Sept 900 200 +700
Oct 500 400 +100
Nov 400 400 0
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
4
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
1
, Engineering Economy (16th Edition) - Standalone
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
Solutions to end-of-chapter problems
Engineering Economy, 8th edition
Leland Blank and Anthony Tarquin
Chapter 1
Foundations of Engineering Economy
Basic Concepts
1.1 Financial units for economically best.
1.2 Morale, goodwill, dependability, acceptance, friendship, convenience, aesthetics, etc.
1.3 Measure of worth is a criterion used to select the economically best alternative. Some
measures are present worth, rate of return, payback period, benefit/cost ratio.
1.4 The color I like, best fuel rating, roomiest, safest, most stylish, fastest, etc.
1.5 Sustainability: Intangible; installation cost: tangible; transportation cost: tangible;
simplicity: intangible; taxes: tangible; resale value: tangible; morale: intangible;
rate of return: tangible; dependability: intangible; inflation: tangible; acceptance by others:
intangible; ethics: intangible.
1.6 Examples are: house purchase; car purchase, credit card (which ones to use); personal loans
(and their rate of interest and repayment schedule); investment decisions of all types; when to
sell a house or car.
Ethics
1.7 This problem can be used as a discussion topic for a team-based exercise in class.
(a) Most obvious are the violations of Canons number 4 and 5. Unfaithfulness to the client
and deceptive acts are clearly present.
(b) The Code for Engineer’s is only partially useful to the owners in determining sound
bases since the contractor is not an engineer. Much of the language of the Code is
oriented toward representation, qualifications, etc., not specific acts of deceit and
fraudulent behavior. Code sections may be somewhat difficult to interpret in
construction of a house.
(c) Probably a better source would be a Code for Contractor’s or consulting with a real
estate attorney.
1.8 Many sections could be identified. Some are: I.b; II.2.a and b; III.9.a and b.
1.9 Example actions are:
• Try to talk them out of doing it now, explaining it is stealing
• Try to get them to pay for their drinks
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
2
, Engineering Economy (16th Edition) - Standalone
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
• Pay for all the drinks himself
• Walk away and not associate with them again
1.10 This is structured to be a discussion question; many responses are acceptable. Responses
can vary from the ethical (stating the truth and accepting the consequences) to unethical
(continuing to deceive himself and the instructor and devise some on-the-spot excuse).
Lessons can be learned from the experience. A few of them are:
• Think before he cheats again.
• Think about the longer-term consequences of unethical decisions.
• Face ethical-dilemma situations honestly and make better decisions in real time.
Alternatively, Claude may learn nothing from the experience and continue his unethical
practices.
Interest Rate and Rate of Return
1.11 Extra amount received = 2865 - 25.80*100 = $285
Rate of return = 285/2580
= 0.110 (11%)
Total invested + fee 2865 + 50 = $2915
Amount required for 11% return = 2915*1.11
= $3235.65
1.12 (a) Payment = 1,600,000(1.10)(1.10) = $1,936,000
(b) Interest = total amount paid – principal
= 1,936,000- 1,600,000
= $336,000
1.13 i = [(5,184,000 – 4,800,000)/4,800,000]*100% = 8% per year
1.14 Interest rate = interest paid/principal
= (312,000/2,600,000)
= 0.12 (12%)
1.15 i = (1125/12,500)*100 = 9%
i = (6160/56,000)*100 = 11%
i = (7600/95,000)*100 = 8%
The $56,000 investment has the highest rate of return
1.16 Interest on loan = 45,800(0.10) = $4,580
Default insurance = $900
Set-up fee = 45,800(0.01) = 458
Total amount paid = 4,580 + 900 + 458 = $5938
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
3
, Engineering Economy (16th Edition) - Standalone
book 16th Edition
by William Sullivan (Author), Elin Wicks (Author), C. Koelling (Author), C Koelling (Author)
Effective interest rate = (5,938/45,800)*100 = 12.97%
Terms and Symbols
1.17 P = ?; F = 8*240,000 = $1,920,000; n = 2; i = 0.10
1.18 P = $20,000,000; A = ?; n = 6; i = 0.10
1.19 P = $2,400,000; A = $760,000: n = 5; i = ?
1.20 P = $1,500,000; F = $3,000,000: n = ?; i = 0.20
1.21 F = $250,000; A = ?: n = 3; i = 0.09
Cash Flows
1.22 Well drilling: outflow; maintenance: outflow; water sales: inflow; accounting: outflow;
government grants: inflow; issuance of bonds: inflow; energy cost: outflow; pension plan
contributions: outflow; heavy equipment purchases: outflow; used-equipment sales:
inflow; stormwater fees: inflow; discharge permit revenues: inflow.
1.23 Let Rev = Revenues; Exp = Expenses
Year 1 2 3 4 5 Total
Rev, $1000 521 685 650 804 929
Exp, $1000 610 623 599 815 789
NCF, $1000 -89 62 51 -11 140 153
Exp/Rev, % 117 91 92 101 85
(a) Total NCF = $153,000
(b) Last row of the table shows the answers
1.24 Month Receipts, $1000 Disbursements, $1000 NCF, $1000
Jan 300 500 -200
Feb 950 500 +450
Mar 200 400 -200
Apr 120 400 -280
May 600 500 +100
June 900 600 +300
July 800 300 +500
Aug 900 300 +600
Sept 900 200 +700
Oct 500 400 +100
Nov 400 400 0
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
4
