lOMoARcPSD|49115842
ENGR 301/2 H - Assignment 4
Deadline: due 17:30 (5:30 pm), Thursday, Nov. 08, 2012
Assignments must be submitted on-line using the multiple choice answer sheet
on the Moodle course website. No submissions will be accepted after the deadline.
Question 4-1
How much would the owner of a building be justified in paying for a sprinkler system
that will save $750 a year in insurance premiums if the system has to be replaced
every 20 years and has a salvage value equal to 10% of its initial costs? Assume
money is worth 6%.
The best (closest) answer is:
□ $8888 □ $7987 □ $9656 □ $8410
Answer
Question 4-2
A machine costs $980,000 to purchase and will provide $200,000 a year in benefits.
The company plans to use the machine for 13 years, and then will sell the machine for
scrap, receiving $20,000. The company interest rate is 12%. Which one of the
following statements is correct:
(a) NPW = $980,000 + $200,000 (P/A,12%,13) + $20,000 (P/F,12%,13)
(b) NPW = –$980,000 + $200,000 (P/A,12%,13) + $20,000 (P/F,12%,13)
(c) NPW = –$980,000 + $200,000 (P/A,12%,13) – $20,000 (P/F,12%,13)
(d) NPW = $980,000 – $200,000 (P/F, 12%,13) – $20,000 (P/A,12%,13)
□ answer (a) □ answer (b) □ answer (c) □ answer (d)
Question 4-3
The General Hospital is evaluating new office equipment offered by four companies.
In each case the interest rate is 15% and the useful life of the equipment is 4 years.
Use NPW analysis to determine the company from which you should purchase the
equipment.
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Company A Company B Company C Company D
First cost $ 15,000 $ 18,000 $ 25,000 $ 20,000
Annual M&R cost $ 1,600 $ 1,100 $ 400 $ 900
Annual benefit $ 8,000 $ 9,000 $ 13,000 $ 11,000
Salvage value $ 3,000 $ 3,500 $ 6,000 $ 4,500
□ Company A □ Company B □ Company C □ Company D
Answer
Question 4-4
A pump is needed for 10 years at a remote location. The pump can be driven by an
electric motor if a power line is extended to the site. Otherwise a gasoline engine will
be used. Use a present worth cash flow analysis, using the following data and a 10%
interest rate, to determine how the pump should be powered. Calculate PWgas (present
worth for gasoline option) and PWelectric (present worth for electric option). The
gasoline option can be repeated for another 5 years starting at the end of the fifth year
at the same given cost (neglect inflation effect).
Gasoline Electric
First Cost $ 2400 $ 6000
Annual Operating cost $ 1200 $ 750
Annual Maintenance $ 300 $ 50
Salvage value $ 300 $ 600
Life in years 5 10
Based on your calculations, which of the following statements is the best answer:
(a) PWgas = – $7,900; PWelectric = – $10,685; Choose gasoline pump
(b) PWgas = – $15,550; PWelectric = – $17,588; Choose gasoline pump
(c) PWgas = – $12,805; PWelectric = – $10,685; Choose electric pump
(d) PWgas = – $10,508; PWelectric = – $9,685; Choose electric pump
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ENGR 301/2 H - Assignment 4
Deadline: due 17:30 (5:30 pm), Thursday, Nov. 08, 2012
Assignments must be submitted on-line using the multiple choice answer sheet
on the Moodle course website. No submissions will be accepted after the deadline.
Question 4-1
How much would the owner of a building be justified in paying for a sprinkler system
that will save $750 a year in insurance premiums if the system has to be replaced
every 20 years and has a salvage value equal to 10% of its initial costs? Assume
money is worth 6%.
The best (closest) answer is:
□ $8888 □ $7987 □ $9656 □ $8410
Answer
Question 4-2
A machine costs $980,000 to purchase and will provide $200,000 a year in benefits.
The company plans to use the machine for 13 years, and then will sell the machine for
scrap, receiving $20,000. The company interest rate is 12%. Which one of the
following statements is correct:
(a) NPW = $980,000 + $200,000 (P/A,12%,13) + $20,000 (P/F,12%,13)
(b) NPW = –$980,000 + $200,000 (P/A,12%,13) + $20,000 (P/F,12%,13)
(c) NPW = –$980,000 + $200,000 (P/A,12%,13) – $20,000 (P/F,12%,13)
(d) NPW = $980,000 – $200,000 (P/F, 12%,13) – $20,000 (P/A,12%,13)
□ answer (a) □ answer (b) □ answer (c) □ answer (d)
Question 4-3
The General Hospital is evaluating new office equipment offered by four companies.
In each case the interest rate is 15% and the useful life of the equipment is 4 years.
Use NPW analysis to determine the company from which you should purchase the
equipment.
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, lOMoARcPSD|49115842
Company A Company B Company C Company D
First cost $ 15,000 $ 18,000 $ 25,000 $ 20,000
Annual M&R cost $ 1,600 $ 1,100 $ 400 $ 900
Annual benefit $ 8,000 $ 9,000 $ 13,000 $ 11,000
Salvage value $ 3,000 $ 3,500 $ 6,000 $ 4,500
□ Company A □ Company B □ Company C □ Company D
Answer
Question 4-4
A pump is needed for 10 years at a remote location. The pump can be driven by an
electric motor if a power line is extended to the site. Otherwise a gasoline engine will
be used. Use a present worth cash flow analysis, using the following data and a 10%
interest rate, to determine how the pump should be powered. Calculate PWgas (present
worth for gasoline option) and PWelectric (present worth for electric option). The
gasoline option can be repeated for another 5 years starting at the end of the fifth year
at the same given cost (neglect inflation effect).
Gasoline Electric
First Cost $ 2400 $ 6000
Annual Operating cost $ 1200 $ 750
Annual Maintenance $ 300 $ 50
Salvage value $ 300 $ 600
Life in years 5 10
Based on your calculations, which of the following statements is the best answer:
(a) PWgas = – $7,900; PWelectric = – $10,685; Choose gasoline pump
(b) PWgas = – $15,550; PWelectric = – $17,588; Choose gasoline pump
(c) PWgas = – $12,805; PWelectric = – $10,685; Choose electric pump
(d) PWgas = – $10,508; PWelectric = – $9,685; Choose electric pump
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