Engineering Economy
Engineering Economy
null Edition
ISBN: 9781259253294
Publisher: MCGRAW HILL BOOK COMPANY
Question
Chapter 1, Problem 47P
To determine

Identify the opportunity cost.

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James, the plant manager at Global Foundries (GF), received estimates from two contractors to improve traffic flow and repave the parking areas at his production facility. Proposal A includes new curbs, grading, and paving at an initial cost of $250,000. The expected life of the parking lot surface is 4 years with annual costs for maintenance and repainting of strips of $3000. According to proposal B, the pavement has a higher quality and an expected life of 12 years. The annual maintenance cost will be negligible for the parking area, but the markings will have to be repainted every 2 years at a cost of $5000. The MARR is 12% per year. (a) How much can GF afford to spend on proposal B for the two proposals to break even? (b) Proposal B first cost came in at $700,000. Now, what is the breakeven initial cost for proposal A, if all other estimates are correct?
An investment of RM50,000 can be made in a project that will produce a uniform annual revenue of RM3,170 for seven years and then have a market (salvage) value of RM8,100. Expenses will be RM1,100 in second year and saving RM2,100 in third year. Second investment of RM4, 000 in fifth years was made to increase the project operation. The company is willing to accept any project that will earn 10% per year or more before incomes taxes, on all invested capital. Show whether this is desirable investment by using the Present Worth method. Draw the cashflow diagram.
What is the present worth difference between an investment of $30,000 per year for 40 years and aninvestment of $30,000 per year forever at an interest rate of 15% per year?
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  • A window frame manufacturer is searching for ways to improve revenue from its triple-insulated sliding windows, sold primarily in the far northern areas of the United States. Alternative A is an in- crease in TV and radio marketing. A total of $300,000 spent now is expected to increase revenue by $60,000 per year. Alternative B requires the same investment for enhancements to the in-plant manufacturing process that wil improve the temperature retention properties of the seals around each glass pane. New revenues start slowly for this alternative at an estimated $10,000 the first year, with growth of $15,000 per year as the improved product gains reputation among builders. The MARR is 8% per year and the maximum projection period is 10 years for either alternative.
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