SOLUTIONS MANUAL
for
ST
Contemporary Engineering Economics, 7th edition
U
D
by Chan S Park
YL
AB
, Table of Content
Part 1: Basics of Financial Decisions
Chapter 1: Engineering Economic Decisions
Chapter 2: Accounting and Financial Decision Making
Chapter 3: Interest Rate and Economic Equivalence
Chapter 4: Understanding Money and Its Management
Part 2: Evaluation of Business and Engineering Assets
Chapter 5: Present-Worth Analysis
Chapter 6: Annual Equivalent-Worth Analysis
ST
Chapter 7: Rate-of-Return Analysis
Part 3: Analysis of Project Cash Flows
U
Chapter 8: Cost Concepts Relevant to Decision Making
Chapter 9: Depreciation and Corporate Taxes
D
Chapter 10: Developing Project Cash Flows
YL
Part 4: Handling Risk and Uncertainty
Chapter 11: Inflation and Its Impact on Project Cash
Chapter 12: Project Risk and Uncertainty
Chapter 13: Real-Options Analysis
AB
Part 5: Special Topics in Engineering Economics
Chapter 14: Replacement Decisions
Chapter 15: Capital-Budgeting Decisions
Chapter 16: Economic Analysis in the Service Sector
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Chapter 2: Accounting and Financial Decision Making
Financial Statement
2.1
(a)
• Current assets = $150,000 + $200,000 + $150,000 + $50,000 + $30,000 =
$580,000
• Current liabilities = $50,000 + $100,000 + $80,000 = $230,000
• Working capital = $580,000 - $230,000 = $350,000
ST
• Shareholder’s equity = $100,000 + $150,000 + $150,000 + $70,000 =
$470,000
(b) EPS = $500,000/10,000 = $50 per share
U
(c) Par value = $15; capital surplus = $150,000;
Market price = $15 + $15 = $30 per share
D
2.2
(a) Working capital = Current assets – Current liabilities;
YL
Working capital requirements = Changes in current assets (except Cash) –
Changes in current liabilities
WC req. = (+$100,000 - $20,000) – (+$30,000 - $40,000) = $90,000
AB
(b) Taxable income = $1,500,000 - $650,000 - $150,000 - $20,000 = $680,000
(c) Net income = $680,000 - $272,000 = $408,000
(d) Net cash flow:
A. Operating activities = net income + depreciation – W.C. required =
$408,000 + $200,000 - $90,000 = $518,000
B. Investing activities = equipment purchase = ($400,000)
C. Financing activities = borrowed funds = $200,000
D. Net cash flow = $518,000 - $400,000 + $200,000 = $318,000
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2.3
(a)
168
ROE A = = 21%
800
240
ROEB = = 60%
400
168 + 20(1 − 0.4)
ROA A = = 18%
1,000
240 + 160(1 − 0.4)
ROA B = = 16.8%
2,000
ST
(b) Because company has higher income but less equity than that of company A.
No, it is just one criterion, so we cannot say that. Further investigation must
be conducted.
(c)
408
ROE merge =
U
= 34%
1200
Merge and Acquisition situation between companies A and B.
D
2.4
(a) Debt ratio = $83,451,000/$207,000,000 = 40.31%
YL
(b) Time-interest-earned ratio: N/A
(c) Current ratio = $73,286,000/$43,658,000 = 1.68 times
(d) Quick ratio = ($73,286,000 - $1,764,000)/$43,658,000 = 1.64 times
AB
(e) Inventory-turnover ratio = $170,910,000/[($1,764,000 + $791,000)/2]
=133.78 times
(f) DSO = ($24,094,000)/($170,910,000/365) = 51.46 days
(g) Total-assets-turnover ratio = $170,910,000/$207,000,000 = 0.83 times
(h) Profit margin on sales = $37,037,000/$170,910,000 = 21.67%
$37, 037, 000 + $0
(i) Return on Total assets = = 19.34%
($207, 000, 000 + $176, 064, 000) / 2
oiuytrewq
for
ST
Contemporary Engineering Economics, 7th edition
U
D
by Chan S Park
YL
AB
, Table of Content
Part 1: Basics of Financial Decisions
Chapter 1: Engineering Economic Decisions
Chapter 2: Accounting and Financial Decision Making
Chapter 3: Interest Rate and Economic Equivalence
Chapter 4: Understanding Money and Its Management
Part 2: Evaluation of Business and Engineering Assets
Chapter 5: Present-Worth Analysis
Chapter 6: Annual Equivalent-Worth Analysis
ST
Chapter 7: Rate-of-Return Analysis
Part 3: Analysis of Project Cash Flows
U
Chapter 8: Cost Concepts Relevant to Decision Making
Chapter 9: Depreciation and Corporate Taxes
D
Chapter 10: Developing Project Cash Flows
YL
Part 4: Handling Risk and Uncertainty
Chapter 11: Inflation and Its Impact on Project Cash
Chapter 12: Project Risk and Uncertainty
Chapter 13: Real-Options Analysis
AB
Part 5: Special Topics in Engineering Economics
Chapter 14: Replacement Decisions
Chapter 15: Capital-Budgeting Decisions
Chapter 16: Economic Analysis in the Service Sector
, iuytrewq
Chapter 2: Accounting and Financial Decision Making
Financial Statement
2.1
(a)
• Current assets = $150,000 + $200,000 + $150,000 + $50,000 + $30,000 =
$580,000
• Current liabilities = $50,000 + $100,000 + $80,000 = $230,000
• Working capital = $580,000 - $230,000 = $350,000
ST
• Shareholder’s equity = $100,000 + $150,000 + $150,000 + $70,000 =
$470,000
(b) EPS = $500,000/10,000 = $50 per share
U
(c) Par value = $15; capital surplus = $150,000;
Market price = $15 + $15 = $30 per share
D
2.2
(a) Working capital = Current assets – Current liabilities;
YL
Working capital requirements = Changes in current assets (except Cash) –
Changes in current liabilities
WC req. = (+$100,000 - $20,000) – (+$30,000 - $40,000) = $90,000
AB
(b) Taxable income = $1,500,000 - $650,000 - $150,000 - $20,000 = $680,000
(c) Net income = $680,000 - $272,000 = $408,000
(d) Net cash flow:
A. Operating activities = net income + depreciation – W.C. required =
$408,000 + $200,000 - $90,000 = $518,000
B. Investing activities = equipment purchase = ($400,000)
C. Financing activities = borrowed funds = $200,000
D. Net cash flow = $518,000 - $400,000 + $200,000 = $318,000
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2.3
(a)
168
ROE A = = 21%
800
240
ROEB = = 60%
400
168 + 20(1 − 0.4)
ROA A = = 18%
1,000
240 + 160(1 − 0.4)
ROA B = = 16.8%
2,000
ST
(b) Because company has higher income but less equity than that of company A.
No, it is just one criterion, so we cannot say that. Further investigation must
be conducted.
(c)
408
ROE merge =
U
= 34%
1200
Merge and Acquisition situation between companies A and B.
D
2.4
(a) Debt ratio = $83,451,000/$207,000,000 = 40.31%
YL
(b) Time-interest-earned ratio: N/A
(c) Current ratio = $73,286,000/$43,658,000 = 1.68 times
(d) Quick ratio = ($73,286,000 - $1,764,000)/$43,658,000 = 1.64 times
AB
(e) Inventory-turnover ratio = $170,910,000/[($1,764,000 + $791,000)/2]
=133.78 times
(f) DSO = ($24,094,000)/($170,910,000/365) = 51.46 days
(g) Total-assets-turnover ratio = $170,910,000/$207,000,000 = 0.83 times
(h) Profit margin on sales = $37,037,000/$170,910,000 = 21.67%
$37, 037, 000 + $0
(i) Return on Total assets = = 19.34%
($207, 000, 000 + $176, 064, 000) / 2
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