, SOLUTIONS
MANUAL
Engineering Economics
Financial Decision Making for Engineers, 6/e
Sixth Edition
, CHAPTER 1
Solutions to Chapter-End Problems
A. Key Concepts
When to Use Engineering Economics:
1.1 (a) Yes - several quantifiable alternatives exist
(b) Yes - if quantifiable
(c) No - alternatives are not quantifiable
(d) No - since it mainly involves intangible qualifications of the candidate
(e) Yes - at least two alternatives are quantifiable
(f) Yes - with quantifiable costs and benefits
(g) No - hard to quantify
(h) Yes - if the effect is quantifiable
(i) Yes - quantifiable
(j) No - benefits are hard to quantify
(k) Yes - quantifiable
(l) Yes - if quantifiable
1.2 Five examples:
1) Location of the business: renting vs. buying decision
2) Equipment: leasing vs. buying decision
3) Equipment: choosing one out of several alternatives; analysis of cost
savings
4) Viability of the business: analysis of cash flow; ability to recover the
capital investment
5) Effect of the corporate tax rate
1.3 Whatever the description for the items listed, it should be clear that all
engineering design is founded on controlling the costs incurred.
Ethics in Decision-Making:
1.4 There is no right or wrong answer to any of these questions. The student
should observe, however, that there often is a difference in how we should
behave compared to how we do behave.
B. Applications
1
Copyright © 2016 Pearson Canada Inc.
, Chapter 1 - Engineering Decision Making
1.5 There is no right answer to which they should move into. However, they
probably will move into the duplex, on the grounds that emotion has a
more direct impact on our decisions than does logic.
1.6 (a) She should probably not buy the cheapest one. She cannot decide on
price alone.
(b) If everything else is the same, one would expect Karen to buy the
cheapest one.
1.7 Ciel can (1) invest time in making sure she has the best information about
all of the issues that will affect her future sales, and (2) do sensitivity
analysis in her financial calculations.
1.8 It is not clear that Trevor should sell out to Venture Corp. He will get more
money that way, but it may be very important to him that his brainchild
continue to thrive. What Trevor has to decide is whether avoiding the
displeasure he gets from Venture Corp. closing down his company is
worth $1 000 000 to him. If it is, he should take the Investco offer, or if not,
the Venture Corp. offer.
1.9 Possible uncertainties that associate with the new technology:
1) Is the new technology proven to be viable?
2) Is the performance or quality that are expected from the technology
proven to be consistent?
3) Are there any “side effects”?
4) Is this technology going to stay, or will it be replaced quickly by an
alternative technology?
5) What market share might Telekom gain?
Sensitivity analysis may be able to address the second and third issues by
considering a range of performance/quality/side effect issues. The first
and fourth issues, however, may be difficult to address by sensitivity
analysis since there is no specific quantity that can be varied.
C. More Challenging Problems:
1.10 The Toyota Corolla is the right choice when the interest rate is very high,
while the BMW is the right choice if the interest rate is very low.
2
Copyright © 2016 Pearson Canada Inc.
MANUAL
Engineering Economics
Financial Decision Making for Engineers, 6/e
Sixth Edition
, CHAPTER 1
Solutions to Chapter-End Problems
A. Key Concepts
When to Use Engineering Economics:
1.1 (a) Yes - several quantifiable alternatives exist
(b) Yes - if quantifiable
(c) No - alternatives are not quantifiable
(d) No - since it mainly involves intangible qualifications of the candidate
(e) Yes - at least two alternatives are quantifiable
(f) Yes - with quantifiable costs and benefits
(g) No - hard to quantify
(h) Yes - if the effect is quantifiable
(i) Yes - quantifiable
(j) No - benefits are hard to quantify
(k) Yes - quantifiable
(l) Yes - if quantifiable
1.2 Five examples:
1) Location of the business: renting vs. buying decision
2) Equipment: leasing vs. buying decision
3) Equipment: choosing one out of several alternatives; analysis of cost
savings
4) Viability of the business: analysis of cash flow; ability to recover the
capital investment
5) Effect of the corporate tax rate
1.3 Whatever the description for the items listed, it should be clear that all
engineering design is founded on controlling the costs incurred.
Ethics in Decision-Making:
1.4 There is no right or wrong answer to any of these questions. The student
should observe, however, that there often is a difference in how we should
behave compared to how we do behave.
B. Applications
1
Copyright © 2016 Pearson Canada Inc.
, Chapter 1 - Engineering Decision Making
1.5 There is no right answer to which they should move into. However, they
probably will move into the duplex, on the grounds that emotion has a
more direct impact on our decisions than does logic.
1.6 (a) She should probably not buy the cheapest one. She cannot decide on
price alone.
(b) If everything else is the same, one would expect Karen to buy the
cheapest one.
1.7 Ciel can (1) invest time in making sure she has the best information about
all of the issues that will affect her future sales, and (2) do sensitivity
analysis in her financial calculations.
1.8 It is not clear that Trevor should sell out to Venture Corp. He will get more
money that way, but it may be very important to him that his brainchild
continue to thrive. What Trevor has to decide is whether avoiding the
displeasure he gets from Venture Corp. closing down his company is
worth $1 000 000 to him. If it is, he should take the Investco offer, or if not,
the Venture Corp. offer.
1.9 Possible uncertainties that associate with the new technology:
1) Is the new technology proven to be viable?
2) Is the performance or quality that are expected from the technology
proven to be consistent?
3) Are there any “side effects”?
4) Is this technology going to stay, or will it be replaced quickly by an
alternative technology?
5) What market share might Telekom gain?
Sensitivity analysis may be able to address the second and third issues by
considering a range of performance/quality/side effect issues. The first
and fourth issues, however, may be difficult to address by sensitivity
analysis since there is no specific quantity that can be varied.
C. More Challenging Problems:
1.10 The Toyota Corolla is the right choice when the interest rate is very high,
while the BMW is the right choice if the interest rate is very low.
2
Copyright © 2016 Pearson Canada Inc.
