Solut! ons to end-of-chapter problems
Eng! neer! ng Economy, 8th ed! t! on
Leland Blank and Anthony Tarqu! n
Chapter 1 Foundat! ons of Eng! neer! ng Economy
Bas! c Concepts
1.1 F! nanc! al un! ts for econom! cally best.
1.2 Morale, goodw! ll, dependab! l! ty, acceptance, fr! endsh! p, conven! ence, aesthet! cs, etc.
1.3 Measure of worth ! s a cr! ter! on used to select the econom! cally best alternat! ve. Some
measures are present worth, rate of return, payback per! od, benef! t/cost rat! o.
1.4 The color ! l! ke, best fuel rat! ng, room! est, safest, most styl! sh, fastest, etc.
1.5 Susta! nab! l! ty: ! ntang! ble; ! nstallat! on cost: tang! ble; transportat! on cost: tang! ble;
s! mpl! c! ty: ! ntang! ble; taxes: tang! ble; resale value: tang! ble; morale: ! ntang! ble;
rate of return: tang! ble; dependab! l! ty: ! ntang! ble; ! nflat! on: tang! ble; acceptance by
others: ! ntang! ble; eth! cs: ! ntang! ble.
1.6 Examples are: house purchase; car purchase, cred! t card (wh! ch ones to use); personal loans
(and the! r rate of ! nterest and repayment schedule); ! nvestment dec! s! ons of all types;
when to sell a house or car.
Eth! cs
1.7 Th! s problem can be used as a d! scuss! on top! c for a team-based exerc! se ! n class.
(a) Most obv! ous are the v! olat! ons of Canons number 4 and 5. Unfa! thfulness to the cl!
ent and decept! ve acts are clearly present.
(b) The Code for Eng! neer’s ! s only part! ally useful to the owners ! n determ! n! ng
sound bases s! nce the contractor ! s not an eng! neer. Much of the language of the Code
! s or! ented toward representat! on, qual! f! cat! ons, etc., not spec! f! c acts of dece! t
and fraudulent behav! or. Code sect! ons may be somewhat d! ff! cult to ! nterpret ! n
construct! on of a house.
(c) Probably a better source would be a Code for Contractor’s or consult! ng w! th a real
estate attorney.
1.8 Many sect! ons could be ! dent! f! ed. Some are: ! .b; ! ! .2.a and b; ! ! ! .9.a and b.
1.9 Example act! ons are:
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, • Try to talk them out of do! ng ! t now, expla! n! ng ! t ! s steal! ng
• Try to get them to pay for the! r dr! nks
• Pay for all the dr! nks h! mself
• Walk away and not assoc! ate w! th them aga! n
1.10 Th! s ! s structured to be a d! scuss! on quest! on; many responses are acceptable.
Responses can vary from the eth! cal (stat! ng the truth and accept! ng the consequences) to
uneth! cal (cont! nu! ng to dece! ve h! mself and the ! nstructor and dev! se some on-the-spot
excuse).
Lessons can be learned from the exper! ence. A few of them are:
• Th! nk before he cheats aga! n.
• Th! nk about the longer-term consequences of uneth! cal dec! s! ons.
• Face eth! cal-d! lemma s! tuat! ons honestly and make better dec! s! ons ! n real t! me.
Alternat! vely, Claude may learn noth! ng from the exper! ence and cont! nue h! s uneth!
cal pract! ces.
! nterest Rate and Rate of Return
1.11 Extra amount rece! ved = 2865 - 25.80*100 = $285
Rate of return = 285/2580
= 0.110 (11%)
Total ! nvested + fee 2865 + 50 = $2915
Amount requ! red for 11% return = 2915*1.11
= $3235.65
1.12 (a) Payment = 1,600,000(1.10)(1.10) = $1,936,000
(b) ! nterest = total amount pa! d – pr! nc! pal
= 1,936,000- 1,600,000
= $336,000
1.13 ! = [(5,184,000 – 4,800,000)/4,800,000]*100% = 8% per year
1.14 ! nterest rate = ! nterest pa! d/pr! nc! pal
= (312,000/2,600,000)
= 0.12 (12%)
1.15 ! = (1125/12,500)*100 = 9%
! = (6160/56,000)*100 = 11%
! = (7600/95,000)*100 = 8%
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, The $56,000 ! nvestment has the h! ghest rate of return
1.16 ! nterest on loan = 45,800(0.10) = $4,580
Default ! nsurance = $900
Set-up fee = 45,800(0.01) = 458
Total amount pa! d = 4,580 + 900 + 458 = $5938
Effect! ve ! nterest rate = (5,938/45,800)*100 = 12.97%
Terms and Symbols
1.17 P = ?; F = 8*240,000 = $1,920,000; n = 2; ! = 0.10
1.18 P = $20,000,000; A = ?; n = 6; ! = 0.10
1.19 P = $2,400,000; A = $760,000: n = 5; ! = ?
1.20 P = $1,500,000; F = $3,000,000: n = ?; ! = 0.20
1.21 F = $250,000; A = ?: n = 3; ! = 0.09
Cash Flows
1.22 Well dr! ll! ng: outflow; ma! ntenance: outflow; water sales: ! nflow; account! ng: outflow;
government grants: ! nflow; ! ssuance of bonds: ! nflow; energy cost: outflow; pens! on plan
contr! but! ons: outflow; heavy equ! pment purchases: outflow; used-equ! pment sales: !
nflow; stormwater fees: ! nflow; d! scharge perm! t revenues: ! nflow.
1.23 Let Rev = Revenues; Exp = Expenses
Year 2 3 4 5
1 Total
Rev, 685 650 929
$1000 521 804
Exp, 623 599 789
$1000 610 815
NCF, 62 51 - 140
$1000 -89 11 153
Exp/Rev, 91 92 85
% 117 101
(a) Total NCF = $153,000
(b) Last row of the table shows the answers
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, 1.24 Month Rece! pts, $1000 D! sbursements, $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
Dec 1800 700 +1100
+3,170
Net cash flow = $3,170 ($3,170,000)
1.25 End-of-per! od amount for March: 50 + 70 = $120; ! nterest = 120*0.03 = $3.60
End-of-per! od amount for June: 120 + 120 + 20 = $260; ! nterest = 260*0.03 = $7.80
End-of-per! od amount for September: 260 + 150 + 90 = $500; ! nterest = $15.00
End-of-per! od amount for Dec: 500 + 40 + 110 = $650; ! nterest = $19.50
1.26
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Eng! neer! ng Economy, 8th ed! t! on
Leland Blank and Anthony Tarqu! n
Chapter 1 Foundat! ons of Eng! neer! ng Economy
Bas! c Concepts
1.1 F! nanc! al un! ts for econom! cally best.
1.2 Morale, goodw! ll, dependab! l! ty, acceptance, fr! endsh! p, conven! ence, aesthet! cs, etc.
1.3 Measure of worth ! s a cr! ter! on used to select the econom! cally best alternat! ve. Some
measures are present worth, rate of return, payback per! od, benef! t/cost rat! o.
1.4 The color ! l! ke, best fuel rat! ng, room! est, safest, most styl! sh, fastest, etc.
1.5 Susta! nab! l! ty: ! ntang! ble; ! nstallat! on cost: tang! ble; transportat! on cost: tang! ble;
s! mpl! c! ty: ! ntang! ble; taxes: tang! ble; resale value: tang! ble; morale: ! ntang! ble;
rate of return: tang! ble; dependab! l! ty: ! ntang! ble; ! nflat! on: tang! ble; acceptance by
others: ! ntang! ble; eth! cs: ! ntang! ble.
1.6 Examples are: house purchase; car purchase, cred! t card (wh! ch ones to use); personal loans
(and the! r rate of ! nterest and repayment schedule); ! nvestment dec! s! ons of all types;
when to sell a house or car.
Eth! cs
1.7 Th! s problem can be used as a d! scuss! on top! c for a team-based exerc! se ! n class.
(a) Most obv! ous are the v! olat! ons of Canons number 4 and 5. Unfa! thfulness to the cl!
ent and decept! ve acts are clearly present.
(b) The Code for Eng! neer’s ! s only part! ally useful to the owners ! n determ! n! ng
sound bases s! nce the contractor ! s not an eng! neer. Much of the language of the Code
! s or! ented toward representat! on, qual! f! cat! ons, etc., not spec! f! c acts of dece! t
and fraudulent behav! or. Code sect! ons may be somewhat d! ff! cult to ! nterpret ! n
construct! on of a house.
(c) Probably a better source would be a Code for Contractor’s or consult! ng w! th a real
estate attorney.
1.8 Many sect! ons could be ! dent! f! ed. Some are: ! .b; ! ! .2.a and b; ! ! ! .9.a and b.
1.9 Example act! ons are:
Copyr! ght © 2018 McGraw-H! ll Educat! on. All r! ghts reserved. No reproduct! on or d! str! but! on w! thout the pr! or wr! tten
consent of McGraw-H! ll Educat! on.
1
, • Try to talk them out of do! ng ! t now, expla! n! ng ! t ! s steal! ng
• Try to get them to pay for the! r dr! nks
• Pay for all the dr! nks h! mself
• Walk away and not assoc! ate w! th them aga! n
1.10 Th! s ! s structured to be a d! scuss! on quest! on; many responses are acceptable.
Responses can vary from the eth! cal (stat! ng the truth and accept! ng the consequences) to
uneth! cal (cont! nu! ng to dece! ve h! mself and the ! nstructor and dev! se some on-the-spot
excuse).
Lessons can be learned from the exper! ence. A few of them are:
• Th! nk before he cheats aga! n.
• Th! nk about the longer-term consequences of uneth! cal dec! s! ons.
• Face eth! cal-d! lemma s! tuat! ons honestly and make better dec! s! ons ! n real t! me.
Alternat! vely, Claude may learn noth! ng from the exper! ence and cont! nue h! s uneth!
cal pract! ces.
! nterest Rate and Rate of Return
1.11 Extra amount rece! ved = 2865 - 25.80*100 = $285
Rate of return = 285/2580
= 0.110 (11%)
Total ! nvested + fee 2865 + 50 = $2915
Amount requ! red for 11% return = 2915*1.11
= $3235.65
1.12 (a) Payment = 1,600,000(1.10)(1.10) = $1,936,000
(b) ! nterest = total amount pa! d – pr! nc! pal
= 1,936,000- 1,600,000
= $336,000
1.13 ! = [(5,184,000 – 4,800,000)/4,800,000]*100% = 8% per year
1.14 ! nterest rate = ! nterest pa! d/pr! nc! pal
= (312,000/2,600,000)
= 0.12 (12%)
1.15 ! = (1125/12,500)*100 = 9%
! = (6160/56,000)*100 = 11%
! = (7600/95,000)*100 = 8%
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consent of McGraw-H! ll Educat! on.
2
, The $56,000 ! nvestment has the h! ghest rate of return
1.16 ! nterest on loan = 45,800(0.10) = $4,580
Default ! nsurance = $900
Set-up fee = 45,800(0.01) = 458
Total amount pa! d = 4,580 + 900 + 458 = $5938
Effect! ve ! nterest rate = (5,938/45,800)*100 = 12.97%
Terms and Symbols
1.17 P = ?; F = 8*240,000 = $1,920,000; n = 2; ! = 0.10
1.18 P = $20,000,000; A = ?; n = 6; ! = 0.10
1.19 P = $2,400,000; A = $760,000: n = 5; ! = ?
1.20 P = $1,500,000; F = $3,000,000: n = ?; ! = 0.20
1.21 F = $250,000; A = ?: n = 3; ! = 0.09
Cash Flows
1.22 Well dr! ll! ng: outflow; ma! ntenance: outflow; water sales: ! nflow; account! ng: outflow;
government grants: ! nflow; ! ssuance of bonds: ! nflow; energy cost: outflow; pens! on plan
contr! but! ons: outflow; heavy equ! pment purchases: outflow; used-equ! pment sales: !
nflow; stormwater fees: ! nflow; d! scharge perm! t revenues: ! nflow.
1.23 Let Rev = Revenues; Exp = Expenses
Year 2 3 4 5
1 Total
Rev, 685 650 929
$1000 521 804
Exp, 623 599 789
$1000 610 815
NCF, 62 51 - 140
$1000 -89 11 153
Exp/Rev, 91 92 85
% 117 101
(a) Total NCF = $153,000
(b) Last row of the table shows the answers
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, 1.24 Month Rece! pts, $1000 D! sbursements, $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
Dec 1800 700 +1100
+3,170
Net cash flow = $3,170 ($3,170,000)
1.25 End-of-per! od amount for March: 50 + 70 = $120; ! nterest = 120*0.03 = $3.60
End-of-per! od amount for June: 120 + 120 + 20 = $260; ! nterest = 260*0.03 = $7.80
End-of-per! od amount for September: 260 + 150 + 90 = $500; ! nterest = $15.00
End-of-per! od amount for Dec: 500 + 40 + 110 = $650; ! nterest = $19.50
1.26
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