SOLUTION MANUAL FOR CONTEMPORARY ENGINEERING ECONOMICS 7TH EDITION CHAN PARK

, SOLUTION MANUAL FOR CONTEMPORARY
ENGINEERING ECONOMICS 7TH EDITION CHAN PARK

Chapter 1 Engineering Economic Decisions
1.1
 Lease
o Deposit (typically one month worth of deposit) refundable when lease
expires.
o Monthly lease payment
o Monthly maintenance fees
o Monthly utility expenses
 Buy
o Closing fees
o Down payment
o Monthly mortgage payments
o Property taxes
o Monthly utility fees
o Monthly maintenance fees
o Repair expenses
o Homeowners’ association fee (if applicable)

1.2

  Option 1:

o Total amount at the end of two years: $1,150

 Option 2:
o Loan $500 to a friend for one year and receive $600
o Deposit $500 (left over) in a back at 3% for two years:

$500(1.03)(1.03) = $530.45

o Deposit $600 received from your friend at 3% per year for a year:

$600(1.03) = $618
Total amount at the end of two years:

$530.45 + $618 = $1,148.45
These two options are about the same. But considering the trustworthiness, you
could go with Option 2.

,Chapter 2 Accounting Information for Engineering
Economic Decisions
2.1
(2) Income statement; (1) balance sheet; (3) cash flow statement; (4) operating
activities; (5) investing activities, and (6) financing activities; (7) capital account
(paid-in capital)

2.2
(7), (8), (1), (11), (3), (9)

2.3
(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
 Shareholder’s equity = $100,000 + $150,000 + $150,000 + $70,000
= $470,000

(b) EPS = $500,000/10,000 = $50 per share

(c) Par value = $15; capital surplus = $150,000/10,000 = $15


Market price = $15 + $15 = $30 per share



2.4
(a) Shareholder’s equity in 2021 = $700 - $510 = $190(M)
Shareholder’s equity in 2022 = $900 - $640 = $260(M)

(b) Net working capital in 2021 = $100 - $60 = $40(M)
Net working capital in 2022 = $200 - $90 = $110(M)

(c) The income taxes in year 2022:

($2,350 - $1,130-$420-$210) *0.35 = $206.5(M)

(d) $383.50 + $420=$803.50 (M)
(Cash from Operating activities = Net income + Depreciation)

, 2.5 (a)

Company A Company B
ROE (= Net income/Equity) 26.03% 22.29%
ROA
(= Net income + interest expense (1-tax 17.34% 12.59%
rate)/Average total assets)

(b) Company A has performed better in terms of profitability.

(c) If two companies were merged, the impact on the results of ROE could be
positive under the situation where the Company A leads the acquisition using a
stock swap instead of issuing new stocks for M&A cost. If Company A uses a
stock swap, the stock value wouldn’t be decreased in terms of scarcity.


2.6
Inventory turnover ratio (2021) = Sales/Average inventory balance
= $3,776,395 / ($202,794 + $231,313)×0.5
= 17.4 times

Inventory turnover ratio (2022) = 15.6 times

This ratio shows how many times the inventory of a firm is sold and replaced over
a specific period. From the data, Metronix was holding more stocks of inventory
than last year; having more inventories on stock is unproductive.


2.7 (b)

2.8 (b)

2.9 (d)


2.10

Given Olson’s EPS = $8 per share; Cash dividend = $4 per share; Book value per
share = $80; Changes in the retained earnings = $24 million; Total debt = $240
million; Find debt ratio = total debt/total assets

Net Income
 EPS   $8
X
Where X = the number of outstanding shares

Total shareholders' equity
 Book value   $80
X