MSE300
Assignment 5a
Summer 2020
Problem 1 (6 pts)
Two 150-horsepower (HP) motors are being considered for installation at a municipal sewage-treatment
plant. The first costs $4500 and has an operating efficiency of 83%. The second costs $3600 and has an
efficiency of 80%. Both motors are projected to have zero salvage value after a life of 10 years. If all the
annual charges, such as insurance, maintenance, etc., amount to a total of 15% of the original cost of
each motor, and if power costs are a flat 5 cents per kilowatt-hour, how many minimum hours of full-
load operation per year are necessary to justify purchasing the more expensive motor at 𝑖 6%? (A
conversion factor you might find useful is 1 HP = 746 watts = 0.746 kilowatts.)
Solution:
Problem 2 (6 pts)
Travis Wenzel has $2000 to invest. Usually he would deposit the money in his savings account, which
earns 6% interest compounded monthly. However, he is considering three alternative investment
opportunities:
Option 1. Purchasing a bond for $2000. The bond has a face value of $2000 and pays $100 every
six months for three years, after which time the bond matures.
Option 2. Buying and holding a stock that grows 11 % per year for three years.
MSE 300 – The Business of Engineering 1 Page 1 of 5
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, MSE300
Assignment 5a
Summer 2020
Option 3. Making a personal loan of $2000 to a friend and receiving $150 per year for three years.
Determine the equivalent annual cash flows for each option and select the best option.
Solution:
Problem 3 (6 pts)
The City of Mississauga is comparing two plans for supplying water to a newly developed subdivision:
Plan A will take care of requirements for the next 15 years, at the end of which time the initial
cost of $400,000 will have to be duplicated to meet the requirements of subsequent years. The
facilities installed at dates 0 and 15 may be considered permanent; however, certain supporting
equipment will have to be replaced every 30 years from the installation dates, at a cost of
$75,000. Operating costs are $31,000 a year for the first 15 years and $62,000 thereafter,
although they are expected to increase by $1000 a year beginning in the 21st year.
Plan B will supply all requirements for water indefinitely into the future, although it will be
operated only at half capacity for the first 15 years. Annual costs over this period will be $35,000
and will increase to $55,000 beginning in the 16th year. The initial cost of Plan B is $550,000; the
facilities can be considered permanent, although it will be necessary to replace $150,000 worth
of equipment every 30 years after the initial installation.
The city will charge the subdivision for the use of water on the basis of the equivalent annual cost. At an
interest rate of 10%, determine the equivalent annual cost for each plan, and make a recommendation
to the city.
MSE 300 – The Business of Engineering 1 Page 2 of 5
This study source was downloaded by 100000899606396 from CourseHero.com on 07-09-2025 19:56:17 GMT -05:00
https://www.coursehero.com/file/234983895/MSE300-Assginment-5a-Solutionspdf/
Assignment 5a
Summer 2020
Problem 1 (6 pts)
Two 150-horsepower (HP) motors are being considered for installation at a municipal sewage-treatment
plant. The first costs $4500 and has an operating efficiency of 83%. The second costs $3600 and has an
efficiency of 80%. Both motors are projected to have zero salvage value after a life of 10 years. If all the
annual charges, such as insurance, maintenance, etc., amount to a total of 15% of the original cost of
each motor, and if power costs are a flat 5 cents per kilowatt-hour, how many minimum hours of full-
load operation per year are necessary to justify purchasing the more expensive motor at 𝑖 6%? (A
conversion factor you might find useful is 1 HP = 746 watts = 0.746 kilowatts.)
Solution:
Problem 2 (6 pts)
Travis Wenzel has $2000 to invest. Usually he would deposit the money in his savings account, which
earns 6% interest compounded monthly. However, he is considering three alternative investment
opportunities:
Option 1. Purchasing a bond for $2000. The bond has a face value of $2000 and pays $100 every
six months for three years, after which time the bond matures.
Option 2. Buying and holding a stock that grows 11 % per year for three years.
MSE 300 – The Business of Engineering 1 Page 1 of 5
This study source was downloaded by 100000899606396 from CourseHero.com on 07-09-2025 19:56:17 GMT -05:00
https://www.coursehero.com/file/234983895/MSE300-Assginment-5a-Solutionspdf/
, MSE300
Assignment 5a
Summer 2020
Option 3. Making a personal loan of $2000 to a friend and receiving $150 per year for three years.
Determine the equivalent annual cash flows for each option and select the best option.
Solution:
Problem 3 (6 pts)
The City of Mississauga is comparing two plans for supplying water to a newly developed subdivision:
Plan A will take care of requirements for the next 15 years, at the end of which time the initial
cost of $400,000 will have to be duplicated to meet the requirements of subsequent years. The
facilities installed at dates 0 and 15 may be considered permanent; however, certain supporting
equipment will have to be replaced every 30 years from the installation dates, at a cost of
$75,000. Operating costs are $31,000 a year for the first 15 years and $62,000 thereafter,
although they are expected to increase by $1000 a year beginning in the 21st year.
Plan B will supply all requirements for water indefinitely into the future, although it will be
operated only at half capacity for the first 15 years. Annual costs over this period will be $35,000
and will increase to $55,000 beginning in the 16th year. The initial cost of Plan B is $550,000; the
facilities can be considered permanent, although it will be necessary to replace $150,000 worth
of equipment every 30 years after the initial installation.
The city will charge the subdivision for the use of water on the basis of the equivalent annual cost. At an
interest rate of 10%, determine the equivalent annual cost for each plan, and make a recommendation
to the city.
MSE 300 – The Business of Engineering 1 Page 2 of 5
This study source was downloaded by 100000899606396 from CourseHero.com on 07-09-2025 19:56:17 GMT -05:00
https://www.coursehero.com/file/234983895/MSE300-Assginment-5a-Solutionspdf/
