Test Bank for Engineering Economy, 7th Edition – Leland Blank & Anthony Tarquin – Complete Solutions Manual (All Chapters)

SOLUTION
MANUAL
p

, Solutions to end-of-chapter problems p p p


p Engineering Economy, 7th edition p p p


p Leland Blank and Anthony Tarquin p p p p




Chapter 1 p



Foundations of Engineering Economy p p p




1.1 The four elements are cash flows, time of occurrence of cash flows, interest rates, and
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measure of economic worth.
p p p p




1.2 (a) Capital funds are money used to finance projects. It is usually limited in the amount
p p p p p p p p p p p p p p p


of money available.
p p p




(b) Sensitivity analysis is a procedure that involves changing various estimates to see if/how
p p p p p p p p p p p p p


they affect the economic decision.
p p p p p




1.3 Any of the following are measures of worth: present worth, future worth, annual worth, rate
p p p p p p p p p p p p p p


pof return, benefit/cost ratio, capitalized cost, payback period, economic value added.
p p p p p p p p p p




1.4 First cost: economic; leadership: non-economic; taxes: economic; salvage value: economic;
p p p p p p p p p


morale: non-economic; dependability: non-economic; inflation: economic; profit: economic;
p p p p p p p p


acceptance: non-economic; ethics: non-economic; interest rate: economic.
p p p p p p p




1.5 Many sections could be identified. Some are: I.b; II.2.a and b; III.9.a and b.
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1.6 Example actions are: p p


 Try to talk them out of doing it now, explaining it is stealing
p p p p p p p p p p p p


 Try to get them to pay for their drinks
p p p p p p p p


 Pay for all the drinks himselfp p p p p


 Walk away and not associate with them again
p p p p p p p




1.7 This is structured to be a discussion question; many responses are acceptable. It is an
p p p p p p p p p p p p p p


p ethical question, but also a guilt-related situation. He can justify the result as an accident;
p p p p p p p p p p p p p p


phe can feel justified by the legal fault and punishment he receives; he can get angry because
p p p p p p p p p p p p p p p p


pit WAS an accident; he can become tormented over time due to the stress caused by
p p p p p p p p p p p p p p p


paccidently causing a child‟s death. p p p p




1.8 This is structured to be a discussion question; many responses are acceptable. Responses
p p p p p p p p p p p p


pcan vary from the ethical (stating the truth and accepting the consequences) to unethical
p p p p p p p p p p p p p


p(continuing to deceive himself and the instructor and devise some on-the-spot excuse).
p p p p p p p p p p p




Lessons can be learned from the experience. A few of them are:
p p p p p p p p p p p


 Think before he cheats again. p p p p


 Think about the longer-term consequences of unethical decisions.
p p p p p p p


 Face ethical-dilemma situations honestly and make better decisions in real time.
p p p p p p p p p p




1

, Alternatively, Claude may learn nothing from the experience and continue his unethical
p p p p p p p p p p p


practices.
p




1.9 i = [(3,885,000 - 3,500,000)/3,500,000]*100% = 11% per year
p p p p p p p p




1.10 (a) Amount paid first four years = 900,000(0.12) = $108,000
p p p p p p p p p




(b) Final payment = 900,000 + 900,000(0.12) = $1,008,000
p p p p p p p p




1.11 i = (1125/12,500)*100 = 9%
p p p p


p i = (6160/56,000)*100 = 11%
p p p p


pi = (7600/95,000)*100 = 8%
p p p p




The $56,000 investment has the highest rate of return.
p p p p p p p p




1.12 Interest on loan = 23,800(0.10) = $2,380 p p p p p p


Default insurance = 23,800(0.05) = $1190
p p p p p p


Set-up fee = $300 p p p




Total amount paid = 2380 + 1190 + 300 = $3870
p p p p p p p p p p




Effective interest rate = (3870/23,800)*100 = 16.3%
p p p p p p p




1.13 The market interest rate is usually 3 – 4 % above the expected inflation rate. Therefore,
p p p p p p p p p p p p p p p




Market rate is in the range 3 + 8 to 4 + 8 = 11 to 12% per year
p p p p p p p p p p p p p p p p p p p




1.14 PW = present worth; PV = present value; NPV = net present value; DCF = discounted cash
p p p p p p p p p p p p p p p p


flow; and CC = capitalized cost
p p p p p p




1.15 P = $150,000; F = ?; i = 11%; n = 7
p p p p p p p p p p p




1.16 P = ?; F = $100,000; i = 12%; n = 2
p p p p p p p p p p p




1.17 P = $3.4 million; A = ?; i = 10%; n = 8
p p p p p p p p p p p p




1.18 F = ?; A = $100,000 + $125,000?; i = 15%; n = 3
p p p p p p p p p p p p p




1.19 End-of-period convention means that all cash flows are assumed to take place at the end of
p p p p p p p p p p p p p p p


the interest period in which they occur.
p p p p p p p




1.20 fuel cost: outflow; pension plan contributions: outflow; passenger fares: inflow;
p p p p p p p p p


maintenance: outflow; freight revenue: inflow; cargo revenue: inflow; extra bag charges:
p p p p p p p p p p p


Inflow; water and sodas: outflow; advertising: outflow; landing fees: outflow; seat
p p p p p p p p p p p


preference fees: inflow.
p p p




2

, 1.21 End-of-period amount for June = 50 + 70 + 120 + 20 = $260
p p p p p p p p p p p p p


End-of-period amount for Dec = 150 + 90 + 40 + 110 = $390
p p p p p p p p p p p p p p




1.22 Month Receipts, $1000 p Disbursements, $1000 p Net CF, $1000
p p



Jan 500 300 +200
Feb 800 500 +300
Mar 200 400 -200
Apr 120 400 -280
May 600 500 +100
June 900 600 +300
July 800 300 +500
Aug 700 300 +400
Sept 900 500 +400
Oct 500 400 +100
Nov 400 400 0
Dec 1800 700 +1100

Net Cash flow = $2,920
p p p p ($2,920,000)

1.23




1.24




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