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

SOLUTION
MANUAL
b

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


b Engineering Economy, 7th edition b b b


b Leland Blank and Anthony Tarquin b b b b




Chapter 1 b



Foundations of Engineering Economy b b b




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.
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1.2 (a) Capital funds are money used to finance projects. It is usually limited in the amount
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of money available.
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(b) Sensitivity analysis is a procedure that involves changing various estimates to see if/how
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they affect the economic decision.
b b b b b




1.3 Any of the following are measures of worth: present worth, future worth, annual worth, rate
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bof return, benefit/cost ratio, capitalized cost, payback period, economic value added.
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1.4 First cost: economic; leadership: non-economic; taxes: economic; salvage value: economic;
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morale: non-economic; dependability: non-economic; inflation: economic; profit: economic;
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acceptance: non-economic; ethics: non-economic; interest rate: economic.
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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: b b


 Try to talk them out of doing it now, explaining it is stealing
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 Try to get them to pay for their drinks
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 Pay for all the drinks himselfb b b b b


 Walk away and not associate with them again
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1.7 This is structured to be a discussion question; many responses are acceptable. It is an
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b ethical question, but also a guilt-related situation. He can justify the result as an accident;
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bhe can feel justified by the legal fault and punishment he receives; he can get angry because
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bit WAS an accident; he can become tormented over time due to the stress caused by
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baccidently causing a child‟s death. b b b b




1.8 This is structured to be a discussion question; many responses are acceptable. Responses
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bcan vary from the ethical (stating the truth and accepting the consequences) to unethical
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b(continuing to deceive himself and the instructor and devise some on-the-spot excuse).
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Lessons can be learned from the experience. A few of them are:
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 Think before he cheats again. b b b b


 Think about the longer-term consequences of unethical decisions.
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 Face ethical-dilemma situations honestly and make better decisions in real time.
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1

, Alternatively, Claude may learn nothing from the experience and continue his unethical
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practices.
b




1.9 i = [(3,885,000 - 3,500,000)/3,500,000]*100% = 11% per year
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1.10 (a) Amount paid first four years = 900,000(0.12) = $108,000
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(b) Final payment = 900,000 + 900,000(0.12) = $1,008,000
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1.11 i = (1125/12,500)*100 = 9%
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b i = (6160/56,000)*100 = 11%
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bi = (7600/95,000)*100 = 8%
b b b b




The $56,000 investment has the highest rate of return.
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1.12 Interest on loan = 23,800(0.10) = $2,380 b b b b b b


Default insurance = 23,800(0.05) = $1190
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Set-up fee = $300 b b b




Total amount paid = 2380 + 1190 + 300 = $3870
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Effective interest rate = (3870/23,800)*100 = 16.3%
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1.13 The market interest rate is usually 3 – 4 % above the expected inflation rate. Therefore,
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Market rate is in the range 3 + 8 to 4 + 8 = 11 to 12% per year
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1.14 PW = present worth; PV = present value; NPV = net present value; DCF = discounted cash
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flow; and CC = capitalized cost
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1.15 P = $150,000; F = ?; i = 11%; n = 7
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1.16 P = ?; F = $100,000; i = 12%; n = 2
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1.17 P = $3.4 million; A = ?; i = 10%; n = 8
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1.18 F = ?; A = $100,000 + $125,000?; i = 15%; n = 3
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1.19 End-of-period convention means that all cash flows are assumed to take place at the end of
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the interest period in which they occur.
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1.20 fuel cost: outflow; pension plan contributions: outflow; passenger fares: inflow;
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maintenance: outflow; freight revenue: inflow; cargo revenue: inflow; extra bag charges:
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Inflow; water and sodas: outflow; advertising: outflow; landing fees: outflow; seat
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preference fees: inflow.
b b b




2

, 1.21 End-of-period amount for June = 50 + 70 + 120 + 20 = $260
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End-of-period amount for Dec = 150 + 90 + 40 + 110 = $390
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1.22 Month Receipts, $1000 b Disbursements, $1000 b Net CF, $1000
b b



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
b b b b ($2,920,000)

1.23




1.24




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