SOLUTION
MANUAL
B
, Solutions to end-of-
B B
chapter problems Engineering Econ
B B B
omy,B7thBeditionBLelandBBlankBandBAnth
onyBTarquin
Chapter 1 B
Foundations of Engineering Economy
B B B
1.1 TheBfourBelementsBareBcashBflows,BtimeBofBoccurrenceBofBcashBflows,BinterestBrates,Ban
dBmeasureBofBeconomicBworth.
1.2 (a)BCapitalBfundsBareBmoneyBusedBtoBfinanceBprojects.BItBisBusuallyBlimitedBinBtheBamoun
tBofBmoneyBavailable.
(b)BSensitivityBanalysisBisBaBprocedureBthatBinvolvesBchangingBvariousBestimatesBtoBseeBif/how
BtheyBaffectBtheBeconomicBdecision.
1.3 AnyBofBtheBfollowingBareBmeasuresBofBworth:BpresentBworth,BfutureBworth,BannualBworth,Brat
eBofBreturn,Bbenefit/costBratio,BcapitalizedBcost,BpaybackBperiod,BeconomicBvalueBadded.
1.4 FirstBcost:Beconomic;Bleadership:Bnon-
economic;Btaxes:Beconomic;BsalvageBvalue:Beconomic;Bmorale:Bnon-
economic;Bdependability:Bnon-
economic;Binflation:Beconomic;Bprofit:Beconomic;Bacceptance:Bnon-economic;Bethics:Bnon-
economic;BinterestBrate:Beconomic.
1.5 ManyBsectionsBcouldBbeBidentified.BSomeBare:BI.b;BII.2.aBandBb;BIII.9.aBandBb.
1.6 ExampleBactionsBare:
TryBtoBtalkBthemBoutBofBdoingBitBnow,BexplainingBitBisBstealing
TryBtoBgetBthemBtoBpayBforBtheirBdrinks
PayBforBallBtheBdrinksBhimself
WalkBawayBandBnotBassociateBwithBthemBagain
1.7 ThisBisBstructuredBtoBbeBaBdiscussionBquestion;BmanyBresponsesBareBacceptable.BItBisBanB ethic
alBquestion,BbutBalsoBaBguilt-
relatedBsituation.BHeBcanBjustifyBtheBresultBasBanBaccident;BheBcanBfeelBjustifiedBbyBtheBlegalBf
aultBandBpunishmentBheBreceives;BheBcanBgetBangryBbecauseBitBWASBanBaccident;BheBcanBbeco
meBtormentedBoverBtimeBdueBtoBtheBstressBcausedBbyBaccidentlyBcausingBaBchild’sBdeath.
1.8 ThisBisBstructuredBtoBbeBaBdiscussionBquestion;BmanyBresponsesBareBacceptable.BResponses
BcanBvaryBfromBtheBethicalB(statingBtheBtruthBandBacceptingBtheBconsequences)BtoBunethica
lB(continuingBtoBdeceiveBhimselfBandBtheBinstructorBandBdeviseBsomeBon-the-spotBexcuse).
LessonsBcanBbeBlearnedBfromBtheBexperience.BABfewBofBthemBare:
ThinkBbeforeBheBcheatsBagain.
1
, ThinkBaboutBtheBlonger-termBconsequencesBofBunethicalBdecisions.
FaceBethical-dilemmaBsituationsBhonestlyBandBmakeBbetterBdecisionsBinBrealBtime.
2
, Alternatively,BClaudeBmayBlearnBnothingBfromBtheBexperienceBandBcontinueBhisBunethicalBpr
actices.
1.9 iB=B[(3,885,000B-B3,500,000)/3,500,000]*100%B=B11%BperByear
1.10 (a)BAmountBpaidBfirstBfourByearsB=B900,000(0.12)B=B$108,000
(b)BFinalBpaymentB=B900,000B+B900,000(0.12)B=B$1,008,000
1.11 iB=B(1125/12,500)*100B=B9%
B iB=B(6160/56,000)*100B=B11
%BiB=B(7600/95,000)*100B=B8
%
TheB$56,000BinvestmentBhasBtheBhighestBrateBofBreturn.
1.12 InterestBonBloanB=B23,800(0.10)B=B$2,380
BDefaultBinsuranceB=B23,800(0.05)B=B$119
0
Set-upBfeeB=B$300
TotalBamountBpaidB=B2380B+B1190B+B300B=B$3870BEf
fectiveBinterestBrateB=B(3870/23,800)*100B=B16.3%
1.13 TheBmarketBinterestBrateBisBusuallyB3B–
4B%BaboveBtheBexpectedBinflationBrate.BTherefore,BMarketBrateBisBinBtheBrangeB3B+B8Bt
B
oB4B+B8B=B11BtoB12%BperByear
1.14 PWB=BpresentBworth;BPVB=BpresentBvalue;BNPVB=BnetBpresentBvalue;BDCFB=BdiscountedBcas
hBflow;BandBCCB=BcapitalizedBcost
1.15 PB=B$150,000;BFB=B?;BiB=B11%;BnB=B7
1.16 PB=B?;BFB=B$100,000;BiB=B12%;BnB=B2
1.17 PB=B$3.4Bmillion;BAB=B?;BiB=B10%;BnB=B8
1.18 FB=B?;BAB=B$100,000B+B$125,000?;BiB=B15%;BnB=B3
1.19 End-of-
periodBconventionBmeansBthatBallBcashBflowsBareBassumedBtoBtakeBplaceBatBtheBendBofBtheBint
erestBperiodBinBwhichBtheyBoccur.
3
, 1.20 fuelBcost:Boutflow;BpensionBplanBcontributions:Boutflow;BpassengerBfares:Binflow;Bmainte
nance:Boutflow;BfreightBrevenue:Binflow;BcargoBrevenue:Binflow;BextraBbagBcharges:BInflo
w;BwaterBandBsodas:Boutflow;Badvertising:Boutflow;BlandingBfees:Boutflow;BseatBpreferenc
eBfees:Binflow.
4
MANUAL
B
, Solutions to end-of-
B B
chapter problems Engineering Econ
B B B
omy,B7thBeditionBLelandBBlankBandBAnth
onyBTarquin
Chapter 1 B
Foundations of Engineering Economy
B B B
1.1 TheBfourBelementsBareBcashBflows,BtimeBofBoccurrenceBofBcashBflows,BinterestBrates,Ban
dBmeasureBofBeconomicBworth.
1.2 (a)BCapitalBfundsBareBmoneyBusedBtoBfinanceBprojects.BItBisBusuallyBlimitedBinBtheBamoun
tBofBmoneyBavailable.
(b)BSensitivityBanalysisBisBaBprocedureBthatBinvolvesBchangingBvariousBestimatesBtoBseeBif/how
BtheyBaffectBtheBeconomicBdecision.
1.3 AnyBofBtheBfollowingBareBmeasuresBofBworth:BpresentBworth,BfutureBworth,BannualBworth,Brat
eBofBreturn,Bbenefit/costBratio,BcapitalizedBcost,BpaybackBperiod,BeconomicBvalueBadded.
1.4 FirstBcost:Beconomic;Bleadership:Bnon-
economic;Btaxes:Beconomic;BsalvageBvalue:Beconomic;Bmorale:Bnon-
economic;Bdependability:Bnon-
economic;Binflation:Beconomic;Bprofit:Beconomic;Bacceptance:Bnon-economic;Bethics:Bnon-
economic;BinterestBrate:Beconomic.
1.5 ManyBsectionsBcouldBbeBidentified.BSomeBare:BI.b;BII.2.aBandBb;BIII.9.aBandBb.
1.6 ExampleBactionsBare:
TryBtoBtalkBthemBoutBofBdoingBitBnow,BexplainingBitBisBstealing
TryBtoBgetBthemBtoBpayBforBtheirBdrinks
PayBforBallBtheBdrinksBhimself
WalkBawayBandBnotBassociateBwithBthemBagain
1.7 ThisBisBstructuredBtoBbeBaBdiscussionBquestion;BmanyBresponsesBareBacceptable.BItBisBanB ethic
alBquestion,BbutBalsoBaBguilt-
relatedBsituation.BHeBcanBjustifyBtheBresultBasBanBaccident;BheBcanBfeelBjustifiedBbyBtheBlegalBf
aultBandBpunishmentBheBreceives;BheBcanBgetBangryBbecauseBitBWASBanBaccident;BheBcanBbeco
meBtormentedBoverBtimeBdueBtoBtheBstressBcausedBbyBaccidentlyBcausingBaBchild’sBdeath.
1.8 ThisBisBstructuredBtoBbeBaBdiscussionBquestion;BmanyBresponsesBareBacceptable.BResponses
BcanBvaryBfromBtheBethicalB(statingBtheBtruthBandBacceptingBtheBconsequences)BtoBunethica
lB(continuingBtoBdeceiveBhimselfBandBtheBinstructorBandBdeviseBsomeBon-the-spotBexcuse).
LessonsBcanBbeBlearnedBfromBtheBexperience.BABfewBofBthemBare:
ThinkBbeforeBheBcheatsBagain.
1
, ThinkBaboutBtheBlonger-termBconsequencesBofBunethicalBdecisions.
FaceBethical-dilemmaBsituationsBhonestlyBandBmakeBbetterBdecisionsBinBrealBtime.
2
, Alternatively,BClaudeBmayBlearnBnothingBfromBtheBexperienceBandBcontinueBhisBunethicalBpr
actices.
1.9 iB=B[(3,885,000B-B3,500,000)/3,500,000]*100%B=B11%BperByear
1.10 (a)BAmountBpaidBfirstBfourByearsB=B900,000(0.12)B=B$108,000
(b)BFinalBpaymentB=B900,000B+B900,000(0.12)B=B$1,008,000
1.11 iB=B(1125/12,500)*100B=B9%
B iB=B(6160/56,000)*100B=B11
%BiB=B(7600/95,000)*100B=B8
%
TheB$56,000BinvestmentBhasBtheBhighestBrateBofBreturn.
1.12 InterestBonBloanB=B23,800(0.10)B=B$2,380
BDefaultBinsuranceB=B23,800(0.05)B=B$119
0
Set-upBfeeB=B$300
TotalBamountBpaidB=B2380B+B1190B+B300B=B$3870BEf
fectiveBinterestBrateB=B(3870/23,800)*100B=B16.3%
1.13 TheBmarketBinterestBrateBisBusuallyB3B–
4B%BaboveBtheBexpectedBinflationBrate.BTherefore,BMarketBrateBisBinBtheBrangeB3B+B8Bt
B
oB4B+B8B=B11BtoB12%BperByear
1.14 PWB=BpresentBworth;BPVB=BpresentBvalue;BNPVB=BnetBpresentBvalue;BDCFB=BdiscountedBcas
hBflow;BandBCCB=BcapitalizedBcost
1.15 PB=B$150,000;BFB=B?;BiB=B11%;BnB=B7
1.16 PB=B?;BFB=B$100,000;BiB=B12%;BnB=B2
1.17 PB=B$3.4Bmillion;BAB=B?;BiB=B10%;BnB=B8
1.18 FB=B?;BAB=B$100,000B+B$125,000?;BiB=B15%;BnB=B3
1.19 End-of-
periodBconventionBmeansBthatBallBcashBflowsBareBassumedBtoBtakeBplaceBatBtheBendBofBtheBint
erestBperiodBinBwhichBtheyBoccur.
3
, 1.20 fuelBcost:Boutflow;BpensionBplanBcontributions:Boutflow;BpassengerBfares:Binflow;Bmainte
nance:Boutflow;BfreightBrevenue:Binflow;BcargoBrevenue:Binflow;BextraBbagBcharges:BInflo
w;BwaterBandBsodas:Boutflow;Badvertising:Boutflow;BlandingBfees:Boutflow;BseatBpreferenc
eBfees:Binflow.
4
