Contemporary Engineering Economics (6th Edition)
Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 5, Problem 56P
To determine

Calculate the present worth.

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An electrical utility is experiencing sharp power demand, which continues to grow at a high rate in a certain local area. Two alternatives to address this situation are under consideration. Each alternative is designed to provide enough capacity during the next 25 years. Both alternatives will consume the same amounts of fuel, so fuel cost is not considered in the analysis. The alternatives are detailed as follows:Alternative A: Increase the generating capacity now so that the ultimatedemand can be met with additional expenditures later. An initial investment of $30 million would be required, and it is estimated that this plant facility would be in service for 25 years and have a salvage value of $0.85 million. The annual operating and maintenance costs (including income taxes) would be $0.4 million.Alternative B: Spend $10 million now, and follow this expenditure withadditions during the 10th year and the 15th year. These additions wouldcost $18 million and $12 million. respectively.…
A manufacturing engineer is considering whether to repair or replace a broken machine. The first alternative (Alternative “A”) is to repair the machine with an initial cost of $15,000, an annual maintenance of $700 per year, with no salvage value at the end of its five-year useful life. The second alternative (Alternative “B”) is to replace the machine for $30,000. The maintenance cost starts in the second year at $200 and increases $200 per year in all subsequent years. There is an anticipated salvage value of $5,000 at the end of 20 years. Assuming interest rate is 6% and an analysis period of 20 years, what would be the preferable alternative ?
A bridge is to be constructed now as part of a new road. Engineers have determined that traffic density on the new road will justify a two-lane road and a bridge at the present time. Because of uncertainty regarding future use of the road, the time at which an extra two lanes will be required is currently being studied. The two-lane bridge will cost $220,000 and the four-lane bridge, if built initially, will cost $440,000. The future cost of widening a two-lane bridge to four lanes will be an extra $220,000 plus $23,000 for every year that widening is delayed. The MARR used by the highway department is 12% per year. The following estimates have been made of the times at which the four-lane bridge will be required: Pessimistic estimate Most likely estimate Optimistic estimate In view of these estimates, what would you recommend? List some advantages and disadvantages of this method of preparing estimates. 4 years 6 years 7 years A Click the icon to view the interest and annuity table…
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