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Homework 7

The document outlines an engineering economy assignment with four main problems involving investment recovery, project justification using NPW, capitalized cost calculations for a bridge, and a comparison of electric motors based on efficiency and cost. Each problem requires applying financial principles such as payback period, annual savings, renovation costs, and salvage values to determine the most economically viable options. The assignment emphasizes the importance of understanding the impact of interest rates and operational hours on project decisions.

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4 views1 page

Homework 7

The document outlines an engineering economy assignment with four main problems involving investment recovery, project justification using NPW, capitalized cost calculations for a bridge, and a comparison of electric motors based on efficiency and cost. Each problem requires applying financial principles such as payback period, annual savings, renovation costs, and salvage values to determine the most economically viable options. The assignment emphasizes the importance of understanding the impact of interest rates and operational hours on project decisions.

Uploaded by

meliscmen
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

IE223 - ENGINEERING ECONOMY

ASSIGNMENT 7
1. If a project costs $120,000 and is expected to return $40,000 annually, how long does it
take to recover the initial investment? What would be the discounted payback period at i =
15%?

2. A large food-processing corporation is considering using laser technology to speed up and


eliminate waste in the potato-peeling process. To implement the system, the company
anticipates needing $3.5 million to purchase the industrial-strength lasers. The system will
save $1,550,000 per year in labor and materials. However, it will require an additional
operating and maintenance cost of $350,000. Annual income taxes will also increase by
$150,000. The system is expected to have a 10-year service life and will have a salvage value
of about $200,000. If the company’s MARR is 18%, use the NPW method to justify the
project.

3. A newly constructed bridge costs $15,000,000. The same bridge is estimated to need
renovation every 15 years at a cost of $3,000,000. Annual repairs and maintenance are
estimated to be $1,000,000 per year.
(a) If the interest rate is 5%, determine the capitalized cost of the bridge.
(b) Suppose that in (a), the bridge must be renovated every 20 years, not every 15 years. What
is the capitalized cost of the bridge?
(c) Repeat (a) and (b) with an interest rate of 10%. What can you say about the effect of
interest on the results?

4. An electric motor is rated at 10 horsepower (HP) and costs $1,200. Its full-load efficiency
is specified to be 85%. A newly designed high-efficiency motor of the same size has an
efficiency of 90%, but it costs $1,600. It is estimated that the motors will operate at a rated 10
HP output for 2,000 hours a year, and the cost of energy will be $0.09 per kilowatt-hour. Each
motor is expected to have a 15-year life. At the end of 15 years, the first motor will have a
salvage value of $50 and the second motor will have a salvage value of $100. Consider the
MARR to be 8%. (Note: 1 HP = 0.7457 kW.)
(a) Use the NPW criterion to determine which motor should be installed.
(b) In part (a), what if the motors operated 1,000 hours a year instead of 2,000 hours a year?
Would the motor you chose in part (a) still be the best choice?

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