CHAPTER 9 Solutions Manual

For

Basics of Engineering Economy, 1e

Leland Blank, PhD, PE

Texas A&M University
and
American University of Sharjah, UAE

Anthony Tarquin, PhD, PE

University of Texas at El Paso

PROPRIETARY MATERIAL.
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 Chapter 9

9.1 In a replacement study, the in-place asset is referred to as the defender

9.2 A consultant’s viewpoint assumes that neither alternative is currently owned.

9.3 The P value for the defender is its current market value.

9.4 (a) The assets annual worth’s over their own life cycle can be used when the study
period is unlimited, as long as assets similar to the ones under comparison
(including the used defender) are likely to be available in the future,
(b) When the study period is not an even multiple of the asset’s lives, the AW over
one life cycle cannot be used because one or more if the assets would not end
exactly when the study period ends, rendering the cost estimates wrong,
(c) When the study period is an even multiple of the asset’s lives, the AW over one
life cycle can be used, as long as assets similar to the ones under comparison
(including the used defender) are likely to be available through the end of the
study period.

9.5 AW1 = -10,000(A/P,10%,1) – 1000 + 7000(A/F,10%,1) = $-5000

AW2 = -10,000(A/P,10%,2) – 1000(P/F,10%,1)(A/P,10%,2)
+ (5000 – 1200)(A/F,10%,2) = $-4476
AW3 = -10,000(A/P,10%,3) – [1000(P/F,10%,1) +1200(P/F,10% 2)](A/P,10%,3)
+ (4200 – 1500)(A/F,10%,3) = $-3970
AW4 = -10,000(A/P,10%,4) – [1000(P/F,10%,1) +1200(P/F,10% 2)
+ 1500(P/F,10%,3)](A/P,10%,4) + (3000 – 2000)(A/F,10%,4) = $-3894
AW5 = -10,000(A/P,10%,5) – [1000(P/F,10%,1) + 1200(P/F,10% 2)
+ 1500(P/F,10%,3) + 2000(P/F,10%,4)](A/P,10%,5)
+ (2000 – 3000)(A/F,10%,5) = $-3961

Therefore, ESL is 4 years with AW = $-3894

9.6 AW1 = -345,000(A/P,10%,1) – 148,000 + 140,000(A/F,10%,1) = $-387,500

AW2 = -345,000(A/P,10%,2) – 148,000 + 140,000(A/F,10%,2) = $-280,119
AW3 = -345,000(A/P,10%,3) – 148,000 + 140,000(A/F,10%,3) = $-244,434
AW4 = -345,000(A/P,10%,4) – 148,000(P/A,10%,3)(A/P,10%,4)
-210,000(P/F,10%,4)(A/P,10%4) = $-270,197
AW5 = -345,000(A/P,10%,5) – 148,000(P/A,10%,3)(A/P,10%,5)
-210,000(P/A,10%,2)(P/F,10%,3)(A/P,10%,5) = $-260,337
AW6 = -345,000(A/P,10%,5) – 148,000(P/A,10%,3)(A/P,10%,6)
-210,000(P/A,10%,3)(P/F,10%,3)(A/P,10%,6) = $-253,813

Therefore, ESL is 3 years with AW = $-244,434

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9.7 AW1 = -65,000(A/P,10%,1) – 50,000 + 30,000(A/F,10%,1) = $-91,500
AW2 = -65,000(A/P,10%,2) – [50,000 + 10,000(A/G,10%,2)] + 30,000(A/F,10%,2)
= $-77,929
AW3 = -65,000(A/P,10%,3) – [50,000 + 10,000(A/G,10%,3)] + 20,000(A/F,10%,3)
= $-79,461
AW4 = -65,000(A/P,10%,4) – [50,000 + 10,000(A/G,10%,4)] + 20,000(A/F,10%,4)
= $-80,008
AW5 = -65,000(A/P,10%,5) – [50,000 + 10,000(A/G,10%,5)] + 20,000(A/F,10%,5)
= $-81,972
AW6 = -65,000(A/P,10%,6) – [50,000 + 10,000(A/G,10%,6)] + 20,000(A/F,10%,6)
= $-84,568
AW7 = -65,000(A/P,10%,7) – [50,000 + 10,000(A/G,10%,7)] + 20,000(A/F,10%,7)
= $-87,459

ESL is 2 years with AW = $-77,929

9.8 AW1 = -60,000(A/P,10%,1) – 18,000 + 35,000(A/F,10%,1) = $-49,000

AW2 = -60,000(A/P,10%,2) – [18,000 + 2000(A/G,10%,2)] + 30,000(A/F,10%,2)
= $-39,238
AW3 = -60,000(A/P,10%,3) – [18,000 + 2000(A/G,10%,3)] + 25,000(A/F,10%,3)
= $-36,447
AW4 = -60,000(A/P,10%,2) – [18,000 + 2000(A/G,10%,4)] + 20,000(A/F,10%,4)
= $-35,381
AW5 = -60,000(A/P,10%,5) – [18,000 + 2000(A/G,10%,5)] + 15,000(A/F,10%,5)
= $-34,991

ESL is 5 years with AW = $-34,991

9.9 AW1 = -70,000(A/P,12%,1) – 75,000 + 59,500(A/F,10%,1) = $-93,900

AW2 = -70,000(A/P,12%,2) – 75,000 + 50,575(A/F,10%,2) = $-92,563
AW3 = -70,000(A/P,12%,3) – 75,000 + 42,989(A/F,10%,3) = $-91,405
AW4 = -70,000(A/P,12%,4) – 75,000 + 36,540(A/F,10%,4) = $-90,401
AW5 = -70,000(A/P,12%,5) – 75,000 + 31,059(A/F,10%,5) = $-89,530
AW6 = -70,000(A/P,12%,6) – 75,000 + 26,400(A/F,10%,6) = $-88,773

Therefore, ESL is 6 years with AW = $-88,773

9.10 (a) if the year is nD, replace the defender, (b) if the year is not nD, retain the
defender for another year and then do another one-year later analysis, (c) if the
estimates have changed, update all values and initiate a new replacement study.

9.11 AW = -22,000(A/P,10%,3) – 27,000 + 12,000(A/F,10%,3)

= $32,221

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9.12 The company should never purchase the challenger, because its AW is higher
than the defender’s AW. The defender should be kept for 2 more years and then
replaced with another used machine just like the one presently owned.

9.13 AWC = -26,000(A/P,10%,5) –1200 + 8000(A/F,10%,5)

= $-6748.35

AW1 = -5000(A/P,10%,1) – 1900 + 3000(A/F,10%,1)

= $-4400
AW2 = -5000(A/P,10%,2) – [1900 + 200(A/G,10%,2)] + 2500(A/F,10%,2)
= $-3685.71
AW3 = -5000(A/P,10%,3) – [1900 + 200(A/G,10%,3)] + 2200(A/F,10%,3)
= $-3343.23

Lowest AW is at three years (defender). Therefore, keep the defender three years
and then replace it with a used vehicle just like the one that is currently owned.

9.14 AWD = -130,000(A/P,12%,4) + 40,000(A/F,12%,4)

= $-34,431

AWC = -300,000(A/P,12%,10) + 50,000(A/F,12%,10)

= $-50,246

Upgrade the existing controlled-environment rooms

9.15 AWD = -25,000(A/P,15%,5) - 180,000

= $-187,458

AWC = -700,000(A/P,15%,10) – 70,000 + 50,000(A/F,15%,10)

= $-207,014

Retain the current process

9.16 AWD1 = -(8000 + 43,000)(A/P,10%,1) – 22,000 + 8000(A/F,10%,1)

= $-70,100
AWD2 = -(8000 + 43,000)(A/P,10%,2) – 22,000(P/F,10%,1)(A/P,10%,2)
+ (8000 – 25,000)(A/F,10%,2)
= $-49,005

AWC = $-47,063

The company should replace the existing machine now.

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9.17 AWD1 = -9000(A/P,12%,1) – 50,000 + 6000(A/F,12%,1)
= $-84,080
AWD2 = -9000 (A/P,12%,2) – 50,000(P/F,12%,1)(A/P,12%,2)
+ (4000 – 53,000)(A/F,12%,2)
= $-54,854
AWD3 = -9000(A/P,12%,3) – 50,000(P/F,12%,1)(A/P,12%,3)
-53,000(P/F,12%,2)(A/P,12%,3) + (1000 – 60,000)(A/F,12%,3)
= $-57,410

AWC = -125,000(A/P,12%,10) – 35,000 + 10,000(A/F,12%,10)

= $-56,553

The company should not replace the defender with the challenger. It
should replace the defender with a similar machine in two years.

9.18 -RV(A/P,12%,7) – 27,000 + 40,000(A/F,12%,7) = -400,000(A/P,12%,12)

- 50,000 + 35,000(A/F,12%,12)

-RV(0.21912) – 27,000 + 40,000(0.09912) = -400,000(0.16144)

- 50,000 + 35,000(0.04144)

RV = $411,146

9.19 -RV(A/P,12%,3) – 63,000 + 25,000(A/F,12%,3) = -130,000(A/P,12%,6) – 32,000

+ 45,000(A/F,12%,6)

-RV(0.41635) – 63,000 + 25,000(0.29635) = -130,000(0.24323) – 32,000

+ 45,000(0.12323)

RV = $5964

9.20 -RV(A/P,15%,2) – 71,000 = -210,000(A/P,15%,10) – 48,000

+ 60,000(A/F,15%,10)

-RV(0.61512) – 71,000 = -210,000(0.19925) – 48,000 + 60,000(0.04925)

RV = $25,828

9.21 -RV(A/P,12%,4) – [40,000 + 2000(A/G,12%,4)] = -150,000(A/P,12%,10)

- [10,000 + 500(A/G,12%,10)] + 50,000(A/F,12%,10)

-RV(0.32923) – [40,000 + 2000(1.3589)] = -150,000(0.17698)

- [10,000 + 500(3.5847)] + 50,000(0.05698)

RV = $21,953

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9.22 AWD = -15,000(A/P,15%,5) – 8000 + 7000(A/F,15%,5)
= -15,000(0.29832) - 8000 + 7000(0.14832)
= $-11,437

AWC = -40,000(A/P,15%,5) - 3000 + 10,000(A/F,15%,5)

= -40,000(0.29832) - 3000 + 10,000(0.14832)
= $-13,450

Keep the defender

9.23 AWX = -82,000(A/P,15%,2) – 30,000 + 42,000(A/F,15%,2)

= -82,000(0.61512) –30,000 + 42,000(0.46512)
= $-60,905

AWY = -97,000(A/P,15%,2) – 27,000 + 51,000(A/F,15%,2)

= -97,000(0.61512) –27,000 + 51,000(0.46512)
= $-62,946

Purchase robot X

9.24 AWD = -(40,000 + 70,000)(A/P,15%,3) – 85,000 + 30,000(A/F,15%,3)

= -110,000(0.43798) – 85,000 + 30,000(0.28798)
= $-124,538

AWC = -220,000(A/P,15%,3) – 65,000 + 50,000(A/F,15%,3)

= -220,000(0.43798) – 65,000 + 50,000(0.28798)
= $-146,957

Keep the defender

9.25 (a) For 2-year study period

AWK = -160,000(A/P,1%,24) – 7000 + 40,000(A/F,1%,24)

= -160,000(0.04707) –7000 + 40,000(0.03707)
= $-13,048

AWL = -210,000(A/P,1%,24) – 5000 + 70,000(A/F,1%,24)

= -210,000(0.04707) –5000 + 70,000(0.03707)
= $-12,290

Process L is better

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 (b) For 3-year study period

AWK = -160,000(A/P,1%,36) – 7000

+ (-160,000 + 40,000)(P/F,1%,24)(A/P,1%,36) + 50,000(A/F,1%,36)
= -160,000(0.03321) – 7000 – 120,000(0.7876)(0.03321)
+ 50,000(0.02321)
= $-14,292

AWL = -210,000(A/P,1%,36) – 5000 + 45,000(A/F,1%,36)

= -210,000(0.03321) –5000 + 70,000(0.02321)
= $-10,349
Process L is better.

Problems for Test Review and FE Exam Practice

9.26 Answer is (b)

9.27 AW1 = -15,000(A/P,10%,1) – 50,000 + 10,000(A/F,10%,1)

= - 15,000(1.1000) – 50,000 + 10,000(1.0000)
= $-56,500

AW2 = -15,000(A/P,10%,2) – 50,000(P/F,10%,1)(A/P,10%,2)

+ (-53,000 + 8000)(A/F,10%,2)
= -15,000(0.57619) – 50,000(0.9091)(0.57619) – 45,000(0.47619)
= $-56,262

AW3 = -15,000(A/P,10%,3) – 50,000(P/F,10%,1)(A/P,10%,3)

-53,000(P/F,10%,2)(A/P,10%,3) + (-60,000 + 5000)(A/F,10%,3)
= -15,000(0.40211) – 50,000(0.9091)(0.40211) – 53,000(0.8264)(0.40211)
- 55,000(0.30211)
= $-58,538

AW4 = -15,000(A/P,10%,4) – [50,000(P/F,10%,1) + 53,000(P/F,10%,2)

+ 60,000(P/F,10%,3)](A/P,10%,4) - 68,000(A/F,10%,4)
= -15,000(0.31547) – [50,000(0.9091) + 53,000(0.8264)
+ 60,000(0.7513)](0.31547) – 68,000(0.21547)
= $-61,762
ESL is 2 years with AW2 = $-56,262. Answer is (b)

9.28 Answer is (b)

9.29 Answer is (c)
9.30 Answer is (a)
9.31 Answer is (b)
9.32 Answer is (a)

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