EGN3613 Module 8 Calculation Examples

Engineering Economics Calculations
Annual Rate of return, nominal and effective annual rates, incremental cash flows (including LCM example)
Problems Solved:
Q1. New digital scanning graphics equipment is expected to cost $20,000, to be used for three years, and to have an annual operating cost of $8,000. Determine the Annual Worth values for one and two life cycles of the equipment at i= 22% per year. Look at the cash flow diagram below.
Q2. If you receive an inheritance of $10,000 today, how long do you have to invest it at 8% per year to be able to withdraw $2,000 every year forever? Assume the 8% per year is a return that you can depend on forever.
Q3. A Project manager would like to select the more economical of two alternatives for an excavation dust control. Help the project manager evaluate and select the proper alternative knowing that the estimated MARR = 12% per year.
Equipment Option 1 Option 2
Initial Cost $ 40,000 75,000
Annual Operating Cost (AOC), $ per year 25,000 15,000
Life, years 4 6
Salvage value, $ 10,000 7,000
Q4. An auto-part manufacturer is considering establishing an engineering computing center. This center will be equipped with three engineering workstations that each would cost 25,000 and have a service life of five years. The expected salvage value of each workstation is $2,000. The annual operating and maintenance cost would be $15,000 for each workstation. If the MARR is 15%, determine the equivalent annual cost of operating the engineering center.
Q5. Lockheed Martin is increasing its booster thrust power in order to win more satellite launch contracts from European companies interested in new global communications markets. A piece of earth-based tracking equipment is expected to require an investment of $13 million. Annual operating costs for the system are expected to start the first year and continue at $0.9 million per year. The useful life of the tracker is 8 years with a salvage value of $0.5 million. Calculate the Annual Worth for the system if the corporate MARR is currently 12% per year.