Solution Manual for Engineering Economy, 17th Edition

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Solutions to Chapter 1 ProblemsA Note To Instructors:Because of volatile energy prices in today's world, the instructor is encouraged to vary energyprices in affected problems (e.g. the price of a gallon of gasoline) plus and minus 50 percent and ask students todetermine whether this range of prices changes the recommendation in the problem. This should make for stimulating in-class discussion of the results.1-1(a)62 million tons per year × (0.05) = 3.1 million tons per year of reduced greenhouse gas$1.2 billion÷3.1 million tons per year = $387.10 per ton(b)3 billion tons per year × (0.03) = 90 million tons per year of reduced greenhouse gas$1.2 billion3.1 million tons =$X billion90 million tonsX = $34.84 billion

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1-2The primary disadvantage is the installed cost of $8,000 (rather expensive!). A key advantage ofsynthetic turf is the annual savings due to lawn maintenance. This may be worth up to $1,000 per yearwhen periodic lawn mowing, watering, and feeding are avoided.See what other monetized advantages and disadvantages members of your class can identify. Becreative!

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1-3Cost per Watt-hour = $0.75/1.5 Watt-hours = $0.50 per Watt-hourAt a cost of $0.50 per Watt-hour, it would cost (1,000)($0.50 per Watt-hour) = $500 per kilo Watt-hourfor power from a single AAA battery. This is 5,000 times more costly than energy from your localutility. No wonder we turn off our battery operated devices when we're not using them!

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1-4At first glance, Tyler’s options seem to be: (1) immediately pay $803 to the owner of the other person’scar or (2) submit a claim to the insurance company.If Tyler keeps his Nissan for five more years (anassumption), the cost of option 2 is $500 + ($60 × 2 payments/year) × 5 years = $1,100. This amount ismore than paying $803 out-of-pocket, so Tyler appears to have made the most economical choice.What we don’t know in this problem is the age and condition of the other person’s car. If we assume it’sa clunker, another option for Tyleris to offer to buy the other person’s car and fix it himself and thensell it over the internet. Or Tyler could donate the unrepaired (or repaired) car to his favorite charity.

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1-5(a)15,000 miles per year / 25 mpg = 600 gallons per year of E20Savings = 600 gallons per year ($4.00−$3.37) = $378 per year(b)Gasoline saved = 0.20 (600 gal/yr)(1,000,000 people) = 120 million gallons per year

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1-6An economic tradeoff is trading (exchanging) one economic outcome for another. Examples include (a)whether to ride the bus or drive your car to campus today, (b) whether to pack your lunch or eat at alocal fast food restaurant and (c) whether to carry an umbrella (an inconvenience) or hope for no rain ifyou don’t take your umbrella.

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1-7The cost of a wood-framed home is 2,000 ft2× $120/ ft2= $240,000. The ICF home will cost $240,000(1.10) = $264,000. So the cost difference to construct an ICF home is $24,000.The energy savings per month is 5% × $200 = $100 per month. Therefore, it will take 240 months topay back the extra ICF construction cost through monthly energy savings.

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1-8Increased lifetime earnings of a college graduate = $1,200,000(0.75) = $900,000

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1-9Strategy 1: Change oil every 3,000 miles. Cost = (15,000/3,000)($30) = $150 / yearStrategy 2: Change oil every 5,000 miles. Cost = (15,000/5,000)($30) = $90 / yearSavings = $60 per year

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1-10In six months you will spend approximately (180)(2)($1.15) = $414 on bottled water.The cost of thefilter is $60, so you will save $354 every six months. This amounts to $708 over a year, and you don'tneed to bother recycling all those plastic bottles! An up-front expenditure of $60 can indeed save a lotof money each year.

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1-11110 gallons x $4.00 per gallon = $440 saved over 55,000 miles of driving. This comes down to $440 /55,000 = $0.008 per mile driven. So Brand A saves 8/10 of a penny for each mile driven.

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1-12(a)Problem:To find the least expensive method for setting up capacityto produce drill bits.(b)Assumptions: The revenue per unit will be the same for either machine; startup costs arenegligible; breakdowns are not frequent;previous employee’s data arecorrect; drillbits are manufactured the same way regardless of the alternative chosen; in-housetechnicians can modify the old machine so its life span will match that of the newmachine; neither machine has any resale value; there is no union to lobby for in-house work; etc.(c)Alternatives:(1)Modify the old machine for producing the new drill bit (using in-housetechnicians);(2) Buy a new machine for $450,000;(3) Get McDonald Inc. tomodify the machine; (4) Outsource the work to another company.(d)Criterion:Least cost in dollars for the anticipated production runs, given that quality anddelivery time are essentially unaffected (i.e., not compromised).(e)Risks:The old machine could be less reliable than a new one; the old machine could causeenvironmentalhazards;fixingtheoldmachinein-housecouldprovetobeunsatisfactory; the old machine could be less safe than a new one; etc.(f)Non-monetary Considerations:Safety; environmental concerns; quality/reliability differences;“flexibility” of a new machine; jobsecurity for in-house work; image to outsidecompanies by having a new technology (machine); etc.(g)Post Audit:Did either machine (or outsourcing) fail to deliver high quality product on time?Were maintenance costs of the machines acceptable? Did the total production costsallow an acceptable profit to be made?

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1-13(a)Problem A:Subject to time, grade point average and energy that Mary is willing/able to exert,Problem A might be "How can Mary survive the senior year and graduate during the coming year(earn a college degree)?"Problem B:Subject to knowledge of the job market, mobility and professional ambition, Mary'sProblem B could be "How can I use my brother's entry-level job as a spring board into a higher-paying position with a career advancement opportunity (maybe no college degree)?"(b)Problem A- Some feasible solutions for Problem A would include:(1)Get a loan from her brother and take fewer courses per term, possibly graduating in thesummer.(2)Quit partying and devote her extra time and limited funds to the task of graduating in thespring term (maybe Mary could get a scholarship to help with tuition, room and board).Problem B - Some feasible solutions for Problem B would include:(1)Workforherbrotherandtakeoverthecompanytoenablehimtostartanotherentrepreneurial venture.(2)Work part-time for her brother and continue to take courses over the next couple of years inorder to graduate.(3)Work for her brother for one or two semesters to build up funds for her senior year. Whileinterviewing, bring up the real life working experience and request a higher starting salary.

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1-14A Typical Discussion/Solution:(a)One problem involves how to satisfy the hunger of three students -- assume a piping hot deliciouspizza will satisfy this need.(Another problem is to learn enough about Engineering Economy topass --or better yet earn an “A” or a “B”-- on the final examination and ace the course. Maybe apizzawillsolvethisproblemtoo?)Let’suse“hungersatisfactionwithapizza”astheproblem/need definition.(b)Principle 1 - Develop the Alternativesi)Alternative A is to order a pizza from “Pick-Up Sticks”ii)Alternative B is to order a pizza from “Fred’s”Other options probably exist but we’ll stick to these two alternativesPrinciple 2 - Focus on the DifferencesDifference in delivery time could be an issue.A perceived difference in the quality of theingredients used to make the pizza could be another factor to consider.We’ll concentrate ourattention on cost differences in part (c) to follow.Principle 3 - Use a Consistent ViewpointConsider your problem from the perspective of three customers wanting to get a good deal. Doesit make sense to buy a pizza having a crust that your dog enjoys, or ordering a pizza from a shopthat employs only college students?Use the customer’s point of view in this situation rather thanthat of the owner of the pizza shop or the driver of the delivery vehicle.Principle 4 - Use a Common Unit of MeasureMost people use “dollars” as one of the most important measures for examining differencesbetween alternatives. In deciding which pizza to order, we’ll use acost-based metric in part (c).Principle 5 - Consider All Relevant CriteriaFactors other than cost may affect the decision about which pizza to order.For example, varietyand quality of toppings and delivery time may be extremely important to your choice.Dynamicsof group decision making may also introduce various “political” considerations into the finalselection (can you name a couple?)Principle 6 - Make Uncertainty ExplicitThe variability in quality of the pizza, its delivery time and even its price should be carefullyexamined in making your selection. (Advertised prices are often valid under special conditions --call first to check on this!)Principle 7 - Revisit Your DecisionAfter you’ve consumed your pizza and returned to studying for the final exam, were you pleasedwith the taste of the toppings? On the downside, was the crust like cardboard? You’ll keep thesesorts of things in mind (good and bad) when you order your next pizza!

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1-14continued(c)Finally some numbers to crunch --don’t forget to list any key assumptions that underpin youranalysis to minimize the cost per unit volume (Principles 1, 2, 3, 4 and 6 are integral to thiscomparison)Assumptions: (i) weight is directly proportional to volume (to avoid a “meringue” pizza with lotsof fluff but meager substance), (ii) you and your study companions will eat the entire pizza (avoidsvariable amounts of discarded leftovers and hence difficult-to-predict cost of cubic inch consumed)and (iii) data provided in the Example Problem are accurate (the numbers have been confirmed byphone calls).Analysis:Alternative A “Pick-Up-Sticks”Volume = 20x 20x 1 ¼= 500 in.3Total Cost = $15 (1.05) + $1.50 = $17.25Cost per in.3= $0.035Alternative B “Fred’s”Volume = (3.1416)(10)2(1.75) = 550 in.3Total Cost = $17.25 (1.05) = $18.11Cost per in.3= $0.033Therefore, order the pizza from “Fred’s” to minimize total cost per cubic inch.(d)Typical other criteria you and your friends could consider are: (i) cost per square inch of pizza(select “Pick-Up-Sticks”), (ii) minimize total cost regardless of area or volume (select “Pick-Up-Sticks”), and (iii) “Fred’s” can deliver in 30 minutes but “Pick-Up-Sticks” cannot deliver for onehour because one of their ovens is not working properly (select “Fred’s”).

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