assignment -2-fall-2010 - Carleton University Department of...

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Carleton University Department of Civil and Environmental Engineering Engineering Economics (ECOR 3800) ASSIGNMENT # 2 Issued November 02, 2010 Due Date: November 12, 2010 at 12:00 noon Drop off your location: Filing cabinet near the entrance to the Civil and Environmental Engineering office. The cabinet located to the right of room 3424 ME. ============================================================= Question (1) (A) A contractor must purchase one of three trucks for his business. The trucks vary in both costs and benefits. What criterion should be used to determine which truck to purchase if PW analysis is to be used? Choose an answer from below A. Choose truck with lowest PW (costs) B. Choose truck with highest PW (benefits) C. Choose truck with coolest color D. Choose truck with highest [PW (benefits) - PW (costs)] (B) PW analysis with equal lives A company with a minimum attractive rate of return (MARR) of 10% plans to install one of two elevators in one of its office buildings. Doing nothing is not an option. The elevators provide equivalent service and each has an estimated 20-year service life. Choose the appropriate elevator. The installed cost of elevator X is $200,000 with an annual operating and maintenance (O&M) cost of $30,000. The installed cost of elevator Y is $250,000 with an annual operating and maintenance (O&M) cost of $20,000. This is the easiest case of PW analysis. Set the analysis period equal to the lives of the alternatives, choose an appropriate decision criterion, then make the PW calculations and choose an alternative.
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Question (2) (A) Consider the following cash flows and compute the equivalent annual worth at i = 12% A n n Investment Revenue 0 -10,000 1 2000 2 2000 3 3000 4 3000 5 1000 6 +2000 500 (B) Consider the cash flow diagram. Compute the equivalent annual worth at i = 12% 20,000 5,000 8,000 11,000 14,000 17,000 Year 1 2 3 4 5 6 0
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Question (3) (A) PW analysis with unequal lives When alternatives under consideration have unequal lives, one approach is to use an analysis period that is the least common multiple of the alternative lives. For example, if X
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