A3-4 - CARLETON UNIVERSITY Department of Civil...

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CARLETON UNIVERSITY Department of Civil & Environmental Engineering ECOR3800B&C Engineering Economics (2008) ASSIGNMENTS 3&4 Due Date : March 17, 2008 (Monday) at 11:00 a.m. Location : Filing cabinet near the entrance to the Civil & Environmental Engineering Wing of Mackenzie Engineering Building ________________________________________________________________________ ASSIGNMENT 3 1) Autocon Company is evaluating three robots for use in assembly operations (only one robot will be purchased). These data are associated with the robots: Robot A Robot B Robot C First cost, $ 53,000 55,000 58,000 Operating and maintenance costs, $ 4,000/year 3,000/year 4,500/year Expected income, $ 24,000/year 26,000/year 30,000/year Salvage value, $ 4,000 4,000 6,000 Assuming a technological life of 3 years and a MARR of 10 percent, evaluate the robots by using (a) the NPW approach, (b) the incremental NPW approach, (c) the IRR approach, (d) the incremental IRR approach. 2) Three mutually exclusive investments alternatives are to be compared. The MARR is 8%. Which one is your choice? Alternative X Alternative Y Alternative Z First cost, $ 10,000 20,000 14,000 Annual expense, $ 4,000 5,000 3,000 Annual income, $ 7,000 11,500 11,500 Economic life, years 4 4 2 3) The think-tank group at Imagineering Inc. has recently come up with six proposals for consideration. Each project has an estimated life of 8 years with no salvage value. Their potential impacts in dollars are given below: Project A B C D E F Required investment capital $ 80,000 40,000 10,000 30,000 15,000 90,000 Annual cash flow $ 11,000 8,000 2,000 7,150 2,500 14,000
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2 (a) Assuming Imagineering Inc. has unlimited capital and the projects are independent, which project should be accepted? The MARR is 10 percent. (b) Given that Imagineering has only $100,000 of investment capital available, determine which of the independent alternatives should be selected. (c) Assuming that the projects are mutually exclusive, determine which proposal should be accepted. 4) The five investment proposals shown below have been investigated carefully and are deemed to be equally safe in terms of risk. An investor will be satisfied if a minimum before-tax return of 10 percent is realized. Proposal Investment, $ Life, years Salvage value, $ Net income annual cash flow, $ Alpha 30,000 5 3,000 7,500 Beta 60,000 6 10,000 13,755 Gamma 20,000 5 0 5,000 Delta 40,000 6 5,000 10,000 Epsilon 30,000 5 5,000 7,500 Please answer the following questions: (a) Which proposal is preferred if only one can be selected (i.e., assume that these are mutually exclusive)? (b) How much should be invested if the proposals are independent and if unlimited capital is available? (c) Which proposals should be utilized if an investor wishes to allocate exactly $60,000 of investment capital.
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