1. The expansion of the Wideplace Mall is delayed over the issue of parking. There is not enough now...

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1. The expansion of the Wideplace Mall is delayed over the issue of parking. There is not enough now to support the new facility and more must be added. Let's suppose that there are 3 options: buying more land, filling wetlands at the rear of the site, or building a multilevel garage on the present lot. Assume a forty-year planning horizon and an interest rate of 9% per year. Use present worth analysis and the data below to determine which option should be selected.

Purchase Land	Fill Wetlands	Garage
Initial Cost, $	$12,000,000	$19,000,000	$44,000,000
Annual Benefit, $ per year	0	0	4,000,000 (parking fees)
Annual Cost, $ per year	200,000	160,000	2,900,000

2. Your company needs a small front-end loader for handling bulk materials at the Wideplace plant. It can be leased from the dealer for three years for $4050 per year including all maintenance. It can also be purchased for $14,000. You expect the loader to last for six years and to have a salvage value of $3000. You predict that maintenance will cost $400 the first year and increase by $200 per year in each year after the first. Your MARR is 15% per year. Use AW analysis to determine whether to lease or buy the loader.
3. For the cash flow series below, calculate the composite rate of return, using a reinvestment rate of 14% per year.

Year	Cash Flow, $
0	3000
1	-2000
2	1000
3	-6000
4	3800

4. The State Department of Excessive Spending (DES) is planning to build a new office building for the Bureau of Eternal Taxation (BET) near Wideplace. Four proposed sites are to be evaluated. Any of these sites will save the state $750,000 per year because the space for BET will no longer need to be rented from the private sector. As required, the DES uses benefit/cost ratio analysis with a 6% per year interest rate and assumes that the building and its benefits will last for 40 years. Which, if any, site should DES choose?

Site	Here	Near	Far	Farther
Initial Cost	$8,600,000	$8,100,000	$7,500,000	$6,800,000
Annual Operating Cost	$160,000	$ 200,000	$240,000	$300,000

5. The following two alternatives are mutually exclusive. Which one will you select if your MARR is 15% per year? Use rate of return analysis.

Alternative	Initial Cost	Annual Benefit	Life, years
Ordinary (O)	$30,000	$9,000	5
Above average (AA)	33,000	9,000	6

005_v4itzk-41zgyphg.docx

David · Accepted Answer

IEEN 5329 Advanced Engineering Economy Analysis
Fall 2012
Name ________________________________ Score _____________________________
Please solve problems 1 to 4 using hand calculation. Show all your work on the paper. Solve the last problem using Excel and email your file to IEEN5329@gmail.com.
1. The expansion of the Wideplace Mall is delayed over the issue of parking.  There is not enough now to support the new facility and more must be added.  Let's suppose that there are 3 options:  buying more land, filling wetlands at the rear of the site, or building a multilevel garage on the present lot.  Assume a forty-year planning horizon and an interest rate of 9% per year.  Use present worth analysis and the data below to determine which option should be selected.
	
	Purchase Land
	Fill Wetlands
	Garage
	Initial Cost, $
	$12,000,000
	$19,000,000
	$44,000,000
	Annual Benefit,
$ per year
	0
	0
	4,000,000
(parking fees)
	Annual Cost,
$ per year
	200,000
	160,000
	2,900,000
Solution:
Purchase Land 
PW = -Initial cost + Annual benefit – Annual cost (PVIFA @ 9%, 40)
       = -12,000,000 + 0 – 200,000 (10.7574)
       = -14,151,472. 04
Fill Wetlands
PW = -Initial cost + Annual benefit – Annual cost (PVIFA @ 9%, 40)
       = -19,000,000 + 0 – 160,000 (10.7574)
       = -20,721,177.63
Garage
PW = -Initial cost + Annual benefit – Annual cost (PVIFA @ 9%, 40)
       = -44,000,000 + 4,000,000 (10.7574) – 2,900,000 (10.7574)
       = -55,833,096.

1. The expansion of the Wideplace Mall is delayed over the issue of parking. There is not enough now to support the new facility and more must be added. Let's suppose that there are 3 options: buying...

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