6. Bond valuation: fair price (present value). - Calculate the fair value of a bond with the following characteristics: face $1,000; coupon rate 8%; years until maturity 12; investor's required return 9%

A city Water company is comparing 2 plans for supplying water to new subdivisions as the city expands Plan A: will cover requirements for the next 20 years and costs $450 000. After 20 years a 2nd facility will have to be added at the same cost. To maintain the required level of service yearly maintenance will have to be done at an estimated $2500, with yearly operating costs expected at $40 000 for the first 10 years, then increasing by $1000 for years 11-20. This cost is expected to double once the 2nd facility is built. Major overhauls to the facilities are projected to be required every 20 years at a costs of $75 000 per facility. Plan B: will supply all water for the area indefinitely into the future, although the facility will operate at half capacity for the first 20 years. Annual operating costs over this period are expected to be $35 000, then will increase to $65 000 in year 21 with yearly maintenance being $1500. The initial cost for this plan is $600 000, with major overhauls required every 40 years at an estimated cost of $200 000. a) Perform a present value analysis on each of the options for a single service life cycle if i=10%. What values do you get for each option? b) Is this a reasonable way to compare these 2 machines? Explain your why or why not what approach you would recommend for a better comparison, c) The resident's will be charged based on the annual equivalent amount. What is the annual equivalent amount for each of the plans, and which version would you recommend to Halifax Water? Explain your reasoning ANSWER, A,B AND C.

Engineering Economy Project Water desalination is a major process to supply clean drinking water in many countries around the World. The International Atomic Energy Agency has developed economic tools to assess the economic aspects of water desalination using a range of technologies. Using the IAEA Desalination Economic Evaluation Programme (DEEP) https://www.iaea.org/topics/non-electric-applications/nuclear-desalination You are requested to work with your team to estimate the water desalination cost in terms of water production and energy consumption as requested below 1. Select the Power Plant type for your Desalination Plant and justify your selection. 2. Investigate the effects fuel option on the water and energy production costs 3. Investigate the effects of technology option 4. Select a power plant technology and justify your selection 5. Investigate the effects of Power Plant Efficiency on the water and energy costs 6. Investigate the effect of the Desalination Capacity on the water and energy costs 7. Investigate the effects of Carbon Prices on the water and energy costs 8. Investigate the relationship between discount rate and water and energy production costs for your selected process 9. Investigate the effects of interest rates on your production costs on the water and energy costs 10. Investigate the relationship between fuel escalation rate and water and energy production costs 11. Comment on the results and make recommendations

Present Worth, Annual Worth: 1.1 The cash flow associated with making self-locking fasteners is shown below. Determine the net present worth (year 0) at an interest rate of 10% per year. 1.2 Two engineering graduates who recently got married are planning for their early retirement 20 years from now. They believe that they will need $2,000,000 in year 20. Their plan is to live on one of their salaries and invest the other. They already have $25,000 in their investment account. (a) How much will they have to invest each year if the account grows at a rate of 10% per year? (b) If the maximum they have available to invest each year is $40,000, will they reach their goal of $2 million by year 20? 1.3 For the cash flow diagram shown, determine the value of W that will render the equivalent future worth in year 8 equal to $500 at an interest rate of 10% per year.

Investments and Project Acceptance: 1. A company that manufactures magnetic membrane switches is investigating two production options that have the estimated cash flows shown ($1 million units). Which one should be selected on the basis of a present worth analysis at 10% per year? 2. A metallurgical engineer is considering two materials for use in a space vehicle. All estimates are made. (a) Which should be selected on the basis of a present worth comparison at an interest rate of 12% per year? (b) At what first cost for the material not selected above will it become the more economic alternative? 3. Machines that have the following costs are under consideration for a robotized welding process. Using an interest rate of 10% per year, determine which alternative should be selected on the basis of a present worth analysis. Show (a) hand calculations 4. Ashley Foods, Inc. has determined that any one of five machines can be used in one phase of its chili canning operation. The costs of the machines are estimated below, and all machines are estimated to have a 4- year useful life. If the minimum attractive rate of return is 20% per year, determine which machine should be selected on the basis of a rate of return analysis.

Capital Cost 1. A wealthy businessman wants to start a permanent fund for supporting research directed toward sustainability. The donor plans to give equal amounts of money for each of the next 5 years, plus one now (i.e., six donations) so that $100,000 per year can be withdrawn each year forever, beginning in year 6. If the fund earns interest at a rate of 8% per year, how much money must be donated each time? 2. Compare the alternatives shown on the basis of their capitalized costs using an interest rate of 10% per year.

1. Nichole bought a $15,000 car and after using it for 5 years she sold it for $2,500. Determine the EUAC consider an interest rate of 7% per year. Hint only consider capital costs. printer

Depreciation 1. What is meant by depreciation? 2. How does depreciation affect a company's cash flow? 3. State the difference between book depreciation and tax depreciation. 4. Explain why the recovery period used for tax depreciation purposes may be different from the estimated n value in an engineering economy study. 5. Identify the different methods for determining depreciation of assets. 6. An asset that is book-depreciated over a 5-year period by the straight-line method has BV3 $62,000 with a depreciation charge of $26,000 per year. Determine (a) the first cost of the asset and (b) the assumed salvage value. 7. Bristol Myers Squibb purchased a tablet-forming machine in 2008 for $750,000. The company planned to use the machine for 10 years; however, due to rapid obsolescence it will be retired after only 4 years in 2012. Develop a spreadsheet for depreciation and book value amounts necessary to answer the following (a) What is the amount of capital investment remaining when the asset is prematurely retired? (b) If the asset is sold at the end of 4 years for $175,000, what is the amount of capital investment lost based on straight line depreciation? (c) If the new-technology machine has an estimated cost of $300,000, how many more years should the company retain and depreciate the currently owned machine to make its book value and the first cost of the new machine equal to each other. 8. A. 120-metric-ton telescoping crane that cost $320,000 is owned by Upper State Power. Salvage is estimated at $75,000. (a) Compare book values for MACRS and standard SL depreciation over a 7- year recovery period. (b) Explain how the estimated salvage is treated using MACRS. 9. Vesco Mineral Resources purchased mineral rights to land in the foothills of the Santa Cristo mountains. The cost of the purchase was $9 million. Vesco originally thought that it would be able to extract 200,000 tons of lignite from the land, but further exploration revealed that 280,000 tons could be economically removed. If the company sold 20,000 tons in year 1 and 30,000 tons in year 2, what would the depletion charges be each year according to the cost depletion method?

9. Nick invested $1,000 in his bank account today (year 0). He is planning on investing an amount (t) in year 1, and to continue with his investments in the following manner: invest (t+150) in year 2, (t+300) in year 3, (t+450) in year 4 and to continue with this investment pattern for the following 25 years. Nick's father suggested that he should do an equivalent uniform investment instead of using this gradient pattern. Determine the equivalent uniform amount that Nick should invest. Consider a yearly interest rate of 5%.

7. The local authorities are considering building a new bridge between two different zones of the city. An engineering firm is projecting the following bridge cost. Determine the EUAC for both options. Consider a yearly interest rate of 8%.