Economic Analysis of Construction, Highway Safety, and Engineering Projects

Practice 1: Economic Analysis of a Construction Equipment Purchase

Practice 1

A construction company bought a 180,000 metric ton earth sifter at a cost of $65,000. The company expects to keep the equipment a maximum of 7 years. The operating cost is expected to follow the series described by 40,000 + 10,000k, where k is the number of years since it was purchased (k = 1, ..., 7). The salvage value is estimated to be $30,000 for years 1 and 2 and $20,000 for years 3 through 7. At i = 10% per year, determine the economic service life and equivalent annual worth of the sifter using a spreadsheet.

Practice 2

Steel cable barriers in highway medjans are a low-cost way to improve traffic safety without busting state department of transportation budgets. Cable barriers cost $44,000 per mile, compared with $72,000 per mile for guardrail and $419,000 per mile for concrete barriers. Furthermore, cable barriers tend to snag tractor-trailer rigs, keeping them from ricocheting back into same-direction traffic. The state of Ohio spent $4.97 million installing 113 miles of cable barriers. (a) If the cables pre- vent accidents totaling $1.3 million per year, determine the rate of return that this represents over a 10- year study period. Use a spreadsheet. (b) Now, determine the rate of return for 113 miles of guardrail if accident prevention is $1.1 million per year over a 10-year study period. To do so, first write the ROR relation and then find i* using a single-cell spreadsheet function. 

Practice 3

A company that manufactures magnetic flow meters expects to undertake a project that will have the cash flows below. At an interest rate of 10% per year, what is the equivalent annual cost of the project? Find the AW value using a spreadsheet

Practice 4

Allison and Joshua are engineers at Raytheon. Each has presented a proposal to track fatigue development in composite materials installed on special-purpose aircraft. Which is the better plan economically, if i = 12% per year compounded monthly?