Question

Subject: Engineering Economics

Use an interest rate of 5% for the loan

The Owls Engineering firm has been invited to participate in remodeling the Engineering Research Center at Temple University and need to acquire a crane with a cost of $250,000. The cost of transporting the crane to Temple University is $75,000. The project is expected to last four years and at that time the cranes will be sold at an expected salvage value of $100,000. The crane has MACRS-GDS 5-year property class. The engineering firm will finance the crane with a loan to be paid with four equal principal payments plus interest every year at a rate of 5% per year. The engineering firm will receive for their services a payment of $200,000 the first year increasing 3% per year thereafter. Their O&M costs are expected to be $50,000 the first year increasing by $10,000 every year. The payment of $200,000 in the first years is subject to meet deadlines and can vary + - 30% depending on the progress of the project. Therefore, the O&M will also be affected by progress of the project within a range +-30%. Perform an ATCF sensitivity analysis to determine if the project is economically feasible for the engineering firm. The firm MARR is 10% and tax is 35%.

Answer 1