1. A statement identifying the engineering economics method used in determining

Question

1. A statement identifying the engineering economics method used in determining the answer

2. Cash Flow Diagrams for each component of the question/answer

3. The formula(s) used for each calculation – e.g., P = F / (1 + i)N (after the set of formulas for each problem have been identified, “factors” can be used to simplify the calculations and avoid errors)

4. A proper statement defining the use of the factors found in Appendix B “Interest Factors for Discrete Compounding” – e.g., Present Worth of a Future Amount at 8% annually for 25 years should be written as: “(P/F, 8%, 25) = 0.1460” prior to its use in a calculation

5. A concluding statement answering the ultimate question

uestion 3 (30% University Power is evaluating the opportunity to construct a new electric generating facility. The two choices are a coal-burning plant or a gaseous diffusion plant. The coal-burning plant will cost $150 per megawatt to construct, while the gaseous diffusion plant will cost $300 per megawatt. Due to uncertainties about fuel availability and the current environmental concerns surrounding air quality, the useful life of each plant is unknown, but the following probabilities have been estimated: Useful Life Coal-Burning Gaseous (years) 10 20 30 40 Plant 0.10 0.50 0.30 0.10 Diffusion Plant 0.05 0.25 0.50 0.20 Part A: Determine the expected life of each plant as a comparison of mutually exclusive risky alternatives Part B: Based on the ratio of construction cost per megawatt to expected life, which plant would you recommend University Power build?

Explanation / Answer

I am assuming that the solution for question 3(30%) has been asked so I answered it as follows:

Part A: Expected life=sum of (useful life*probability)

Coal-burning plant=10*0.1+20*0.5+30*0.3+40*0.1=1+10+9+4=24 years

Gaseous diffusion plant=10*0.05+20*0.25+30*0.5+40*0.2=0.5+5+15+8=28.5 years

Part B: Ratio of construction cost per megawatt to expected life:

Coal burning plant=150/24=6.25

Gaseous diffusion plant=300/28.5=10.53

Accordingly, the gaseous diffusion plant should be buiilt because the ratio is higher which means faster recovery of construction cost per year of useful life.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.