Engineering Economics Revision

COEB442 Engineering Economics Revision Sem 1, 2016/2017

De a rs t ude nt s , Ma j or i t yoft heque s t i o nshe r ea r et a ke nf r om pr e v i ouse x a mi mi na t i ons . Pl us f e wf r om t e x t boo ka ndpa s tt e s t s . Page | 1

Al lt hebe s ty a.

Chapt er2 (a)

( Q3. a)Fi nalExami mi nat i onSemes t er1,2015/ 2016 Below Below is inform informati ation on gather gathered ed from the Financi Financial al Stat Statemen ements ts of Akook Akookeye eye Sdn Sdn Bhd for financial year end July 21!" ITEM

RM

Building $ash 'nentories +eenues from sales $om,uter e-ui,ment Salary e.,enses ehicles Pre,aid rental e.,enses Account receiales3 4etors +ee +eenu nues es from from ine inest stme ment ntss (oth (other er than than sales sales)) Account ,ayales3 $reditors Administration e.,enses 5arketing and selling e.,enses 6ong7term Payales $ost of goods sold Accrued insurance e.,ense

1#2# %&# *# 2#*!# *# /0!#! 2!# 12# !2# !# !#  /%#! 1%/#& 2!# !%# 1#%# 21#

8o assess Akookeye9s financial ,erformance# the accountant wants few analysis using the data ,roided" Required :

i"

's the the com, com,an anyy utili tili;i ;inng its its ass assets ets effi effici cien entl tlyy in gene genera rati tinng its its sale sales# s# gie gienn that that the the industry9s aerage is < Su,,ort your answer with calculation" =& marks> A: assets turnover= RM1.46 sales per RM1 asset. Not efficient compared to industry which is 3.

ii" Pre,are Pre,are the Profit Profit or or 6oss3'nco 6oss3'ncome me Statement Statement for Akook Akookeye eye Sdn Sdn Bhd" Bhd" with with com,any com,any ta. ta. 1


rate at 2!?"

=% marks>

A: ncome !tatement with "ross profit=RM1#3$$#%%%# profit=RM1#3$$#%%%# operatin& profit =RM4'6#(%%# profit after ta) of RM36$#1*$ RM36$#1*$ Page | 2

Fi nalExami mi nat i onSemes t er1,2014/ 2015

( a)

Gi veashor tdefini t i onf ort hef ol l owi wi ngt erms ms: i . I ncomeSt at ement [ 1mar k] i i . NetCashFl ow [ 1mar k] i i i . Gi veONEexamp mpl eoffinanci ngact i vi t i esi nacomp mpany. [ 1mar k] ( b) The dat a bel ow wer e bas ed on t he financi alst at eme ment s of Top Manuf act uri ng Corporat i onf oryear2013( i nRM t housands) . I t ems RM I nvent or i es 25, 500 Land,Bui l di ngs,Pl antandMachi ner y 57, 000 Costofsal es 85, 000 Longt erm l i abi l i t i es 33, 000 Account spayabl eandShor tTerm Borr owi ngs 45, 000 Di st r i but i on,sel l i ngandma mar ket i ngexpens es 20, 000 I nt er estExpenses 1, 000 Taxat i on 1, 000 Di vi dends 2, 000 Theaci dt estr at i oandt heassett urnoverr at i oi s0. 5and1. 1respect i vel y. Cal cul at et hef ol l owi wi ng: i . t het ot alasset s =RM105, 000 i i . t hesal es =RM115, 500 i i i . t heoper at i ngpr ofit s =RM 10, 500 i v. t her et ai nedear ni ngs=RM6, 500

( a)

[ 5mar ks] [ 2mar ks] [ 3mar ks] [ 2mar ks]

Fi nalExami mi nat i onSemes t er2,2013/ 2014 i . Acorpor at i onneti ncome mei sder i vedbysubt r act i ngi ncome met axesf r om t he t axabl ei ncome medur i ngt heaccount i ngper i od.Br i eflyexpl ai nwhatt hecorpor at i onwi l l deci det odowi wi t ht hi sneti ncome me. [ 2ma mar ks]

i i .

Whati sacashflow st at eme mentandwhyi ti si mport antt oacomp mpany?

2


( b)

[ 2ma mar ks] The dat a bel ow wer e bas ed on t he financi alst at eme ment sofMegah Manuf act ur i ng Corporat i onf oryear2012( i nRM t housands) . I t ems

RM 235 350 85 940 1, 910 2, 480 5, 560 1, 150 2, 370

I nvent ory Account sr ecei vabl e Pr epai dt axesandi nsur ance Cashandcashequi val ent s Land,Bui l di ngsandMachi nes Costofsal es NetRevenue Wor ki ngcapi t al Tot alequi t y

Cal cul at et hef ol l owi wi ng: i . t hecurr entl i abi l i t i es =RM460k i i . t hel ongt er ml i abi l i t i es = RM690k i i i . t hegrossmar gi n =RM3080k i v. t hequi ckr at i oandi nt er pr etyouranswer =RM2. 99

Page | 

[ 2mar ks] [ 2mar ks] [ 2mar ks] [ 2mar ks]

( 12ma mar ks ,Q1,FESem113/ 14)

( a) i . Thei ncome mest at eme menti soneoft hemostcomm mmonfinanci alst at eme ment si na comp mpany’ sannualr epor t .Desc r i bet hef ol l owi wi ngi t ems msi nt hei ncome mes t at eme ment : 1. Costofsal es 2. Earni ngspershare i i .

Br i eflyexpl ai nt hedi ffer encebet ween“pref er r edst ock”and“comm mmonst ock”of acor por at i on.How dot heyr el at et oacorpor at i on’ sr et ai nedearni ngs?

i i i .

Thedat abel ow ar et akenf r om t hefinanci alst at eme ment sofBer anangHar dwar e Manuf act ur i ngCor porat i on.( i nRM1, 000’ s) Cash Sal esr evenue Account sr ecei vabl e Account sPayabl e Not esPayabl e Pr epai dt axesandi nsur ance I ncomet axespayabl e

RM



880 30, 000 470 940 510 60 700


Sel l i ngexpenses Longt er m debt Costofgoodssol d I nvent ory Land Pl antandEqui pment

2, 000 2300 20, 000 1, 400 1, 640 2, 850

Cal cul at e: =2, 810 1. t hecurr entasset s =2, 150 2. t hecurr entl i abi l i t i es =2, 850 3. t hesharehol der s’equi t y =660 4. t heworki ngcapi t al 5. t hedebtr at i oandi nt er pr etyouranswer =60. 95% -Hi ghproport i onoffinanci ngt hroughborr owi ngf r omcr edi t or s 6. t heaci dt es tr at i oandi nt er pr etyouranswe wer =0. 656t i mes -Thecompanydependsheavi l yoni nvent ori est ome mee ti t sobl i gati on

*

Page | *


Chapt er8 Q. 4( ac)Fi nalExami nat i onSemes t er1,2015/ 2016

+inching Furniture Sdn Bhd o,erates a factory at the Beranang 'ndustrial @one that manufacture ergonomic rattan chair" 8he data gien elow are for costs in year 21* for ,roducing # units of the rattan chairs" $urrently# each rattan chair is een sold at +512" !ni"s #roduced

Cos"s $RM%

4irect laor 4irect raw materials 5anufacturing oerhead: ariale ,ortion Fi.ed ,ortion Selling and administratie costs: ariale ,ortion Fi.ed ,ortion

0# &# 7777777777777 !*# 2*# #

ien that the manufacturing cost ,er unit is +5%# calculate the ariale ,ortion alue of the manufacturing oerhead costs in year 21*" =int: Fill in the missing alue in the tale> A=RM36#%%% =* marks> () Csing the answer that you hae calculated in ,art (a)# com,ute the following: i" 8otal ariale costs A=RM-1%#%%% =2 marks> ii" 8otal ariale costs ,er unit A=RM*% =1 mark> iii" 8otal costs A=RM-(4#%%% =2 marks> +a,

(c) Based on the current selling ,rice set y the com,any# answer the following: i" Dhat is the com,any9s ,rofit ,er unit for the sale of # units of rattan chairs< A=RM-= marks> ii" $alculate the contriution margin ,er unit of the rattan chair when sales are at # units" 'nter,ret the meaning of your answer" A=RM$% = marks> iii" Proe that the ,rofit ,er unit ,lus the aerage fi.ed costs is e-ual to the contriution margin alue as calculated in ,art c(ii)" =2 marks> A= RM

%$i v.

Det er mi net hebreakevenvol umeandsal es . = marks>

A=vol 16'%# sales RM-%1#6%%

Fi nalExami nat i onSe mes t e r2,2014/ 2015 Thef ol l owi ngar et hedat af orLi ght SysSof t war eCorpor at i on permont h.

Uni t sSol d Tot alVar i abl eCost s

40, 000uni t sofpendr i ves RM560,000

!

Page | !


Cont r i but i onMar gi nPeruni t Pr ofit

RM6 RM70,000

( a)Whati st hepr i ceperuni toft hependr i ve?=RM20

[ 4mar ks ] Page | &

( b)How muchs al esval uecant hecompanygener at e? ( c)

=RM800k [ 2mar ks]

Doyouagreet hatt heaver agefixedcos tperuni ti sRM1. 75? Cal cul at et oanswer .=AFC=RM4. 25,NO

[ 5mar ks]

( d)

How manyuni t sofpendr i vemustLi ght Syssel li nordert obreakeven? r oundtot henear es twhol euni t )=28, ( 334uni t s [ 4mar ks]

( e)

Gi vent hevar i abl eproduct i oncostperuni ti ncr eas esbyRM 2,butnochangei nfixed cost s,cant hecompanymai nt ai nt hesamel evelofpr ofiti fi tsel l s50, 000uni t sof pendr i vepermont h? Cal cul at et oans wer . =NO,pr ofitdecl i nedbyRM40k [ 5mar ks]

Fi nalExami nat i onSemes t er1,2014/ 2015 ToysN Fun Companysel l st r ansf ormert oysi mport edf r om Tai wan.Thet oysaresol dt o cust omer si nKl angVal l eyarea.Sal espers onsar epai dbasi cs al arypl usc ommi ss i ononsal es madebyt hem.Det ai l sdat aconcer ni ngsal esandexpensesmadebyt hecompanyi sshown bel ow.

Sel l i ngpr i cepert oy

RM

75

Vari abl eexpensespert oy: I nvoi cecos t( vari abl emanuf act ur i ngcost ) RM Sal esCommi ssi on RM Tot al RM

33 12 45

Annualfixedexpenses : Rent Mar ket i ng Sal ari es Tot al

RM120, 000 RM300, 000 RM180, 000 RM600, 000

Requi r ed:

( a)Cal cul at et hecont r i but i onmar gi nperuni t .Expl ai nt hemeani ngofyouranswer

&


=RM30

[ 4mar ks]

( b)Comput ebreakevennumberi nuni t s. =20, 000uni t s

[ 2mar ks] Page | /

( c)Basedonyouransweri n( b) ,dr aw acost vol umepr ofitgr aph( breakevenchart ) . Show t hebreakeven poi nt ;pr ofitand l ossarea;fixed cost ,vari abl ecost ;and revenues.

Thegraphbel ow i sacost vol ume-profitgraph. +eenue line E

+5 Profit E Break7een ,oint E ariale cost E 6oss E Fi.ed cost E

Vol ume 20, 000uni t s√√

[ 4mar ks]

( d)I ft hecompanyt ar gett oachi eveRM150, 000pr ofitt hi syear ,how manyt oysshoul d t hecompanysel l s? [ 3mar ks] =25, 000uni t s oysol di n ( e)Thecompanyi st hi nki ngt opayRM7commi ssi ont omanageroneacht exce ssofbreak evenpoi nt.Whatwi l lbet heeffec toft hesechangeson t henet oper at i ngi ncomeorl ossf ort hecompanyi f23, 500t oyswer esol di n year . Ne ti ncome =RM80, 500

[ 5mar ks]

( f )Ref er t ot he ori gi naldat a.The Sal es Manageri sr ecommendi ng f or sal es commi ss i oni sel i mi nat edent i r el yandsal ari esar ei ncr easedbyRM214, 000? i . Cal cul at et henew cont r i but i onmar gi nperuni t . =RM42

/

[ 1


mar k] i i . Cal cul at et henew t ot alfixedcost s. =RM814, 000 mar k]

[ 1

i i i . Whatwi l lbet henewbreakevenpoi nt( i nuni t s) ?=19, 381uni t s [ 2 mar ks] i v. Shoul dt hecompanyaccept st hi sr ec ommendat i on?Comparewi t h youransweri n( b) Wi t ht henewsyst em,t hecompanywi l ls t art smaki ngprofitaf t erse l l i ng19, 381uni t s comparet ot heol dsyst em20, 000uni t s.Shoul di mpl ementt hesugges t i ongi venby t hemanager [ 3mar ks]

Fi nalExami nat i onSemes t er2,2013/ 2014 I TExcelSdn.Bhd. ,amanuf act ur i ngcompanyt hatpr oducesacomput ercomponentl eas esa bui l di ngf orRM250, 000peryearf ori t smanuf act ur i ngf aci l i t i es.I naddi t i on,t hemachi ner yi n t hi sbui l di ngi sbei ngpai df ori ni ns t al l ment sofRM50, 000peryear .Eachuni toft hepr oduct pr oducedcost sRM40i nl aborandRM20i nmat er i al s.Thevari abl ecost sar ees t i mat edat60 percentoft ot alrevenue.

( a)

Det ermi net hepr i ceperuni toft hepr oduct .=RM100

( b)

Cal cul at et hequant i t yatwhi cht hemanuf act ur erwi l lcovert hefixedcos t s. =3, 000uni t s [ 2mar ks]

( c)

i .

How manyuni t speryearmustbesol df ort hecompanyt obr eakeven? =7, 500uni t s [ 2mar ks]

i i .

Show t hatatbreakevenpoi ntcont r i but i onmar gi ni sequalt oaver agefixed c o s t s . =CM=RM40;AFCatBE=RM40;t her ef or eMC=AFC=RM40 [ 2mar ks]

i i i .

Canani ncr easei nt heover t i merat epai dt ost affl owerdownt hebreakeven poi nt ?Br i eflyexpl ai n. [ 2mar ks] =No,i twoul di ncr eas efixedcos t s,moreshoul dbeproduce dandsol dt obre akeven.

%

[ 2mar ks]

Page | %


( d)

i .

Assumi ngdemandi shi ghandt her ei sani ncr easei nproduct i onand sal esby16, 500uni t sabovet hebr eakevenquant i t y.Cal cul at et heannualpr ofit peruni t .=RM27. 50 [ 4mar ks]

i i .

Toi ncr eas eprofitf ur t her ,t hesal esmanageri sr ecommendi nga10% r educt i on i nsel l i ngpr i cewhi chhebel i eveswi l lpr oducea25% i ncr easei nt henumber sol deachyear. ( 1)Whati st hec hangei naver agefixedcost s?=decr easebyRM2. 50[ 2mar ks] ( 2)Cal cul at et heper cent agechangei nl aborcos t s.=25% [ 2mar ks] ( 3)Shoul dt hi ssugges t i onbei mpl ement ed?Cal cul at et oexpl ai n. i si on:Shoul dnotr educepri ce ,√bec auseprofitwi l ldecl i nebyRM60, 000.√ =Dec [ 7mar ks]

[ Q1,FESem112/ 13] ,onessemson Sdn Bhd" sells toys hand,hones" Below is information for the first &7month sales in 212"

Fi xedExpenses

Rent Salaries Depr eci at i on Var i abl eExpenses CostofGoodsmanuf act ur ed andsol d Sal esCommi ssi ons Sal esr evenue Uni t ssol d50, 000 i . i i .

i i i .

RM26, 000 RM90, 000 RM12, 000 RM252, 000 RM21, 000 RM420, 000

94 [ 5mar ks] CM =RM2. BEQ =43,537uni t s i nRM xRM8. 40=RM365, 710. 8 I ft hecompanywant st oear napr ofitofRM80, 000i nst eadofbreaki ngeven,what 62 woul dbet henew sel l i ngpri cebei st heuni t ssol di ss t i l l50, 000uni t s?SP=RM9. [ 5mar ks]

Whati st hecompany' scont r i but i onmar gi nperuni t ? Whati st hebreakevenpoi nti nRM? [ 5mar ks]

0

Page | 0


Chapt er3 /0!2N 1 -$ mars5

Fi nalExami nat i onSemes t er1,2015/ 2016

T&e ' is ( com)in("ion o* C&  + C& 

(a)

C,in and ',in are twins" C,in is ,lanning for his retirement 10 years from now" e ,lans to inest +5!#% ,er year for the first % years and +5%# ,er year for the following 11 years (assume all cash flows occur at the end of each year)" 'f oth C,in and ',in can inest in saing account with 0? interest rate# how much ',in has to de,osit each year in e-ual amount into his account so that after 10 years# the total amount in his account is the same as his rother C,in< (Gote: all cash flows occur at the end of the year)" A:RM6#*$-.34 =/ marks>

()

Ali Hust ,urchased a rand new machine worth +5*#" e estimates that the maintenance cost for the machine during the first year will e +52#%" 8he maintenance cost is e.,ected to increase )- +5% ,er year throughout its9 seen years useful life" Ali wants to set u, an account and all future maintenance e.,enses will e ,aid out of this account" Assuming the maintenance cost occur at the end of year# how much does Ali has to de,osit in the account now at 1? interest rate< =* marks> A: RM-3#'4-

(c)

8he management of 8itans lectronics $om,any is considering to ,urchase an e-ui,ment to e attached with the main machine use to manufacture a ,roduct" 8he com,any has two o,tions# A and B" 'nformation on oth e-ui,ment is gien elow"

'nitial outlay (+5) Annual $ash flow (+5)

Salage alue at end year * (+5)

I,tion A &# ear 1 7 2# ear 2 7 2# ear  7 2# ear * 7 2# 

I,tion B %# ear 1 7 1#/ ear 2 7 1#0 ear  7 2#! ear * 7 2#0 1#!

8he management of 8itans lectronics $om,any wants a 12? return on all inestments" !sing #resen" .or"& me"&od # which e-ui,ment should the com,any ,urchase< (Gote: .ce,t for initial outlay# all cash flows occur at the end of the year)" A: 2ption A 7= 8('$.*(9 2ption  7= ;3(1.*%. thus 1

Page | 1


Fi nalExami nat i onSemes t er2,2014/ 2015 ( a) Hooj anewant st oi nvestport i onsofheryear l ybonusesi nAmanahSaham Wawas an 2020( ASW 2020)t hathasan annualr et urn of4%.Heri nvest mentpl ani st oi nvest RM4, 500now,RM6, 000t woyear sf r om now,andRM8, 000f ouryear sf r om now. Page | 11

Whatwi l lbet het ot alamounti nherASW2020accountaf t er8years?

[ 5mar ks] ANSWER: =23, 109. 7 ( b)

Ami nt oohasbeenwor ki ngf orTi EnBif or5year s.OnTi EnBiAnnualDi nnerNi ght , Ami nt oowon cas h pri zeofRM20, 000.Ami nt oo,suchagood manhei s,want st o expedi t ehi spaymentbackt oPTPTN usi ngt hecas hhewon. Hepl anst oputt hewhol eRM20, 000now i nani nves t mentschemewi t h8% r et ur nt hat al l ow hi mt owi t hdr aw equalamountannual l yf or5years ,st art i ngf r om fir styear . Howmuchi sAmi nt oo’ sannualpaymentt oPTPTN? [ 5mar ks] ANSWER: = 5, 010peryear Fi nalExami nat i onSemes t er1,2014/ 2015

( a) i . Comparet hei nt er estearnedf r om an i nvest mentofRM1, 000f or15yearsat 8% perannum ofsi mpl ei nt er est ,wi t ht heamountofi nt er estt hatcoul dbeear nedi f t hesef undswer ei nvest edf or15year sat8% peryear ,compoundedannual l y. Expl ai nwhyt hei nt er es tamount st hatyouhavecal cul at edarenott hesame. [ 5mar ks] (a) i. Simple Interest: = $1,200

i i .

Compound Interest: = $2172.17

Mi ssAni t a,at al ent edsi ngerwont her ecentAkademiFant asi as i ngi ngcompet i t i on andwasawar dedt hefir stcashpr i zeofRM500, 000.Shedeci dedt osavet heamount i nafixeddeposi taccountt hatgi veret ur nsof10% i nt er estcompoundedyear l y.How l ongwoul di tt akef orAni t at ohaveonemi l l i on( RM1, 000, 000)f r om hersavi ngs? [ 3mar ks] N =7.27 years

( b) MrJ ames ,MrMes siandMrNeymarar et hreegood f r i endswhom ar eaboutt or et i r e soon.Answert hef ol l owi ngquest i onsbasedondi ffer entsc enari osofr et i r ementpl anni ng gi venf oreachper son.Assumet hatt hesavi ngsaccountf oral loft hem ear n6% annual i nt er es t .

11


i .

SupposeMrJ ameshasaccumul at ed RM400, 000i n hi ssavi ngsaccountupon hi s r et i r ement .Hewi shest owi t hdr aw afixedsum ofmoneyatt heendofeac hyearf or 15year s.Whati st hemaxi mum amountt hatcanbewi t hdr awnf oreac hyear ? Page | 12 [ 2mar ks]

i i .

MrMes siexpect st owi t hdr aw RM76, 500f r om hi ssavi ngsaccountatt heendofeach r et i r ementyeart omai nt ai nhi snormall i f es t yl e.How muchmoneymustMrMes si havei nt hebankatt hest artofhi sr et i r ementconsi der i ngt hathei spl anni nga12yearr et i r ementper i od? [ 2mar ks]

i i i .

MrNeymart hough i spl anni ng a16yearr et i r ement .I n or dert osuppl ementhi s pensi onandoffsett heexpect edeffect sofi nflat i on,hei nt endst owi t hdr aw RM85, 300 att heendoft hefir styear ,andt oi ncr easet hewi t hdr awal sbyRM10, 000att heendof eachsucces si veyear .How muchmoneymustMrNeymarhavei nhi ssavi ngsaccount att hest artofhi sret i rement ? [ 4marks]

i v.

Assumi ngt hat MrNeymarhasdeci dedt oext end hi sr et i r ementt oanot herf our moreyears.Duet ot hi sl ongerr et i r ementper i od,hei nt endst owi t hdr aw atal ower amountofRM74, 800att heendoft hefir styear ,anddecr easei tbyRM 5, 000att he endofeachsucces si veyear .Cal cul at et heamountofsa vi ngst hathemustnow have att hest artofhi sret i rement . [ 4marks]

(b)

i.  = $!1,200 ii. " = $#!1,#0.70 iii. " = $1,!%#,#2&.27

v.

P=$421, 796. 52 Fi nalExami nat i onSemes t er2,2013/ 2014

( a)

Ai mewasbornon31Dec ember2012.I nor dert omeetherf ut ur et er t i ar yeducat i onal expenses ,herf at heri nt endst oi nvesti nanEducat i onalSavi ngPl anbydeposi t i ngan st annualequalsum ofRM3,600att heendofeachyears t ar t i ngonher1 bi r t hdayon31 December2013.Gi vent hatt hesavi ngpl anyi el dsar et urnof9% perannum,whatwi l l bet het ot alval ueoft hesavi ngpl anwhenAi mecel ebr at esher18th bi r t hday? [ 3mar ks]

12


( b)

Supposet her ei sanot hernew Savi ngPl anofferbyXYZbankt hatal l owsAi me’ sf at her t omaket hef ol l owi ngannualwi t hdr awal . Da t eofwi t hdr a wal On1 8th Bi r t hda y On1 9th Bi r t hda y On2 0th Bi r t hda y

AmountofWi t hdr a wal( RM) 4 5 , 0 0 0 5 0 , 0 0 0 5 5 , 0 0 0

Requi r e:Cal cul at et heannualsavi ngamountt hatt hef at heri sr equi r edt odeposi ti nt o t heSavi ngPl an. [ 9Mar ks] +a, A=RM3#6%%# N=1'# i=( > = RM14'#6'$ +?, A = 1%'( A = 1%'$ A = 1%*otal re@uired e@ual annual contri?ution is 1%'( 81%'$ 8 1%*- = RM3# -46

From textbook

3. 20

3. 24

3. 33

I f$3, 000i si nvest ednow,$3, 500t woyearsf r om now,and$4, 000f ouryear sf r om now atani nt er es tr at eof6% compoundedannual l y,whatwi l lbet het ot alamount i n8years ? $14,796.27 Youar epayi ngi nt oamut ualf undt hatear ns6% compoundi nt er es t .I fyouar e maki nganannualcont r i but i onof$12, 000,how muchwi l lbei nt hef undsi n20 years? $441,427.09 Youhavebor r owed$50, 000atani nt er es tr at eof12%.Equalpayment swi l lbemade overat hr eeyearper i od.( Thefir stpaymentwi l lbemadeatt heendoft hefir st year . )Whatwi l lt heannualpaymentbe,andwhatwi l lt hei nt er es tpaymentbef or t hesecondyear?

1

Page | 1


Page | 1*

3. 36

Youar econsi der i ngbuyi ngapi eceofi ndust r i alequi pmentt oaut omat eapar tof yourpr oduct i onpr oces s.Thi saut omat i onwi l lsavel aborc os t sbyasmuchas $40, 000peryearover10years.Theequi pmentcost s$250, 000.Shoul dyoupur chase t heequi pmenti fyouri nt eres tr at ei s10%? Labourcostsavi ngs40, 000( P/ A, 10%, 10y)=RM245, 782. 68 i . e
1*


Chapt er4 ( Q4. d)Fi nalExami nat i onSemes t er1,2015/ 2016 Page | 1!

(d) +inching Furniture Sdn Bhd de,osited !? of its ,rofit amount from ,art (c)# at an interest rate of %? com,ounded monthly in the com,any9s saings account" i" Dhat will e the additional amount in the saings account after one year< A= e)tra RM(13 =2 marks> ii"

4o you agree that the Annual Percentage ield (AP) is less than %?< $alculate the alue of AP to su,,ort your answer" = marks> A= N2. A='.-(( B '

( a)

( b)

Fi nalExami nat i onSemes t er2,2014/ 2015 ONEJ I MATSdnBhd,ac r edi tcar dcompanybasedi nKaj anghasoffer edyouac ar dt hat char gesi nt er es tat1. 15% permont h,compoundedmont hl y.

i .

Det er mi net heannualper cent ager at e( APR)andt heannualpercent age yi el d ( APY)t hatONEJ I MATSdnBhdchargesoni t scr edi tcar d.Expl ai nwhyt heAPR andt heAPYamount st hatyouhavecal cul at edar enott hesame. =APR=13. 8% =APY=14. 71% [ 4 mar ks]

i i .

I fyourcurr entout st andi ng cr edi tcar d bal ance i sRM3, 000 and you ski p payment sf ort he nextt hr eemont hs,whatwoul d be t he t ot alout st andi ng bal ancet hr eemont hsf r om now? =RM3, 104. 69 [ 2mar ks]

Mi ssAi da,arec entuni ver si t ygraduat ewasoffer edaj obandwant edt opur chaseanew cart of aci l i t at ehert r avelt owor k.Thepri ceoft hecari sRM58, 000andshei sr equi redt o makea10% down payment .Mi ssAi da wi l lbor r ow t heremai nderf r om Maybank Fi nanceatani nt er es tr at eof3% compoundedmont hl y.Theper i od oft hel oani ssi x years. i . Whati st heamountofmont hl yl oanpaymentt hatMi ssAi daneedt opayt o MaybankFi nance? =RM793. 44 mar ks]

1!

[ 5


i i .Mi ssAi dahasmade36payment sandwant st oknow t hebal ancer emai ni ng i mmedi at el yaf t ert he36th payment .Whati st hatbal ance? =RM27, 283. 62 [ 2mar ks] Page | 1&

i .

Fi nalExami nat i onSemes t er1,2014/ 2015 Mr J ohar iwant edt opur chaseaRM800, 000semi det ac hedhousebymaki nga 12. 5% downpaymentt ot hedevel oper .Heborr owedt heremai ni ngamountf r om Maybank Fi nance,whi chhewi l lr epayonamont hl ybasi sovert henext10year s.I ft hebank char gesan i nt er es tr at eof9% peryearc ompounded mont hl y,how muchmont hl y i nst al l mentmustMrJ ohar ipayt oMaybankFi nance? K +5%%0

=! marks>


Upongr aduat i on,Mr .Raj i nandMs.Lawadeci det ovent ur ei nt obusi nessbyset t i ngupasmal l baker yst or e.Bot har econsi der i ngt hef ol l owi ngt hr eewaysoffinanci ngt heoven. Opt i onA ( Debtfinanci ng) : Purchaset henew Ovenatt henormalpri ceofRM12,500 andpayf ori tover36mont hswi t hequalpaymentat6% APRfinanci ng.A downpaymentofRM1,875i sr equi r ed.Ther ei sar esal eval ueofRM6,875at t heendof36mont hs. Opt i onB( Cashpur chase) : Pur chaset henew Ovenatadi scountpr i ceofRM10,000t o bepai di mmedi at el y.Agai n,i thasar esal eval ueofRM 6, 875att heendof36 mont hs. Opt i onC( Leasi ng) : Leaset henew Ovenf or36mont hswi t hanequalmont hl yl easi ng sum ofRM226.DownpaymentofRM1,250i sr equi r ed.Att heendoft he l ease,t heOvensi mpl yr et urnst ot hel easer . Requi r ed: Gi vent hatt hef undst hatusedi nt hel easi ngandpur chasi ngar epr esent l year ni ng6% annuali nt er es tcompoundedmont hl y.Fi nd t hemosteconomi calfinanci ngopt i onf or t henew Oven. [ 13Mar ks]

Effec t i vel oani nt er es tpaymenti s6% / 12 1&


Mont hl yl oanpayme nti s POptionA= POptionB= POptionC=

A

=

323

6, 747 4, 255 8, 678. 85

Page | 1/

Opti onBi st hemostec onomi calsi ncei thast hel owes t( RM4,255)equi val entpr es entval ue. 1.[ Q2,FESem112/ 13] a)A des i gnbui l doper at eengi neer i ngcompanyborr owedRM3mi l l i onf or3year ss ot hat i tcoul dpur chasenew equi pment .Thet er msoft hel oani ncl udedcompoundi nt er es t andr epaymentoft het ot alamountowedi nasi ngl el umpsum paymentatt heendof t he3yearper i od.I nt er estatt heendoft hefir styearamount edt oRM450, 000. =15% pe rye ar ( i ) Whatwast hei nt er es tr at eont hel oan? [ 2mar ks]

( i i ) Howmuchi nt er es twaschar gedf oryear2?[ 3mar ks]

=RM517, 500

Federalf aci l i t i esassoci at edwi t hani nt ernat i onalportofent ryatSout hernRegi onareexpect ed t ocostRM60mi l l i on.Asi xl ane,1274f ootl ongbr i dgei sexpect edt ocostRM24mi l l i on.Land andi nspect i onf aci l i t i es,offices,andpar ki ngwi l laddanot herRM15mi l l i ont ot hecost . Const ruct i oni sexpect edt ot aket hr eeyears .Ass umi ngt hatal loft hef undsar eal l ocat edat t i me0,whati st hef ut ur ewor t hoft hepr oj ecti nyear3atani nt er estr at eof6% peryear = RM118, 364, 400 compoundedquar t er l y? [ 5mar ks]

1/


Chapt er5 MODI FI EDFi nalExami nat i onSe me s t e r2,2014/ 2015 Uj eependuKaboom SdnBhd.hasj ustfini sheda4yearR&Dandpi l ott es t i ngf ors t r es sr el i evi ngbagpackt arget edf oruni versi t yst udent s.Thebagpacki sexpect edt ohavea6year pr oductl i f e.TheR&Dexpendi t ur esf ort hepast3yearsandt hecur r entyear ,t oget herwi t ht he ant i ci pat ednetcas hflowst hatt hecompanycangener at eovert henext6yearsar esummar i zed i nt het abl ebel ow. n) Per i od( CashFl ow ( Uni t :RM mi l l i on) 3 0. 5 2 2 1 1. 6 0 1 1 0. 8 2 2. 4 35 4eachyear 6 3. 5

Page | 1%

Begj eAdeSdnBhd,al argebagr et ai l erc ompanyi si nt er est edi npur chasi ngt hest r ess r el i evi ng bagpackpr oj ectandt her i ghtt ocommer ci al i set hepr oductf r om Uj eependuKaboom SdnBhd; pl anni ngt opur chasei tnow ( n=0) .Begj eAdeSdnBhdhasoffer edapur chasepri ceofRM16. 5 mi l l i on.

AssumeUj eependuKaboom SdnBhd’ sMARR=15%. i .

i i .

i i i .

Whati st het ot alamountofR&Dcos t satY0? =RM6. 245mi l l i on

[ 4mar ks]

Cal cul at et hepres entval ueoft henetcashflow st r eamsatY0. =RM4. 684mi l l i on

[ 8mar ks]

Shoul dUj eependuKaboom SdnBhdacceptt heofferandsel lt hepr oj ec tt oBegj e AdeSdnBhd? =YES.Offerpr i ce>neti nflow [ 3mar ks] Fi nalExami nat i onSemes t er1,2014/ 2015

Hi ghl andSedi mentBr i ckSdnBhdi sc onsi der i ngpur chasi nganew i nj ect i onmol di ngmachi ne f orRM100,000.I twi l lcostanaddi t i onalRM20,000t odot hesi t ei ns t al l at i on.Themachi newi l l beusedf orsi xyear swi t hzer osal vageval ueatt heendofsi xt hyear .Thecompanyi sexpect ed

1%


t or ecei veannualr et urnsasgi venbel ow. Year 1 2 3 4 5 6

CashFl ow ( RM) 18, 500 25, 500 27, 980 32, 660 40, 230 48, 500

Hi s :us ec onve nt i onal ( a)How l ong doesi tt aket or ecovert het ot ali nves t mentcos t ? ( nt paybac kme t hod) [ 6mar ks] = t taes 4.3' year to recover the total investment cost +usin& conventional pay?ac method,

( b)Whati st hedi scount edpaybackper i odatani nt er es tr at eof12%?[ 10mar ks] =Rm34, 637wi l lbef ul l ypai dar ound0. 71yeari nt oyearsi xt h.Ass uch,t hedi sc ount edpayback pe r i odi s5. 17ye ar s ( c)Woul dt hei nvest mentoft hi si nj ect i on mol di ng machi nebej ust i fied gi ven t hatt he i nt er estr at ei sat15% [ 9mar ks] NPW=6, 591. 11 Si nceNPW i snegat i ve,i ti snotj us t i fiabl ef ort hecompanyt opr ocee dwi t ht hepur chase.

10

Page | 10


From textbook

Campt ownTogs.I nc. ,achi l dr en' scl ot hi ngmanuf act ur er ,hasal waysf ound payrol lpr ocess i ngt obecost l ybecausei tmustbedonebyacl er k.Thenumberof pi ecegoodscouponsr ecei vedbyeachempl oyeearecol l ect edandt het ypesof t asksperf ormedbyeachempl oyeearecal cul at ed.Notl ongago,ani ndust r i al engi neerdesi gnedasyst em t hatpar t i al l yaut omat est hepr ocessbymeansofa scannert hatr eadst hepi ecegoodscoupons.Managementi sent husi ast i cabout t hi ss yst em,becausei tut i l i zessomeper sonalcomput ers yst emst hatwer e pur chasedr ecent l y.I ti sexpect edt hatt hi snew aut omat edsyst em wi l lsave $45, 000peryeari nl abor . Thenew syst em wi l lcostabout$30, 000t obui l dandt estpr i ort ooper at i on.I ti s expect edt hatoper at i ngcosts# including income ta.es# will e aout L!# ,er year" 8he system will hae a fie7year useful life" 8he e.,ected net salage alue of the system is estimated to e L#" 5. 2

(a) 'dentify the cash inflows oer the life of the ,roHect" () 'dentify the cash outflows oer the life of the ,roHect" (c) 4etermine the net cash flows oer the life of the ,roHect"

5. 6

Apr oj ectcos t$120, 000andt heexpect edannualr et ur nsar egi veni nt abl ebel ow: Year Cashflows 1 $18, 500 2 25, 500 3 27, 980 4 32, 660 5 40, 230 ( a)Whati st hepaybackper i odoft hepr oj ect ?

2

Page | 2


( b)Whati st hedi sc ount edpaybackper i odatani nt er estr at eof15%

5. 8

5.14

LarsonManuf act ur i ngi sc onsi der i ngpur chasi nganew i nj ect i onmol di ng machi nef or$300, 000t oexpandi t spr oduct i oncapaci t y.I twi l lcostanaddi t i onal $25, 000t odot hesi t epr eparat i on.Wi t ht henew i nj ect i onmol di ngmachi ne i nst al l ed,Lars onManuf act ur i ngexpect st oi ncr easei t sr evenueby5. 000.The machi newi l lbeusedf orfiveyearswi t hanexpect edsal vageval ueof$80, 000.At ani nt er estr at eof12%,woul dt hepur chaseoft hei nj ect i onmol di ngmachi nebe j ust i fied? PW of62, 847. 89>0,t hei nvest menti sj ust i fied Al argef oodpr ocess i ngcorpor at i oni sc onsi deri ngusi ngl asert echnol ogyt o speedupandel i mi nat ewast ei nt hepot at opeel i ngprocess.Toi mpl ementt he syst em,t hecompanyant i ci pat esneedi ng$3. 5mi l l i ont opur chaset hei ndust r i al st r engt hl asers.Thesyst em wi l lsave$1, 550, 000peryeari nl aborandmat eri al s. However ,i twi l lr equi r eanaddi t i onaloper at i ngandmai nt enancecostof $360, 000.Annuali ncomet axeswi l lal soi ncr easeby$160, 000.Thesyst em i s expect edt ohavea10yearser vi cel i f eandwi l lhaveasal vageval ueofabout $200, 000.I ft hecompany' sMARRi s16%,uset heNPW met hodt oj ust i f yt he proj ect. PW( 16%)=$3, 500, 000+[ $1, 550, 000-$360, 000-$160,000] ( P/ A, 16%, 10) +$200, 000( P/ F, 16%, 10)=$1,482, 730 Si ncePW i sposi t i ve,thepr oj ecti sj ust i fied ou are considering two inestment o,tions"

'n o,tion A# you hae to inest L!# now and L1# three years from now# 'n o,tion B# you hae to inest L#! now# L1#! a year from now# and L1# three years from now" 'n oth o,tions# you will receie four annual ,ayments of 5.38

L2# each" (ou will get the first ,ayment a year from now") Dhich of these o,tions would you choose ased on (a) the conentional ,ayack criterion# and () the ,resent worth criterion# assuming 1? interest< Bothgi vesamepaybackper i odof3years.Thus,cannotse l ec t .

Consi dert womut ual l yexc l usi vei nvest mentpr oj ect s,eachwi t hMARR=12%,as

21

Page | 21


showni nt het abl e: Pr oj ect ’ sCashFl ow A 17, 500 13, 610 14, 930 14, 300

n 0 1 2 3

5.41

B 15, 900 13, 210 13, 720 13, 500

( a)Ont hebasi sofPW cr i t er i on,whi chal t ernat i vewoul dbesel ect ed? ( b)Ont hebasi sonFW cr i t er i on,whi chal t ernat i vewoul dbesel ect ed? a)

b)

PW A=$16, 732. 35 PW B=$16,441. 18 Sel ectA FW A=$23, 507. 74 FW B=$23, 098. 67 Sel ectA

ou are considering two ty,es of machines for a manufacturing ,rocess" M(c&ine  has a first cost of L/# and its salage alue at the end of si.

years of estimated serice life is L21#!" 8he o,erating costs of this machine are estimated to e L/# ,er year" .tra income ta.es are estimated at L2#& ,er year" M(c&ine B has a first cost of L*!## and its salage alue at the end of si.

5.45

yearsM serice is estimated to e negligile" 8he annual o,erating costs will e L11#&" $om,are these two mutually e.clusie alternaties y the ,resent7worth method at i K1?

machi neA

(104,249.63 )

machi neB ( 91, 371. 58) Thus,machi neBi sabett erchoi ce

22

Page | 22


Page | 2

2


Chapt er6 ( Q2. a&b)Fi nalExami nat i onSe me s t e r1,2015/ 2016

TheQ i sacombi nati onofCh6& Ch4

( a)

AhmadZakiEnt er pr i sei sat axiser vi cepr ovi der .Thecompanyi s consi der i ng t opur chaseanewPer oduaAl za1. 5Pr emi um t hatcost s RM60,000.Thecari sassumedt ohaveafiveyearusef ull i f e.Att he endoffiveyear s,i tcanbesol df orRM20,000.Themont hl yoper at i ng andmai nt enancecost sar eRM650.I ti scal cul at edt hatt hecompany i sabl et oearnaf t er -t axr evenueofRM19,000peryearwi t ht hi snew car.

Page | 2*

i .

Usi ng capi t alr ec over y costanal ysi s,comput et he equi val ent annualcost( AEC)f ort hi snew cari ft hecompanyobt ai nst he financi ngf ort hewhol et ot alamountatani nt er es tr at eof4%. [ 7mar ks] A:AECcar=RM17, 584

i i .

Det er mi newhet heri ti sawi sei nves t mentbased on AE cr i t er i on?[ 3 mar ks] A: A0 = A0!;A0<

( b)

Themanagi ngdi r ec t orofAhmadZakiEnt er pr i se,however ,dec i dedt ochoose Pr ot onExor a1. 6Pr emi um t hatcost sRM80,000.Thecompanymakesadown paymenti nt heamountofRM8,000.I twoul dt henborr ow t her emai nderf r om CI MBbankatani nt er es tr at eof3% compoundedmont hl y.Thecompanyal so agr eest opayofft hel oanmont hl yf oraper i odoffiveyear s. i .

i i .

A0=1#416 positive. es a wise investment



Whati st heamountofi t smont hl yi nst al l mentpayment ? A=RM1, 296

[ 5mar ks]

Thec ompanyhassucces sf ul l ymade20payment sandwi sht ofigur eout t he bal ance r emai ni ng i mmedi at el y af t er20th payment .Whati st hat bal ance? [ 5mar ks] A:RM49, 273. 79

2*


i i i . Det er mi net het ot alamountofi nt er es tpai dovert he20mont hsper i od. =! marks>

A: RM3#1(3.*(

Page | 2!

Fi nalExami nat i onSemes t er2,2014/ 2015 Syari katEasyRi deSdn Bhd i sconsi der i ngpur chasi ngami ni van t ot r ansportc hi l dr ent oa pr i mar yschooli n Semenyi h.Themi ni van i ni t i al l ycostRM70, 000and t hecompany spend anot herRM5, 000t opai nti tandal soref ur bi sht hevan’ si nt er i or .Thesal vageval ueof t he mi ni vani sRM25, 000af t erei ghtyearsofservi cel i f eatani nt erestr at eof6%.I ti sal soest i mat ed t hatt henetcash flowsf r om t het r ansports er vi cewi l lbeRM20, 000f ort hefir styearand i ncr easesbyRM2, 500peryearf ort henextyearandeachyeart hereaf t er .

i .

Whati st heannualcapi t alcostofowni ngandoper at i ngt hemi ni van? =CR=RM9, 550 [ 5mar ks]

i i .

Det er mi net heannualequi val entcos ti ft heoper at i ngandmai nt enancecostof t hemi ni vani sRM14, 400annual l y. K A$K +52#0!

i i i .

=2 marks>

Whati st heannualequi val entsavi ngs( r evenues )f r om oper at i ngt hemi ni van? K ASK +52/#0%%

i v.

=  marks>

From youraboveanal ysi s,expl ai nwhet hert hi si sagoodi nvest mentf ort he company. K (AS7A$) KAD K +5*%" S" AD is ,ositie

=2 marks>

A 300uni t scondomi ni um bui l di ng pr oj ec tby Tegap Const r uct i on Sdn Bhd.r equi r esan i nvest mentofRM12mi l l i on.Theexpect edmai nt enancecostf ort hebui l di ngi sRM300, 000i n year1,RM350, 000i nyear2,andwi l li ncr easebyRM50, 000peryearf r om year3t oyear4.The costt ohi r eamanagerf ort hebui l di ngi sRM5, 000permont h.Af t er4yearsofoper at i ont he bui l di ngcanbesol df orRM8mi l l i on. b)I ft hebui l di ngr emai nsf ul l yoccupi eddur i ngt hef ouryear s,cal cul at et heannual r entperuni tt hatwi l lpr ovi dear et urnoni nvest mentof12%. [ 17mar ks] =findPW AW di vi deby300uni t s=RM9, 015. 49 



c) AssumeTegapConst ruct i onSdnBhd.deci dedt osel lt heuni t sf orRM500, 000eac h. MrDani ali si nt er es t edt obuyoneuni tandmakeaRM100, 000downpayment .He

2!


obt ai neda30yearl oanf ort her emai ni ngamount .Payment swi l lbemademont hl y atanamountofRM3, 220.Thenomi nali nt er es tr at ei s9%.I fhepl annedt opayt he r emai ni ngbal anceont hel oanaf t er20year s( 240payment s) ,how muchshoul dhe payt hebank? [ 8mar ks] Page | 2& =RM254, 192. 25 ( Q3,FESem212/ 13)

From textbook

Consi dert heac companyi ngcas hflow di agram.Comput et heequi val entannual wort hati =12%

6. 5

Whati st heannualequi val entcostofpur chasi ngal i f tt ruckt hathasani ni t i alcostof $70, 000,anannualoper at i ngcostof$14, 000,andanest i mat edsal vageval ueof $25, 000af t ers i xyearsofuseatanannuali nt erestr at eof6%? 6.14

6. 16

AEC( 6%)

=RECR =0–14, 000–CR =-25, 670 CR =( 70, 00025, 000) ( A/ P, 6%, 6)+( 0. 06) ( 25, 000) TheEmer sonEl ect r oni csCompanyj ustpur chasedasol der i ngmachi net obeusedi n i t sass embl ycel lf orflexi bl edi skdr i ves.Thesol deri ngmachi necost$350, 000.Because oft hespeci al i zedf unct i oni tperf orms,i t susef ull i f ei sest i matedt obefiveyears .

2&


I ti sal soest i mat edt hatatt hatt i mei t ssal vageval uewi l lbe$60, 000.Whati st he capi t alrecoverycostf ort hi si nvest menti ft hefirm' si nt erestr atei s15%? Page | 2/

2/


Chapt er7 Q5[ 25mar ks ]Fi nalExami nat i onSemes t er1,2015/ 2016 Page | 2%

( t hi sques t i oni sac ombi nat i onofCh7+Ch6& Ch14)

(a)

our team are inoled with an e-ui,ment selection task in your com,any to re,lace an aging asset that the com,any owns" ital statistics for the new e-ui,ment with three different models are as in the tale elow" 8he minimum attractie rate of return eing used y your com,any for economic decision is 1? ,er year" Dhich model would your team recommend using the 'nternal +ate of +eturn method< =12 marks> +/se 1% and 4% in your calculation usin& trial and error method,

Purchase Price Get $ash Flow Salage alue Cseful life# years 'ndiidual '++

5odel A +5%#! +52#! +5! ! 1!"0?

5odel B +50#! +52# +5* ! /"%?

5odel $ +51# +5#2 +5* ! 1%"/0?

A: nterpolated RR+model <; model A, = 3*.63 +Note that Model  is not considered as its RR C MARR of 1%,

()

8o Hustify the ,urchase of the acce,tale model (challenger) in ,art (a)# your team has agreed to conduct a re,lacement analysis" Pertinent data of the aging asset (defender) are as follows: Purchase Price(! years ago) $urrent 5arket alue C,grade $ost Get $ash Flow Salage alue Cseful life# years

4efender +51# +5*# +51#& +51#% +5! !

's the ,urchase of the new model to im,roe efficiency still remain economically attractie< (/se annual e@uivalent method, =1 marks> A=AEde f e nde r :404. 62;AEc hal l e nge r :627. 52 r e pl a c et hede f e nde r 

Fi nalExami nat i onSemes t er2,2014/ 2015 ( t hi sques t i oni sac ombi nat i onofCh6& Ch7& Ch14)

Mr .Ti m,aconst r uct i on cont r act ori sconsi der i ng t or epl acehi sol d machi newi t h anew machi ne.Theol dmachi nehasanot her5yearsusef ull i f e.Thecashflow det ai l sf ort heol dand new machi nesar easf ol l ows:

2%


Ol dMachi ne Pur chased3year sagoatRM 1, 500, 000.Atpr esentt heannualoper at i ngcos ti s RM 440, 000peryearatendoffir styearandi ncr easi ngby10% peryeari nt hesubsequentyears t i l lt heendofyear5.Expect edannuali ncomei sRM 980, 000perannum anddecr easi ngby15% eachyear .Af t erfiveyears ,t hemar ketval ueoft hemachi ne5i sexpect edt obe RM 500, 000.I fPage | 20 Mr .Ti m deci dedt orepl acet heol dmachi newi t hanew machi nenow,t heol dmachi necanbe sol di mmedi at el yi nt hemar ketf orRM 800, 000. New Machi neThecostpr i cei sRM 2, 000, 000.Theannualoper at i ngcostRM 580, 000atendof fir styearandi ncr easi ngbyRM 30, 000i nt hesubsequentyearst i l lt heendofi t s5yearsusef ul l i f e.Expect edannuali ncomeRM 1, 650, 000perannum.Att heendofi t susef ull i f e,t hemachi ne i sexpect edt obesol df orRM 450, 000. Mr .Ti m uses12% MARRt oeval uat ehi si nvest ment . Required: ( a) Basedont heMARR gi ven,cal cul at et heannualequi val entwor t h( AEW)ofeach opt i on.Shoul dMr .Ti mr epl acet heol dmachi ne? K AD I64 K +5%*#/2

( b)

AD GD K +5!2#/&

=1% marks>

Hi nt :youc ant r y40% and50% Cal cul at et heI RR oft heproj ec tyousuggest ed.( i nt e r e s tr a t ei nyo urc a l c ul a t i o ns ). K '++ chosen (GD) K +5 *"1*?

=/ marks>


Fast Bi t sEl ect r oni cCompanySdn.Bhd.i seval uat i ngnew pr eci si oni nspect i ondevi cest ohel p veri f ypackagequal i t y.Themanagerhasobt ai nedt hef ol l owi ngbi dsf r om f ourcompani es.Al l devi ceshaveal i f eoffiveyearsandami ni mum at t r act i verat eofr et urnof6%.Theal t ernat i ves aremut ual l yexcl usi ve. CompanyA CompanyB CompanyC Company D I ni t i alCost( RM) AnnualCost s( RM) NetCashFl ows( RM) I RR ( a)

400, 000

100, 000

500, 000

200, 000

900

12, 000

23, 000

9, 000

100, 900

27, 700

125, 200

46, 200

8. 3%

12%

8%

5%

Det er mi net heannualbenefit soft hedevi cesf r om al lf ourcompani es .Devi cef r om

20


whi chcompanyhast hehi ghes tannualbenefit ? ( b)

[ 5mar ks]

Fas t Bi t ss houl dr ej ec tt hebi df r om whi chcompanybasedont hegi veni ndi vi dualI RR? Why? [ 2mar ks] Page | 

( c)

Usi ngi ncr ement ali nt er nalr at eofr et urnanal ysi s,f r om whi chcompany,i fany,shoul d t hemanagerpur chaset henew pr eci si oni nspect i ondevi ce? Uset r i alander r ormet hod wi t h6% and10% i nt er estr at es. [ 14mar ks]




( d) Show t hatt hesamecompanysel ec t i onwoul dbemadewi t hproperappl i cat i onoft he Pr es entWort h( PW)met hod. [ 4mar ks] ( a)

( a) RM101, 800 ( b) RM39, 700 ( c ) RM148, 200 ( d) RM55, 200 CompanyC ( 10=5mar ks )

Page | 1

( b)

Proj e c tD;I RR
( c )

ABI nc r e me nt : =7. 02% Si nc eI RR oni ncr e me nt>MARR,s e l e c tc ompanyA. CAI ncr e me nt : =6. 82% Si nc eI RR oni ncr e me nt>MARR,s e l e c tc ompanyC. Themanage rs houl dpur c has ef r omc ompanyC.

( d)

NPW A=RM25, 031 NPW B=RM16, 683 NPW C=RM27, 392 De vi cef r omco mpanyChashi ghe s tNPW,t her e f or ebuyf r omc ompanyC.

From textbook

Su,,ose that you inest L1#! in stock# which is called your financial asset" Ine year later# your inestment yields L1#/*!" Dhat is the rate of return of your inestment< /"1 1,7!& = 1&00 (1'i) 1 i = 1#.

/"2

ou are going to uy a new car worth L2*#!" 8he dealer com,utes your monthly ,ayment to e L!1*"!! for & months of financing" Dhat is the dealerMs effectie rate of return on this loan transaction< =%.% per year

/"20

$onsider an inestment ,roHect with the cash flows gien in the tale: 1


n $ash flow  71!# 1  2 1*#!2  #00 $om,ute the '++ for this inestment" 's the ,roHect acce,tale at 5A++ K 1?<

$onsider the cash flows of a certain ,roHect gien in the tale: n $ash flow  7# 1 % 2 0  N 'f the ,roHect9s '++ is 1?# /"

( a)Fi ndt heval ueofX. ( b)I st hi spr oj ectaccept abl eatMARR=8%? nser :

/"/

$onsider two inestments A O B with the se-uences of cash lfows gien in the tale: Proj ect ’ sCashFl ow n A B 0 $125, 000 $110, 000 1 30, 000 20, 000 2 30, 000 20, 000 3 120, 000 130, 000

( a)Comput et heI RRofeachi nves t ment . ( b)AtMARR=15%,det er mi net heaccept abi l i t yofeachpr oj ect ( c)I fA andBar emut ual l yexcl usi vepr oj ect s,whi chpr oj ectwoul dyou sel ectbasedont heI RRi ncr ement ali nves t ment ? nsers:

2

Page | 2


Page | 

$onsider the two mutually e.clusie inestment alternaties gien in tale elow:

n 0 1 2 3 I RR

/"*1

Proj ect ’ sCashFl ow A $15, 000 7, 500 7, 500 7, 500 23. 5%

B $20, 000 8, 000 15, 000 5, 000 20%

( a)Det er mi net hei ncr ement ali nves t ment ’ sI RR. ( b)I ft hefir m’ sMARRi s10%,whi chal t er nat i vei st hebet t erchoi ce? nsers:

( a)IRR( A2A1)=7. 36%,whi chi ssmal l ert hanMARR,sowesel ect A1.

/"!1

8he following information on four mutually e.clusie ,roHects is gien here" All four ,roHects hae the same serice life and re-uire inestment in year  only one" Su,,ose that you are ,roided with the following additional information aout etween ,roHects" '++ (B 7 A) K %!? '++ (B 7 $) K ?

'++ (4 7 $) K 2!? '++ (A  4) K !?




Dhich ,roHect would you choose ased on the rate of return criterion at a 5A++ of 20?< nser: "ro*e+t  Page | *

*


Chapt er14 Fi nalExami nat i onSemes t er2,2014/ 2015

Ref ert oques t i onabove( MrTi m) Page | !

Bombast i cManuf act ur i ngCompanyi sconsi der i ngr epl aci ngas t ampi ngmachi net hathas beenusedi ni t sf act or y.Thenew machi newi l lcostRM45, 000del i ver edandi nst al l ed,wi t h anest i mat edeconomi cl i f eof8yearsandasal vageval ueofRM3, 000att heendofi t sl i f e. The new mac hi ne i sexpect ed t o per f or m wi t h so much effici ency and Mr .Tan,t he Pr oduct i onEngi neerest i mat est hatoveri t s8yearl i f e,l abor ,mat eri alandot herdi r ectcost s canbereducedf r om RM15, 000t oRM12, 000annual l y.

Theol dmachi net hati ss t i l li nusedwaspur chased5yearsagoatRM30, 000.Att het i meof pur chased,i t seconomi cl i f ewasest i mat edt obeei ghtyear swi t hasal vageval ueofzero.I f t hecompanydeci desnott opur chaset henew machi ne,i twi l lt henr et ai ni t sol dmachi ne andt heest i mat edmar ketval ue,bookval ueandoper at i ngcost sf ort heol dmachi nef ort he nextt hr eeyear si ss howni nt het abl ebel ow.

0

1

2

3

4

Ma r ketVa l ue( RM)

10, 600

7, 400

4, 100

1, 500

0

BookVal ue( RM)

12, 400

7, 850

4, 660

1, 880

0

3, 540

4, 130

4, 810

5, 680

Y e a r e n d

Oper at i ngCost s ( RM)

I ft heMARRi s10% bef oret axes,

!


Hi nt :Re f ert ot he a)Det er mi ne t he r emai ni ng usef ull i f e oft he ol d machi ne ( es t i mat edfigure sofmarketval uesandoper ati ngcost sgi veni nt het abl e).

Page | &

b)Det ermi newhet heri ti seconomi calt omaket her epl acementnow.

Answers a) Det er mi net here mai ni nguse f ull i f eoft heol dmachi ne( Hi nt :Ref ert ot hees t i mat ed figur e sofmar ke tval ue sandope r at i ngc os t sgi ve ni nt het abl e ) . Ye ar e nd 0 1 2 3 4 AE( 10%) 7, 799. 96 7, 976. 34 7, 928. 63 7, 800. 56 Theo l dmac hi ne’ sMOSTECONOMI CALus e f ule c onomi cl i f ei s1mor eye arwi t han AECval ueofRM7, 799. 96.

b)

De t e r mi newhe t he ri ti se c onomi c alt omak et her e pl ac e me ntnow. AECc=RM-5, 171 Si nceAECc
Fort hi sq,youcoul ddosi mi l arexerci sef r om Ch14 14. 8onpage794 

From textbook

14. 2.TheCol umbusEl ect r oni csCompanyi sconsi der i ngr epl aci nga1, 000poundcapaci t y f or kl i f tt r uckt hatwaspur chasedt hr eeyearsagoatacostof$15, 000.Thedi esel oper at ed f or kl i f twasori gi nal l yexpect edt ohaveausef ull i f eofei ghtyearsandazeroest i mat ed sal vageval ueatt heendoft hatper i od.Thet ruckhasnotbeendependabl eandi s f r equent l youtofser vi cewhi l eawai t i ngrepai r s.Themai nt enanceexpensesoft het r uck havebeenr i si ngst eadi l yandcur r ent l yamountt oabout$3, 000peryear .Thet r uckcoul d besol df or$6, 000.I fr et ai ned,t het ruckwi l lr equi r eani mmedi at e$1, 500over hault okeep i ti noperat i ngcondi t i on.Thi soverhaulwi l lnei t herext endt heor i gi nal l yest i mat edservi ce l i f enori ncr easet heval ueoft het ruck.Theupdat edannualoper at i ngcost s,engi ne

&


over haulcost ,andmar ketval uesovert henextfiveyearsareest i mat edasgi veni nt he table. n 3 2 1 0 1 2 3 4 5

O&M

Depr eci at i on

-

$3, 000 4, 800 2, 880 1, 728 1, 728 864 0 0

Engine overhaul 1, 500 5, 000

Mar ketval ue 6, 000 4, 000 3, 000 1, 500 1, 000 0

Adr ast i ci ncr easei noper at i ngcost sdur i ngt hefif t hyeari sexpect edduet oanot her over haul ,whi chwi l lagai nber equi r edt okeept het r ucki noper at i ngcondi t i on.Thefir m' s MARRi s15% ( a)I ft het rucki st obesol dnow,whatwi l lbei t ss unkcost ? ( b)Whati st heoppor t uni t ycostofnotr epl aci ngt het rucknow? ( c)Whati st heequi val entannualcostofowni ngandoper at i ngt het ruckf orfiveyears? Answer : ( a)Purchasec ost=$15, 000,marketval ue$6, 000 sun- +ost = $1&,000  $#,000 = $%,000

( b)Opport uni t ycost=$6, 000 ( c)PW ( 15%) =$7, 500-$3, 000P/ F,15%,1) $3, 500( P/ F, 15%,2)$3, 800( PF,15%,3) $!,&00 ("/, 1&, !)  $%,00("/, 1&,&) = $22,#%.% C (1&) = $#,771.!# (ritten as '3e be+ause C, C is +ost)

14. 4.Ai rLi nks,acommut erai r l i necompany,i sconsi der i ngr epl aci ngoneofi t sbaggagehandl i ngmachi neswi t hanewerandmoreeffici entone.Thecur r entbookval ueoft heol d machi nei s$50, 000,andi thasar emai ni ngusef ull i f eoffiveyears .Thesal vageval ue expect edf r om scr appi ngt heol dmachi neatt heendoffiveyearsi szer o,butt hecompany cansel lt hemachi nenow t oanot herfirm i nt hei ndust ryf or$10, 000.Thenew baggagehandl i ngmachi nehasapur chasepri ceof$120, 000andanest i mat edusef ull i f eofseven year s.I thasanest i mat edsal vageval ueof$30, 000andi sexpect edt or eal i zeeconomi c

/

Page | /


savi ngsonel ect r i cpowerusage,l abor ,r epai rcost sandal sot or educet heamountof damagedl uggage.I nt ot al ,anannualsavi ngsof$50, 000wi l lber eal i zedi ft henew machi nei si nst al l ed.Thefir m usesa15% MARR.Usi ngt heopport uni t ycostappr oach, ( a)Whati st hei ni t i alcashout l ayrequi r edf ort henew machi ne? ( b)Whatar et hecas hflowsf ort hedef enderi nyearszer ot hr oughfive? ( c)Shoul dt heai r l i nepur chaset henew machi ne? Answer : ( a)I ni t i alcashout l ayf ort henew machi ne=$120, 000 ( b)Cashflowsf ort hedef ender :Year0:$10, 000Years1-5:0 ( c)AEW( 15%) =$2, 983 Def ender AEW( 15%) =$23, 868 Chal l enger Thecompanyshoul dpurc haset henew machi nebec ausei thasahi gherannualequi val ent cashflow

%

Page | %


Chapt er9 ( Q3. b)Fi nalExami nat i onSemes t er1,2015/ 2016

()

i" A rice cleaning e-ui,ment was ,urchased in 4ecemer 20 for +5%#! and is yearly de,reciated y the doule declining alance (44B) method for an e.,ected life of 1 years" Dhat is the ook alue of the e-ui,ment at the end of 21*< Iriginal salage alue was estimated to e +51#! at the end of 1 years" +hints: only do full year depreciation,. =0 marks>

Page | 0

A: repare the ta?le

ii" ie IG out of three conditions must an asset satisfy to e considered de,reciale" =2 marks>


( c)

i . Ass umi ngt hatyouownacar .Descr i behow youcal cul at et heeconomi c depr eci at i onacc umul at edf oryourcarwi t heachpass i ngyear .[ 2mar ks] i i .

I nnoCom SdnBhdbuysanew t el ec ommuni cat i on machi net hatcost s$160, 000. I thasausef ull i f eof6year sandcanbesol df or$50, 000att heendoft hi speri od. I ti sexpect ed t hat$10, 000 wi l lbespentbyt hecompany t odi smant l eand r emove t he machi ne att he end ofi t s usef ull i f e.Comput et he annual depr eci at i onal l owancesandt heresul t i ngbookval uesandputt hem i nat abl e f orm byusi ngt hef ol l owi ngmet hods: ( 1) ( 2)

( c)

i .

i i .

St r ai ght -l i nedepr eci at i on 150%decl i ni ngbal ance

[ 4mar ks] [ 7mar ks]

Subtr act i ngt hecurr entmar ketval ueoft hecarf r om t heori gi nal pri cepai df ort hecar . Economi cdeprec i ati on=Purc hasepri ce–marketval ue [ 2marks] SLDep=( I–S)/ N Sal vageval ue( S)=$50, 000-$10, 000=$40, 000 SLDep=( $160, 000-$40, 000) / 6=$20, 000

0

[ 1mark]


For150%DB, α=( 1/ N)xMul t i pl i er =1. 5/ 6=0. 25 Ye a r

0 1 2 3 4 5 6

[ 1mar k]

SL

Book

de pr e c i a t i on

us i ng

[ 1mark]

me t hod

b a l a n c e

de c l i ni ng

[ 2marks]

[ 4marks]

b a l a n c e

$40, 000 $30, 000 $22, 500 $16, 875 $12, 656. 25 $9492. 19

[ 2marks] $160, 000 $120, 000 $90, 000 $67, 500 $50, 625 $37, 968. 75 $28, 476. 56

$20, 000 $20, 000 $20, 000 $20, 000 $20, 000 $20, 000

va l ue 1 5 0 % SL de c l i ni ng

$160, 000 $140, 000 $120, 000 $100, 000 $80, 000 $60, 000 $40, 000

Book

va l ue

us i ng

1 5 0 %

Page | *

2. Qual i t yPl ast i csI nc.makespl ast i cbowl s.I tr ecent l yboughtanew machi ne,onJ anuary1, t hatmol dspl ast i cpel l et si nt ot hedesi r edshapes.Thepr i ceoft hatmachi newasRM480, 000. I tcostRM8, 000t odel i vert hemachi net ot hef act or y.I tcostRM12, 000t oi nst al landpr oper l y cal i br at et hemachi ne.I thasanexpect ed usef ull i f eof5years ,and i sexpect ed t ohave RM50, 000sal vageval ueatt heendof5years . =RM500, 000 ( a)Whati st hedepr eci abl ecostoft henew machi ne?

[ 2mar ks]

( b)Whati st heamountoft heannualdepr eci at i oni fst r ai ghtl i nemet hodi suse? Det er mi net hebookval ueatt heendofyear4. =annualdepr e ci at i on:RM90, 000 =Bookval ue :RM140, 000 [ 4mar ks] ( c)Cal cul at et hedepr eci at i onper centoft henew machi net hatwi l lbeusedt ocomput et he depr eci at i onamount ,t heamountofannualdepr eci at i onandbookval ueatt heendof eachyeari ft hecompanydeci dest ousedoubl edecl i ni ngbal ancemet hod.[ 13mar ks] YEAR DDB BOOKVALUE DEPRECI ATI ON 0 500, 000 1 200, 000 300, 000 2 120, 000 180, 000 3 72, 000 108, 000 4 43, 200 64, 800 5 14, 800 50, 000

*


( d)Compar et heamountofaccumul at eddepr eci at i onoft hemachi nei nt hebooksatt he endoft het hi r d yearcompar i ngst r ai ghtl i nemet hodanddoubl edecl i ni ng( Q HAS BEEN MODI FI ED) [ 6mar ks] Page | *1 St r ai ghtl i neme t hod:RM90, 000X3=RM270, 000 Doubl edec l i ni ng: =RM392, 000 [ Q4,FESem112/ 13] 3. [ FESem 113/14Q HASBEEN MODI FI ED] ( a) Whati sdepreci at i on?

[ 1mar k]

( b) I deaPer f ec tSdn Bhd pur chasedaRM196, 000hol epunchi ngmachi newi t haf r ei ght chargeofRM1, 000andani nst al l at i oncostofRM3, 000.Themachi nehasar ecover yper i odof5 yearsandt hesal vageval uei sexpect edt obezero.Compl et et hedepr eci at i onbel ow.

Year

St r ai ghtLi ne depreciation wi t hout swi t chi ng [ 2mar ks]

Bookval ue usi ngSL met hod [ 2mar ks]

Doubl edecl i ni ng bal ance( DDB) depreci at i on[ 5 mar ks]

Bookval ue usi ngDDB met hod [ 5mar ks]

0 1 2 3 4 5 Ans we r s Ye ar

0 1 5

St r ai ghtLi ne d e p r e c i a t i o n wi t hout swi t chi ng [ 2mar ks ] RM40, 000 RM40, 000

Bookval ue us i ngSL me t hod [ 2mar ks ] RM200, 000 RM160, 000 0

Doubl e de c l i ni ng bal ance( DDB) de pr e c i a t i o n[ 5 mar ks ] RM80, 000 RM10, 368

Bookval ueus i ng DDBme t ho d [ 5mar ks ]

RM200, 000 RM120, 000 RM15, 552

THEDEPRECI ATI ONVALUEFOR5TH YEARUSI NGDDBMUSTBEADJ USTEDTOGET0 SALVAGEVALUE.

*1


Depreci at i oni sdefinedasagradualdecr easei nt heut i l i t yoffixedasset swi t huseandti me.

Page | *2

From textbook

8he eneral Serice $ontractor $om,any ,aid L*# for a house and lot" 8he alue of the land was a,,raised at L1!!# and the alue of the house at L2*!#" 8he house was then torn down at an additional cost of L1!# so that a warehouse could e uilt on the comined lots at a cost of L1#2!#" Dhat is the alue of the ,ro,erty with the warehouse< For de,reciation ,ur,oses# what is the cost asis for the warehouse< Answer: 9. 3

9. 10

Thedoubl edecl i ni ngbal ancemet hodi st obeusedf oranass etwi t hacos tof$88, 000, anest i mat edsal vageval ueof$13, 000,andanest i mat edusef ull i f eofsi xyear s. ( a)Whati st hedepr eci at i onf ort hefir stt hr eefiscalyear s,assumi ngt hatt heassetwas pl acedi nser vi ceatt hebegi nni ngoft heyear? ( b)I fswi t chi ngt ot hest r ai ght l i nemet hodi sal l owed,wheni st heopt i malt i met o swi t ch? Answer:

*2

Engineering Economics Revision

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