ENGINEERING ECONOMY REFRESHER SET 1.
Compute Compute the number number of tons that that the multinati multinational onal ie ie plant ompan! ompan! must must be able to sell per !ear to brea" e#en base$ on the follo%in& $ata' Cost of eletriit! ( ) *+,+++.++ Ta- to be pai$ per ton ( ) *,+++ Real estate ta- per !ear ( ) ./ million Salaries an$ %a&es ( ) */ million Other e-penses ( ) 1* million Sellin& prie of ie ( ) // per "&. a. 1**0
b. 11+
. 203
$. 1*+
*.
4 ertain ertain %ater %ater %or"s %or"s s!stem s!stem in Sin&apo Sin&apore re osts osts ) 3++ 3++ million million an$ in *+ !ears !ears it %ill %ill ha#e ha#e $epreiate$ $epreiate$ ) ++ million in #alue. If the annual interest on bon$ is /5 an$ the loal interest is fi-e$ at 05 !earl! an$ if the annual operatin& e-penses amounte$ to ) 0+ million, %hat must be the har&e per million u m per !ear. The sin"in& fun$ is $eposite$ annuall! an$ the apait! of %ater suppl! in Sin&apore is ./ billion. a. ) .2 b. ) ./ . /.*+ $. 1.6+
.
Fin$ Fin$ the nominal nominal rate %hih %hih if annuall!. a. .25 b. 3.05
ompou ompoun$e n$e$ $
7uarte 7uarterl! rl! is . /.15
e7ui#a e7ui#alen lent t
to
3./5 3./5
ompou ompoun$e n$e$ $
semi semi
$. 6.5
.
4n en&ineer en&ineer promis promise$ e$ to pa! ) 3,+++ at the en$ en$ of 2+ $a!s. He %as offere$ offere$ 1+5 1+5 $isount $isount if he pa!s in + $a!s. Fin$ the rate of interest. a. 0*.15 b. .65 . /1.35 $. 33.35
/.
The The pensio pensionna nnaire ire %ill %ill reei reei#e #e ) /,+++ /,+++ per %ee" at the rest rest of his8her his8her life. life. If the soial soial seurit! a&en! has a ontribution of 3./5 per !ear an$ ompoun$e$ %ee"l!, %hat is the present %orth of that finanial benefit9 a. ) 1 million b. ) million . ) 1+ million $. ) 3./ million
3.
4n urban ban" has a mort&a&e offers of 1*5 ompoun$e$ ompoun$e$ ontinuousl!. ontinuousl!. :hat is the the effeti#e effeti#e annual interest9 a. 1*.35 b. 1*.//5 . 1*.6/5 $. 1*.305
6.
:hih :hih of the follo% follo%in& in& is not not $esribe $esribe$ $ b! the bon$ bon$ #alue9 #alue9 a. a&r a&ree ees s to len$ len$ the the bon bon$ $ issu issuer er mon mone! e! . mama-im imi; i;es es the the eo eono nomi mi %ell %ell
SIT=4TION 1' For a nominal rate of 35 ompoun$e$ semi<7uarterl! for 0 !ears in an or$inar! annuit!, 0.
2.
Compu Compute te the the sin"in sin"in& & fun$ fun$ fator fator. . a. +.++60 b. +.++11
. +.+1**
$. +.++02
Compute Compute the present present %orth %orth fato fator. r. a. .61 b. /+.30
. 61.//
$. 3.60
. +.+*13
$. +.+10
1+. Compute the the apital apital reo#er! fator. a. +.+1// b. +.+126
11. 4 parent on the $a! of the hil$ is born %ishes to $etermine %hat lump lump sum %oul$ ha#e to be pai$ into an aount annuall!, in or$er to %ith$ra% ) *+,+++.++ eah on the hil$>s 10 th, 12 th, *+th, an$ *1st birth$a!s9 a. ) /,21.6 b. ) ,21.6 . +,21.6 $. ) */,21.6 1*. The The profit profit on a pro$u pro$ut t selli sellin& n& for ) 0*.++ 0*.++ is 1+5 of inrease in pro$ution ost %ill re$ue the profit b! 3+59 a. 3.365 b. 3.635 . 6.335
the sellin& sellin& prie. prie. :hat :hat
peren perenta& ta&e e
$. 6.635
1. 4n en&ineerin& en&ineerin& firm purhase$ a seon$ han$ tru" for for ) /+,+++ an$ pai$ ) 1/,+++ for frei&ht an$ ta-es to the ?ob site. The e7uipment has a normal life of 1+ !ears %ith a tra$e in #alue of ) /+,+++ a&ainst the purhase of a ne% e7uipment at the en$ of the life. @etermine the annual $epreiation ost b! the strai&ht line metho$. a. ) /+,2++ b. ) 31 ++ . 2 /++ $. 0 20+ 1. The paper urren! issu issue$ e$ b! the Central Aan" %hih forms part of the ountr!>s mone! suppl!. suppl!. a. Treasur! bills b. Aan" note . Che" $. Coupon 1/. 4n item is purhase$ for ) 1++,+++. 4nnual 4nnual ost is ) 10,+++. =sin& interest rate of 05, %hat is the apitali;e$ ost of the perpetual ser#ie9 a. ) 1+,+++ b. ) 1/,+++ . )*+,+++ $. ) */,+++
SIT=4TION *' 4 German $entist bou&ht a mahine 1+ !ears a&o for ) 2 million %ith an e-pete$ life of *+ !ears. The ne% assistant antiipate$ ho% that the mahine %ill ser#e %ell for another 3 !ears onl! an$ purhase a ne% apparatus at ) 1* million %ith an e-pete$ life of 13 !ears. The ol$ mahine is $epreiate$ as antiipate$ an$ an be sol$ no% at ) 3 million. Operatin& ost of the ol$ mahine is ) 1++,+++ an$ the ne% mahine is ) /+,+++ per !ear. Sal#a&e #alue is 1+5 of the initial #alue for both mahines re&ar$less of len&th of the time to be use$. If mone! is %orth 1+5 to the ompan!, 13. Compute the annual ost of the ol$ mahine. a. ) 1 million b. ) 1. million
. ) *.1 million
$. ) .+ million
16. Compute the annual ost of the ne% mahine. a. 1./3 million b. ) 1.6+ million
. ) 1.00 million
$. ) *.1* million
10. Compute the $ifferene in ost to pre#ent replaement. a. ) 1*3,666 b. ) 11,0 . ) 11,*/3
$. ) 1/+,/2
SIT=4TION ' @efine the follo%in& terms in en&ineerin& eonomis. 12. These are the a$$itional osts of pro$uin& one more unit of a pro$ut. a. Mar&inal ost b. Sun" ost . Inrement ost $. Fi-e$ ost *+. These in#ol#e %ith the #alues for all attributes must be on#erte$ into a ommon measurement sales in e#er! eonomi alternati#e. a. Ta-ation sale b. Compensator! mo$els . @imensional mo$el $. Cash flo% *1. It refers to the perio$ of time in !ears that results in the minimum e7ui#alent annual ost. a. O%nership life b. )h!sial life . =seful life $. Eonomi life **. 4 ban" loan of ) *,+++ %as ma$e at 0 5 simple interest. Ho% lon& %oul$ ta"e in !aers for the amount of the loan an$ interest e7ual to ) ,*0+.++9 a. 3 b. 6 . 0 $. / *. 4 man pai$ ) 11+,+++ for a ) 1++,+++ bon$ that pa!s ) +++ per !ear. In *+ !ears, the bon$ %ill be re$eeme$ for ) 1+/,+++. :hat net rate of interest %ill the man obtain on his in#estment9 a. .65 b. .65 . ./35 $. .+5 *. :hih of the follo%in& is NOT a ommon fator for brea" e#en anal!sis9 a. Capait! utili;ation . Rate of return b. 4nnual re#enue an$ e-penses $. Interest rates SIT=4TION ' The ori&inal ost of a ertain mahine is ) 1/+,+++ has a life of 0 !ears %ith a sal#a&e #alue of ) 2,+++. */. @etermine the $elinin& balane fator B. a. +.16// b. +.*1*6
. +.*23/
$. +.63
*3. Ho% muh is the $epreiation on the /th !ear , if the onstant perenta&e of $elinin& #alue is use$9 a. ) 1+,02.3* b. ) *01.+* . ,*/.03 $. **/.*+ *6. 4 mahine ostin& ) /,+++ is estimate$ to ha#e a sal#a&e #alue of ) ,/+ %hen retire$ at the en$ of 3 !ears. @epreiation ost is ompute$ usin& a onstant perenta&e of the $elinin& boo" #alue. :hat is the annual rate of $epreiation in perent9 a. .*/5 b. *.*/5 . /.*/5 $. *1.1/5 *0. 4 loan of ) *,+++ is ma$e for a perio$ of 1 months, from ul! 1 to ul! 1 the follo%in& !ear, at a simple interest of *+5. :hat is the future amount is $ue at the en$ of the loan perio$9 a. ) **63 b. ) *0/+ . ) * $. ) *61 *2. 4 teleoms firm purhase$ infrare$ e7uipment for ) 3 million. Frei&ht an$ installation har&es amounte$ to 5 of the purhase$ prie. If the e7uipment shall be $epreiate$ o#er a perio$ of 0 !ears %ith a sal#a&e #alue of /5, $etermine the $epreiation usin& sum of !ears $i&it metho$. a. ) 310,1*/ b. ) //6,* . ) 30,6+1 $. ) 3/*, +. Ho% lon& %ill it ta"e mone! to 7ua$ruple if it earns 65 ompoun$e$ semi
)lan S re7uires an imme$iate in#estment of ++,+++ in propert! that has an estimate$ life of 10 !ears %ith *+5 terminal sal#a&e #alue. 4nnual $isbursements for its operation an$ maintenane $urin& the first 3 !ears %ill be +,+++. 4fter 3 !ears, an a$$itional in#estment of ++,+++ %ill be re7uire$ ha#in& an estimate$ life of 1* !ears %ith +5 terminal sal#a&e #alue. 4fter this a$$itional propert! is installe$, annual $isbursements for operation an$ maintenane of the ombine$ propert! %ill be 3+,+++. 4nnual propert! ta-es %ill be *5 of the first ost of propert! in ser#ie at an! time. Mone! is %orth 1*5. 1. @etermine the annual ost after 3 !ears for plan S9 a. ) 0" b. ) //" . ) 33"
$. ) 2"
*. Fin$ the resent %orth ost for plan R. a. ) 2**" b. ) 1.* million
. ) 06/"
$. ) 213"
. Compute the e7ui#alent uniform annual ost. a. ) 1,2++ b. ) 13.6++
. ) *1*,++
$. ++,1++
. 4n an$roi$ phone osts ) *,+++ to$a!. If inflation is 35 per !ear an$ interest is 1+5 per !ear, %hat %ill be the appropriate future #alue of the mahine a$?uste$ for inflation in / !ears9 a. ) ,3+ b. ) ,*++ . ) *,0/+ $. ) ,1+ /. 4n asset %as purhase$ for ) 1++,+++ an$ retire$ at the en$ of 1/ !ears %ith a sal#a&e #alue pf ) ,+++. The annual operatin& ost %as ) 10,+++. @etermine the apitali;e$ ost of the asset base$ on an interest rate of 05. a. ) 32,12/ b. ) 0+,*+ . ) 11, *1 $. ) 6+,/* 3. The offiial urren! of the follo%in& ountries is Dpesos ECE)T' a. )hilippines b. Spain . Me-io $. 4r&entina 6. The ost to e7uip a on$o unit %ith CCT ameras is ) /+,+++. If the interest rate is 1/5 per !ear an$ it has a life of 3 !ears, fin$ the e7ui#alent annual ost. a. ) 10,1/+ b. ) 13/+ . ) 1,*1+ $. ) 10,11+ 0. :hih of the follo%in& pro$uts is not onsi$ere$ as sales ta-9 a. Aoo"s b. Meals . Groeries
$. Cinema ti"ets
2. 4n oil refiner! has $ei$e$ to purhase ne% $rillin& e7uipment for ) //+,+++. The e7uipment %ill be "ept for 1+ !ears before bein& sol$. The estimate$ S for $epreiation purposes is to be */,+++. If Strai&ht ine $epreiation is use$ an$ the e7uipment is sol$ for ) /,+++ at the en$ of 1+ !ears, the ta-able &ain on the $isposal of the e7uipment is a. ) /,+++ b. ) */,+++ . ) 1/,+++ $. ) 1+,+++ +. The fi-e$ osts inurre$ b! a small &enetis researh lab are ) *++,+++ per !ear. ariable osts are 3+5 of the annual re#enue. If annual re#enue is ) ++,+++, the annual profit8loss is most nearl! %hih ans%er belo%9 a. ) 33,+++ profit b. ) 33,+++ loss . ) 0+,+++ profit $. ) 0+,+++ loss 1. 4 nominal interest of 5 ompoun$e$ ontinuousl! is &i#en aumulate$ amount of ) 1+,+++ after 1+ !ears9 a. ) 1,20.3+ b. ) 1,3*+.1+ . ) 1,/++.1+
on
the
aount.
:hat
is
the
$. ) 1,2.13
*. 4 firm is onsi$erin& a apital in#estment. The ris" premium is +.+, an$ it is onsi$ere$ to be onstant throu&h time. Ris"less in#estments ma! no% be purhase$ to !iel$ +.+3 J35K. If the pro?et>s beta JLK is 1./, %hat is the e-pete$ return for this in#estment9 a. +.1/ b. +.1+ . +.+0 $. +.+* . 4 fun$ for replaement of a mahiner! in a plant must ha#e ) million at the en$ of 2 !ears. 4n e7ual $eposit of ) *23,/++ %as ma$e on the fun$ at the en$ of eah 3 months for !ears onl!. Ho% muh is the rate of the fun$ in#este$ if it is ompoun$e$ semi
that
!iel$
2.0
. 7uarterl!
annuall!. Ho%
often
$. $ail!
is
the interest
6. ) /++ is $eposite$ eah !ear into a sa#in&s ban" aount that pa!s /5 nominal ompoun$e$ ontinuousl!. Ho% muh %ill be the aount at the en$ of / !ears9 a. ) *632./2 b. ) *0.3 . ) *02.3/ $. ) *6.23
interest,
SIT=4TION ' 4n oil ompan! is bein& offere$ a speial oatin& for the &asoline un$er&roun$ tan" installation in its ser#ie stations %hih %ill inrease the life of the tan" from the usual 1+ !ears to 1/ !ears. The ost of the speial oatin& %ill inrease the ost of the +,+++
0. Compute the $epreiation for mahine %ithout oatin&. a. ) 1//3.* b. 101./ . 13+.13
$. *+66./2
2. Compute the $epreiation for mahine %ith oatin&. a. ) //6.0+ b. ) 0*6.* . 306.+0
$. 6/1.*
/+. Compute the rate of return on a$$itional in#estment on mahine %ith speial oatin&. a. /.105 b. .6/5 . .35 $. 0.015
