Engineering Economics

Full marks: 70 Group A (Answer all question) 1. Tick the correct answer i. EMI stands for a. Easy monthly installments b. Equal monthly installments c. Equivalent monthly installment d. Easy money installment ii. Life of a machine is either 6 years or 9 years. If probability of 6 years is double that of 9 years. Find the probability of 9 years a. 0.67 b. 0.33 c. 0.5 d. 0.23 iii. Which of this assets dont depreciate a. Machinery b. Land c. Office Equipment d. Factory Shed iv. In inflation the value of money a. Remains constant b. Increases c. Decreases d. None of the above v. In break even point a. Revenue > Cost b. Revenue < Cost c. Revenue = Cost d. None of the above. vi. A machine worth Rs100,000 is purchase by paying Rs20,000 down payment and 12 monthly installments of Rs8000 each. The book cost at time of purchase is a. Rs100,000 b. Rs 8000 c. Rs 80,000 d. Rs12,000 vii. What is the relation between Marginal Cost (MC) and Average Cost (AC) curves a. AC cuts the MC from below b. MC cuts the AC from below c. AC and MC dont cut each other d. There is no fixe relationship Time: 3hrs

viii.

ix.

x.

In a decision tree arrows coming out of which node have probabilities a. Decision Node b. Random Node c. Both d. None In a balance sheet Capital is a. Asset b. Stock c. Liability d. None of the above In a probability distribution sum of the probabilities is equal to a. 0 b. Greater than 1 c. Less than 1 d. 1 Group B (Answer any 3 questions)

2. An aqueduct is needed t bring water into the city. It can be built at a reduced size now for Rs3 lakhs and enlarged 25 years later at Rs 3.5 lakhs. The other option is to construct the full size aqueduct for Rs 4 lakhs. Use Present Worth to find the better choice. [Given i = 6%]
[5]

3. Initial Cost = Rs 25,000, I = 10 %, Find E(PW) 5000 8000 Profit (Rs) 0.3 0.6 Probability Life (Yrs) Probability 6 0.67 9 0.33

10000 0.1

[5] 4. Find the better choice by using Present Worth [Given I = 8 %] Machine A B Initial Cost 2,000 3,000 Benefit / Year 450 600 Salvage Value 100 700 Life 6 years 6 years

[5] 5. Define break even point. A shopkeeper plans to sell electric switches. He buys the switches for Rs10 / piece. And sells them at Rs15 / piece. If the rent of the shop is Rs3000 / month. Find the break even quantity and sales. [2 + 3 = 5] 6. Discuss the causes of inflation. Suppose a bank pays 5.5 % compounded annually. If inflation is 2 % per year find the real interest rate. [2 + 3 = 5]

Group C (Answer any 3 questions) 7. a.

Life of a dam is 50years. i = 5 %. What should be the optimum height of the dam.
Height (Mts) 0 20 30 40 Initial Cost 0 700,000 800,000 900,000 P(Flood) 0.25 0.05 0.01 0.002 Damage/year (if flood) 800,000 500,000 300,000 200,000

b.

Initial cost of a machine is Rs250,000. Maintanance cost is Rs120,000 / year for the first five years and then increses by Rs20,000 every year. If rate of interest is 10 % compounded annually find the year in which the machine will be replaced. [7 + 8 = 15] Find the better choice by using Future Worth [Given i = 12 %] Machine Initial Cost Return / Year Life A 40 Lakhs 8 Lakhs 4 Years B 45 Lakhs 10 Lakhs 4 years Find the Equal Annual Worth (EAW) Initial Cost = Rs40,000 Salvage Value = Rs5,000 Revenue / year = Rs10,000 Life = 10 years i = 15 % A company wants to set up a reserve which will help it to have an annual amount equivalent to Rs 100,000 for every year for the next 20 years towards its employee welfare measure. Find the single payment that has to be made now. [Given i = 15 %] [5 + 5 + 5 = 15] Switch from declining balance to straight line depriciation in MACRS. The value of the asset is Rs10,000. The expected salvage value is 0. It is a seven year property Determine the appropiate depriciation table. A state government is planning a hydroelectric project for a river basin . In addition to the production of electric power, the project will provide flood control , irregation and recreation fecilities. The estimated benefits and cost that are expected to be derived from the project are as follows: Initial Cost = Rs80,000,000 Annual Power sales = Rs6,000,000 Annual flood control savings = Rs3,000,000

8. a.

b.

c.

9. a.

b.

Annual irrigation benefit Annual recreation benefit Annual maintanace cost Life of projet

= Rs5,000,000 = Rs2,000,000 = Rs3,000,000 = 50 years [9 + 6 = 15]

10. a.

What is Estimation; discuss the different types of estimates . What are the difficulties in estimating? Discuss the components of a balance sheet. What is the role of Engineering Economics analysis? [5 + 5 + 5 = 15]

b. c.

11. Compare and contrast (any 3) a. Marginal Cost vs Average Cost b. Book Cost vs Cash Cost c. Present Worth vs Future Worth d. Straight line depreciation vs declining value depriciation [5 X 3 = 15]