Project Engg Question Paper

8/16/2019 Project Engg Question Paper

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1. An engineer received a bonus of $12,000 that he will invest now. He wants to calculate

the equivalent value after 24 years, when he plans to use all the resulting oney as the

down payent on an island vacation hoe. Assue a rate of return of !" per year for

each of the 24 years. #ind the aount he can pay down, using the tabulated factor, the

factor forula, and a spreadsheet function.

2. aie has becoe ore conscientious about paying off his credit card bill proptly to

reduce the aount of interest paid. He was surprised to learn that he paid $400 in interest

in 200% and the aounts shown in #igure 2.& over the previous several years. 'f he ade

his payents to avoid interest charges, he would have these funds plus earned interest

available in the future. (hat is the equivalent aount ) years fro now that aie could

have available had he not paid the interest penalties* +et i )" per year.


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&. How uch oney should you be willing to pay now for a guaranteed $-00 per year for

years starting ne/t year, at a rate of return of 1-" per year*

4. #orasa lastics has aor fabrication plants in e/as and Hong 3ong. he president

wants to now the equivalent future worth of $1 illion capital investents each year for

! years, starting 1 year fro now. #orasa capital earns at a rate of 14" per year.


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). he Highway 5epartent e/pects the cost of aintenance for a piece of heavy

construction equipent to be $)000 in year 1, to be $))00 in year 2, and to increase

annually by $)00 through year 10. At an interest rate of 10" per year, deterine the

present worth of 10 years of aintenance costs.

-. A echanical contractor has four eployees whose cobined salaries through the end of

this year are $2)0,000. 'f he e/pects to give an average raise of )" each year, calculatethe present worth of the eployees6 salaries over the ne/t ) years. +et per year.


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%. 7heical engineers at a 7olean 'ndustries plant in the 8idwest have deterined that a

sall aount of a newly available cheical additive will increase the water repellency of

7olean6s tent fabric by 20". he plant superintendent has arranged to purchase the

additive through a )9year contract at $%000 per year, starting 1 year fro now. He e/pects

the annual price to increase by 12" per year starting in the si/th year and thereafter

through year 1&. Additionally, an initial investent of $&),000 was ade now to prepare

a site suitable for the contractor to deliver the additive. :se per year to deterine the

equivalent total present worth for all these cash flows.


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Nominal and Effective Interest Rates

1. ;uppose you want to buy a car priced $22,-%!.). he car dealer is willing to offer a

financing pacage with !.)" annual percentage rate over 4! onths.

he add does not specify a copounding period, but in autoobile financing the interest

and the payent periods are alost always both onthly. hus the !.)" A? eans

!.)" copounded onthly. herefore, onthly payent can be deterined by using

capital recovery factor@

' !.)"12 0.%0!&"onth, B 12 C 4 4! onths, A $20000=A,0.%0!&", 4!>

$42.%

2. 5ave has been offered what is described as a credit card deal that should not be refusedD

at least that is what the 7hase Ean offer letter iplies. he balance transfer A? interest

rate of 14.24" is an annual rate, with no copounding period entioned. herefore, it

follows the forat of the third entry in able 4F1, that is, interest rate stated, no 7

stated. herefore, we should conclude that the 7 is 1 year, the sae as the annual

interest period of the A?. However, as 5ave and we all now, credit card payents are

required onthly.(a) #irst, deterine the effective interest rates for compounding periods of 1 year and

1 month so 5ave nows soe effective rates he ight be paying when he

transfers the $1000 balance fro his current card.(b) ;econd, assue that iediately after he accepts the card and copletes the

$1000 transfer, 5ave gets a bill that is due 1 onth later. (hat is the aount of

the total balance he owes*

;olution=a> he interest period is 1 year. Apply Gquation 4.2I for both 7 values of 1

year = 1 copounding period per year> and 1 onth = 12

copounding periods per year>.7 of year@ Gffective rate per year 14.241 14.24"7 of onth@ Gffective rate per onth 14.2412 1.1!%"

=b> he interest will be at the onthly effective rate, plus the balance transfer fee

of &". Aount owed after 1 onth 1000 1000=0.011!%> 0.0&=1000> 1000 J 11.!% J &0 $1041.!%

'ncluding the $&0 fee, this represents an interest rate of =41.!%1000>=100">

4.1!%" for only the 19onth period.


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=c> Again apply Gquation 4.2I, now with &-) copounding periods per year.

7 of day@ Gffective rate per day 14.24&-) 0.0&" 4

&. anice is an engineer with ;outhwest Airlines. ;he purchased ;outhwest stoc for $-.0

per share and sold it e/actly 1 year later for $1&.14 per share. ;he was very pleased with

her investent earnings. Help anice understand e/actly what she earned in ters of = a >

effective annual rate and = b > effective rate for quarterly copounding, and for onthly

copounding. Beglect any coission fees for purchase and selling of stoc and any

quarterly dividends paid to stocholders.

4. esla 8otors anufactures high9perforance battery electric vehicles. An engineer is on

a esla coittee to evaluate bids for new9generation coordinate9easuring achineryto be directly lined to the autoated anufacturing of high9precision vehicle

coponents. hree bids include the interest rates that vendors will charge on unpaid

balances. o get a clear understanding of fi nance costs, esla anageent ased the

engineer to deterine the effective seiannual and annual interest rates for each bid. he

bids are as follows@

Bid 1: " per year, copounded quarterly


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Bid 2: &" per quarter, copounded quarterly

Bid 3: !.!" per year, copounded onthly

(a) 5eterine the effective rate for each bid on the basis of seiannual periods.(b) (hat are the effective annual rates* hese are to be a part of the fi nal bid

selection.(c) (hich bid has the lowest effective annual rate* =p9eng Gco910)>

). A dot9co copany plans to place oney in a new venture capital fund that currently

returns 1!" per year, copounded daily. (hat effective rate is this = a > yearly and = b >

seiannually*


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-. Kver the past 10 years, Lentrac has placed varying sus of oney into a special capital

accuulation fund. he copany sells copost produced by garbage9to9copost plants

in the :nited ;tates and Mietna. #igure shown is the cash fl ow diagra in $1000 units.

#ind the aount in the account now =after 10 years> at an interest rate of 12" per year,

copounded seiannually.

%. he ;cott and (hite Health lan =;(H> has purchased a robotiNed prescription

fulfillent syste for faster and ore accurate delivery to patients with stable, pill9for


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edication for chronic health probles, such as diabetes, thyroid, and high blood

pressure. Assue this high volue syste costs $& illion to install and an estiated

$200,000 per year for all aterials, operating, personnel, and aintenance costs. he

e/pected life is 10 years. An ;(H bioedical engineer wants to estiate the total

revenue requireent for each -9onth period that is necessary to recover the investent,

interest, and annual costs. #ind this seiannual A value both by hand and by spreadsheet,

if capital funds are evaluated at !" per year, using two different copounding periods@

=p9eng Gco9111>

Rate 1. !" per year, copounded semiannually .

Rate 2. !" per year, copounded monthly .


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!. #or an interest rate of 1!" per year, copounded continuously, calculate the effective

onthly and annual interest rates. An investor requires an effective return of at least 1)".


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(hat is the iniu annual noinal rate that is acceptable for continuous

copounding*

. Gngineers 8arci and ;uNanne both invest $)000 for 10 years at 10" per year. 7opute

the future worth for both individuals if 8arci receives annual copounding and ;uNanne

receives continuous copounding. =p9eng Gco911)>


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10. ;uppose you ae equal quarterly deposits of $1000 into a fund that pays interest at a

rate of 12" copounded onthly. #ind the balance at the end of year 2.

11. A Misa credit card issued through 7hase Ean carries an interest rate of 1" per onth on

the unpaid balance. 7alculate the effective rate per seiannual period. 'f the card6s

interest rate is stated as &.)" per quarter, find the effective seiannual and annual rates.


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12. ;herry e/pects to deposit $1000 now, $&000 4 years fro now, and $1)00 - years fro

now and earn at a rate of 12" per year copounded seiannually through a copany9

sponsored savings plan. (hat aount can she withdraw 10 years fro now*


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1&. #or the past % years, a quality anager has paid $)00 every - onths for the software

aintenance contract of a +AB. (hat is the equivalent aount after the last payent, if

these funds are taen fro a pool that has been returning 10" per year copounded

quarterly*


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14. ?ob is the on9site coordinating engineer for Alcoa Aluinu, where an under9renovation

ine has new ore refining equipent being installed by a local contractor. ?ob developed

the cash flow diagra in #igure &.)a in $1000 units fro the proect perspective.

'ncluded are payents to the contractor he has authoriNed for the current year and

approved advances fro Alcoa6s hoe office. He nows that the interest rate on

equipent Ofield proectsP such as this is 12" per year copounded quarterly, and that

Alcoa does not bother with interperiod copounding of interest. (ill ?ob6s proect

finances be in the OredP or the OblacP at the end of the year* Ey how uch*


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Present worth analysis

1. erfor a present worth analysis of equal9service achines with the costs shown below,

if the 8A?? is 10" per year. ?evenues for all three alternatives are e/pected to be the

sae.

Present Worth Analysis of E!al"#ife Alternatives

2. 8arcie has soe e/tra oney that she wants to place into a relatively safe investent.

Her eployer is offering to eployees a generous )" discount for 109year $),000 bonds

that carry a coupon rate of -" paid seiannually. he e/pectation is to atch her return

on other safe investents, which have averaged -.%" per year copounded

seiannually. =his is an effective rate of -.!1" per year.> ;hould she buy the bond*


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!. wo sites are currently under consideration for a bridge over a sall river. he north site

requires a suspension bridge. he south site has a uch shorter span, allowing for a truss

bridge, but it would require new road construction. he suspension bridge will cost $)00

illion with annual inspection and aintenance costs of $&)0,000. 'n addition, the

concrete dec would have to be resurfaced every 10 years at a cost of $1,000,000. he

truss bridge and approach roads are e/pected to cost $2)0 illion and have annualaintenance costs of $200,000. his bridge would have to be painted every & years at a

cost of $400,000. 'n addition, the bridge would have to be sandblasted every 10 years at a

cost of $1,00,000. he cost of purchasing right9of9way is e/pected to be $20 illion for

the suspension bridge and $1)0 illion for the truss bridge. 7opare the alternatives on

the basis of their capitaliNed cost if the interest rate is -" per year.


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Rate of Ret!rn Analysis

1. Allied 8aterials needs $! illion in new capital for e/panded coposites anufacturing.

't is offering sall9denoination corporate bonds at a deep discount price of $!00 for a

4" $1000 face value bond that atures in 20 years and pays the dividend seiannually.

#ind the noinal and effective annual rates, copounded seiannually, that Allied is

paying an investor.


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2. (ells #argo Ean lent a newly graduated engineer $1000 at i 10" per year for 4 years

to buy hoe office equipent. #ro the ban6s perspective =the lender>, the investent

in this young engineer is e/pected to produce an equivalent net cash flow of $&1).4% for

each of 4 years.


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&. his represents a 10" per year rate of return on the ban6s unrecovered balance.

7opute the aount of the unrecovered investent for each of the 4 years using =a> the

rate of return on the unrecovered balance =the correct basis> and = b> the return on the

initial $1000 investent =the incorrect basis>.

4. A tool and die copany in ;ydney is considering the purchase of a drill press with fuNNy9

logic software to iprove accuracy and reduce tool wear. he copany has the

opportunity to buy a slightly used achine for $1),000 or a new one for $21,000.

Eecause the new achine is a ore sophisticated odel, its operating cost is e/pected to

be $%000 per year, while the used achine is e/pected to require $!200 per year. Gach


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achine is e/pected to have a 2)9year life with a )" salvage value. abulate the

increental cash flow.

). As the fil of an oil spill fro an at9sea taner oves ashore, great losses occur for

aquatic life as well as shoreline feeders and dwellers, such as birds. Gnvironental

engineers and lawyers fro several international petroleu corporations and transport

copaniesDG//on98obil, E, ;hell, and soe transporters for KG7 producersDhave

developed a plan to strategically locate throughout the world newly developed equipent

that is substantially ore effective than anual procedures in cleaning crude oil residue

fro bird feathers. he ;ierra 7lub, Lreenpeace, and other international environental

interest groups are in favor of the initiative. Alternative achines fro anufacturers in

Asia, Aerica, Gurope, and Africa are available with the cost estiates in able Annual

cost estiates are e/pected to be high to ensure readiness at any tie.


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-. he copany representatives have agreed to use the average of the corporate 8A?? values, which results in 8A?? 1&.)". :se increental ?K? analysis to deterine

which anufacturer offers the best econoic choice.%.

!. Harold owns a construction copany that subcontracts to international power equipent

corporations such as LG, AEE, ;ieens, and +L. #or the last 4 years he has leased crane

and lifting equipent for $&2,000 annually. He now wishes to purchase siilar


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equipent. :se an 8A?? of 12" per year to deterine if any of the options detailed in

able -.! are financially ustified.


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. he engineering design and testing group for Honda 8otor 7orp. does contract9based

wor for autoobile anufacturers throughout the world. 5uring the last & years, the net

cash flows for contract payents have varied widely, as shown below, priarily due to a

large anufacturer6s inability to pay its contract fee. 5eterine the a/iu nuber of

iR values that ay satisfy the ?K? relation. (rite the (9based ?K? relation and

appro/iate the iR value=s> by plotting ( versus i.


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10. 7opute the coposite rate of return for the Honda 8otor 7orp. engineering group for

the above e/aple if the reinvestent rate is =a> %.4%" and =b> the corporate 8A?? is

20". he e/act ultiple iR values are %.4%" and 41.&)" per year.


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Brea$ even analysis

1. Bicholea (ater ++7 dispenses its product Bature6s ure (ater via vending achines

with ost current locations at food arets and pharacy or cheist stores. he average

onthly fi/ed cost per site is $00, while each gallon costs 1!U to purify and sells for

&0U. =a> 5eterine the onthly sales volue needed to brea even. =b> Bicholea6s

president is negotiating for a sole9source contract with a unicipal governent where

several sites will dispense larger aounts. he fi/ed cost and purification costs will be

the sae, but the sales price per gallon will be &0U for the first )000 gallons per onth

and 20U for all above this threshold level. 5eterine the onthly breaeven volue at

each site.


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2. A sall aerospace copany is evaluating two alternatives@ the purchase of an autoatic

feed achine and a anual feed achine for a finishing process. he auto9feed achine

has an initial cost of $2&,000, an estiated salvage value of $4000, and a predicted life of

10 years. Kne person will operate the achine at a rate of $24 per hour. he e/pected

output is ! tons per hour. Annual aintenance and operating cost is e/pected to be $&)00.

he alternative anual feed achine has a first cost of $!000, no e/pected salvage value,

a )9year life, and an output of - tons per hour. However, three worers will be required at

$12 per hour each. he achine will have an annual aintenance and operation cost of

$1)00. All proects are e/pected to generate a return of 10" per year. How any tons per

year ust be finished in order toustify the higher purchase cost of the auto9feed

achine*


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&. Luardian is a national anufacturing copany of hoe health care appliances. 't is faced

with a ae9or9buy decision. A newly engineered lift can be installed in a car trun to

raise and lower a wheelchair. he steel ar of the lift can be purchased for $0.-0 per unit

or ade inhouse. 'f anufactured on site, two achines will be required. 8achine A is

estiated to cost $1!,000, have a life of - years, and a $2000 salvage valueS achine E

will cost $12,000, have a life of 4 years, and a $T)00 salvage value =carry9away cost>.

8achine A will require an overhaul after & years costing $&000. he AK7 for A is

e/pected to be $-000 per year and for E $)000 per year. A total of four operators will be

required for the two achines at a rate of $12.)0 per hour per operator. Kne thousand

units will be anufactured in a noral !9hour period. :se an 8A?? of 1)" per year to

deterine the following@ Buber of units to anufacture each year to ustify the inhouse

=ae> option. he a/iu capital e/pense ustifiable to purchase achine A,

assuing all other estiates for achines A and E are as stated. he copany e/pects to

produce 12),000 units per year.


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%EN%I&I'I&( ANA#(%I% )*R 'ARIA&I*N IN E%&I+A&E%

1. Haond (atches, 'nc. is about to purchase equipent that will significantly iprove

the light eflected by the watch dial, thus aing it easier to read the tie in very low

light environents. 8ost liely estiates are P= $!0,000, n = 10 years, S= 0, and

increased net revenue after e/penses of $2),000 the first year decreasing by $2000 per

year thereafter. he M of 8anufacturing is concerned about the proect6s econoic

viability if the equipent life varies fro the 109year estiate, and the M of 8aretingis concerned about sensitivity to the revenue estiate if the annual decrease is larger or

saller than the $2000. :se 8A?? T 1)" per year and ( equivalence to deterine

sensitivity to =a> variation in life for !, 10, and 12 years, and =b> variation in revenue

decreases fro 0 to $&000 per year. lot the resulting ( values for each paraeter.


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2. An engineer is evaluating three alternatives for which he has ade three estiates for

salvage value, annual operating cost, and life =able !.1>. #or e/aple, alternative E has

pessiistic estiates of S $)00, AK7 $4000, and n 2 years. he first costs are

nown, so they have the sae value. erfor a sensitivity analysis and deterine the

ost econoic alternative using A( analysis at an 8A?? of 12" per year.


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PA(BA,- PERI* ANA#(%I%

his year the ownerfounder of V Health allocated a total of $1! illion to develop new

treatent techniques for sicle cell aneia, a blood disorder that priarily affects people of

African ancestry and other ethnic groups, including people who are of 8editerranean and 8iddle

Gastern descent. he results are estiated to positively ipact net cash flow starting - years

fro now and for the foreseeable future at an average level of $- illion per year. As an initial

screening for econoic viability, deterine both the no9return and i 10" paybac periods.

Assue that any patents on the process will be awarded during the si/th year of the proect.

5eterine the proect ?K? if the $- illion net cash flow were to continue for a total of 1%

years =through year 22>, when the patents legally e/pire.


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EPRE,IA&I*N

1. 'f an asset has a first cost of $)0,000 with a $10,000 estiated salvage value after )

years, calculate the annual ;+ depreciation and plot the yearly boo value.

2. Albertus Batural ;tone Wuarry purchased a coputer9controlled face9cutter saw for $!0,000. he unit has an anticipated life of ) years and a salvage value of $10,000. = a>

7opare the schedules for annual depreciation and boo value using two ethods@ 5E at

1)0" of the straight line rate and at the 55E rate. = b> How is the estiated $10,000

salvage value used*


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&. Easeline, a nationwide franchise for environental engineering services, has acquired

new worstations and &95 odeling software for its 100 affiliate sites at a cost of $4000 per site. he estiated salvage for each syste after & years is e/pected to be )" of the

first cost. he franchise anager in the hoe office in ;an #rancisco wants to copare

the depreciation for a &9year 8A7?; odel =ta/ depreciation> with that for a &9year

55E odel =boo depreciation>. o help, deterine which odel offers the larger total

depreciation after 2 years, and deterine the boo value for each ethod at the end of &

years.


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4. Heisphere Ean purchased a $100,000 online docuent iaging syste with a

depreciation recovery period of ) years. 5eterine the depreciation for =a> the ;+

ethod and =b> 55E9to9;+ switching. =c> :se a rate of i 1)" per year to deterine the

( D values. =8A7?; is not involved in this e/aple.>


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EP#E&I*N +E&/*%

1. A gold ine was purchased for $10 illion. 't has an anticipated gross incoe of $!.0

illion per year for years 1 to ) and $).0 illion per year after year ). Assue that

depletion charges do not e/ceed )0" of ta/able incoe. 7opute the annual depletion

aount and deterine how long it will tae to recover the initial investent.

2. eple9'nland 7orporation has negotiated the rights to cut tiber on privately held forest

acreage for $%00,000. An estiated &)0 illion board feet of luber are harvestable.

5eterine the depletion aount for the first 2 years if 1) illion and 22 illion board

feet are reoved.


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&. EA Aerospace purchased new aircraft engine diagnostics equipent for its aintenance

support facility in #rance. 'nstalled cost was $)00,000 with a depreciable life of ) years

and an estiated 1" salvage. :se a spreadsheet to deterine the following@ a. ;traight

line =;+> depreciation and boo value schedule. 0. 5ouble declining balance =55E>

depreciation and boo value schedule. c. 5eclining balance =5E> at 1)0" of the ;+ rate

depreciation and boo value schedule. d. 8A7?; depreciation and boo value schedule.

e. 5epreciation and boo value schedule allowing a switch fro 55E to ;+ depreciation.

Documents

Project Engg Question Paper