Engineering Economy - Dec 2014

Mechanical Engg. (Semester 7)

TOTAL MARKS: 100
TOTAL TIME: 3 HOURS (1) Question 1 is compulsory.
(2) Attempt any four from the remaining questions.
(3) Assume data wherever required.
(4) Figures to the right indicate full marks. 1 (a) Explain Law of Return(6 marks) 1 (b) Deduce an expression for uniform series capital recovery factor, with the necessary cash flow diagram. Firstly derive F = P(Hi)deg; and then proceed.(8 marks) 1 (c) Assume that you sold a property today for Rs.242100 and that you had purchased the property 4..years ago with Rs.2,00,000 withdrawn from your saving account. During the 4 year period your savings would have earned 6% compounded quar,terly. For a comparison of the investments, calculate the nominal interest rate received from your property purchase.(6 marks) 2 (a) Explain Pay back comparison method(4 marks) 2 (b) A newly developed electric car will cost 21000 to,purchase. Operating and maintenance costs, including home charging of the batteries, are estimated to be Rs.350 for the first year with annual increase there after of Rs.50 per year. Salvage value after 5 years is estimated to be Rs.6500. A new gasoline runabout will cost Rs.16000 and will average 30 miles per gallon. Gasoline costs Rs. 1.26 per gallon is expected to increase at a rate of Rs.0.05 per year each of the next 4 years maintenanCe costs are estimated to be Rs.300 per year including warranty coverage. Salvage value is estimated to be Rs.1500 after 5 years of service. If the vehicles are expected to be d_riven for 20.000 miles per year, determine which option will have the lower cost over 5 years (use present worth analysis) with a 10% rate of interest(10 marks) 2 (c) A small company purchased now for 23000 will lose 1200 each year the first 4 years. An additional 8000 investment in the company during the fourth year will result in a profit 5500 each year from the ,5^th year through the 15^th year. At the end of 15 years. The company can be sold for Rs 33,000 MARR-12%.(6 marks) 3 (a) Explain the Situations for EAC and EAW comparisons.(4 marks) 3 (b) A city maintenance crew has had experience with a conventional back hoe that suggests that its service life is 6 years. A newly designed machine costs 50o% more than the conventional machine but is quieter in operation, which will make it more adoptable to residential neighbourhoods. Both machines will have about the same operating costs, and salvage costs are expected to be negligible. What will be the service life of the new backhoe have to be to make its cost comparable to that of the conventional machine at i=10%?(8 marks) 3 (c) A sheltered workshop requires a lift truck to handle pallets for a new contract. A lift truck can be purchased for Rs.270000. Annual insurance costs are 3% of the purchase price, payable on the first of each year. An equivalent truck can be rented Rs.15000 per month payable at the end of each month. Operating costs are same for both alternatives. For what minimum number of months must a purchased truck be used on the contract to make purchasing more attractive than leasing? Interest is 12% compounded monthly. Assume that the purchased truck has no salvage value.(8 marks) 4 (a) List and discuss the causes for depreciation(4 marks) 4 (b) An automobile company is planning to buy a robot for its forging unit. It has identified two different companies for the supply of the robot. The details of cost and incremental revenue of using robots are summarized in the following table: