CONFIDENTIALUNIVERSITI TUN HUSSEIN ONN MALAYSIA TEST 2 SESSION 2013/2014 SEMESTER 1 MARKING SCHEMES COURSE NAME : ENGINEERING ECONOMY COURSE CODE : BPK30902 PROGRAM : 4 BFF DURATION : 1 HOUR INSTRUCTION : ANSWER ALL QUESTIONS THIS QUESTION PAPER CONSISTS OF TWO (2) PAGES BPK 30902 2 Q1 (a) List five (5) categories of costs and revenues that are typically needed in engineering economy study. (5 marks) Capital investment (fixed and working) Labour costs Material costs Maintenance costs Property taxes and insurance Overhead costs Disposal costs Revenues based on sales, etc. Quality (and scrap) costs Market (or salvage) values (Choose 5 answers, 1 mark for each, 5 marks in total) (b) A cooling system installed five years back for RM 120,000 is required to be replaced. Determine the cost of replacement, based on the equipment cost index in Table Q1(c). Table Q1(c) Year Index 1 200 2 225 3 245 4 270 5 285 (5 marks) Solution: 285 (1 mark) x RM 120,000 (1 mark) = RM 171,000 (2 marks) 200 (1 mark) (5 marks) BPK 30902 3 (c) A team of civil engineering student is designing a bridge model for national competition. The time required for the team to design the first bridge model is 60 hours. Their improvement (or learning rate) is 0.6 s, which means that as output is doubled; their time to assemble a bridge is reduced by 20%. Determine the following: (i) the time it will take the team to designing the 4th bridge Z u = K(u n ) Z 4 = 60 (4) log 0.6 / log 2 (1 mark) = 60(4) -0.737 (1 mark) = 21.6 hours or (1 mark) Z 4 = 60 (4) log 0.8 / log 2 = 60(4) -0.322 = 38.4 hours Can use both value of 0.6 or 0.8 because question error (ii) the total time required to design the first 4 bridges x T x = K ∑ u n u=1 4 T 4 = 60 ∑ 4 -0.737 = 60 [1 -0.737 + 2 -0.737 + 3 -0.737 + 4 -0.737 ] (3 mark) u=1 T 4 = 144 hours or (2 mark) 4 T 4 = 60 ∑ 4 -0.322 = 60 [1 -0.322 + 2 -0.322 + 3 -0.322 + 4 -0.322 ] u=1 T 4 = 188 hours (iii) the estimated cumulative average designing time for the first 4 bridges. Cx = Tx / x or Cx =Tx / x = 144//4 = 188/4 (1 mark) = 36 hours = 47 hours (1 mark) (10 marks) BPK 30902 4 Q2 (a) You decided to take a 7-years loan to buy a car of RM98,000. You have two options of how the loan to be calculated: (i) using simple interest rate of 3.5% per year; or (ii) using compound interest rate of 4% per year with monthly installments of RM 1,361. Calculate the total amount of loan using both options. Use the table format below for calculating the option (ii). Year Amount Owed at Beginning of Year Interest Accrued for Year Total Owed at End of Year Monthly Payment Total Payment at End of Year Balance Payment at End of Year Justify which option is the best. (12 marks) Solution: Simple Interest I = PNi I = (RM 98000) x (7) x (0.035) I = RM 24010 (1.5 mark) Total amount of loan, F = P+I F = RM 98000 + RM 24010 F = RM 122,010.00 (1.5 mark) Compound interest Year Amount Owed at Beginning of Year Interest Accrued for Year Total Owed at End of Year Monthly Payment Total Payment at End of Year Balance Payment at End of Year 1 98000.00 3920.00 101920.00 1361.00 16332.00 85588.00 2 85588.00 3423.52 89011.52 1361.00 16332.00 72679.52 3 72679.52 2907.18 75586.70 1361.00 16332.00 59254.70 4 59254.70 2370.19 61624.89 1361.00 16332.00 45292.89 5 45292.89 1811.72 47104.60 1361.00 16332.00 30772.60 6 30772.60 1230.90 32003.51 1361.00 16332.00 15671.51 7 15671.51 626.86 16298.37 1361.00 16332.00 -33.63 (Each row 1 mark, in total 7 marks) BPK 30902 5 Total amount of loan, F = (RM 16332.00 x 7) – RM 33.63 F = RM 114,290.37 (2 mark) Option (ii), calculating the loan using compound interest is the best option as it yields a smaller amount of loan rather than using simple interest. (1 mark) (b) Suppose that annual income from a rental property is expected to start at RM1,700 per year and decrease at a uniform amount of RM50 each year after the first year for the 15-year expected life of the property. The investment cost is RM8,000, and i is 15% per year. The investment occurs at time zero (now) and the annual income is first received at EOY one. Draw two (2) cash-flow diagrams (the gradient and annuity series) to illustrate this investment situation. Determine and justify whether this investment is a good one? (8 marks) (2 marks) (2 marks) P 0 (rental income) = RM1,700(P/A,15%,15) − RM50(P/G,15%,15) = RM1,700(5.8474) − RM50(26.693) = RM9,940.58 – RM1,334.65 = RM8,605.93 (3 marks) The present equivalent of the rental income is greater than the present equivalent of the $8,000 investment, so the rental property appears to be a good investment. (1 marks) RM8000 0 2 14 15 RM8000 RM1700 RM1650 RM1050 RM1000 2 14 15 2 14 15 RM1700 RM50 RM650 RM700 BPK 30902 6