\ UNIVERSIT] TEKNOLOGI PETRONAS FINAL EXAMINATION MAY 2014 SEMESTER COURSE : GCB3173/GBB3173 - ENGINEERING ECONOMICS AND ENTREPRENEURSHIP DATE : 4 SEPTEMBER 2014 (THURSDAY) TIME 9,00 AM ~ 12.00 NOON (3 hours) INSTRUCTIONS TO CANDIDATES 1 2 3. 4. ‘Answer ALL questions in the Answer Booklet. Begin EACH answer on a new page. Indicate clearly answers that are cancelled, if any. Where applicable, show clearly steps taken in arriving at the solutions and indicate ALL assumptions, if any. Do not open this Question Booklet until instructed. Discrete Compounding Table is available in the Engineering Data & Formulae Booklet. There are SEVEN (7) pages in this Question Booklet including the cover page Graph Paper & Engineering Data & Formulae Booklet will be provided, Universiti Teknologi PETRONASGBB3173 / GCB3173 Describe FIVE (5) differences between a public and a private project. [5 marks] An automobile company is planning to buy a robotic forging unit, It has identified two different brands of the robot. The estimates of initial cost and net annual revenue of using robots are summarized in TABLE Q1. TABLE Q1: Individual Project Cash Flow Brand of robotic forging unit Speedex Giant Initial cost (RM) = 5,000,000 | - 9,000,000 | Net annual revenue (RM) 800,000 | 1,500,000 Useful life (years) 8 8 Life-end salvage value (RM) 400,000 600,000 Select the preferred brand of robot for the company based on the rate of return method, using Incremental ROR Analysis. Assume the minimum attractive rate of return (MARR) for the company is 12% per year. [10 marks} ji, Determine the simple payback period for Giant robotic forging unit [5 marks}GBB3173 / GCB3173 The cost of grading and spreading gravel on a rural road is expected to be RIM3,000,000. The road will have to be maintained at a cost of RM250,000 per year. Even though the new road is not very smooth, it allows access to an area that previously could only be reached with off-road vehicles. The improved accessibility will result in a 50% increase in the property value along the road and increase of 10% in the annual sales of their agriculture products which is currently at RMS00,000. However the land owners have to accept the loss on the land taken to build the road and this is estimated to be RM500,000. The previous market value of a property was RM9,000,000.The minimum attractive rate of return (MARR) is 6% per year and the study period is 20 years. a, Determine the absolute values of benefits [1 mark] il disbenefits [1 mark ili, cost [1 mark] iv. investment [1 mark] b. Evaluate with equivalent annual worth (AW) method the feasibility of the project using: i BenefitiCost Ratio [8 marks] ii, Modified Benefit/Cost Ratio [8 marks]GBB3173 An alr compressor was placed in service 10 years ago for which a replacement study has been requested. Due to its special design, the company has the options to retain the air compressor for one, two, three, or four more years before it is being replaced with a new unit. The annual cost of the defender if retained and the annual cost of the challenger for the expected service duration are indicated In TABLE Q3a, The company uses minimum attractive rate of return (MARR) of 18% per year to perform the replacement study over a period of four years. TABLE Q3a: Annual Cost of Defender and Challenger Time in Annual Cost of | Annual Cost of Challenger for service Defender if Retained | Expected Service Duration (Years) (RM) IE (RM) 1 ~10,500 i ~13,500 2 Ee i =12,964 3 42,078 ate “13,217 L i Accordingly, there are four options available as illustrated in TABLE Q3b, TABLE Q3b: Four Viable Replacement Options ~ | Duration Defender is Options | expected to be retained expected to serve (years) (years) a >= —— [8 2 c 3 cee D 4 0 7 a. Illustrate the cash flows diagram for: i, Option A [1 marks]ii. Option B iii, Option C iv. Option D Solve the equivalent annual worth (AW) for: i. Option A ii. Option B iii, Option C iv. Option D GB83173 / GCB3173 [1 marks] [1 marks] {1 marks] [4 marks} [4 marks] [4 marks] [2 marks] Determine the most economical duration for the existing air compressor to be retained before it is replaced with a new unit. Justify. (2 marks]GBB3173 / GCB3173 ‘A company is evaluating a replacement of an industrial lift truck. A planning horizon of six years is used in the replacement study. The company is using minimum attractive rate of return (MARR) of 10% per year in evaluating its investment proposal OPTION 4: An industrial lift truck has been in service for several years. The old lift truck has a current market value (MV) of RM8,000. If the old truck is retained, it is anticipated to have annual operating and maintenance (O&M) costs of RM9,000. The salvage value at the end of sixth year is nil OPTION 2: A new lift truck has an initial cost of RM X, its annual operating and maintenance (O&M) costs is estimated at 5% of X, and the salvage value at the end of sixth year is 15% of X. a. Calculate the equivalent present worth (PW) of the old lift truck. [3 marks] b. Solve for the initial cost (RM X) of the new lift truck if the equivalent present worth (PW) of both options is the same. {5 marks] c. Determine the preferred alternative if the initial cost of the new lift truck is RM36,000. Justify [4 marks] d. Which is your preferred option if the initial cost of the new lift truck is RM36,000 and the MARR of the company is 20% per year? Show your calculation. [8 marks]5. GBB3173 / GCB3173 ‘An investment for a steam generator is needed in the design of a new small power plant. The cost implications and salvage value for the investment have been estimated and summarized in TABLE Q5 ____TABLE Q5: Estimates of Cost Implication Estimates Invesiment cost (RM) ~500,000 ‘Annual energy savings (RM) R |~“Annual fuel expenses (RM) “0.05R Life-end Salvage value (RM) 25,000 ~~ Useful life (years) 10 a. Solve for the annual energy savings (R) if the internal rate of return (IRR) that is required for the above investment proposal is 25% per year. [10 marks} b, Calculate the minimum annual energy savings (R) for the above investment proposal to breakeven, if the minimum attractive rate of return (MARR) is 10% per year. [10 marks} -END OF PAPER-