General Worksheet

1. Explain the difference between interest and interest rate.

2. Explain “Do nothing” alternative.
3. Explain time value of money with the help of examples.
4. Why there is a need to replace a physical asset?
5. Explain the three methods used in depreciation calculation.
6. Briefly explain the various cost estimating methods.
7. What are the impediments to effectively carry out public activities?
8. What are the fundamental principles of engineering economy?
9. Explain briefly the difference between physical efficiency and economic efficiency.
10. Distinguish between consumer and producer goods.
11. Explain what is meant by incremental cost with the help of graph.
12. Distinguish between “earning power of money” and “purchasing power of money”
13. *When do you say that two things are equivalent? Give an example.
14. What do you understand by “consumer price index”?
15. Akaki Basic Metals Industry is planning to expand its production operation. It has identified three
different technologies for meeting the goal. The initial outlay and annual revenues with respect to each
of the technologies are summarized below. Suggest the best technology which is to be implemented
based on the present worth method of comparison assuming 12% interest rate, compounded annually.

Initial outlay (ETB) in Annual revenue (ETB) in

Life (year)
Million Million
Technology 1 120 400 10
Technology 2 180 500 10
Technology 3 200 600 10

16. Derive an equation for “single payment compound amount factor”

where Present worth of single payment the total he future amount , and The
interest rate per annum.
17. What sun of money now is equivalent to 8250 Birr two years hence, if the compounded annual
interest is 4%?
18. For two alternatives of cash flows A1 and A2, what is the relation between PW, AE and FW for
specific value of the interest rate ? And set a criterion to choose the best project alternative.
19. Homicho Ammunition Industry has the capacity to produce 2,000 units of 60mm mortar bomb
per year. At present, it is operating at 75% of capacity. The factories annual income is 310,000
ETB. Annual fixed costs are 19,240 ETB, and the variable costs are equal to 70.84 ETB per unit
of product.
a. What is the factories annual profit or loss?
b. At what volume/quantity of sales does the firm breakeven?
20. A contractor has a requirement for cement in the amount of 45,000 bags per year. Cement
costs 2.85 Birr per bag, and it costs 40 Birr to processes a purchase order. Holding cost is 4 Birr
per bag per year because of the high rate of spoilage. Find the minimum cost purchase
quantity.
21. A state government is planning a hydroelectric project for a river basin. In addition to the
production of electric power, this project will provide flood control, irrigation, and recreation
 benefits. The estimated benefits and the cost that are expected to be derived from this project
as follows:
Initial cost = 120,000 ETB, Annual power sale = 12,000 ETB
Annual flood control savings = 6,000 ETB, Annual irrigation benefits = 8,000 ETB
Annual recreation benefits = 4,000 ETB, Annual operating and maintenance cost = 6,000 ETB
Life of the project = 25 years; Check whether the state government should implement the
project. (Assume )
22.
a. Define and discuss (1) depreciation, (2) depletion
b. (Straight Line Depreciation) Butler Buildings purchased semi-automated assembly and
riveting robotics equipment for constructing its modular warehouse buildings. The first
cost was $475,000 and installation costs were $75,000; life is estimated at 10 years with
a salvage of 15% of first cost. Use
23. A company has purchased equipment whose first cost is 100,000 ETB with an estimated life of
eight years. The estimated salvage value of the equipment at the end of its lifetime is 20,000
ETB. Determine the depreciation charge and book value at the end of each year using declining
– balance method of depreciation.
24. Based on the following information calculate after tax cash flows.

First cost: 30,000 ETB Salvage value: None

Annual Income: 35,000 ETB Depreciation: Basic declining method at a rate of 45%

Estimated life: 3 years Effective tax rate: 30%

25. Hussein is buying an automobile that costs 10,000Birr. He will pay 2000 Birr immediately and the
remaining 8,000 Birr in four annual end-of-year principal payments of 2000 Birr each. In addition to the
2,000 Birr, in must pay 10% interest on the unpaid balance of the loan each year. Show on table and
draw a cash flow diagram to represent this situation.
26. In the cash-flow diagram shown in the given figure, find the future value (F).
𝐹 ?
𝑖 0

0 1 2 3 4 5 6 Year

𝐴 3 000 𝐵𝑖𝑟𝑟
27. The following table shows the consumer price index (CPI) of Ethiopia for 51 years. Based on the data
calculate;
a. The annual rate of inflation for the year
i. 1985 ii. 2015
b. The average annual rate of inflation based on the CPI from the end of
i. 1970 through 1991 ii. 1992 through 2015
Year CPI Year CPI Year CPI Year CPI Year CPI
1965 4.38 1976 7.45 1987 15.26 1998 32.22 2009 92.48
1966 4.32 1977 8.69 1988 16.35 1999 34.77 2010 100.00
1967 4.35 1978 9.93 1989 17.62 2000 35.00 2011 133.22
1968 4.36 1979 11.52 1990 18.53 2001 32.12 2012 163.56
1969 4.42 1980 12.04 1991 25.15 2002 32.65 2013 176.77
1970 4.87 1981 12.78 1992 27.80 2003 38.45 2014 189.84
1971 4.89 1982 13.53 1993 28.78 2004 39.70 2015 209.08
1972 4.60 1983 13.44 1994 30.97 2005 44.84
1973 5.01 1984 14.57 1995 34.07 2006 50.36
1974 5.44 1985 17.35 1996 31.18 2007 59.04
1975 5.79 1986 15.64 1997 31.93 2008 85.26