BMFG 4623 ENGINEERING ECONOMY AND MANAGEMENT

TUTORIAL 2: Economy Factor

1. Determine how much BNT Berhad can afford to spend now on an energy management
system if the software will save the company RM 21,300 per year for the next 5 years. Use
an interest rate of 10% per year.
Answer: 80, 744

2. A family that won a RM 100,000 prize decided to put one-half of the money in a college fund
for their child who was responsible for the prize. If the fund earned interest at 6% per year,
determine the amount in the account 14 years after it was started.
Answer: 113, 045

3. A company that sells high-purity laboratory chemicals is considering investing in new

equipment that will reduce cardboard costs by better matching the size of the products to
be shipped to the size of the shipping container. If the new equipment will cost RM220,000
to purchase and install, determine how much must the company save each year for 3 years
in order to justify the investment, if the interest rate is 10% per year.
Answer: 88, 464

4. Metso Automation, which manufactures addressable quarter-turn electric actuators, is

planning to set aside RM 100,000 now and RM 150,000 one year from now for possible
replacement of the heating and cooling systems in three of its larger manufacturing plants. If
the replacement won’t be needed for 4 years, determine how much will the company have
in the account, if it earns interest at a rate of 8% per year.
Answer: 325, 005

5. Syringe pumps often fail because reagents adhere to the ceramic piston and deteriorate the
seal. Trident Chemical developed an integrated polymer dynamic seal that provides a higher
sealing force on the sealing lip, resulting in extended seal life. One of Trident’s customers
expects to reduce downtime by 30% as a result of the new seal design. If lost production
would have cost the company RM 110,000 per year for the next 4 years, determine how
much the company could afford to spend now on the new seals, if it uses an interest rate of
12% per year.
Answer: 100, 231

6. The National Highway Traffic Safety Administration raised the average fuel efficiency
standard to 35.5 miles per gallon for cars and light trucks by the year 2016. The rules will
cost consumers an average of RM 434 extra per vehicle in the 2012 model year. If a person
purchases a new car in 2012 and keeps it for 5 years, determine how much must be saved in
fuel costs each year to justify the extra cost. Use an interest rate of 8% per year.
Answer: 108.70
 7. A company that makes self-clinching fasteners expects to purchase new production-line
equipment in 3 years. If the new units will cost RM 350,000, determine amount should the
company set aside each year, if the account earns 10% per year.
Answer: 105, 739

8. Profits from recycling paper, cardboard, aluminum, and glass at FKP have increased at a
constant rate of RM 1,100 each year. If this year’s profit (end of year 1) is expected to be RM
6,000 and the profit trend continues through year 5, determine the present worth of the
profit at an interest rate of 8% per year.
Answer: 32, 066

9. Rolled ball screws are suitable for high-precision applications such as water jet cutting. Their
total manufacturing cost is expected to decrease because of increased productivity, as
shown in the table. Determine the equivalent annual cost at an interest rate of 8% per year.

Year 1 2 3 4 5 6 7 8
Cost RM200 RM195 RM190 RM185 RM180 RM175 RM170 RM165
Answer: 184.51

10. AMC Sdn Bhd makes a panel milling machine that emits low vibration and processes stress-
relieved aluminum panels. The company wants to borrow money for a new production
facility. If the company offers to repay the loan with RM 60,000 in year 1 and amounts
increasing by RM10,000 each year through year 5, how much can the company borrow at an
interest rate of 10% per year.
Answer: 296, 066