LEBANESE Dept.

: Civil engineering
UNIVERSITY Semester : 5
ENGINEERING Date : 31 October 2015
FACULTY Prof. : Dr T. Al-Bittar
BRANCH I
Documents Forbidden Duration : 1:30 hours
Makeup Exam

ENGINEERING ECONOMICS

Problem 1: (25 Points)

You need to know whether the building of a new warehouse is justified under the following
conditions:
The proposal is for a warehouse costing $200,000. The warehouse has an expected useful life
of 35 years and a net salvage value of $35,000. Annual receipts of $37,000 are expected,
annual maintenance and administrative costs will be $8,000/year, and annual income taxes
are $5,000.
Given the foregoing data, which of the following statements are correct?
(a) The proposal is justified for a MARR of 9%.
(b) The proposal has a net present worth of $152,512 when 6% is used as the interest rate.
(c) The proposal is acceptable, as long as MARR is  11.81%
(d) All of the preceding are correct.

Problem 2: (25 Points)

A certain factory building has an old lighting system, and lighting the building costs, on
average, $20,000 a year. A lighting consultant tells the factory supervisor that the lighting bill
can be reduced to $8,000 a year if $50,000 were invested in relighting the building. If the new
lighting system is installed, an incremental maintenance cost of $3,000 per year must be
taken into account. The new lighting system has zero salvage value at the end of its life. If the
old lighting system also has zero salvage value, and the new lighting system is estimated to
have a life of 20 years, what is the net annual benefit for this investment in new lighting?
Take the MARR to be 12%.
Problem 3: (25 Points)
Consider four investments with the following sequences of cash flows:

(a) Identify all the simple investments.

(b) Identify all the nonsimple investments.
(c) Compute for each investment.
(d) Which project has no rate of return?

Problem 4: (25 Points)

Consider the following two investment alternatives:

The firm’s MARR is known to be 15%.

(a) Compute the IRR of project B.
(b) Compute the PW of project A.
(c) Suppose that projects A and B are mutually exclusive. Using the IRR, which project
would you select?