University of Engineering & Technology, Peshawar

Department of Industrial Engineering

Engineering Economics, Mid Term Examination Spring 2021

Total Marks: 100 Time Allowed 1 hour and 45 minutes + 15 Minutes for Uploading
Read the instructions carefully
Only handwritten papers will be accepted. Paper typed or copy pasted in MS word/pdf are not
acceptable.

Write your name and registration number in the start of paper

The paper should be submitted within time. Late submission is not acceptable. If there is any
problem in uploading the paper in classroom, send it to abdurrehman@uetpeshawar.edu.pk from
your official email address.

Understanding the question is part of paper.

The total weightage of mid term exam is 20%. The 5% weightage is assigned to MCQs while rest of
the 15% weightage to paper.

You are supposed to have books in soft form (already uploaded in classroom) so you can check the
interest table from books.

You can solve the question both from formula and from factors.

Q1) A company purchased an equipment with the initial cost of 50000$. The annual operating cost of
the equipment is 9000$ per year. There is a major maintenance cost of 20000$ at 6th year. The salvage
value of the equipment is 6000$. Find the net present value if the useful life of the equipment is 9 years,
considering interest rate is 10%/year. (20)

CLO:2, PLO: Analysis

Q2) A person has 10000$ to invest. He has two options

1. To invest in bank with the annual rate of return of 25% per year for next 10 years

2. To invest in a business with the return of 1000$/year for next 10 years, considering the
interest rate of 10%/year

Evaluate the best investing opportunity for the person. (20)

CLO:3, PLO: Investigation

Q3) A person wanted to start a business by borrowing money from 3 different institutes, 30% equity
from bank with interest rate of 15% per year, 30% equity from a firm with the interest rate of 20% per
year and rest of the 40% from the shareholders with the expected rate of return of 20% per year. Find
the weighted average cost of capital. (15)
 CLO:1, PLO: Engineering Knowledge

Q4) A CNC machine is purchased by a university cost 10000$ initially. The annual operating cost of
the machine is 500$/year for 10 years. There is no maintenance cost for the 1st 4 years. Then at 5th year
there is maintenance cost of 100$. The maintenance cost increases 20$ each year thereafter. If the useful
life of the machine is 10 years, Determine the total investment of the university if the interest rate is
10% per year. (25)

(Hint: maintenance cost is additional cost along with annual operating cost, so both will be considered
in cash flow)

CLO:2, PLO: Analysis

Q5) Solve the cashflow (20)

CLO:1, PLO: Engineering Knowledge