EEM

Department of Electrical Engineering, GCU Lahore

Engineering Economics and Management (Final Term Assignment)

Session (2018-2022)

Name: Roll#

Marks: 60
Note: Attempt all questions
Q1. 10 Marks CLO2
a) To get started in a new telecommuting position with AB Hammond Engineers, Jane took out
a $1000 loan at i =10% per year for 4 years to buy home office equipment. From the lender’s
perspective, the investment in this young engineer is expected to produce an equivalent net cash
flow of $315.47 for each of 4 years.
A= $1000( A /P ,10%,4) = $315.47
This represents a 10% per year rate of return on the unrecovered balance. Compute the amount
of the unrecovered investment for each of the 4 years using
(a) the rate of return on the unrecovered balance (the correct basis) and
(b)the return on the initial $1000 investment.
(c) Explain why all of initial $1000 amount is not recovered by the final payment in part (b)

.Q2. 6-Marks CLO2

In the past, the Afram Foundation has awarded many grants to improve the living and medical
conditions of people in war-torn and poverty-stricken countries throughout the world. In a
proposal for the foundation’s board of directors to construct a new hospital and medical clinic
complex in a deprived central African country, the project manager has developed some
estimates. These are developed, so she states, in a manner that does not have a major negative
effect on prime agricultural land or living areas for citizens.
Award amount:
$20 million (end of) first year, decreasing by $5 million per year for 3 additional years; local
government will fund during the first year only.
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Annual costs:
$2 million per year for 10 years, as proposed Benefits:
Reduction of $8 million per year in health-related expenses for citizens
Disbenefits:
$0.1 to $0.6 million per year for removal of arable land and commercial districts. Use the
conventional and modified B/C methods to determine if this grant proposal is economically
justified over a 10-year study period. The foundation’s discount rate is 6% per year.
Q3. 6-Marks CLO2
As our case unfolds, the consultant, Joel Whiterson, has pieced together some of the B/C analysis
estimates for the 84-inch Jolleyville transmission main study completed last year. The two options
for constructing this main were open trench (OT) for the entire 6.8-mile distance or a combination
of trenching and bore tunneling (TT) for a shorter route of 6.3 miles. One of the two options had
to be selected to transport approximately 300 million gallons per day (gpd) of treated water from
the new WTF3 to an existing aboveground reservoir.
He stated the equivalent annual costs in an internal e-mail some months ago, based on the expected
construction periods of 24 and 36 months, respectively, as equivalent to
AWOT =$1.20 million per year
AWTT =$2.37 million per year
This analysis indicated that the open-trench option was economically better, at that time. The
planning horizon for the transmission mains is 50 years; this is a reasonable study period, Joel
concluded. Use the estimates below that Joel has unearthed to perform a correct incremental B/C
analysis and comment on the results. The interest (discount) rate is 3% per year, compounded
annually, and 1 mile is 5280 feet.
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Q4. 6-Marks CLO2

Guardian is a national manufacturing company of home health care appliances. It is faced with a
make-or-buy decision. A newly engineered lift can be installed in a car trunk to raise and lower a
wheelchair. The steel arm of the lift can be purchased internationally for $3.50 per unit or made
in-house. If manufactured on site, two machines will be required. Machine A is estimated to cost
$18,000, have a life of 6 years, and have a $2000 salvage value; machine B will cost $12,000, have
a life of 4 years, and have a $500 salvage value (carry-away cost). Machine A will require an
overhaul after 3 years costing $3000. The annual operating cost for machine A is expected to be
$6000 per year and for machine B is $5000 per year. A total of four operators will be required for
the two machines at a rate of $12.50 per hour per operator. In a normal 8-hour period, the operators
and two machines can produce parts sufficient to manufacture 1000 units. Use a MARR of 15%
per year to determine the following.
(a) Number of units to manufacture each year to justify the in-house (make) option.
(b) The maximum capital expense justifiable to purchase machine A, assuming all other estimates
for machines A and B are as stated. The company expects to produce 10,000 units per year.

Q5. 10-Marks CLO3

Elaborate four depreciation methods with appropriate real life examples. You have to devise the
problem by yourself and do the solution analysis using required method of depreciation.
Q6. 10-Marks CLO3
A company wants purchase a device that has a first cost of Rs.45000/- Device is expected to reduce
production by Rs.23000/- annually. New device will have additional operating cost of Rs.7300/-
per year, with salvage amount of Rs.500/- five years from now. The company’s tax rate is
42percent, their after tax MARR is 12percent. Assuming SLD should company purchase the
device.
Q7. 12-Marks CLO4
You have to propose a project proposal comprising of following elements covering you thinking.
Overview
Objective
General Approach
Contractual Aspects
Schedules
Resources
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Personal
Evaluation Methods
Potential Problems