LEBANESE Dept.

: Civil engineering
UNIVERSITY Semester : 5
ENGINEERING Date : 7 September 2020
FACULTY Prof. : Dr T. Al-Bittar
BRANCH I
Documents Forbidden Duration : 1:15 hours
Make-up 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
(d) All of the preceding are correct.

Problem 2: (25 Points)

A consumer product company is considering introducing a new shaving system called
DELTA-4 in the market. The company plans to manufacture 75 million units of DELTA-4 a
year. The investment at time 0 that is required for building the manufacturing plant is
estimated as $500 million, and the economic life of the project is assumed to be 10 years. The
annual total operating expenses, including manufacturing costs and overheads, are estimated
as $175 million. The salvage value that can be realized from the project is estimated as $120
million. If the company’s MARR is 25%, determine the minimum price that the company
should charge for a DELTA-4 shaving system
Problem 3: (25 Points)
Consider four investments with the following sequences of cash flows:

(a) Classify the following projects as simple or nonsimple investments

(b) Which project has no rate of return? Explain
(c) For the rest of the projects, calculate the internal 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?
Effective Interest Rate per Payment Period
Discrete compounding i = [(1 + r/(CK)]C - 1
Continuous compounding i = er/K - 1
where i =effective interest rate per payment period
r = nominal interest rate or APR
C = number of interest periods per payment period
K = number of payment periods per year

Market Interest Rate i =i' + f + i'f

where i = market interest rate
i’= inflation-free interest rate
f = general inflation rate