CVE30004 Cost Engineering Portfolio 4

Project Delivery Methods

Portfolio 4 is written in two parts (a) Project Delivery Methods and (b) Engineering Economics. You
are expected to answer all questions and submit as part of your portfolio assessment.

This portfolio addresses ULO2 Apply fundamentals of engineering economics, including the time
value of money and various measures used to evaluate projects, compare financial alternatives
such as cost-benefit analysis, cash and investment flows, inflation, escalation, and foreign
exchange

Portfolio Assessment Due date:

Before your week 11 Tutorial of your respective group.

Question 1

A company is planning in reducing production bottleneck and increase production capacity. The
project team has proposed three proposals as tabulated. Employing the payback method, discuss and
evaluate which proposal is more suitable to be accepted.

Details Proposal 1 Proposal 2 Proposal 3

Cost of materials $18,000 $20,000 $20,000
Period of revenue 5 8 7
increase (year)
Est. saving in wage $20,000 $25,000 $28,000
Add. cost to run machine $5,000 $7,500 $10,000
Est. saving in waste $4,000 $6,000 $8,000
Increase in revenue $10,000 $20,000 $23,000

Few years later, the company decided to expand its operations. Two investment proposal are
presented as follow. Both proposals start with initial investment of $20,000. Employing the present
worth method, discuss and evaluate which is the better proposal.

Proposal End of Year 1 End of Year 2 End of Year 3 End of Year 4 End of Year 5
1 ($) 1,000 3,000 5,000 6,000 6,000
2 ($) 3,000 7,000 6,000 5,000 3,000
Question 2

Lawrence wanted to buy an excavator for a new project and has 2 alternatives as follow:

Excavator A Excavator B
Initial Cost ($) 275,000 400,000
Annual Operating Cost ($) 18,000 12,000
Annual Maintenance Cost ($) 6,000 4,800
Salvage Value ($) 10% of Initial Cost 10% of Initial Cost
Life Expectancy (year) 10 10

At an interest rate of 8%, evaluate the best option for Lawrence on the future worth method.