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COURSE
GAB3I 12 --ENGINEERING
DATE ECONOI4IC;
O1"t SEPTETI,TBEF
Tilt4E | 2012 (SATURDAY)
-
9.00 an,r_ ..
l.oo AIvt ^^I
11.00 \¡lt (2 hours)

1. Answer ALL guestions

in the Answer
2. Begin EACH Booklet.
ans
a new page'
3. lndicate crearryut*"'on
4. j::'.î:
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Note : I
are slX (6) pages
.ln"t" .vvv in rhis
the 'r ' tr rts Quêstion
eu Booklet including
cover page.
t, Graph paper
& E ngineering
provided. Data & Formulae
Booklet will be
Universiti Tekno
'l'ogi PETRONAs

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 GAB 3112

1. The centralised utility facilities operation of a refinery is considering installing a

large boiler that uses solid waste for fuel in the commercial production of steam.
The total cost Y in dollars per hour to produce the steam is given by Y = 16 +
0.4X + 0.48X2, where X is the demand of steam in tons/hr. Total revenue in

dollars per hour from the sale of steam is 18X - 0.3X2.

a. On a graph paper, considering demand of steam ranging from 0 to 35

tons/hr, graphically display the:

i. Relationship between total revenue and demand.

[6 marks]
ii. Relationship between total cost and demand,
[6 marks]
¡ii. Range of profitable demand.

[6 marks]

b. Maximum total revenue from the sale of steam does not generate
maximum profit. Explain.
[7 marks]

2
 GAB 3112

2. A chemical producing plant has been ordered by the Department of Environment

(DOE) to cease discharging acidic waste liquids containing mercury into the
public sewer system. In view of this, the company has to adjust the pH and
remove the mercury from its waste liquids. Three vendors have provided
estimates on the necessary treatment system and the summary is shown in
TABLE Q2.

TABLE Q2: Estimates of Alternatives Treatment System

Vendor lnitial Annual Annual revenue Salvage Useful life
investment Operating from Mercury Value
Cost Recovery
($) ($) ($) ($) lvears)
Foxboro 35,000 8,000 3,200 10,000 B

Quicktreat 40,000 7,000 3,800 0 8

Almadar 80,000 2,000 6,000 0 10

The company's minimum attractive rate of return (MARR) is 8% per year.

a. Calculate the equivalent annual worth (AW) of each alternative treatment

system. Use repeatability assumption.

[21 marks]

b. Which is the preferred alternative? Explain.

[4 marks]
 GAB 3112

3. You are requested by a company to evaluate a proposal of installing a new

packaging machine as part of the company's expansion plan. The new machine
can be purchased for $300,000. The annual revenue is calculated to be $70,000
and the machine can last for 10 years. The operating and maintenance costs are
expected to be $3,000 in the first year and will increase subsequently by $600
every year (second year $3,600, third year 94,200, fourth year 94,800, and so
on) until the tenth year. The salvage value of the machine will be $20,000. The
company's before-tax MARR is 12% per year. The rate of external re-investment
(e) is 12o/o per year. The company uses straight-line method in calculating
depreciation allowance of its assets. The company's income tax rate is 25%.

a. Calculate the external rate of return (ERR) of the above proposal.

[10 marks]

b. Set up a table and determine the after-tax cash flow (ATCF) for the
proposal.

[12 marks]

c. The company saves on income tax through depreciation of the new

machine. Explain.

[3 marks]

4
 GAB 31 12

4. The owner of Zenith Construction Company is considering replacing an existing

paving machine with a new unit. The old machine was purchased three years
ago at $200,000. The estimates of yearly operating and maintenance costs, and
the market value of the machine for the next six years are illustrated in TABLE
Q4a. The current market value of the existing paver machine is $105,000. The
company's MARR is 10% per year.

TABLE Q4a: Estimates of Operating and Maintenance Costs and Market Value
End Of Year, Operating Cost Maintenance Cost Market Value if Sold
k ($) ($) in Year k ($)
1 13,000 7,000 85,000
2 15,000 8,000 65,000
3 17,000 10,000 50,000
4 20,000 15,000 40,000
5 25,000 17,000 35,000
6 30,000 19,000 30,000

Data for the new paving machine has been analysed. lts most economic life is at
seven years with a minimum equivalent uniform annual cost (EUAC) of $52,000.

a. What is the amount of capital investment in the defender using the

outsider viewpoint?

[3 marks]

b. Determine the total (marginal) cost (TC¡) of the existing paving machine
for the first year through the sixth year. Use the format shown in TABLE
Q4b for your calculation.

[18 marks]

5
 GAB 3112

TABLE Q4b: Format for the Galculation of Total (marginal) Cost (TG*)
End of MV, Annual
Year, k End of Costs
Year, k

When, if at all, should the existing paving machine be replaced with the
new machine? Explain.
[4 marks]

-END OF PAPER-