QUESTION 1 (25%). Answer all questions. Each question carries equal weight.
I. The evaluation criteria that is usually used in an economic analysis is:
(a) Time to completion
(b) Technical feasibility
(c) Financial units (dollars or other currency)
(d) Sustainability
II. All of the following are examples of cash flow outflows except:
(a) First cost of asset
(b) Asset salvage value
(c) Income taxes
(d) Operating cost of asset
III. In most engineering economy studies, the best alternative is the one that:
(a) Will last the longest time
(b) Is politically correct
(c) Is the easiest to implement
(d) Has the lowest cost
IV. The value of the factor can be found by getting the factor values for
and and:
(a) Adding the values for and
(b) Multiplying the values for and
(c) Dividing the value for by the value for
(d) None of the above
V. A manufacturing of toilet flush valves wants to have $1,900 available 3 years from now so
that a new production line can be initiated. If the company plans to deposit money each year,
starting now, the equation that represents the deposit each year at 8% per year interest is:
(a)
(b)
(c)
(d)
VI. Summit Metals is planning to expand its Wichita, Kansas, manufacturing operation 5 years
from now at a cost of $10,000. If the company plans to deposit money into an account each
year for 4 years beginning 2 years from now (first deposit is in year 2) to pay for expansion,
the equation that represents the amount of the deposit at 9% per year interest is:
(a)
(b)
(c)
(d)
VII. When comparing five alternatives that have different lives by the AW method, you must:
(a) Find the AW of each over the life of the longest-lived alternative.
(b) Find the AW of each over the life of the shortest-lived alternative.
(c) Find the AW of each over the LCM of all of the alternatives.
(d) Find the AW of each alternative over its life without considering the life of the other
alternatives.
VIII. An effective 12.68% per year, compounded monthly, is closest to:
(a) 12% per year
(b) 12% per year ,compounded annually
(c) 1% per month
(d) 1% per month, compounded annually
IX. An interest of nominal 12% per year, compounded weekly , is:
(a) An effective per week
(b) A nominal rate per week
(c) An effective rate per year
(d) A nominal rate per year
X. For the mutually exclusive alternatives shown, the one(s) that should be selected are:
Alternative PW, $
A -25,000
B -12,000
C 10,000
D 15,000
(a) Only C
(b) Only A
(c) C and D
(d) Only D
QUESTION 2 (25 marks)
A pipeline engineer working in Kuwait for the oil giant BP wants to perform a present worth
analysis on alternative pipeline routings—the first predominately by land and the second
primarily undersea. The undersea route is more expensive initially due to extra corrosion
protection and installation costs, but cheaper security and maintenance reduces annual costs.
Perform present worth analysis for the engineer at 10% per year and recommend which project
should be selected based on your economic evaluation.
Land Undersea
Installation cost, $ million 350- 215-
Pumping, operating, security, $ million per year 2- 22-
Replacement of valves and appurtenances in year 20, $ million 70- 30-
Expected life, years 40 20
QUESTION 3 (25 marks)
Two processes can be used for producing a polymer that reduces friction loss in engines. Process
T will have a first cost of $750,000, an operating cost of $60,000 per year, and a salvage value of
$80,000 after its 2-year life. Process W will have a first cost of $1,350,000, an operating cost of
$25,000 per year, and a $120,000 salvage value after its 4-year life. Process W will also require
updating at the end of year 2 at a cost of $90,000. Which process should be selected on the basis
of annual worth analysis at an interest rate of 10% per year?
QUESTION 4 (25 marks)
In 2016, the city of Abu Dhabi collected $24 million in fines from motorists because of traffic
violations caught by red-light cameras. The cost of operating the system was $14.5 million. The
net profit, that is, profit after operating costs, is split equally (that is, 50% each) between the city
and the operator of the camera system. What will be the rate of return over a 3-year period to the
contractor that paid for, installed, and operates the system, if its initial cost was $10 million and
the profit for each of the 3 years is the same as it was in 2016? Should the company invest in this
project at MARR of 15% per year?
