CONFIDENTIAL

UNIVERSITI TUN HUSSEIN ONN MALAYSIA

TEST 2
SESSION 2013/2014 SEMESTER 1

MARKING SCHEMES

COURSE NAME : ENGINEERING ECONOMY
COURSE CODE : BPK30902
PROGRAM : 4 BFF
DURATION : 1 HOUR
INSTRUCTION : ANSWER ALL QUESTIONS



















THIS QUESTION PAPER CONSISTS OF TWO (2) PAGES
BPK 30902

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Q1 (a) List five (5) categories of costs and revenues that are typically needed in
engineering economy study.
(5 marks)
Capital investment (fixed and working)
Labour costs
Material costs
Maintenance costs
Property taxes and insurance
Overhead costs
Disposal costs
Revenues based on sales, etc.
Quality (and scrap) costs
Market (or salvage) values

(Choose 5 answers, 1 mark for each, 5 marks in total)

(b) A cooling system installed five years back for RM 120,000 is required to be
replaced. Determine the cost of replacement, based on the equipment cost
index in Table Q1(c).
Table Q1(c)
Year Index
1 200
2 225
3 245
4 270
5 285
(5 marks)

Solution:
285 (1 mark) x RM 120,000 (1 mark) = RM 171,000 (2 marks)
200 (1 mark)

(5 marks)










BPK 30902

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(c) A team of civil engineering student is designing a bridge model for national
competition. The time required for the team to design the first bridge model is
60 hours. Their improvement (or learning rate) is 0.6 s, which means that as
output is doubled; their time to assemble a bridge is reduced by 20%.
Determine the following:
(i) the time it will take the team to designing the 4th bridge
Z
u
= K(u
n
)
Z
4
= 60 (4)
log 0.6 / log 2
(1 mark)
= 60(4)
-0.737
(1 mark)
= 21.6 hours or (1 mark)

Z
4
= 60 (4)
log 0.8 / log 2

= 60(4)
-0.322

= 38.4 hours

Can use both value of 0.6 or 0.8 because question error

(ii) the total time required to design the first 4 bridges

x
T
x
= K u
n


u=1

4
T
4
= 60 4
-0.737
= 60 [1
-0.737
+ 2
-0.737
+ 3
-0.737
+ 4
-0.737
] (3 mark)

u=1


T
4
= 144 hours or (2 mark)

4
T
4
= 60 4
-0.322
= 60 [1
-0.322
+ 2
-0.322
+ 3
-0.322
+ 4
-0.322
]

u=1


T
4
= 188 hours

(iii) the estimated cumulative average designing time for the first 4 bridges.
Cx = Tx / x or Cx =Tx / x
= 144//4 = 188/4 (1 mark)
= 36 hours = 47 hours (1 mark)


(10 marks)







BPK 30902

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Q2 (a) You decided to take a 7-years loan to buy a car of RM98,000. You have two
options of how the loan to be calculated: (i) using simple interest rate of 3.5%
per year; or (ii) using compound interest rate of 4% per year with monthly
installments of RM 1,361.

Calculate the total amount of loan using both options. Use the table format
below for calculating the option (ii).

Year
Amount
Owed at
Beginning
of Year
Interest
Accrued
for Year
Total
Owed at
End of
Year
Monthly
Payment
Total
Payment at
End of
Year
Balance
Payment at
End of
Year

Justify which option is the best.
(12 marks)
Solution:

Simple Interest
I = PNi
I = (RM 98000) x (7) x (0.035)
I = RM 24010
(1.5 mark)
Total amount of loan, F = P+I
F = RM 98000 + RM 24010
F = RM 122,010.00

(1.5 mark)
Compound interest

Year
Amount
Owed at
Beginning
of Year
Interest
Accrued
for Year
Total Owed
at End of
Year
Monthly
Payment
Total
Payment
at End of
Year
Balance
Payment
at End of
Year
1 98000.00 3920.00 101920.00 1361.00 16332.00 85588.00
2 85588.00 3423.52 89011.52 1361.00 16332.00 72679.52
3 72679.52 2907.18 75586.70 1361.00 16332.00 59254.70
4 59254.70 2370.19 61624.89 1361.00 16332.00 45292.89
5 45292.89 1811.72 47104.60 1361.00 16332.00 30772.60
6 30772.60 1230.90 32003.51 1361.00 16332.00 15671.51
7 15671.51 626.86 16298.37 1361.00 16332.00 -33.63
(Each row 1 mark, in total 7 marks)
BPK 30902

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Total amount of loan, F = (RM 16332.00 x 7) RM 33.63
F = RM 114,290.37
(2 mark)

Option (ii), calculating the loan using compound interest is the best option as it yields
a smaller amount of loan rather than using simple interest.
(1 mark)


(b) Suppose that annual income from a rental property is expected to start at
RM1,700 per year and decrease at a uniform amount of RM50 each year after
the first year for the 15-year expected life of the property. The investment cost
is RM8,000, and i is 15% per year. The investment occurs at time zero (now)
and the annual income is first received at EOY one.
Draw two (2) cash-flow diagrams (the gradient and annuity series) to illustrate
this investment situation. Determine and justify whether this investment is a
good one?
(8 marks)




(2 marks) (2 marks)

P
0
(rental income) = RM1,700(P/A,15%,15) RM50(P/G,15%,15)
= RM1,700(5.8474) RM50(26.693)
= RM9,940.58 RM1,334.65
= RM8,605.93
(3 marks)

The present equivalent of the rental income is greater than the present
equivalent of the $8,000 investment, so the rental property appears to be a good
investment.
(1 marks)
RM8000
0
2 14 15
RM8000
RM1700
RM1650
RM1050
RM1000
2 14 15 2 14 15
RM1700
RM50
RM650
RM700
BPK 30902

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