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(ECON115)[2010](s)final~kchungaa^_35763.pdf
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Econ 115 Engineering Economics and Finance Name:______________
Spring, 2010 ID:_________________
Final Exam
Instructor: YU, Yan Lecture #:____________

General instruction: This is a closed-book exam. You may use calculators. Steps of
calculation must be shown, including functional symbol of factors (such as (P/A, 10%, 6))
and its value (here 4.3553). Draw cash flow diagram whenever possible (it counts for
about 10% of total marks). You have 180 minutes for this exam.

1. (30 points) A new steam-.ow monitoring device must be purchased immediately by a local municipality. These most likely (best) estimates have been developed by a group of engineers:
Capital investment $140,000
Annual savings $25,000
Useful life 12 yr
Market value (end of year 12) $40,000
MARR 10% y
r

Because considerable uncertainty surrounds these estimates, it is desired to evaluate the sensitivity of PW to .50% changes in the most likely estimates of (a) annual savings, (b) useful life, and (c) interest rate (MARR).
(1)
Graph the results (spiderplot) (For non-linear relationship, you may try 5 values for each factor: when the factor value changes by 0%, 25%, 50%) (You may use the following values: (P/A, 7.5%,12)=7.7353, (P/F, 7.5%,12)=0.4199; (P/A, 12.5%, 12)=6.0535, (P/F, 12.5%, 12)=0.2433)

(2)
Calculate the sensitivity of decision reversal to (a) annual savings, (b) useful life, (c) interest rate (MARR), and determine which factor the project is most sensitive to. (If you need to calculate IRR, you must use linear interpolation.)


Space for answer Q1
2
2.
(10 points) There is a continuing requirement for standby electrical power at a public utility service facility. Equipment alternative S1 involves an initial cost of $72,000, a nine-year useful life, annual expenses of $2,200 the first year and increasing $300 per year thereafter, and a net market value of $8,400 at the end of the useful life. Alternative S2 has an initial cost of $90,000, a 12-year useful life, annual expenses of $2,100 the first year and increasing at the rate of 5% per year thereafter, and a net market value of $13,000 at the end of the useful life. The current interest rate is 10% per year. Which alternative is preferred, using the Capitalized Worth method?

3.
(10 points) A small company purchased now for $23,000 will lose $1,200 each year the first four years. An additional $8,000 invested in the company during the fourth year will result in a profit of $5,500 each year from the fifth year through the fifteenth year. At the end of 15 years, the company can be sold for $33,000. Calculate the ERR when =12% per year and the company MARR is 15%.

4.
(10 points) An area can be irrigated by pumping water from a nearby river. Two competing installations are being considered.


Pump A Pump B
Operating load on motor 15 hp 10 hp
Efficiency of pump motor 0.60 0.75
Cost of installation $2,410 $4,820
Market value $80 $0
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