Majmaah University
College of Engineering
GE 407 Engineering Economics
Assignment 2
Due Date: April 23, 2015
Max Points : 10
Q1. A machine is engaged in production of forged parts. The purchase price of machine is
100,000 SR. The annual maintenance and operating costs are 50,000 SR. The salvage value
is 25,000 SR at the end of machine life. Life of machine is 5 years.
The rate of interest = 8%.
Calculate the cost per part due to this machine.
i)
ii)
A company will produce 10,000 parts per year with this machine.
Also what is the cost per part if machine makes 8000 parts per year.
Q2. A person is planning a new business. The initial investment and cash flows for the new
business are as listed below. The expected life of the business is five years. The interest rate
is 10%. Should the person go for the business? If yes why ?
and find the IRR value that the business will yield.
Period
(year)
Cash flow
(SR)
0
1
2
3
4
5
–1,00,000
30,000
30,000
30,000
30,000
30,000
Q3. Two mutually exclusive alternative projects with cash flow are shown below for three
years. Which project is better and why? The minimum attractive rate of return (MARR) is
10%.
End of year
0
1
2
3
3
Alternative
Project C
Project D
-380000
-415000
-38100
-27400
-39100
-27400
-40100
-27400
0
26000
Q4. Two die making machines DMA and DMB can be used for tool room. Select the most
economical machine. Assume MARR = 21% per year
First cost ($)
Annual cost, ($
per year)
Salvage value, $
Life, years
DMA
-50,000
-100,000
DMB
95,000
-85,000
5000
3
11000
6