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UNIVERSITI MALAYSIA PERLIS

Peperiksaan Pertengahan Semester Kedua
Sidang Akademik 2012/2013

April 2013

EET311– Engineering Economics

[Ekonomi Kejuruteraan]
Masa : 2 jam

Please make sure that this question paper has TEN (10) printed pages including this front page
before you start the examination.
[Sila pastikan kertas soalan ini mengandungi SEPULUH (10) muka surat yang bercetak termasuk muka hadapan
sebelum anda memulakan peperiksaan ini.]

This question paper has FOUR (4) questions. Answer ALL QUESTIONS. Each question
contributes 25 marks. Question A are objective type and question B, C, and D are subjective.
[Kertas soalan ini mengandungi EMPAT (4) soalan. Jawab SEMUA SOALAN. Markah bagi tiap-tiap soalan
adalah 25 markah. Soalan A adalah jenis objektif dan soalan B, C, dan D adalah subjektif.]

Appendix is included at page TEN (10).

[Lampiran disertakan di mukasurat SEPULUH (10).]

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Question A
[Soalan A]

1 The equation that is used to calculate a present worth from a single future amount is:

A) P = F (1 + i)n

B) P = F [1 / (1 + i)n ]

C) P = F [1 / (1 + i)n ]- 1) / i((1 + i )n ) ]

D) P = F [(1 + i)n ]- 1) / i]

2 Cash flow which changes by the same amount each interest period is called a:

A) Uniform cash flow.

B) Geometric series.

C) Uniform gradient.

D) Series cash flow.

3 A nominal interest is similar to a(n):

A) Effective interest rate.

B) Simple interest rate.

C) Compound interest rate.

D) Inflated interest rate.

4 An interest rate stated as nominal 12% per year compounded quarterly is the same as:

A) Effective 1% per month.

B) Nominal 1% per month.

C) 3% per quarter.

D) 12.68% per year.

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5 When no compounding period is given with an interest rate, the compounding period:

A) Is equal to the interest period.

B) Is assumed to be monthly.

C) Cannot be determined from the statement.

D) Must be less than interest period.

6 In calculating the annual worth of an alternative over one life cycle, the value obtained is:

A) The same value that would be obtained if two or more life cycles were used to
calculate the annual worth.

B) The same value that would be obtained in calculating the annual worth of infinite
service for the alternative.

C) The same value that would be obtained if the present worth of one life cycle were
annualized over the alternative's life cycle.

D) All of the above.

7 In comparing different-life alternatives by the annual worth method, an assumption

inherent in using annual worth values for one life cycle is:

A) All of the costs associated with each asset remain the same in succeeding life cycles.

B) The alternatives will be needed for an indefinite period of time.

C) The alternatives will be needed only through the life of the shorter-life alternative.

D) The costs of the alternatives will change only by the inflation or deflation rate.

8 Factors that cannot readily be expressed in terms of financial units are known as______

A) Non- conventional factors

B) Intangible factors

C) Minimum attractive rate of return

D) Original principal

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9 Interest is equal to the difference between the total amount accrued and the_________

A) Non- conventional factors

B) Intangible factors

C) Minimum attractive rate of return

D) Original principal

10 The interest rate by corporations to evaluate the attractiveness of economic alternatives is

known as the _______________.

A) Non- conventional factors

B) Intangible factors

C) Minimum attractive rate of return

D) Original principal

11 Interest that is calculated using only the principal is called:

A) Simple interest

B) Effective interest

C) Add-on interest

D) Compound interest

12 If $1000 is borrowed at 10% per year simple interest, the total amount due at the end of
five years is nearest to:

A) $1,100

B) $1,250

C) $1,500

D) $1,611

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13 The symbol that represents a uniform cash flow in consecutive interest periods is:

A) F

B) P

C) G

D) A

14 Minimum attractive rate of return refers to:

A) The rate of return achievable from a safe government bond.

B) The rate of return that must be equaled or exceeded to render an investment attractive.

C) The rate of return guaranteed on a bank savings account.

D) The lowest rate of return required to attract foreign capital.

15 All of the following are examples of cash inflows except:

A) Income taxes

B) Asset salvage value

C) Operating cost reduction

D) Construction cost savings

16 All of the following are interest rates except:

A) Return on investment

B) MARR

C) Accrued interest

D) Rate of return

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17 The first cost of a dam that is expected to have an infinite life is $30 million. The
maintenance cost of the dam will be $200,000 per year. At an interest rate of 10% per
year, the annual worth of the dam is nearest to:

A) $200,000

B) $3,000,000

C) $3,200,000

D) $4,500,000

18 The symbol for present worth is P and it always represents a cash outflow (cost).

A) TRUE

B) FALSE

19 When interest is compounded annually, the amount of money accumulated in one year is
the same under either a simple or compound interest scenario.

A) TRUE

B) FALSE

20 Cash inflows are also known as disbursements.

A) TRUE

B) FALSE

21 A cash flow series which increases by a constant percentage is known as a (an)

__________________.

A) Geometric Series

B) Random Series

C) Equivalence Series

D) Arithmatic Series

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22 In using the F/A factor, F is always located in the ______________.

A) Year n+1

B) Year 2

C) Same year as the last A value

D) In every period

23 A factor for F/G could be obtained by multiplying the P/G factor by the
_______________ factor.

A) A/G

B) F/P

C) F/A

D) P/F

24 The present worth of a project that is assumed to last forever is known as its
__________________.

A) Specified study period

B) Annual worth values over one life cycle

C) Capitalized cost

D) Life-cycle cost

25 Future worth comparison of alternatives, like PW comparison, is performed

____________.

A) Present worth equivalents

B) Over the LCM of lives

C) Over 2 alternatives only

D) Dividing by the interest rate

[25 marks / markah]

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Question B
[Soalan B]

The data for new and used machines are shown below:

Used machine New machine

Initial cost ($) 15,000 40,000
Annual operating cost ($/year) 8,000 2,000
Salvage value ($) 5,000 10,000
Life (years) 3 6

Use an interest rate of 10% per year.

1) Sketch the Cash Flow Diagram [5 marks / markah]

2) Calculate the present worth of the new machine [5 marks / markah]

3) Compare the machines on the basis of a present worth analysis, and select the best option
[7 marks / markah]

4) Determine capitalized cost of the used machine. [8 marks / markah]

Question C
[Soalan C]

A start-up internet service provider expects to lose money in each of the first four years. Losses
are projected to be $50 million in year one, $40 million in year two, $30 million in year three and
$5 million in year four. An interest rate of 10% per year is used.

1) Sketch the Cash Flow Diagram [5 marks / markah]

2) Calculate the present worth of the losses for the first three years [5 marks / markah]

3) Calculate the equivalent uniform annual worth of the losses through year four.
[7 marks / markah]

4) In order to recover the losses by the end of year nine, determine the company's equivalent
uniform annual profit in years five through nine.
[8 marks / markah]

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Question D
[Soalan D]

1) A certain machine has a first cost of $10,000, a life of 10 years, an operating cost of $5,000
per year, and a salvage value of $2,000. At an interest rate of 10% per year, calculate the
annual worth of the alternative.
[5 marks / markah]

2) A permanent historic monument has a first cost of $20,000 with a maintenance cost of
$2,000 every three years. At an interest rate of 10% per year, calculate the annual worth of
the monument
[5 marks / markah]

3) An alumnus of a famous university left his entire estate valued at $3 million to his alma
mater. He stipulated that the endowment was to last forever, with the first withdrawal for
medical research to be made 10 years after he dies. If the endowment fund earns interest at
10% per year, calculate the amount that can be withdrawn forever.
[7 marks / markah]

4) A permanent scholarship fund has been established through a donation of $500,000 at time
zero, $100,000 in year one, $150,000 in year two, and amounts increasing by $50,000 per
year through year ten. At an interest rate of 10% per year, calculate the amount that could be
withdrawn forever beginning in year 11.
[8 marks / markah]

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APPENDIX A
[LAMPIRAN A]

i = 10%
n F/P P/F A/F A/P F/A P/A A/G P/G
1 1.1000 0.9091 1.0000 1.1000 1.0000 0.9091 0.0000 0.0000
2 1.2100 0.8264 0.4762 0.5762 2.1000 1.7355 0.4762 0.8264
3 1.3310 0.7513 0.3021 0.4021 3.3100 2.4869 0.9366 2.3291
4 1.4641 0.6830 0.2155 0.3155 4.6410 3.1699 1.3812 4.3781
5 1.6105 0.6209 0.1638 0.2638 6.1051 3.7908 1.8101 6.8618
6 1.7716 0.5645 0.1296 0.2296 7.7156 4.3553 2.2236 9.6842
7 1.9487 0.5132 0.1054 0.2054 9.4872 4.8684 2.6216 12.7631
8 2.1436 0.4665 0.0874 0.1874 11.4359 5.3349 3.0045 16.0287
9 2.3579 0.4241 0.0736 0.1736 13.5795 5.7590 3.3724 19.4215
10 2.5937 0.3855 0.0627 0.1627 15.9374 6.1446 3.7255 22.8913
11 2.8531 0.3505 0.0540 0.1540 18.5312 6.4951 4.0641 26.3963
12 3.1384 0.3186 0.0468 0.1468 21.3843 6.8137 4.3884 29.9012
13 3.4523 0.2897 0.0408 0.1408 24.5227 7.1034 4.6988 33.3772
14 3.7975 0.2633 0.0357 0.1357 27.9750 7.3667 4.9955 36.8005
15 4.1772 0.2394 0.0315 0.1315 31.7725 7.6061 5.2789 40.1520

i = 12%
n F/P P/F A/F A/P F/A P/A A/G P/G
1 1.1200 0.8929 1.0000 1.1200 1.0000 0.8929 0.0000 0.0000
2 1.2544 0.7972 0.4717 0.5917 2.1200 1.6901 0.4717 0.7972
3 1.4049 0.7118 0.2963 0.4163 3.3744 2.4018 0.9246 2.2208
4 1.5735 0.6355 0.2092 0.3292 4.7793 3.0373 1.3589 4.1273
5 1.7623 0.5674 0.1574 0.2774 6.3528 3.6048 1.7746 6.3970
6 1.9738 0.5066 0.1232 0.2432 8.1152 4.1114 2.1720 8.9302
7 2.2107 0.4523 0.0991 0.2191 10.0890 4.5638 2.5515 11.6443
8 2.4760 0.4039 0.0813 0.2013 12.2997 4.9676 2.9131 14.4714
9 2.7731 0.3606 0.0677 0.1877 14.7757 5.3282 3.2574 17.3563
10 3.1058 0.3220 0.0570 0.1770 17.5487 5.6502 3.5847 20.2541
11 3.4785 0.2875 0.0484 0.1684 20.6546 5.9377 3.8953 23.1288
12 3.8960 0.2567 0.0414 0.1614 24.1331 6.1944 4.1897 25.9523
13 4.3635 0.2292 0.0357 0.1557 28.0291 6.4235 4.4683 28.7024
14 4.8871 0.2046 0.0309 0.1509 32.3926 6.6282 4.7317 31.3624
15 5.4736 0.1827 0.0268 0.1468 37.2797 6.8109 4.9803 33.9202

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