GDB3023

ENGINEERING ECONOMICS & ENTREPRENEURSHIP

JANUARY 2021
ASSIGNMENT #1 [CLO1]

1-1 Stan Moneymaker needs 15 gallons of gasoline to top off his automobile’s
gas tank. If he drives an extra eight miles (round trip) to a gas station on
the outskirts of town, Stan can save $0.10 per gallon on the price of
gasoline. Suppose gasoline costs $3.90 per gallon and Stan’s car gets 25
mpg for in-town driving. Should Stan make the trip to get less expensive
gasoline? Each mile that Stan drives creates one pound of carbon dioxide.
Each pound of CO2 has a cost impact of $0.02 on the environment. What
other factors (cost and otherwise) should Stan consider in his decision
making?
[10 marks]

1-3 A typical discounted price of a AAA battery is $0.75. It is designed to

provide 1.5 volts and 1.0 amps for about an hour. Now we multiply volts and
amps to obtain power of 1.5 watts from the battery. Thus, it costs $0.75
for 1.5 Watt-hours of energy. How much would it cost to deliver one kilo
Watt-hour? How does this compare with the cost of energy from your local
electric utility at $0.10 per kilo Watt-hour?
[10 marks]

1-5 Henry Ford’s Model T was originally designed and built to run on ethanol.
Today, ethanol (190-proof alcohol) can be produced with domestic stills
for about $0.85 per gallon. When blended with gasoline costing $4.00 per
gallon, a 20% ethanol and 80% gasoline mixture costs $3.37 per gallon.
Assume fuel consumption at 25 mpg and engine performance in general
are not adversely affected with this 20–80 blend (called E20).
[10 marks]

(a.) How much money can be saved for 15,000 miles of driving per year?
(b.) How much gasoline per year is being converted if one million people
use the E20 fuel?
1-12 During your first month as an employee at Greenfield Industries (a large
drill-bit manufacturer), you are asked to evaluate alternatives for
producing a newly designed drill bit on a turning machine. Your boss’
memorandum to you has practically no information about what the
alternatives are and what criteria should be used. The same task was posed
to a previous employee who could not finish the analysis, but she has given
you the following information: An old turning machine valued at $350,000
exists (in the warehouse) that can be modified for the new drill bit. The
in-house technicians have given an estimate of $40,000 to modify this
machine, and they assure you that they will have the machine ready before
the projected start date (although they have never done any modifications
of this type). It is hoped that the old turning machine will be able to meet
production requirements at full capacity. An outside company, McDonald
Inc., made the machine seven years ago and can easily do the same
modifications for $60,000. The cooling system used for this machine is not
environmentally safe and would require some disposal costs. McDonald Inc.
has offered to build a new turning machine with more environmental
safeguards and higher capacity for a price of $450,000. McDonald Inc. has
promised this machine before the startup date and is willing to pay any late
costs. Your company has $100,000 set aside for the start-up of the new
product line of drill bits. For this situation,
(a.) Define the problem.
(b.) List key assumptions.
(c.) List alternatives facing Greenfield Industries.
(d.) Select a criterion for evaluation of alternatives.
(e.) Introduce risk into this situation.
(f.) Discuss how nonmonetary considerations may impact the selection.
(g.) Describe how a postaudit could be performed.
[10 marks]

1-20 A deep-water oil rig has just collapsed into the Gulf of Mexico. Its blowout-
preventer system has failed, so thousands of barrels of crude oil each day
are gushing into the ocean. List some alternatives for stopping the
unchecked flow of oil into the Gulf.
[10 marks]