POKHARA UNIVERSITY

Time Bound Open Book Hybrid Examination

Level: Bachelor Semester: Spring, 2020 Full Marks: 70

Programme: BEIT Pass Marks: 31.5
Course: Engineering Economics Time : 2 hrs.

Candidates are required to give their answers in their own words as far as practicable. The
figures in the margin indicate full marks.

Attempt all the questions.

Short Questions (5 x 10 = 50)

1. “An engineer who is unprepared to excel at engineering economy is not properly equipped 10
for his or her job.” Explain the above statement. Also explain different types of
applications of engineering economics.

2. Sagar Infosys, a growing technology company, wishes to set aside money now to invest 10
over the next four years in automating its customer service department. The company
can earn 1X.5% on a lump sum deposited now, and it wishes to withdraw the money in
the following increments:
• Year 1: $25,000, to purchase a computer and database software designed for
customer service use;
• Year 2: $3,000, to purchase additional hardware to accommodate anticipated growth
in use of the system;
• Year 3: No expenses; and
• Year 4: $5,000, to purchase software upgrades.
How much money must be deposited now to cover the anticipated payments over the
next 4 years?
Assume X is the last digit of your PU registration number. (For example, if the last digit
of your PU registration number is 7, then consider interest as 17.5% and if last digit is
0, consider interest as 10.5%).

3. Compare PW of following projects and select best alternatives using repeatability 10

assumption. MARR rate is 1X.5%. Assume X is the last digit of your PU registration
number. (For example, if the last digit of your PU registration number is 9, then
consider interest rate as 19.5% and if last digit is 0, consider your interest rate as
10.5%).
.
Project A B C
Initial Investment 4000 6000 8000
Annual Revenue 2500 3000 3200
Annual Cost 1000 1100 1200
Useful Life, Years 3 4 5
Salvage Value 30% of initial investment

4. Compute depreciation charge and book value of each year by using sinking fund 10
method with following information: Salvage Value=Rs. 160,000, Initial cost of Asset=Rs.
 400,000, Useful life of asset= 8 years, Interest Rate= 1X%. Assume X is the last digit of
your PU registration number. (For example, if the last digit of your PU registration
number is 9, then consider interest rate as 19% and if last digit is 0, consider your
interest rate as 10%).

OR

“It’s not an investment if it’s destroying the planet. Engineers can contribute in the
development of technologically and environmentally-feasible solutions to overcome
ecological limits of the planet.” Explain the above statements.
5. Kantipur Bakery’s cost of retained earnings is 14% and cost of common stock is 16%. 10
It’s before tax cost of debt is 10%. It can issue 12% preferred stock at par. The firm’s
marginal tax rate is 40%. Its balance sheet is as follows:
Kathmandu Bakery
Balance Sheet as of Asar 31, 2075
Assets Amount (Rs.) Liabilities and Equity Amount (Rs.)
Current Assets 8,00,000 Debt 8,00,000
Fixed Assets 12,00,000 Preferred Stock 2,00,000
Retained Earnings 4,00,000
Common Stock 6,00,000
Total Assets 20,00,000 Total liabilities and 20,00,000
equity

Calculate weighted average cost of capital of Kathmandu Bakery. Suppose firm is

planning to expand its bakery plant and found its IRR 17%. Should firm need to initiate
the expansion.
Long Question (1 x 20 = 20)
6. The following are proposed projects, their relationships and respective cash flows for 20
the coming budgeting period. Some of the projects are mutually exclusive noted below,
and B1 and B2 are independent of C1 and C2. Also, certain projects are dependent of
others as mentioned below.
Project B1 and B2: Mutually exclusive
Project C1 and C2: Mutually exclusive and dependent on the acceptance of B2
Project D: Contingent on the acceptance of C1
Cash Flows (Rs. 000s) for the end of year
Project 0 1 2 3 4
B1 -50 20 20 20 20
B2 -30 12 12 12 12
C1 -14 4 4 4 4
C2 -15 5 5 5 5
D -10 6 6 6 6

Using the PW and MARR=10%, determine what combination of projects is best if the
capital to be invested is a) limited to Rs. 48,000 and b) unlimited.
Assume MARR is 1X.5%. X is the last digit of your PU registration number. (For
example, if the last digit of your PU registration number is 9, then consider interest rate
as 19% and if last digit is 0, consider your interest rate as 10%).