Topic: Economics for Process Engineers (Interests & interest rates)

1. A certain principal amounts to Rs. 15000 in 2.5 years and to Rs. 16500 in 4 years at the
same rate of interest. Find the rate of simple interest. (05)

2. If you deposit Rs. 4000 into an account paying 6% annual interest

compounded quarterly, how much money will be in the account after 5 years?
(05)

3. For an interest rate of 12% per year compounded quarterly, what is the effective
interest rate per year?
(05)

4. How long will it take a certain amount to increase by 30% at the rate of 15% simple
interest? (05)

1. A person invested total amount of Rs. 13,900 divided in two different schemes A and B at
the simple interest rate of 14% p.a. and 11% p.a. respectively. If the total amount of simple
interest earned in 2 years be Rs. 3508, what was the amount invested in Scheme B? (05)

2. How much money would you need to deposit today at 9% annual interest compounded
monthly to have Rs. 12000 in the account after 6 years? (05)

3. A credit card company charges 21% interest per year, compounded monthly. What effective
annual interest rate does the company charge? (05)

4. A person borrows Rs. 5000 for 2 years at 4% p.a. simple interest. He immediately lends it to
another person at 6 ¼ pa simple interest for 2 years. Find his gain in the transaction per year.
(05)

Q.1 What can be the least number of complete years in which a sum of money put 4
out at 20% compound interest will be more than doubled?

Q.2 Suppose in one case interest rate is 16.4% p.a. compounded monthly and in other 4
case it is 16.5% p.a. compounded every four months. Then based upon effective
interest rate in either cases, decide which case is best one for an “investment”
purpose and which one for “loan” purpose.

Q.3 What is the approximate number of years for which future amount of Rs. 10,000 4
. has present value such that discount is Rs. 7000 and the time value of money is
10% per year compounded semiannually?
Q.4 A person desires to get retirement income of Rs. 1,000 a month for 10 years. So 4
 how much he has to invest at present if the interest rate is 6% compounded
monthly.

Q.5 In a certain city property values tripled from 2001 to 2011. If this trend 4
continues, when will property values be five times their 2001 level? Assume
property values behave as if the annual investment rate is compounded
continuously.

1. A company is considering 2 makes of machines, machine A and machine B. The 8

cost of machine A is Rs. 50000 and will last for 3 years, while the cost of
machine B is Rs. 75000. The scrap value for both machines will be 10% of
original cost of respective machine. If the rate of interest is 7% p.a. compounded
annually, what should be the useful life for machine B if both have equal
capitalized costs?
2. A fixed property purchased on 1st January 2014 costs 50000 and has useful life 8
of 9 years. Salvage value of the asset is 14000. Then what will be depreciation
charges from 1st January, 2014 to 30th June 2014 and 1st July 2014 to 30th June,
2015. Also calculate asset value of property at the end of 30 th June 2014 and 30th
June, 2015 Use straight line method of depreciation.
3. If the cost of an equipment is 375000 and by declining balance method, its 4
book value after 9 years is 82364.80, then calculate salvage value of equipment
if its useful life is 12 years. Also calculate total amount of depreciation after 4
years.

1. At 6%, find the capitalized cost of a bridge, whose cost is Rs. 60 Crores 8
and life is 30 years, if the bridge must be partially rebuilt at the cost of
Rs. 4 Crores at the end of every 30 years.
2. A student has bought a motor bike whose cost is 65000 with an 8
estimated life of 7 years. At the end of its life time, student can sell that
motorcycle for 15000. Then tabulate the depreciation amount and
book value of motorcycle at the end of every year for 5 years. Use
straight line method of depreciation.
3. If the cost of an equipment is 375000 and salvage value is 50000 4
and life is 12 years. Then calculate the difference in its book value at
the end of 4th and 9th year using declining balance method.

Topic: Cost Estimation

1 A company producing powdered chemical while running at 85% capacity, 08
. has total income from its sales Rs. 4,50,000,00 when company sells
Its product at Rs. 2500/kg; Total Direct production cost and other fixed
charges amounts to Rs. 2,75,00,000 & Rs. 70,50,000 respectively at this
capacity. Then estimate at what % capacity the plant runs at BEP?

2 12
. A glass lined reactor vessel in year 1990 which has capacity of 2,000,00
Liter was purchased for Rs. 22,00,000. Then calculate the capacity of
similar reactor vessel with different capacity purchased in year 1997 for Rs.
27,00,000 when CECI is used. Also calculate the cost of this new reactor
vessel in year 1997 using MSEI. How much difference in cost calculated
using 2 different types of cost indexes you observe? (refer the tables on
back side)

Table: 1: Values of Cost-capacity exponent for different process equipments

Equipment Units of Cost-capacity exponent

capacity

Reciprocating Compressor kW 0.84

Shell and Tube heat exchanger m2 0.59

Vertical storage tank m3 0.30

Glass lined reactor vessel m3 0.48

Table: 2: Values of 2 types of cost index in different years

Year Marshall & Swift equipment cost index Chemical engineering cost index
(MSEI) (CECI)

1986 817 318

1987 814 324

1988 852 343

1989 895 355

1990 915 358

1991 931 361

1992 943 358

 1993 964 359

1994 993 368

1995 1028 381

1996 1039 382

1997 1057 387

1998 1062 390

1999 1068 391

3. A chemical manufacturing company when running at BEP at 80% capacity,

sells its product at Rs. 1450/liter has direct production cost of Rs. 700/Liter and other
total fixed charges of Rs. 90,75,000. Then estimate the gross annual earning (before
tax) from this plant when it runs at 100% capacity.

4. A vertical storage vessel purchased in year 1986 for Rs. 3,50,000. The cost of
similar vessel but with different capacity (diameter of vessel = 9 ft, length of vessel =
18 ft) purchased in year 1995 was Rs. 5,75,000 when MSEI is used. Then calculate the
length and diameter of the vessel which was purchased in year 1986 if length of this
vessel is twice its diameter. Then calculate the cost of the vessel which was
purchased in 1995 in year 1995 using CECI. How much difference in cost calculated
using 2 different types of cost indexes you observe? (refer the tables on back side)
Table: 1: Values of Cost-capacity exponent for different process equipments

Equipment Units of Cost-capacity exponent

capacity

Reciprocating Compressor kW 0.84

Shell and Tube heat exchanger m2 0.59

Vertical storage tank m3 0.30

Glass lined reactor vessel m3 0.48

Table: 2: Values of 2 types of cost index in different years

Year Marshall & Swift equipment cost index Chemical engineering cost index
(MSEI) (CECI)

1986 817 318

1987 814 324

1988 852 343

1989 895 355

1990 915 358

1991 931 361

1992 943 358

1993 964 359

1994 993 368

1995 1028 381

1996 1039 382

1997 1057 387

1998 1062 390

1999 1068 391