ENGINEERING ECONOMY

QUIZ #2 - FINAL
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I. Identification (Terms: 2 pts each) No

Erasures
1. it allows an entity to evaluate the benefits or gains from a project as against the
cost of investments.
2. is defined as the number of periods required to recover the cost of an investment
from net receipts.
3. Is equal to the sum of the first cost (FC) of the project, the
present worth of the annual costs of
operations and maintenance (COM), and the
present worth of the perpetual cost of replacement.
4. Is used to determine the
depreciation of property not as function of time, in years, but as a function of
use.
5. are expenses that remain stable within a specified range of production and sales
levels.
6. is the predetermined rate set by the business to measure the profitability of an
investment or project.
7. if the alternatives when evaluating an investment have different lives it is necessary
to get their ______ to extend cash flow to the same periods.
8. is a method widely used by investors basically because it expresses the interest
realized from an
investment in terms of a percentage.
9. is a method that converts all cash flows of a project or investment into an
II. Problem Solving
1. To increase production output, a manufacturing
company must adopt one of the following processes,
with estimated cash flows as shown:
Cost of
Equipment
Annual
Maintenance
Annual Revenue
Salvage Value

Process 1

Process 2

Process 3

P400 000

P550 000

P700 000

40 000

50 000

55 000

180 000
70 000

230 000
70 000

275 000
85 000

If the company uses 12% MARR and all equipment

life is estimated at 5 years, determine the best
process using PW analysis. (15 pts)
2. Using annual worth analysis, determine the
best process described in problem no.1 (10
pts)

3. A new equipment that will increase revenue by

P94 500 a year requires an investment of P430 000.
It is estimated to have a net salvage value of P50
000 at the end of 12 years, with annual expenses for

repairs and maintenance totaling to P15 000.

*The ratio of production bet. Pineapple and apple is

Determine if the investment is justified using

2:1. (15 pts)

future worth analysis and an 18% rate of return.

(10 pts)
4. The manager of a manufacturing plant is
evaluating a proposal for a new process that will
save the company P1.85M per year in labor and
operating expenses. Equipment for this process will
cost P14.7M and is estimated to have a salvage
value of P3M after 15 years. If the company uses
15% MARR, make your recommendation using
B/C ratio analysis. (10 pts)
5.

proposed

requires

an

five

year

equipment

development

investment

of

project
P24M.

Estimated annual profit is P12M; annual cost of

maintenance

and

taxes

is

P1.12M

with

the

equipment being sold at 40% of cost at the end of

the project. Applying SLM depreciation, determine
the payback period for this investment. (10
pts)
6. A suspension bridge was constructed for 24M.
The annual maintenance cost is P500 000. If the
rate of interest is 6%, compute the capitalized
cost of the bridge including maintenance. (10 pts)
7. PPAP industry, sells pineapples for P450.00 per
box and apples for P200.00 per box. It costs PPAP
P25 000.00 per year in preparation and packaging of
products. This sum includes man power costs,
packaging supplies, transportation expenses and
charges on equipment. If the cost to produce one
box of pineapple is P250.00 and apple for P150.00,
how many boxes of pineapple and apple must
be sold each year for PPAP industry to avoid taking a
loss?