ENGINEERING ECONOMY

1. Two alternatives P and Q at an interest rate of 8% per year have the following information:

P Q
First cost $ -23,000 -30,000
Annual operating cost $/year -4,000 - 2,500
Salvage value $ 3,000 -1, 000
Life /years 3 6

a. Draw the cash flow diagrams for the two alternatives.

b. Compare them using their present worth

c. Which is the better alternative?

2. Two engineering graduates who recently got married are planning for their early retirement 20
years from now. They believe that they will need $2,000,000 in year 20. Their plan is to live on
one of their salaries and invest the other. They already have $25,000 in their investment
account.
a. How much will they have to invest each year if the account grows at a rate of 10 % per
year?
b. If the maximum they have available to invest each year is 40,000, will they reach their goal
of $2 million by year 20?

PROJECT MAMAGEMENT
3. Use the table below to answer questions that follow:

ACTIVITY PRECEDENCE NORMAL CRASH NORMAL CRASH

RELATIONSHIP TIME TIME COST COST
(MONTHS) (MONTHS)
A - 6 4 $2000 $2400
B - 7 5 3000 3500
C A 7 6 1000 1300
D B 6 4 2000 2600
E D 9 8 8800 9000

a. Draw the network diagram

b. What is the project completion time

c. What is the project critical path?

d. Determine the least cost of reducing the project completion by 3 months

4. Stam Manufacturing produces custom-built pollution control for medium-sized steel mills. The
most recent project to be undertaken by Stam involves 14 activities. (Shown in the table below)
a. Stams managers would like to determine the total project completion time (in days) and
those activities that lie along the critical path.
b. What is the probability that the project will be completed in 53 days?

Activity Immediate Optimistic Most Pessimistic

predecessors Time (days) Likely(days) Time(days)
A __ 4 6 7
B __ 1 2 3
C A 6 6 6
D A 5 8 11
E B,C 1 9 18
F D 2 3 6
G D 1 7 8
H E,F 4 4 6
I G,H 1 6 8
J I 2 5 7
K I 8 9 11
L J 2 4 6
M K 1 2 3
N L,M 6 8 10