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MODEL ANSWER

QUE EXAMINATION:4 th Sem , 2014 STEPWIS


STIO E
N SUBJECT:EEC DISTRIBU
NOS: TION OF
SUBJECT CODE:HSSM3204 MARKS
(MARKIN
BRANCH: G
SCHEME)
QUESTION CODE:F-185

1 a. , depreciation is needed to accumulate funds for replacement of assets. 2

Beak-even point is the point of no-profit-no-loss where the Total Revenue is equal to Total Cost

b. (TR=TC) of a business. 2

Debit card is a prepaid card which is used for transfer of fund from one account holder to another, in
case of purchase of goods, railway reservation etc.
c. Need of Economics for Engineers 2
Today engineers are not only the planner and builders, they are also problem solver and decision –
maker.
Economics is essential for a engineer while dealing with the problems such as
1. Which one of the competing design should be selected.
d. 2
2. Replacement of new machinery by old one
3. With limited resources which alternative should be preferred?
4. While dealing with improving and increasing production
5. Reducing human effort and in increasing wealth
e. 6. How many units should be produced? 2
Role of Uncertainty in Engineering
Uncertainty is inherent in projecting (or estimating) the future outcomes of the alternatives and

f. should be recognised in their analysis and comparison. The magnitude and impact of the future 2
outcomes of any course of action are uncertain. For example, future cash receipts and expenses will
not be what eventually occurs.
Significance of Demand Analysis to a Manager
g.
A manager is concerned with the demand for a product facing a firm. Not only the present demand, 2
but also the future demand (Demand Estimation) for a product is also equally important for planning
of production activity and its expansion and also marketing of the product. For example, if a firm is
h. 2
facing stable demand for the product, it is easier for a manager for production schedule per period, If
demand fluctuates, flexible production processes must be used.
 Demand for a product determines the firm’s profitability, and also have a profound influence
i. 2
on its financial decisions.
 If demand for product is growing, the finance manager must be plan to arrange for sufficient
funds to meet the growing requirements of the firm and ultimately which leads for more
j. 2
manpower to manage the funds and materials which a HR manger has to plan for production
and marketing of the product.
2. 5 +5
General reduction in economic activity has resulted in contraction of individual demand and market
demand for the product. Slowdown results in rise in unemployment in each sector accentuated with
decline in productivity which further affects in slow growth of GDP rate. The effect of slowdown
results in lower sales revenue and profit of the firm, the manufacturer will cut the hiring of new
employees or freezing the employment. In an cost cutting effort, company may compromise with the
quality, and thus desirability of the products, which in turn hampers the rise in demand for the
product.

The commercial and residential real estate market in Bangalore reached record high prices is due
supply and demand for houses. Sometimes it is not the supply and demand for houses it is the
speculative activities by sellers which resulting in upsurge of the price in the real estate market.

A company takes a loan of Rs 20,00,000 to expand its plant i.e. P = Rs 20,00,000


3.
Loan is to repaid in 20 equal instalments at 12% interest rate, compounded annually.
5 + 5
i.e. n = 20years,
i = 12%,
A=?
The corresponding cash flow diagram is (to be drawn)

A = 20,00,000 (A/P, 12,20)


= 20,00,000 (0.1339)
= 2,67,800
Rs 2,67,800 is to be deposited in instalment amount for the next 20 years for repayment of loan.

F = Rs 50,000,
N = 10 Years
I = 5%
A = ?
Cash Flow Diagram of the problem (To Be Drawn)
4. 5+5

2+2+1
5. a. A = F (A/F, I%, N)
= Rs 50,000 (A/F, 5%, 10)
= 50,000 (0.0795)
= Rs 3975

Present worth method of evaluating engineering alternatives .


It is one of the most widely used method of evaluating investment alternatives. In this method of
comparison, the cash flows of each alternative will be reduced to time zero by assuming an interest i.
Conditions for present worth
1. Cash flows are known
2. Interest rate is known
3. Comparison should be made before tax
In case of revenue dominated cash flow diagram
5. b. 1+3+1
PW(i) = - P + R1 [ 1/(1+i)] + R2 [ 1/(1+i)2]+ ....................... +Rn [ 1/(1+i) n] + S [ 1/(1+i)n]
Decision : Alternatives with the maximum present worth amount should be selected as the best
alternative.
In case of cost dominated cash flow diagram
PW(i) = P + C1 [ 1/(1+i)] + C2 [ 1/(1+i)2]+ ....................... +Cn [ 1/(1+i) n] - S [ 1/(1+i)n]
Decision : Alternatives with the minimum present worth amount should be selected as the best
alternative.
In case of mutually exclusive projects
In case of mutually exclusive projects, we should calculate the incremental IRR. The procedure of
calculating IRR is as follows.
Suppose there are two mutually exclusive projects – A & B cash flow is given.
1. The first step is to find the Incremental Cash Flow (B-A)
2. Making PW (i) to zero
3. Trial and error for tracing correct IRR
6 a. 4. In case MARR is given then start tracing incremental IRR from MARR 2+2+1
5. Go for decision criteria such as suppose MARR is 10% , Incremental IRR is 15% the project will
be selected.

Initial Investment = Rs 10,00,000


Cash Flow Diagram

Maintenance Cost = Rs 50,000 at the end of 5 th year , Rs 75, 000 at the end of the 8 th Year
Total Present Worth of costs = Initial Investment (P) + Present Worth of Maintenance Cost Rs 50,000
at the end of 5th year , Rs 75, 000 at the end of the 8th Year
= Rs 10,00,000 + 50, 000 (P/F, 8%, 5) + 75,000 (P/F, 8%, 8)
6. b.
= Rs 10,00,000+ 50,000 (0.6806) + 75,000 (0.5403) 5

= Rs 10,00,000+ 34030 + 40522.5


= Rs 1074552.5
Total Present worth of Town’s Liability Insurance (B P) =
A1= Rs 15,000
G = Rs 5,000
N = 10 years
I = 8%

Annual Premium of the Towns liability insurance will be reduced by 15, 000 first year plus Rs 5,000
each year thereafter 3+2

Annual Equivalent Towns liability insurance (A) = A1 +G (A/G, 8%, 10)

= 15, 000 + 5,000 (3.8713)


= 15,000 + 19356.5
= 34356.5
Present Worth of Towns liability insurance (BP) = A (P/A, 8%, 10)
5+5
= 34356.5 (6.7101)
7.
= 230535.55

BC Ratio = (BP) / P + CP
= 230535.55 / 1074552.5
= 0.21
Since the BC Ratio is (0.21) < 1, the proposed construction of pedestrian bridge over a park way to
secure safe constructing and eliminate accident is unjustified hence the engineer should reject the
proposal.

A firm purchases ball bearings at Rs 12/- per unit.


Monthly requirement is 1000 units.
Fixed cost = Rs 18, 000
Variable Cost = Rs 5/- per unit
If purchases the cost bear by the firm is Rs 12/- per unit * 1000 units = 12, 0000/-
If decides to make
TC = 18,000 + Rs 5 *1000 = 18,000 + 5,000 = 23,0000
Its better for the firm to purchase the bearings.
Techniques followed by Commercial Banks while sanctioning Loans & Advances
1. Money at call
2. Cash credit
3. Over draft
4. Discounting bills of exchange
5. Term loans
6. Credit creation
7. Promoting cheque systems

8. a 5

5
8.b