Question 3 (a) What is the use of uncertainty coefficients in project evaluation? (b) Given the following net cash flow for two projects X and Y. (P1000) Project X Year 1 Year 2 80 120 Year 3 80 Initial Outlay 220 Y 60 160 100 208 (i) [6 MARKS] Calculate the NPV for each project using unadjusted discount rate of 8%. Which project would management choose and why? [10 MARKS] (ii) Suppose the management adopts a risk premium of 6% for project A and 2% for project B, which project should be chosen and why? [14 MARKS] ...END OF EXAM....... Question 1 ECO 313: ENGINEERING ECONOMICS The data below relates to two printing machines. 1 Model 556r2 Initial investment 25 000 Model 557r34 42 000 Estimated life 10 10 End of life value 10 000 0 Annual income Annual expense 21 400 27 000 7 000 8 000 Interest rate 8% (a) Calculate the future worth of model 557r34 [4 MARKS] (b) Calculate the present value/present worth of model 556r2. [4 MARKS] (c) Which machine will be preferred over the other? Explain [8 MARKS] (d) What are economic resources and why are they considered scarce? [6 Marks] (e) With the help of a diagram explain how the supply and demand for loanable funds influences the market interest rate. [8 MARKS] Question 2 (a) Define and explain the following concepts in engineering-oriented projects. (i) Risk premium (ii) Profitability index (iii) MARR (iv) IRR [3 MARKS EACH] (b) What is meant by payback period method? Illustrate the concept with an example. [9 MARKS] (c) Explain the advantages and disadvantages of payback period method in project evaluation. [9 MARKS]
Question 3 (a) What is the use of uncertainty coefficients in project evaluation? (b) Given the following net cash flow for two projects X and Y. (P1000) Project X Year 1 Year 2 80 120 Year 3 80 Initial Outlay 220 Y 60 160 100 208 (i) [6 MARKS] Calculate the NPV for each project using unadjusted discount rate of 8%. Which project would management choose and why? [10 MARKS] (ii) Suppose the management adopts a risk premium of 6% for project A and 2% for project B, which project should be chosen and why? [14 MARKS] ...END OF EXAM....... Question 1 ECO 313: ENGINEERING ECONOMICS The data below relates to two printing machines. 1 Model 556r2 Initial investment 25 000 Model 557r34 42 000 Estimated life 10 10 End of life value 10 000 0 Annual income Annual expense 21 400 27 000 7 000 8 000 Interest rate 8% (a) Calculate the future worth of model 557r34 [4 MARKS] (b) Calculate the present value/present worth of model 556r2. [4 MARKS] (c) Which machine will be preferred over the other? Explain [8 MARKS] (d) What are economic resources and why are they considered scarce? [6 Marks] (e) With the help of a diagram explain how the supply and demand for loanable funds influences the market interest rate. [8 MARKS] Question 2 (a) Define and explain the following concepts in engineering-oriented projects. (i) Risk premium (ii) Profitability index (iii) MARR (iv) IRR [3 MARKS EACH] (b) What is meant by payback period method? Illustrate the concept with an example. [9 MARKS] (c) Explain the advantages and disadvantages of payback period method in project evaluation. [9 MARKS]
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Question 3
(a) What is the use of uncertainty coefficients in project evaluation?
(b) Given the following net cash flow for two projects X and Y.
(P1000)
Project
X
Year 1 Year 2
80
120
Year 3
80
Initial Outlay
220
Y
60
160
100
208
(i)
[6 MARKS]
Calculate the NPV for each project using unadjusted discount rate of 8%.
Which project would management choose and why?
[10 MARKS]
(ii) Suppose the management adopts a risk premium of 6% for project A and
2% for project B, which project should be chosen and why?
[14 MARKS]
...END OF EXAM.......](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2006393e-c97e-4081-8173-0190425f3dd9%2F00f55321-4baf-4236-9c8e-79f6124f1b27%2Fum7lom_processed.png&w=3840&q=75)
Transcribed Image Text:Question 3
(a) What is the use of uncertainty coefficients in project evaluation?
(b) Given the following net cash flow for two projects X and Y.
(P1000)
Project
X
Year 1 Year 2
80
120
Year 3
80
Initial Outlay
220
Y
60
160
100
208
(i)
[6 MARKS]
Calculate the NPV for each project using unadjusted discount rate of 8%.
Which project would management choose and why?
[10 MARKS]
(ii) Suppose the management adopts a risk premium of 6% for project A and
2% for project B, which project should be chosen and why?
[14 MARKS]
...END OF EXAM.......
![Question 1
ECO 313: ENGINEERING ECONOMICS
The data below relates to two printing machines.
1
Model 556r2
Initial investment
25 000
Model 557r34
42 000
Estimated life
10
10
End of life value
10 000
0
Annual income
Annual expense
21 400
27 000
7 000
8 000
Interest rate 8%
(a) Calculate the future worth of model 557r34
[4 MARKS]
(b) Calculate the present value/present worth of model 556r2.
[4 MARKS]
(c)
Which machine will be preferred over the other? Explain
[8 MARKS]
(d)
What are economic resources and why are they considered scarce? [6 Marks]
(e)
With the help of a diagram explain how the supply and demand for loanable
funds influences the market interest rate.
[8 MARKS]
Question 2
(a) Define and explain the following concepts in engineering-oriented projects.
(i) Risk premium
(ii)
Profitability index
(iii) MARR
(iv) IRR
[3 MARKS EACH]
(b) What is meant by payback period method? Illustrate the concept with an
example.
[9 MARKS]
(c) Explain the advantages and disadvantages of payback period method in project
evaluation.
[9 MARKS]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2006393e-c97e-4081-8173-0190425f3dd9%2F00f55321-4baf-4236-9c8e-79f6124f1b27%2Fumqelg_processed.png&w=3840&q=75)
Transcribed Image Text:Question 1
ECO 313: ENGINEERING ECONOMICS
The data below relates to two printing machines.
1
Model 556r2
Initial investment
25 000
Model 557r34
42 000
Estimated life
10
10
End of life value
10 000
0
Annual income
Annual expense
21 400
27 000
7 000
8 000
Interest rate 8%
(a) Calculate the future worth of model 557r34
[4 MARKS]
(b) Calculate the present value/present worth of model 556r2.
[4 MARKS]
(c)
Which machine will be preferred over the other? Explain
[8 MARKS]
(d)
What are economic resources and why are they considered scarce? [6 Marks]
(e)
With the help of a diagram explain how the supply and demand for loanable
funds influences the market interest rate.
[8 MARKS]
Question 2
(a) Define and explain the following concepts in engineering-oriented projects.
(i) Risk premium
(ii)
Profitability index
(iii) MARR
(iv) IRR
[3 MARKS EACH]
(b) What is meant by payback period method? Illustrate the concept with an
example.
[9 MARKS]
(c) Explain the advantages and disadvantages of payback period method in project
evaluation.
[9 MARKS]
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