Tutorial

1. What will the amount accumulated by each of these present investments be?
i. Rs. 2455 in ten years at 6% compounded semiannually.
ii. Rs. 5500 in 15 years at 8% compounded quarterly.
iii. Rs. 21,000 in 7 years at 10% compounded monthly.
2. How many deposits of Rs. 85,250 each per month should Dr. Sapkota make each month so
that the final accumulated amount will be Rs. 75,00,000 if the bank interest rate is 10.5%
per year.
3. Mr. Kumar has inspected his yearly household expenses for the last 12 years. Cost average
was steady at Rs.1,50,000 per year for last 7 years, but have increased consistently by Rs.
25,000 per year for each of the last years. Calculate the total present worth in year zero.
4. Evaluate the given project from PW, FW and AW method from following information:
Initial investment = Rs. 4,50,000
Revenue per year = Rs. 50,000
Expenses per year = Rs. 35,000
Salvage value = Rs. 90,000
Useful life = 10years
MARR = 9%
5. Find the Simple and Discounted payback period for the given cashflow of the project:
(Take MARR= 10%)
EOY 0 1 2 3 4 5
Cash inflow 0 5,00,000 5,60,000 6,20,000 6,80,000 7,40,000
Cash outflow -10,00,000 1,00,000 2,00,000 3,00,000 4,00,000 5,00,000
6. Find the IRR and ERR and also draw the UIB diagram of project from following
information:
Initial investment = Rs. 4,50,000
Revenue per year = Rs. 1,50,000
Expenses per year = Rs. 35,000
Salvage value = Rs. 90,000
Useful life = 10years
MARR = 9%
7. Evaluate the given project by both B/C ratio method (in AW, FW and PW formulation)
from following information:
Initial investment = Rs. 4,50,000
Revenue per year = Rs. 50,000
Expenses per year = Rs. 35,000
Salvage value = Rs. 90,000
Useful life = 10years
MARR = 9%
8. Use IRR and ERR methods to select the best project:
Parameter Project A Project B Project C Project D
Initial investment 10,000 15,000 27,000 20,000
Annual Revenue 8,000 10,000 20,000 15,000
Useful life in year 5 5 5 5
Salvage Value 2,500 5,000 8,000 10,000
MARR 12%
9. There are four mutually exclusive alternatives for a public project. Select the best
alternatives using incremental B/C ratio analysis.
Parameter Project A Project B Project C Project D
Initial investment 10,10,000 11,20,000 14,52,000 12,28,000
O & M cost 67,000 64,500 57,800 61,000
Annual Benefit 1,64,200 1,72,000 1,91,000 1,79,000
Useful Life 20 20 20 20
MARR 12%
10. Compute the following projects by using repeatability assumption when MARR is 12%.
Parameter Project A Project B
Initial investment 2,00,000 3,00,000
Annual revenue 85,000 1,20,000
Annual cost 7,000 9,000
Salvage value 10,000 20,000
Useful life in year 6 9
11. There are three mutually exclusive alternatives for a public project. Select the best
alternatives using repeatability assumption.
Parameter Project A Project B Project C
Initial investment 10,10,000 11,20,000 14,52,000
O & M cost 67,000 64,500 57,800
Annual Benefit 1,64,200 1,72,000 1,91,000
Useful Life 15 7 9
Salvage value 15% of initial investment
MARR 10%

12. Compute the following projects by using Repeatability and co-terminated assumption when
MARR is 12% and take useful life = 8,10 and 12 years for Co termination.
Parameter Project A Project B
Initial investment 2,00,000 3,00,000
Annual revenue 25,000 30,000
Annual cost 7,000 9,000
Salvage value 10,000 20,000
Useful life in year 8 12
13. Surkhet municipality plans a pipeline to transport water from Bheri river to city area. The
pipeline will cost Rs. 2,00,00,000 and have an expected life of 80 years. The city anticipates
it will need to keep the water line in service infinite. Compute the capitalized cost assuming
i=10%.
14. Some engineering projects are being consider as as following cashflow estimation over 4
years as shown. Determine what combination of project is based if capital will be invested
is
a. Unlimited
b. Limited to Rs. 50,000 by using PW method. MARR= 10% per year?
Project A B C D E
Initial 50,000 30,000 14,000 15,000 10,000
investment
Annual 30,000 22,000 10,000 12,000 8,000
Revenue
B&C Mutually Exclusive
C&D Mutually exclusive and contingent to A.
E Contingent on the acceptance of B & C.

15. Perform sensitivity analysis of the following project over a range of ±25% in
i. Initial investment
ii. Net annual revenue
iii. Useful life
iv. Salvage value
v. Interest rate
Initial investment 10,00,000
Annual benefit 5,75,000
Annual costs 1,00,000
Salvage value 2,50,000
Useful life 6
Interest rate 10%
Draw sensitivity diagram and interpret the result.
16. Calculate the breakeven volume of a cable manufacturing company from the following
data:
Total cost= Rs. 12,00,000
Variable cost = Rs. 4,00,000
Income from sale = Rs.15,00,000 at production of 5,000 units.
17. How many hours/years would the two motors have to be operated at full load so that the
annual cost will be equal?
Parameter Motor A Motor B
Initial investment 1,30,000 1,50,000
Power (HP) 100 105
Annual O & M cost 5/hr 3.5/hr
Tax/year 5000 4000
Efficiency 80% 85%
Useful life(Year) 10 10
Electricity cost 6 per unit
 18. From the following information conduct the Scenario Analysis based on FW formulation.
Also give your remark based on results of different scenarios.
Variable Consider Worst Case Scenario Most Likely Scenario Best Case Scenario
Investment Rs. 225000 Rs. 225000 Rs. 225000
Annual Sales /Revenue 86,000 110000 137000
Annual Variable Cost 37000 40000 38000

Annual Fixed Cost 21000 20000 18000

Salvage Value 40000 50000 60000

Life of Project in Year 5 5 5

19. From the following information, find that how many hours / years would the motors have
to be operated at full load for annual cost to be equal? If annual operation hour is 50 hours
which motor should be select?
Parameter Motor A Motor B

Purchase cost 125000 160000

Efficiency 80% 90%

Life 10 years 10 Years

Maintenance cost Rs. 5000/year Rs. 3000/ Year

Annual TAX and insurance 1.5% of investment for both motors and electricity cost Rs. 5/ KW
hours. Power of both motors = 125Hp. Use MARR= 12%.
20. A company establishing three sell branches each will have establishment cost of RS.90,000.
From the preliminary survey following data are obtained. Determine the best decision.
Sell Branch 1 Sell Branch 2 Sell Branch 3
Probability Income Probability Income Probability Income
0.1 4000 0.35 9000 0.1 5000
0.6 4000 0.40 6000 0.5 1000
0.3 9000 0.25 3000 0.4 7000

NOTICE:

Students are requested to submit their Engineering Economics Tutorial on 2083/4/22