Even Semester End Term Examination, April 2025

Faculty of Science, Technology and Architecture, School of Engineering

Department of Mechanical Engineering
Common Course

1. A machine costs ₹1,00,000, has a scrap value of ₹10,000, and a useful life of 5 years. Find
the annual depreciation by straight line method.

100000−10000
Ans. Depreciation= = ₹18,000 per year
5

2. A project requires an investment of ₹50,000 and is expected to generate a uniform cash

inflow of ₹10,000 per year. Calculate the payback period.
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 50000
Ans. Payback Period = 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑎𝑠ℎ 𝐼𝑛𝑓𝑙𝑜𝑤 = = 10000 = 5 Years

3. What is meant by market equilibrium?

Ans. Market equilibrium is the point where the quantity demanded equals the quantity
supplied.

4. What happens to Break-Even Point if fixed costs increase?

Ans. If fixed costs increase, the Break-Even Point increases.

5. If the Net Present Value (NPV) of a project is negative, what does it indicate?
Ans. A negative NPV indicates that the project is not financially viable, as the present value
of inflows is less than the investment.

6. Define decision-making in engineering economics. Also, explain any five processes that help
to make decisions about any engineering project.

Ans. In engineering economics, decision-making involves systematically evaluating engineering

projects and investments by considering both financial and non-financial factors. This includes
identifying alternatives, assessing costs and benefits, and making informed choices to maximize
value and achieve project goals.

Here is the processes involved in the decision making (select any five):
1. Problem Identification and Goal Setting:

• Clearly define the problem or decision that needs to be made.

• Establish the project's objectives and desired outcomes.
2. Identifying Alternatives:

• Explore different potential solutions or approaches to address the problem.

• Consider all feasible options, even if some seem less likely.
3. Data Gathering and Analysis:

• Collect relevant data and information related to the problem and alternatives.
• Estimate costs and benefits associated with each option.
4. Evaluation Criteria and Models:
 • Determine the key factors that will be used to evaluate the alternatives.
• Develop appropriate models or methods for analyzing and comparing the alternatives.
5. Prediction of Outcomes:

• Forecast the likely future outcomes of each alternative, considering both positive and
negative impacts.
• Account for uncertainty and potential risks.
6. Selecting the Best Alternative:

• Compare the alternatives based on the evaluation criteria and models.

• Choose the option that best meets the project's objectives and provides the highest overall
value.
7. Implementation and Monitoring:

• Implement the chosen solution and monitor its performance over time.
• Compare actual results with initial projections and make adjustments as needed.

7. Define budget and explain its importance in financial planning. What are two types of
Budgetary Control.

Ans. A budget is a detailed financial plan that outlines expected income and expenditures over a
specific period, typically prepared annually. It acts as a roadmap for resource allocation and
spending decisions.
Importance in Financial Planning:

1. Resource Allocation: Ensures optimal utilization of available financial resources.

2. Financial Discipline: Promotes responsible spending and saving behavior.
3. Performance Measurement: Allows comparison between actual and planned results.
4. Goal Setting: Supports long-term and short-term financial goal planning.
5. Risk Management: Helps in identifying potential financial risks and planning
contingencies.
Two Types of Budgetary Control:

1. Financial Budgetary Control: Focuses on income, expenditure, and profitability; ensures

that funds are used within limits.
2. Operational Budgetary Control: Focuses on departmental or functional level performance,
such as production, sales, or manpower budgeting.

8. A company makes bicycles. It produces 450 bicycles a month. It buys the tires for bicycles
from a supplier at a cost of ₹ 20 per tire. The company’s inventory carrying cost is estimated
to be 15% of cost and the ordering is ₹ 50 per order.
 (i) Calculate the EOQ (ii) What is the number of orders per year? (iii) Calculate total
cost

Ans.
D = annual demand = (2 tires per bicycle) x (450 bicycles per month) x (12 months in a year) =
10,800 tires
S = ordering cost = ₹ 50 per order
H = carrying cost = (15%) x (₹20 per unit) = ₹ 3.00 per unit per year

EOQ= √2𝐷. 𝑆/𝐻

= √2 ∗ 10800 ∗ 50/3
= 600 units

𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛
No. of orders per year= 𝐸𝑂𝑄

= 10800/600 = 18

9. A company produces a single article. About its product, the following cost data has been given:
Selling price per unit Rs. 40; Variable cost per unit Rs. 24; Fixed cost per annum Rs. 1600.
Calculate: (a) P/V ratio, (b) Break-even sales, (c) Sales to earn a profit of Rs. 200, (d) Profit at
sales of Rs. 12000, (e) If sales price is reduced by 10%, then a new breakeven sale.
Ans.

We know that
Sales – Variable cost = Fixed cost + Profit
By multiplying & dividing left hand side by Sales,
Sales x (Sales –Variable Cost)
-------------------------------------------- = Fixed cost + Profit
Sales
i.e Sales x P/V ratio = Contribution
(a) P/V ratio = Contribution / Sales * 100
= [(40-24)/40] * 100
= 16/40 * 100
= 40% 1 marks
(b) Fixed cost
Break even Sales = -----------------
P/V ratio
Sales = 1600/.40
= Rs. 4000 1 marks
(c) Sales to earn a profit of Rs. 200:
Sales * P/V ratio = Fixed cost + Profit
Sales * 40% = 1600 + 200
Sales = 1800 / 40%
Sales = Rs. 4500 1 marks
(d) Profit at sales of Rs. 12000:
Sales * P/V ratio = Fixed cost + Profit
12000 * 40% = 1600 + Profit
Profit = Rs. 3200 1 marks
(e) New break-even sales, if sales price is reduced by 10%:
New Sales price = Rs. 40 – Rs. 4 = Rs. 36
variable cost = Rs. 24
Contribution = Rs. 36 – Rs. 24 = Rs. 12
P/V ratio = Contribution / Sales
= (12/36) *100 = 33.33%
B.E.S * P/V ratio = Fixed Cost (at B.E.P, contribution is
equal to fixed cost)
Or, B.E.S = 1600/33.33%
Or, B.E.S = Rs. 4800 2 marks

10. A firm has the following demand & supply function:

Demand: Qd = 13,500 – 500P
Supply: Qs = 3000 + 200P
1. From the above equation find equilibrium price and quantity.
2. If the government imposes specific sales tax of Rs 10. What would be equilibrium price and
quantity.

Ans.
11. (a) A company purchases a delivery truck for ₹6,00,000. The salvage value of the truck at the
end of its useful life is expected to be ₹1,20,000. The company sets aside ₹60,000 every year
into a sinking fund earning 5% interest annually, to replace the truck when its life is over.
Determine the useful life of the truck.
(b) A company purchases a computer system for ₹2,00,000. The estimated useful life of the
computer is 5 years, and its salvage value at the end of its life is ₹20,000. Calculate the
annual depreciation and book value at the end of each year using Declining Balance Method
(using a fixed rate of 20%) and Double Declining Balance Method.

Ans.
 12. The initial cash outlay of a project A is Rs 100,000 and it can generate cash inflow of Rs
30,000, Rs 30,000, Rs 40,000 and Rs 30,000 in year 1, year 2, year 3 and year 4 respectively.
The initial cash outlay of a project B is Rs 1000,000 and it can generate cash inflow of Rs
300,000, Rs 300,000, Rs 400,000 and Rs 300,000 in year 1, year 2, year 3 and year 4
respectively. Using NPV and IRR method determine which project should be executed.
Consider discount rate of 10%.
Ans.

Project A Project B
Year Cash Flow (Rs) Year Cash Flow (Rs)
0 -100000 0 -1000000
1 30,000 1 300,000
2 30,000 2 300,000
3 40,000 3 400,000
4 30,000 4 300,000

NPVA = −100,000 + 30,000/ (1+0.1)1 +30,000/ (1+0.1)2 + 40,000/ (1+0.1)3 + 30,000/ (1+0.1)4

= Rs 2609 (2 Marks)

NPVB = −100,0000 + 300,000/ (1+0.1)1 +300,000/ (1+0.1)2 + 400,000/ (1+0.1)3 + 300,000/ (1+0.1)4

= Rs 26091 (2 Marks)

As the initial investment is different the IRR of the project is required to suggest the better
investment.

IRRA; NPVA = 0 = −100,000 + 30,000/ (1+IRR)1 +30,000/ (1+IRR)2 + 40,000/ (1+IRR)3 + 30,000/
(1+IRR)4

IRRA = 11.17% (2 Marks)

IRRB ; NPVB= 0 = −100,0000 + 300,000/ (1+ IRR)1 +300,000/ (1+ IRR)2 + 400,000/ (1+ IRR)3 + 300,000/
(1+ IRR)4

IRRB = 11.17% (2 Marks)

As the IRR of both the projects are same, any of the project can be executed. (2 Marks)

13. A SSS company is developing a prototype medical device. The project involves multiple
interdependent activities from design to testing. The following table describes the activities,
their immediate predecessors, and time estimates in days.
Three-time estimates
Predecessor
Activity Description Most Min. Max
Activity
Likely (tm) (to) . (tp)
A Preliminary Design - 6 4 8
B Market Research - 4 2 6
C Detailed Design A 6 3 9
D Design Approval B 5 4 12
Prototype
E C, D 3 2 7
Development
Clinical Study
F E 5 3 7
Approval
G Prototype Testing E 7 5 9
 H Documentation E 5 5 5
I Human Trials F 7 5 9
J Final Review G, I 7 4 10

a. Draw the network diagram using activity-on-arrow (AOA) method and indicate earliest start
time (EST) and latest finish time (LFT) on each node.
b. Find the sequence of activities in critical path, expected duration (length) of critical path and
variance of length of critical path.
c. Find the earliest finish time (EFT) and total float for all critical and non-critical activities.
d. What should be the due date to have 0.97 probability of completion?

Ans.
Three-time Expected time 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 EST EFT LST LFT Total
Predecessor

estimates (days) float

Activity

Activity

Most 𝑡𝑒 𝑡𝑝 − 𝑡𝑜 2 = =
Min. Max 𝑡𝑚 + 4𝑡𝑚 + 𝑡𝑚 =( ) EST LFT
Likel 6
(to) . (tp) = + 𝑡𝑒 ─ 𝑡𝑒
y (tm) 6
A - 6 4 8 6 0.444 0 6 0 6 -
B - 4 2 6 4 0.444 0 4 2 6 +2
C A 6 3 9 6 1.000 6 12 6 12 -
D B 5 4 12 6 1.778 4 10 6 12 +2
E C, D 3 2 7 3.5 0.694 12 15.5 12 15.5 -
F E 5 3 7 5 0.444 15.5 20.5 15.5 20.5 -
G E 7 5 9 7 0.444 15.5 22.5 20.5 27.5 +5
H E 5 5 5 5 0.000 15.5 20.5 29.5 34.5 +14
I F 7 5 9 7 0.444 20.5 27.5 20.5 27.5 -
J G, I 7 4 10 7 1.000 27.5 34.5 27.5 34.5 -

(B) Sequence of activities in critical path: A→C → E→F→I →J

………..(2 Marks)

Expected duration (length) of critical path: 6 + 6 + 3.5 + 5 + 7 + 7 = 34.5 days ………..(1

Marks)

Variance of length of critical path (σ2):

0.444 + 1.000 + 0.694 + 0.444 + 0.444 + 1.000 = 4.026 ………..(2
Marks)

(C)Find earliest finish time (EFT)……..(2 Marks) …. calculated in column 4

 & Total float for all critical or non-critical activities. ………..(3 Marks) calculated in column
6

EST EFT LST LFT Total

Activit
float
y
A 0 6 0 6 -
B 0 4 2 6 +2
C 6 12 6 12 -
D 4 10 6 12 +2
E 12 15.5 12 15.5 -
F 15.5 20.5 15.5 20.5 -
G 15.5 22.5 20.5 27.5 +5
H 15.5 20.5 29.5 34.5 +14
I 20.5 27.5 20.5 27.5 -
J 27.5 34.5 27.5 34.5 -

(D)Due date to have 0.97 probability of completion

𝑋 − Ʃ𝑡𝑒 (𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑝𝑎𝑡ℎ)

𝑍=
𝑆. 𝐷.

Where: Step 1: Find 𝑍 value from ‘Cumulative Probability of the Standard Normal
Distribution’
𝒁 = 𝟏. 𝟖𝟖 ………..(1 Marks)

Step 2: Find 𝑆. 𝐷. (𝜎) value for critical path

𝝈 = √Ʃ𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 (𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑝𝑎𝑡ℎ)

𝝈 = √4.026 𝝈 = 𝟐. 𝟎𝟎𝟔 ………..(1 Marks)

𝒁 = 𝟏. 𝟖𝟖

Step 3: Due date to have 0.97 probability of completion

𝑋 − Ʃ𝑡𝑒 (𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑝𝑎𝑡ℎ)
𝑍𝑝=0.97 =
𝑆. 𝐷.

𝑋 − 34.5
1.88 =
2.006

𝑋 = 1.88 × 2.006 + 34.5

𝑋 = 38.271 𝑑𝑎𝑦𝑠 ………..(3 Marks)