Elective Course 2: Work Study

Mansoura University
Faculty of En gineering
Department of Production Engineering and Mechanical Design
Elective Course 2: Work Study
PRE 532''j'
Final Exam 2014, 3rd year at Production Engineering and Mechanical Design Department ..
Marks assigned equally for each question. Total Marks: 60. Time: 3 hours .
•:. Give the Cash Flow Diagram(s) for each probl,em.
Ql: Summarize the following:
a) Methods for measuring investment worth.
b) Methods for comparing investment alternatives.
c) Methods used for replacement analysis.
Q2: Land is purchased for $25,000. It is agreed that land will be paid for over a 5-year
period with annual payments and using a 12% annual compounded interest. Each payment
is to be $2000 greater than the previous payment. Determine the size of the last payment.
Q3: The following data are associated with three tomato-peeling
use in a canning plant.
machines considered for
Machine A
Machine B
$63,000
$71,000
$9,000
$12,000
Annual benefit
$31,000
$37,000
Salvage value
$22,000
$15,000
6
6
First Cost
Annual maintenance and operating costs
Life
lfthe canning company uses an interest rate of 10%,
(a) Clearly specify the net cash flow profiles for each mutually exclusive alternative.
(b) Determine which machine should be selected. Use a ranking approach and the
annual worth method.
(c) Repeat part (b) using the pay back period method.
(d) Determine which machine should be selected. Use an incremental cash flow
approach and the internal rate of return method.
(e) Repeat part (d) using the external rate of return method.
P.T.O
Q4: Metallic Peripherals, Inc. has received a production contract for a new product. The
contract lasts for 5 years. To do the necessary machining operations, the firm can use one of
its own lathes, which was purchased 3 years ago at a cost of$32,000. Today the lathe can be
sold for $16,000 .: In five years, the lathe will have a negligible salvage value. Annual
operating and maintenance costs for the lathe are $ 8,000 /year. If the firm uses its own
lathe, it must also purchase an additional lathe at a cost of $24,000; its value in 5 years will
be $6,000. The new lathe will have annual operating and maintenance costs $7,000/year.
As an alternative, the presently owned lathe can be traded-in for $20,000 and a new lathe
of larger capacity purchased for a cost of $48,000; its value in 5 years is estimated to be
$16,000, and its annual operating and maintena nee costs will be $ 12,000/year.
An additional alternative is to sell the presently owned lathe and subcontract the work to
another firm. Company X has agreed to do the work for the 5-year period at an annual cost
of $24,000 payable at the end of each year.
.
Using a 1$% interest rate, determine the least-cost alternative for performing the required
production operations. Use the outsider viewpoint approach with A W method.
Q5: The Rustin Transportation Planning Board estimates the cost of upgrading a section of
the highway from public use to toll road to be $85 million now. Resurfacing and other
maintenance will cost $550,000 every 3 years. Annual toll revenue is expected to average
$18.5 million for the foreseeable future. If i = &'% per year, what is (a) the capitalized
worth now, and (b) the equivalent A value of this capitalized worth?
Q6: A consulting engineer is trying to determine which of two methods should be selected
for screening sewage. A manually cleaned bar screen will have an initial installation cost of
$400. The labor cost for cleaning is expected to be $EWO per year.
An automatically cleaned screen will have an initial cost of $2500 with an annual power
cost of$150. In addition, the general maintenance cost is expected to be $100 the first year,
and to increase by $10 for each of the following years. If the screens are expected to last for
10 years and using an interest rate of return of 12%,
......•..
(a) Clearly specify the net cash flow profiles for each mutually exclusive alternative.
(b) Determine which method should be selected. Use a ranking approach and the present
worth method.
(c) Repeat part (b) using the savings/investment ratio method.
(d) Determine which method should be selected. Use an incremental cash flow approach
and the future worth method.
Q7: A city finances its park acquisitions from a special tax of $0.02 a bottle, can, or glass of
all beverages sold in the city. It derives $1,000,000 a year from this tax. The city has an
option to buy a park site for $10,000,000 as soon the money is available. How soon will
this be ifi= 10% ?
Associate Prof. Dr. Ahmed Abdelshafy
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