VTU Mechanical Engineering (Semester 7)
Engineering Economy
June 2015
Total marks: --
Total time: --
(1) Assume appropriate data and state your reasons
(2) Marks are given to the right of every question
(3) Draw neat diagrams wherever necessary

1 (a) Explain the role of an Engineering and challenges with respect to Econonics.
6 M
1 (b) Explain the concept of law of demand and supply.
4 M
1 (c) List the six compound interest factors and their relationship.
6 M
1 (d) A person takes a loan of Rs. 12,000 from a bank at an interest rate of 18% per annum. Find the amount if the interest is compounded.
i) Annually ii) Half yearly iii) Quarterly iv) Monthly.
4 M

2 (a) What is the significance of cash flow diagram? Sketch CFD for i) Borrower's viewpoint ii) Lender's viewpoint.
6 M
2 (b) The following alternatives are available to accomplish an objective of 12 years duration:
Compare the present worth of the alternatives using an interest rate of 7%.
  Plan A Plan B Plan C
Life Cycle

First cost

Annual Cost
6 years

Rs. 2000

Rs. 3,200
3 years

Rs. 8000

Rs. 700
4 years

Rs. 10,00

Rs. 500
8 M
2 (c) Explain two prominent methods used for comparison of assets that have unequal lives.
6 M

3 (a) Define the following terms:
i) Service life
ii) Accounting life
iii) Economic life.
6 M
3 (b) Two models of small machines perform the same function. Type I machine has a low initial cost of Rs. 9,500, relatively high operating costs of Rs. 1,900 per year more than those of the type II machine, and a short life of 4 years. The more expensive Type II machine costs Rs. 25,100 and can be kept in service economically for 8 years. The scarp value from either machine at the end of its life will barely cover its removal cost. Which is preferred when the minimum attractive rate of return is 8 percent?
6 M
3 (c) A person wants to buy a home theatre system. He estimates that it will last at least for 10 year at the end of which it will not have any salvage value. Show room offers him two alternative ways to pay for the system.
i) Pay Rs 1,00,000 immediately and Rs. 50,000 at the end of one year.
ii) Pay nothing until the end of three years and make single payment of Rs. 2,00,000.
If the buyer believes 12% is a suitable rate of interest which alternative is best?
8 M

4 (a) A company is in the process of selecting the best alternative among the following three mutually exclusive alternatives. Find the best alternatives based on rate of return (calculation) comparisons.
Alternative Initial Investment Anual Revenue Life in years


Rs. 50,00,00

Rs. 80,00,00

Rs. 40,00,000
Rs. 10,00,000

Rs. 14,00,000

Rs. 8,25,000
10 years

10 years

10 years
8 M
4 (b) A machine is purchased for Rs. 8,000 and the assumed life is 10 years and scrap value of Rs. 2,000. If the depreciation is charged by diminishing balance method, calculate the percentage by which value of machine is reducing every year and depreciation fund after 2 years.
6 M
4 (c) Classify the various types of taxes.
6 M

5 (a) Distinguish between the concept of estimating and consting.
5 M
5 (b) With the help of examples, explain the various elements of costs.
5 M
5 (c) A factory produces 6000 spark plugs per day involving a direct materials cost of Rs. 5,00,000. Direct labour cost of Rs. 4,00,000 and factory overheads Rs 1,50,000. Assume a profile of 20% of selling price and selling overheads are 30% of factory cost. Calculate the selling price of each spark plug.
5 M
5 (d) A cast iron cone pulley is shown in fig. Q5(d). Taking density of cast iron as 7.0208 gm/cc. Calculate unit weight of component. What is cost of material, if cost per kg is Rs.15

5 M

6 (a) Explain the significance of finance functions.
6 M
6 (b) Explain the salient features of: i) Profit and Loss account
ii) Balance sheet.
6 M
6 (c) Prepare a Balance sheet for the given data:
Dividend payable Rs. 72,000 Debtors Rs. 1,60,000
Bank balance Rs. 10,000 Bill payable Rs. 20,000
Equity shares Rs. 2,00,000 Plant & Equipment Rs. 80,000
Provision for taxes Rs. 40,000 Bills receivable Rs. 20,000
Stock Rs. 77,000 Creditors Rs. 55,000
8% preference shear Rs. 1,35,000 General reserves Rs. 40,000
Land & building Rs. 2,00,000 Cash in hand Rs. 15,000
8 M

7 (a) Explain the significance and limitations of financial ratio analysis.
8 M
7 (b) Write a note on Evaluation of a firm's earning power.
4 M
7 (c) Classify the various financial ratios and their application.
8 M

8 (a) List the problems and dangers of budgeting.
6 M
8 (b) Write a note on Bench Marking of manufacturing.
4 M
8 (c) Draw a flexible budget for the overhead expenses on the following data:
Determine the overhead rate at 70%, 80% and 90% plant capacity.
Particulars Plant capacity (80%)
Variable overheads
   Indirect labour
   Spare parts

Semi Variable overheads
   Power (50% fixed)
   Repairs and maintenance (60% fixed)

Fixed overheads
Estimated labour hours

Rs. 1,25,000
Rs. 45,000

Rs. 2,25,000
Rs. 20,000

Rs. 1,20,000
Rs. 35,000
Rs. 1,25,000
1,60,000 hours
10 M

More question papers from Engineering Economy