VTU Mechanical Engineering (Semester 7)
Engineering Economy
December 2016
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) Discuss the interest rate from borrower's and lenders point of view with cash flow diagram.
5 M
1(b) Explain lae of demand and supply with suitable example.
5 M
1(c) Determine the effective interest rate for a nominal annual rate of 6 percent that is compounded: i) Semiannually ii) Quarterly iii) Monthly iv) Daily
6 M
1(d) Deduce the expression for sinking fund factor (uniform series)
4 M

2(a) What do you understand by present worth by the "72 Rule"?
2 M
2(b) Machine A has the first cost of Rs.9000, no salvage value at the end of its 6-years useful life and annual operating cost of Rs.5000. Machine B costs Rs.16000 new and has an expected resale value of Rs.4000 at the end of its 9 years economic life. Operating cost for machine B are Rs.4000 per year. Compare the two alternatives on the basis of their present worths, using the repeated projects assumption at 10 percent annual interest.
8 M
2(c) A wealthy industrial economist dies and her will specifies that Rs.5 million of her estate will go to xyz university to fund a small engineering economy buildings as well as 20 graduate scholarships per year over the next 20 years. The scholarships are to have a value of Rs. 12000 per year for the first year and should increase at a rate Rs. 1500 per year over the following 19 years. Xyz university requires that Rs. 15000, starting with the third year of the bequest, be reserved for building maintenance and operating costs. These cost are to have a linear increase of Rs.2000 per year, starting with year 4. Assuming that a 10 percent interest rate is used for such analysis, determine how much will be available for building first costs.
10 M

3(a) What is annuity contract for guranteed income? Explain.
4 M
3(b) What is the uniform series value " A" of the following cash flow with non equal interest rates shown below:
End of year          0       1          2         3          4          5
Interest  rate %        7          7          9        10         5
Reciept in Rs.     10,000               10,000            10,000
Payment in Rs.       3,000                6,000              11,000
8 M
3(c) Two types of power converts, alpha and beta are under consideration for a specific appllication. An economic comparison is to be made at an interest rate of 10 percent and the following cost estimate have been obtained:
  Alpha Beta
Purchase price Rs.10,000 Rs.25,000
Estimated  service life 5 years 9 years
Salvage  value 0 Rs.5000
Annual operating cost Rs.2500 Rs.1200
Determine the annual equivalent costs of the alternative systems.
8 M

4(a) Explain MARR, IRR.
3 M
4(b) A Rs. 1000 utility bond with 14 years remaining before maturity can be now purchased for Rs.760. It pays interest of Rs.20 each 6 month period. What rate return is earned by purchasing the bond at the current market plus a brokerage charge of Rs.20?
8 M
4(c) Explain the causes of depreciation with example.
9 M

5(a) Explain: i) Prime cost ii) First cost iii) Sunk cost iv) Life cycle cost.
6 M
5(b) A small firm is producing 1000 pens per day. The cost direct material is Rs.1600 and that of direct labour is Rs.2000. Factory overheads chargeable to it are Rs.2500. If th e selling on cost is 40% of the factory cost, what must be the selling price of each pen to realize a profit of 20 percent of the selling price?
7 M
5(c) The market price of a drilling machine is Rs.50000 and the discount allowed to the distributors is 20 percent of the market price. The selling expenses cost is \(\frac{1}{4}_\text{th} \)/ of the factory cost. If the material cost, labour cost and factory overheads charge are in the of 1: 4: 2, what profit is made by the factory on each drilling machine, if the material cost is Rs.4000? )Other overhead may be neglected.
7 M

6(a) Explain the relation between balance sheet and profit and loss account.
4 M
6(b) The company xyz having certain reserves and surplus has the following details on 31st March, 2013.
Dividend  payable - Rs.72000 Debtors - Rs.1,60,000
Bank balance - Rs.10000 Bills payable - Rs.20,000
Equity share - Rs.200000 Plant and equipment - Rs.80000
Provision for tax -  Rs.40000 Bills receivable - Rs.20000
Stock - Rs.77,000 Creditors - Rs.55,000
8% preferred share - Rs. 1,35,000 General reserve - Rs.40000
Land and building - Rs.2,00,000 Cash in hand - Rs.15000
Prepare balance sheet as on 31st March 2013.
10 M
6(c) Explain the system of book keeping, journal and ledger.
6 M

7(a) Explain in detail types of finanacial ratio analysis.
10 M
7(b) The company has an inventory of Rs. 180000 debtors of Rs. 115000 and an inventory turnover of 6. The gross profit margin of the company is 10 percent and its credit sales are 20 percent of the total sales. Calculate the average collection period. (Assume a 360 day year).
5 M
7(c) A company has a net profit after taxes Rs.120000 and pays A cash dividend of Rs.48000 on it 36000 shares outstanding at a time when the share is selling for Rs. 12. What is the yield and the dividend payout?
5 M

8(a) Briefly explain the objectives of profit planning.
5 M
8(b) Explain essential of successful of budgeting.
5 M
8(c) Prepare a purchase budget in quantity and rupees from the following particulars when the estimated price / kg is A-Rs3, B-Rs4, C-Rs.5, D-Rs.6
Material Estimated  consumption of material in kgs
A 150000
B 175000
C 75000
D 300000

Material Stock at the beginning Stock at the end  estimated
A 40000 20000
B 50000 25000
C 20000 5000
D 60000 50000
10 M

More question papers from Engineering Economy