VTU Mechanical Engineering (Semester 7)
Engineering Economy
December 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) With an example, explain problem solving process.
6 M
1 (b) Sketch and explain cash flow diagram for borrower's and lender's point of view.
6 M
1 (c) A person is planning for his retired life. He has 10 more years of service. He would like to deposit 20% of his salary, which is ₹ 4,000/- in the first year and thereafter he wishes to deposit with an annual increase of ₹500/- for the next 9 years with interest rate of 15%. Find the total amount at the end of 10th year of the above series.
8 M

2 (a) List the conditions for the present worth comparison.
4 M
2 (b) Investment proposals A and B have the net cash flow given below:
Compare the present worth of A and B at i=18% and which proposal should be selected.
Proposal End of Year
0 1 2 3 4
A (₹) -10,000 3,000 3,000 7,000 6,000
B (₹) -10,000 6,000 6,000 3,000 3,000
8 M
2 (c) Two motor bikes of brand 'X' and 'Y' are available on the following conditions:
i) Motor bike 'X' - Make a down payment of ₹ 5,000/- and then ₹ 6,000/- at the end of each year for 7 years.
ii) Motor bike 'Y' - Make a down payment of ₹ 15,000/- and no payment for the next 4 years. At the end of 5th, 6th and 7th year. Payments of ₹ 12,000/- is made. Compare the future worth of Motorbike 'X' and 'Y' at an interest rate of 10%.
8 M

3 (a) Define the following: i) Ownership life ii) Economic life.
4 M
3 (b) Two models of small machines perform the same function. Type 1 machine has a low initial cost of ₹ 9,500/- and relatively high operating costs of ₹ 1,900/- year more than those of Type 2 machine, and a short life of 4 years. The more expensive Type 2 machine costs ₹ 25,100/- and can be kept in service economically for 8 years. Which machine is preferred when the MARR is 8% using Equivalent Annual cost method?
8 M
3 (c) A company invests in one of the two mutually exclusive alternatives. The life of both alternatives is estimated to be 5 years with the following cash flows:
Determine the best alternative based on the annual equivalent method by assuming i=25%.
Cash flows
Investment () -1.5 lakhs -1.75 lakhs
Annual return (₹) 60,000 70,000
Salvage value () 15,000 35,00
8 M

4 (a) Define MARR, IRR and ERR.
3 M
4 (b) Define the term depreciation and what are the causes for it.
4 M
4 (c) Net cash flows for the business proposal are given below. Calculate the rate of return for the new business.
Year 0 1 2 3 4 5
Cash flow (₹) -10,000 3,000 3,000 3,000 3,000 3,000
5 M
4 (d) A CNC machine costs ₹ 30,00,000 is estimated to serve for 8 years after which its salvage value is ₹ 2,50,000. Calculate
i) Depreciation fund at the end of 5th year by straight line method and declining balance method.
ii) Book value of the machine after 4th and 6th year by declining balance method.
8 M

5 (a) List and briefly explain different elements of cost required for finding selling price of the product.
6 M
5 (b) A certain prece of work is produced by a firm in batches of 100. The Direct material cost for the batch is ₹ 160 and Direct labour cost is ₹ 200. Factory on cost is 35% of the total material and labour cost. Overhead charges are 20% of the factory cost. Calculate the Prime cost and factory cost, if the management wants to make a profit of 10% of total cost, determine the selling price of each article.
6 M
5 (c) A C.I. stepped cone pulley is shown in fig. Q5(c). Method cost = ₹ 20/kg. Calculate the material cost of Pulley by assuming density of C.I. = 7.209 mg/c.c.
All dimensions are in mm

8 M

6 (a) What is Journal and ledger? Explain with a suitable example.
6 M
6 (b) List the important differences between balance sheet and profit/loss account.
6 M
6 (c) A company 'Z' has certain reserves and surplus as per the details given below as on 31st March 2014. (Amounts are in ₹).
Prepare a balance sheet for the company Z as on 31st March 2014.
Dividend Payable 72,000 Debtors 1,60,000
Bank balance 10,000 Bills Payable 20,000
Equity shares 2,00,000 Plant & Equipment 80,000
Provision for taxes 40,000 Bills receivable 20,000
Stock 77,000 Creditors 55,000
Preference shares 1,35,000 General reserve 40,000
Land & Building 2,00,000 Cash in hand 15,000
8 M

7 (a) List and explain different types of ratios used for financial statement analysis.
10 M
7 (b) A company ABC is presented a balance sheet as on 31st Dec 2013 is given below.
Net Sales - ₹ 1,80,000; Net profit - ₹ 16,000; Gross profit - ₹ 40,000.
Calculate i) Current ratio ii) Operating ratio iii) Gross profit ratio iv) Proprietary ratio v) Debtor's turnover ratio.
Liabilities Amount (?) Assets Amount (?)
Creditors 20,000 Cash at bank 15,380
Bills payable 12,750 Trade debtors 11,260
Debentures 1,00,000 Stock in hand 56,160
Reserves 67,250 Fixed assets 2,17,200
Share capital 1,00,000    
Land & Building 2,00,000 Cash in hand 15,000
10 M

8 (a) List the important objectives of profit planning.
6 M
8 (b) Explain different types of budgets.
10 M
8 (c) Write a brief note on bench marking in manufacturing.
4 M

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