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BMFG 4623 ENGINEERING ECONOMY AND MANAGEMENT

TUTORIAL : Economy Factor

1. Determine how much BNT Berhad can afford to spend now on an energy management system
if the software will save the company RM 21,300 per year for the next 5 years. Use an interest
rate of 10% per year.
Answer:
80, 744

2. A family that won a RM 100,000 prize decided to put one-half of the money in a college
fund for their child who was responsible for the prize. If the fund earned interest at 6% per
year, determine the amount in the account 14 years after it was started.
Answer:
113, 045

3. A company that sells high-purity laboratory chemicals is considering investing in new


equipment that will reduce cardboard costs by better matching the size of the products to
be shipped to the size of the shipping container. If the new equipment will cost
RM220,000 to purchase and install, determine how much must the company save each
year for 3 years in order to justify the investment, if the interest rate is 10% per year.
Answer:
88, 464

4. Metso Automation, which manufactures addressable quarter-turn electric actuators, is


planning to set aside RM 100,000 now and RM 150,000 one year from now for possible
replacement of the heating and cooling systems in three of its larger manufacturing plants.
If the replacement won’t be needed for 4 years, determine how much will the company
have in the account, if it earns interest at a rate of 8% per year.
Answer:
325, 005

5. Syringe pumps often fail because reagents adhere to the ceramic piston and deteriorate the
seal. Trident Chemical developed an integrated polymer dynamic seal that provides a
higher sealing force on the sealing lip, resulting in extended seal life. One of Trident’s
customers expects to reduce downtime by 30% as a result of the new seal design. If lost
production would have cost the company RM 110,000 per year for the next 4 years,
determine how much the company could afford to spend now on the new seals, if it uses
an interest rate of 12% per year.
Answer:
100, 231

1 by: Nor Akramin Mohamad


BMFG 4623 ENGINEERING ECONOMY AND MANAGEMENT

6. The National Highway Traffic Safety Administration raised the average fuel efficiency
standard to 35.5 miles per gallon for cars and light trucks by the year 2016. The rules will
cost consumers an average of RM 434 extra per vehicle in the 2012 model year. If a
person purchases a new car in 2012 and keeps it for 5 years, determine how much must be
saved in fuel costs each year to justify the extra cost. Use an interest rate of 8% per year.
Answer:
108.70

7. A company that makes self-clinching fasteners expects to purchase new production-line


equipment in 3 years. If the new units will cost RM 350,000, determine amount should the
company set aside each year, if the account earns 10% per year.
Answer:
105, 739

8. Profits from recycling paper, cardboard, aluminum, and glass at FKP have increased at a
constant rate of RM 1,100 each year. If this year’s profit (end of year 1) is expected to be
RM 6,000 and the profit trend continues through year 5, determine the present worth of the
profit at an interest rate of 8% per year.
Answer:
32, 066

9. Rolled ball screws are suitable for high-precision applications such as water jet cutting.
Their total manufacturing cost is expected to decrease because of increased productivity,
as shown in the table. Determine the equivalent annual cost at an interest rate of 8% per
year.
Year 1 2 3 4 5 6 7 8
Cost, RM 200 195 190 185 180 175 170 165
Answer:
184.51

10. AMC Sdn Bhd makes a panel milling machine that emits low vibration and processes
stress-relieved aluminum panels. The company wants to borrow money for a new
production facility. If the company offers to repay the loan with RM 60,000 in year 1 and
amounts increasing by RM10,000 each year through year 5, how much can the company
borrow at an interest rate of 10% per year.
Answer:
296, 066

11. FKE Sdn Bhd, which manufactures brush dc servomotors, budgeted RM75,000 per year
to pay for certain components over the next 5 years. If the company expects to spend
RM15,000 in year 1, determine how much of a uniform arithmetic increase each year is
the company expecting in the cost of this part with interest rate of 10% per year.
Answer:
33,147

2 by: Nor Akramin Mohamad


BMFG 4623 ENGINEERING ECONOMY AND MANAGEMENT

12. Determine the present worth of a geometric gradient series with a cash flow of
RM50,000 in year 1 and increases of 6% each year through year 8. The interest rate is
10% per year.
Answer:
320,573

13. Determine the present worth of a maintenance contract that has a cost of RM30,000 in
year 1 and annual increases of 6% per year for 10 years. Use an interest rate of 6% per
year.
Answer:
283,019

14. FKE Electronics manufactures addressable actuators in one of its plants in Melaka. The
company believes that by investing RM 24,000 each year in years 1, 2, and 3, it will
avoid spending RM 87,360 in year 3. If the company does make the annual investments,
Determine the rate of return for this investment.
Answer:
20% per year

15. UV curable epoxy resins are used in sealing, in gap filling, and as a clear coating. Your
boss saw a report submitted by the chief financial officer (CFO) that said the equivalent
annual worth of maintaining the equipment used in producing the resins was $48,436
over the last 5 years. The report showed that the cost in year 1 was $42,000, and it
increased arithmetically by $4000 each year. Your boss thought $48,436 was too high, so
she asked you to determine what interest rate the CFO used in making the calculations.
Determine the interest rate.
Answer:
22%

16. You own a small engineering consulting company. If you invest $200,000 of the
company’s money in a natural gas well that is expected to provide income of $29,000 per
year, determine how long must the well produce at that rate in order to get the money
back plus a rate of return of 10% per year.
Answer:
12.3 years

3 by: Nor Akramin Mohamad

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