Jordan University of Science and TechnologyFaculty of Engineering

Industrial Engineering DepartmentIE 341: Engineering economy

First Semester 2011/2012

Name :…………………………. Quiz 4 Eng. Maysa’a FaroonNO..………………………… : #

Q1: See the table below and solve the following problems.A B C D

Capital investment 95,000 45,000 35,000 75,000Annual expenses 45,000 30,000 20,000 40,000Annual revenues 57,000 43,000 33,000 50,000Market value at EOY 10 20,000 15,000 15,000 20,000IRR 6.9% 27.1% 36.1% 8.4%

a) After arranging the alternatives what is the base alternative?........................b) After the base alternative has been identified, the first comparison to be made in

an incremental analysis should be?......................................c) Write the equation of IRR for A ?d) If the MARR is 15% which alternatives must be rejected?..................................e) What is the best alternative? Use PW method …………………………

C B D ACapital investment 35,000 45,000 75,000 95,000Annual expenses 20,000 30,000 40,000 45,000Annual revenues 33,000 43,000 50,000 57,000Market value at EOY10 15,000 15,000 20,000 20,000IRR 36.1% 27.1% 8.4% 6.9%

a) The base alternative is C because: 1. The less capital investment 2. IRR(C) 36.1% acceptable

b) B-Cc) ΣR(PW) = ΣE(PW) OR ΣR(PW) - ΣE(PW) =0

-95,000 +(57,000 - 45,000 )(P/A,i’%, 10 )+20,000(P/F,i’%, 10) = 0d) D & A (IRR<MARR)e) PW(C) = -35,000 +(33,000 - 20,000 )(P/A,15%, 10 )+15,000(P/F,15%, 10) =

PW(B) = -45,000 +(43,000 - 30,000 )(P/A,15%, 10 )+15,000(P/F,15%, 10) =The biggest PW is the best alternative

Q2: For the following table assume a MARR = 10% per year and a useful life of 6 years. Complete the IRR analysis by selecting the preferred alternative.

A C-A B-CΔ Capital investment -15,000 -2,000 -3,000Δ Annual Revenue 4,000 900 460Δ Annual Expenses -1,000 -150 -100Δ Market Value 6,000 2,220 3,350Δ IRR 12.7% 10.9% ?????

The answer is Δ IRR(B-C) i′ = 13.4% > 10% SO B is the best alternative