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# Question 1 (5 Marks)

Calculate measure of worth shown in the following cash flow diagrams. Full marks are awarded
when both methods and answers are correct. There is no partial point in this Question 1.

1.1 Calculate a Present Worth for a given cash flow diagram. Interest rate is 10%. (1 Mark)

1 2 3 4 5 6

-\$2,000 -\$2,000

Solution:
-2000(P/F,10%,3)-2000(P/F,10%,5) = -2000(0.7513) -2000 (0.6209) = -\$2744.4

1.2 Calculate a Future Worth for a given cash flow diagram. Interest rate is 15%. (1 Mark)

1 2 3 4 5

0
A = -\$1,000

Solution:
-\$1000(F/A,15%,5) = -\$1000(6.7424) = -\$6742.4

1.3 Calculate a uniform annual series for a given cash flow diagram. Interest rate is 10%. (1
Mark)
NAME: STUDENT ID:

\$3,000

0 1 2 3 4 5

Solution:
\$3000(P/F,10%,3)(A/P,10%,5) = \$3000(0.7513)(0.2638) = \$594.58
Or,
\$3000(F/P,10%,2)(A/F,10%,5) = \$3000(1.2100)(0.1638) = \$594.59

1.4 Calculate a Present worth for a given cash flow diagram. Interest rate is 20%. (1 Mark)

\$400
\$350
\$300
\$250
\$200
\$150
\$100

0 1 2 3 4 5 6 7

Solution:
Base amount, A1 = \$100

## \$100(P/A,20%,7) + \$50(P/G,20%,7) = \$100(3.6046) + \$50(8.2551) = \$773.215

1.5 Calculate a uniform annual series for a given cash flow diagram. Interest rate is 15%. (1
Mark)
\$1000
0
1 2 3 4

-\$500
Solution:
-\$500(A/P,15%,4) + \$1000(A/F,15%,4) = -\$500(0.3503) + \$1000(0.2003) = \$25.15

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NAME: STUDENT ID:

Question 2 (6 Marks)

## A chemical processing corporation is considering three methods to dispose of a non-hazardous

chemical sludge: land application, fluidized-bed incineration, and private disposal contract. The
estimates for each method are shown. Present worth analysis and annual worth analysis will be
used to determine which has the least cost at 10% per year. Answer the following questions.

## Land Application Incineration Contract

First cost, \$ -130,000 -900,000 0
Annual operating -95,000/year -60,000/year -120,000/year
cost, \$/year
Salvage value, \$ 25,000 300,000 0
Life, years 3 6 2

2.1 Determine a Present worth when selecting the Land Application for LCM years (1 Mark)

## PWLand = -130000-95000(P/A,10%,6)-\$105000(P/F,10%,3)+25000(P/F,10%,6) = -130000-

95000(4.3553)-105000(0.7513)+25000(0.5645) = -608528

2.2 Calculate a Present worth when selecting the Incineration for LCM periods (1 Mark)

## PWInci=-900000 - 60000(P/A,10%,6)+300000(P/F,10%,6) = -900000 – 60000(4.3553)

+3000000(0.5645) = -991968

2.3 Calculate a Present worth when selecting the Contract for LCM periods (0.5 Mark)

## PWCont= -120000(P/A,10%,6) = -120000(4.3553) = -522636

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NAME: STUDENT ID:

2.4 Calculate an Annual worth when selecting the Land Application for LCM years (1 Mark)

## Or, AWLand = A+CR = -95000-130000(A/P,10%,3)+25000(A/F,10%,3) = -95000-

130000(0.4021) + 25000(0.3021) = -139721

## Or, AWLand = A+CR = -95000+[-130000-

130000(P/F,10%,3)](A/P,10%,6)+[25000(F/P,10%,3)+25000](A/F,10%,6)
= -95000+[-130000-130000(0.7513)](0.2296) + [25000(1.3310)+25000](0.1296) = -139720

## Or, AWInci – A+CR = -60000 – 900000(A/P,10%,6)+300000(A/F,10%,6) = -60000-

900000(0.2296)+300000(0.1296) = -227760

2.6 Calculate an Annual worth when selecting the Contract (0.5 Mark)

AWConc = -120000

## 2.7 Determine which alternative is the most feasible? (1 Mark)

Select Contract

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NAME: STUDENT ID:

Question 3 (3 Marks)

In July of 2012, Taylor purchased 2,000 shares of XYZ common stock for \$75,000. He then sold
1,000 shares of XYZ in July of 2013 for \$39 per share. The remaining, 1,000 shares were finally
sold for \$50 per share in July 2014.

## 3.1 Draw a cash-flow diagram of this situation (1 Mark)

3.2 What was Taylor’s internal rate of return (IROR) on this investment? (2 Mark)
*Hint: Start from 11% of IROR for trial and error. Absolute value of PW using an approximate
IROR should be less than \$10.

## PW(11%) = -\$75000 + \$39000(0.9009) + \$50000(0.8116) = \$715.1 > 0

PW(12%) = -\$75000 + \$39000(0.8929) + \$50000(0.7972) = -\$316.9 < 0

Linear Interpolation
(12-11)/(715.1-(-316.9) = (i’-11)/715.1
i’ = 11.69%
PW(11.69%) = -75000 + \$39000(0.8953) + \$50000(0.8016) = -\$3.3

## In this example, we simply assume that -\$3.3 is close enough to zero.

So, IROR = 16.69%

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NAME: STUDENT ID:

Question 4 (2 Marks)

The average price for a certain material in each of the last five years is shown below. Apply
exponential smoothing with a smoothing constant of 0.3 to generate a forecast for the price in
2017. Assume that the forecasted price for 2012 is equal to 90. Complete the last column of the
table below. (2 Marks)

Forecasting
Year Price (\$)
(Exponential Smoothing)
2012 95 90
2013 115
2014 101
2015 82
2016 97
2017 -

Solution:
4.1
X1 = F1 = 90
F2 = 0.3×95 + 0.7×90 = 91.5
F3 = 0.3×115 + 0.7×91.5 = 98.55
F4 = 0.3×101 + 0.7×98.55 = 99.29
F5 = 0.3×82 + 0.7×99.29 = 94.10
F6 = 0.3×97 + 0.7×94.10 = 94.97

Forecasting
Year Price (\$) (Exponential
Smoothing)
2012 95 90
2013 115 91.5
2014 101 98.55
2015 82 99.29
2016 97 94.10
2017 - 94.97

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NAME: STUDENT ID:

Question 5 (4 Marks)

A table below shows the relation between study hours of students and marks for a quiz. Find the
best fitted line (a first order equation) and R-squared value. Use a simple linear regression using
the least square fitting technique. All formulas can be found in the Formula Sheet.

1 8 14
2 3 7
3 6 13
4 10 18

## 5.1 Find the best fitted line. (2 Marks)

Solution:
5.1
(x-xi)(y-
X Y xiyi X^2 x-x y-y (x-xi)^2
yi)
1 8 14 112 64 1.25 1.00 1.25 1.56
2 3 7 21 9 -3.75 -6.00 22.50 14.06
3 6 13 78 36 -0.75 0.00 0.00 0.56
4 10 18 180 100 3.25 5.00 16.25 10.56
SUM 27 52 391 209 - - 40.00 26.75
Mean 6.75 13

b = 40.26/26.75 = 1.495
a = 13 – 1.495*6.75 = 2.909

y = 2.909 + 1.495x

## 5.2 Find the R-squared value (2 Marks)

x Y fi SStot SSreg SSres
1 8 14 14.87 1.00 3.48 0.75
2 3 7 7.39 36.00 31.46 0.15
3 6 13 11.88 0.00 1.26 1.26
4 10 18 17.86 25.00 23.59 0.02
SUM 27 52 62.00 59.79 2.19
MEAN 6.75 13
R2 = 59.79/62.00 = 0.964

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NAME: STUDENT ID:

MARKED

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NAME: STUDENT ID:

MARKED

## -END OF QUIZ PAPER-

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FORMULA SHEET

## Some of the following formulae might be of use to solve questions.

Engineering Economics

𝑖𝑖
(𝐹𝐹/𝑃𝑃, 𝑖𝑖, 𝑛𝑛) = (1 + 𝑖𝑖)𝑛𝑛 (𝐴𝐴/𝐹𝐹, 𝑖𝑖, 𝑛𝑛) = � �
(1 + 𝑖𝑖)𝑛𝑛 − 1
1 1 (1 + 𝑖𝑖)𝑛𝑛 − 1
(𝑃𝑃/𝐹𝐹, 𝑖𝑖, 𝑛𝑛) = (𝑃𝑃/𝐺𝐺, 𝑖𝑖, 𝑛𝑛) = � − 𝑛𝑛�
(1 + 𝑖𝑖)𝑛𝑛 𝑖𝑖(1 + 𝑖𝑖)𝑛𝑛 𝑖𝑖
(1 + 𝑖𝑖)𝑛𝑛 − 1 1 (1 + 𝑖𝑖)𝑛𝑛 − 1
(𝑃𝑃/𝐴𝐴, 𝑖𝑖, 𝑛𝑛) = � � (𝐹𝐹/𝐺𝐺) = � − 𝑛𝑛�
𝑖𝑖(1 + 𝑖𝑖)𝑛𝑛 𝑖𝑖 𝑖𝑖
𝑖𝑖(1 + 𝑖𝑖)𝑛𝑛 1 𝑛𝑛
(𝐴𝐴/𝑃𝑃, 𝑖𝑖, 𝑛𝑛) = � � (𝐴𝐴/𝐺𝐺, 𝑖𝑖, 𝑛𝑛) = � − �
(1 + 𝑖𝑖)𝑛𝑛 − 1 𝑖𝑖 (1 + 𝑖𝑖)𝑛𝑛 − 1
1 + 𝑔𝑔 𝑛𝑛
(1 + 𝑖𝑖)𝑛𝑛 − 1 1 − � 1 + 𝑖𝑖 �
(𝐹𝐹/𝐴𝐴, 𝑖𝑖, 𝑛𝑛) = � � (𝑃𝑃/𝐴𝐴, 𝑔𝑔, 𝑖𝑖, 𝑛𝑛) = 𝐴𝐴1 � �
𝑖𝑖 𝑖𝑖 − 𝑔𝑔

CC = A/i

Materials Engineering
Errors
𝑛𝑛 𝑛𝑛
1 1
MAD = �|𝑒𝑒𝑖𝑖 | Bias = �(𝑒𝑒𝑖𝑖 )
𝑛𝑛 𝑛𝑛
𝑖𝑖=1 𝑖𝑖=1
𝑛𝑛 𝑛𝑛
1 100 𝑒𝑒𝑖𝑖
MSE = �(𝑒𝑒𝑖𝑖 )2 MAPE = �� �
𝑛𝑛 𝑛𝑛 𝐴𝐴𝑖𝑖
𝑖𝑖=1 𝑖𝑖=1
Simple –n periods Moving Average
𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑖𝑖𝑖𝑖 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑛𝑛 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
𝐹𝐹𝑡𝑡+1 =
𝑛𝑛
𝑋𝑋𝑡𝑡 + 𝑋𝑋𝑡𝑡−1 + ⋯ + 𝑋𝑋𝑡𝑡−𝑛𝑛+2 + 𝑋𝑋𝑡𝑡−𝑛𝑛+1
=
𝑛𝑛
Weighted –n periods Moving Average
𝑆𝑆𝑆𝑆𝑆𝑆 𝑜𝑜𝑜𝑜 𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑡𝑡𝑡𝑡𝑡𝑡 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑖𝑖𝑖𝑖 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑛𝑛 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
𝐹𝐹𝑡𝑡+1 =
𝑛𝑛
= 𝑤𝑤1 𝑋𝑋𝑡𝑡 + 𝑤𝑤2 𝑋𝑋𝑡𝑡 + ⋯ + 𝑤𝑤𝑛𝑛−1 𝑋𝑋𝑡𝑡−𝑛𝑛+2 + 𝑤𝑤𝑛𝑛 𝑋𝑋𝑡𝑡−𝑛𝑛+1

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## FORMULA SHEET (continued)

Exponential Smoothing
a) General Form:
𝐹𝐹𝑡𝑡+1 = 𝐹𝐹𝑡𝑡 + 𝛼𝛼(𝑋𝑋𝑡𝑡 − 𝐹𝐹𝑡𝑡 )
b) Expanded General Form:
𝐹𝐹𝑡𝑡+1 = 𝛼𝛼𝑋𝑋𝑡𝑡 + (1 − 𝛼𝛼)𝐹𝐹𝑡𝑡
𝐹𝐹𝑡𝑡 = 𝛼𝛼𝑋𝑋𝑡𝑡−1 + (1 − 𝛼𝛼)𝐹𝐹𝑡𝑡−1
𝐹𝐹𝑡𝑡−1 = 𝛼𝛼𝑋𝑋𝑡𝑡−2 + (1 − 𝛼𝛼)𝐹𝐹𝑡𝑡−2
Simple Linear Regression Model

𝑦𝑦 = 𝑎𝑎 + 𝑏𝑏𝑏𝑏

1
∑𝑛𝑛𝑖𝑖=1 𝑥𝑥𝑖𝑖 𝑦𝑦𝑖𝑖 − ∑𝑛𝑛𝑖𝑖=1 𝑥𝑥𝑖𝑖 ∑𝑛𝑛𝑖𝑖=1 𝑦𝑦𝑖𝑖 ∑𝑛𝑛𝑖𝑖=1 𝑥𝑥𝑖𝑖 𝑦𝑦𝑖𝑖 − 𝑛𝑛𝑥𝑥̅ 𝑦𝑦� ∑𝑛𝑛𝑖𝑖=1(𝑥𝑥𝑖𝑖 − 𝑥𝑥̅ )(𝑦𝑦𝑖𝑖 − 𝑦𝑦�)
𝑏𝑏 = 𝑛𝑛 = 𝑛𝑛 2 =
1 ∑𝑖𝑖=1 𝑥𝑥𝑖𝑖 − 𝑛𝑛𝑥𝑥̅ 2 ∑𝑛𝑛𝑖𝑖=1(𝑥𝑥𝑖𝑖 − 𝑥𝑥̅ )2
∑𝑛𝑛𝑖𝑖=1 𝑥𝑥𝑖𝑖2 − [∑𝑛𝑛𝑖𝑖=1 𝑥𝑥𝑖𝑖 ]2
𝑛𝑛
𝑛𝑛 𝑛𝑛
1 1
𝑎𝑎 = � 𝑦𝑦𝑖𝑖 − 𝑏𝑏 � 𝑥𝑥𝑖𝑖 = 𝑦𝑦� − 𝑏𝑏𝑥𝑥̅
𝑛𝑛 𝑛𝑛
𝑖𝑖=1 𝑖𝑖=1

R-squared Value
𝑛𝑛

𝑖𝑖=1
𝑛𝑛

𝑖𝑖=1
𝑛𝑛

## 𝑆𝑆𝑆𝑆𝑟𝑟𝑟𝑟𝑟𝑟 = �(𝑦𝑦𝑖𝑖 − 𝑓𝑓𝑖𝑖 )2

𝑖𝑖=1

𝑆𝑆𝑆𝑆𝑟𝑟𝑟𝑟𝑟𝑟 𝑆𝑆𝑆𝑆𝑟𝑟𝑟𝑟𝑟𝑟
𝑅𝑅 2 = = 1−
𝑆𝑆𝑆𝑆𝑡𝑡𝑡𝑡𝑡𝑡 𝑆𝑆𝑆𝑆𝑡𝑡𝑡𝑡𝑡𝑡

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