Page | 1 COEB442 Engineering Economics Revision Sem 1, 2015/2016 D ear st u d en ts , Maj o r i t y o f t h e q u est i on s h ere are t ak en f r o m p r evio u s exam i n ati o n s . P l u s f ew fr o mtext b o ok an d p as t t es t s . A ll t h e best ya . C h ap ter 2 ( Q 3. a) Fi n al Exam i n at i on Sem es t er 1, 20 15/ 20 16 (a) Bel ow is inf ormati on gat her ed from the Fin anci al S tat emen ts of Ak ookeye Sdn Bhd for financial year end July 21!" ITEM RM Building 1#2#$ash %&#'nentories *#+eenues from sales 2#*!#$om,uter e-ui,ment *#Salary e.,enses /0!#!e hicles 2!#Pre,aid rental e.,enses 12#Account receiales3 4etors !2#+ee nues fr om in est me nt s (o ther than sa les ) ! # Account ,ayales3 $reditors /%#!Administration e.,enses 1%/#&5arketing and selling e.,enses 2!#6ong7term Payales !%#$ost of goods sold 1#%#Accrued insurance e.,ense 21#8o assess Akookeye9s financial ,erformance# the accountant wants few analysis using the data ,roided" Required: i" 's the com,an y utili;i ng its assets ef fi ci ently in gene ra ti ng its sa le s# gi en th at the industry9s aerage is < Su,,ort your answer with calculation" =& marks> A: assets turnover= RM1.46 sales per RM1 asset. Not efficient compared to industry which is 3. ii" Pre,a re the P rofit o r 6os s3'nco me Statement for A kook eye Sd n Bh d" wit h com,any t a. 1
Majority of the questions here are taken from previous examinations. Plus
few from textbook and past tests.
All the best ya.
Chapter 2
(Q3.a) Final Examination Semester 1, 2015/2016
(a) Below is information gathered from the Financial Statements of Akookeye SdnBhd for financial year end July 21!"
ITEM RM
Building 1#2#$ash %&#'nentories *#+eenues from sales 2#*!#$om,uter e-ui,ment *#Salary e.,enses /0!#!
ehicles 2!#Pre,aid rental e.,enses 12#Account receiales3 4etors !2#+eenues from inestments (other than sales) !#Account ,ayales3 $reditors /%#!Administration e.,enses 1%/#&5arketing and selling e.,enses 2!#6ong7term Payales !%#$ost of goods sold 1#%#Accrued insurance e.,ense 21#
8o assess Akookeye9s financial ,erformance# the accountant wants few analysis using thedata ,roided"
Required:
i" 's the com,any utili;ing its assets efficiently in generating its sales# gien that theindustry9s aerage is < Su,,ort your answer with calculation" =& marks>
A: assets turnover= RM1.46 sales per RM1 asset. Not efficient compared to
industry which is 3.
ii" Pre,are the Profit or 6oss3'ncome Statement for Akookeye Sdn Bhd" with com,any ta.
rate at 2!?" =% marks> A: ncome !tatement with "ross profit=RM1#3$$#%%%# operatin& profit =RM4'6#(%%#
profit after ta) of RM36$#1*$
Final Examination Semester 1, 2014/2015
(a) Give a short definition for the following terms:
i. Income Statement [1 mark]
ii. Net Cash Flow [1 mark]
iii. Give ONE example of financing activities in a company. [1 mark]
(b) The data below were based on the financial statements of Top Manufacturing
Corporation for year 2013 (in RM thousands).
Items RMInventories 25,500Land, Buildings, Plant and Machinery 57,000Cost of sales 85,000Long term liabilities 33,000Accounts payable and Short Term Borrowings 45,000Distribution, selling and marketing expenses 20,000Interest Expenses 1,000
Taxation 1,000Dividends 2,000
The acid test ratio and the asset turnover ratio is 0.5 and 1.1 respectively.
Calculate the following:
i. the total assets = RM105,000 [5 marks]
ii. the sales = RM115,500 [2 marks]
iii. the operating profits = RM 10,500 [3 marks]
iv. the retained earnings = RM6,500 [2 marks]
Final Examination Semester 2, 2013/2014
(a) i. A corporation net income is derived by subtracting income taxes from the
taxable income during the accounting period. Briefly explain what the corporation will
decide to do with this net income.
[2 marks]
ii. What is a cash flow statement and why it is important to a company?
(b) The data below were based on the financial statements of Megah Manufacturing
Corporation for year 2012 (in RM thousands).
Items RMInventory 235Accounts receivable 350Prepaid taxes and insurance 85Cash and cash equivalents 940Land, Buildings and Machines 1,910Cost of sales 2,480Net Revenue 5,560Working capital 1,150
Total equity 2,370
Calculate the following:
i. the current liabilities = RM460k [2 marks]
ii. the long-term liabilities = RM690k [2 marks]
iii. the gross margin = RM3080k [2 marks]
iv. the quick ratio and interpret your answer =RM2.99 [2 marks]
(12 marks, Q1, FE Sem 1 13/14)
(a) i. The income statement is one of the most common financial statements in a
company’s annual report. Describe the following items in the income statement:
1. Cost of sales
2. Earnings per share
ii. Briefly explain the difference between “preferred stock” and “common stock”of
a corporation. How do they relate to a corporation’s retained earnings?
iii. The data below are taken from the financial statements of Beranang Hardware
+inching Furniture Sdn Bhd o,erates a factory at the Beranang 'ndustrial @one thatmanufacture ergonomic rattan chair" 8he data gien elow are for costs in year 21* for
,roducing # units of the rattan chairs" $urrently# each rattan chair is een sold at +512"!ni"s #roduced Cos"s $RM%
Selling and administratie costs: ariale ,ortion Fi.ed ,ortion
2*##
+a, ien that the manufacturing cost ,er unit is +5%# calculate the ariale ,ortionalue of the manufacturing oerhead costs in year 21*" =int: Fill in the missing aluein the tale> A=RM36#%%%
=* marks> () Csing the answer that you hae calculated in ,art (a)# com,ute the following:
(c) Based on the current selling ,rice set y the com,any# answer the following: i" Dhat is the com,any9s ,rofit ,er unit for the sale of # units of rattan chairs< A=RM-- = marks> ii" $alculate the contriution margin ,er unit of the rattan chair when sales
are at # units" 'nter,ret the meaning of your answer" A=RM$% = marks>iii" Proe that the ,rofit ,er unit ,lus the aerage fi.ed costs is
e-ual to the contriution margin alue as calculated in ,art c(ii)" =2 marks> A= RM$%
iv. Determine the break-even volume and sales. A=vol 16'%# sales RM-%1#6%% = marks>
Final Examination Semester 2, 2014/2015
The following are the data for LightSys Software Corporation per month.
Units Sold 40,000 units of pendrivesTotal Variable Costs RM560, 000
(c)Based on your answer in (b), draw a cost-volume-profit graph (break-even chart).
Show the break-even point; profit and loss area; fixed cost, variable cost; and
revenues.
The graph below is a cost-volume-profit graph.
Volume
20,000 units√√ [4 marks]
(d)If the company target to achieve RM150,000 profit this year, how many toys should
the company sells? [3 marks]
= 25,000 units
(e)The company is thinking to pay RM7 commission to manager oneach toy sold inexcess of break-even point. What will be the effect of these changes on the net
operating income or loss for the company if 23,500 toys were sold in year.
Net income= RM80,500 [5 marks]
(f)Refer to the original data. The Sales Manager is recommending for sales
commission is eliminated entirely and salaries are increased by RM214,000?
i. Calculate the new contribution margin per unit. = RM42 [1
(d) i. Assuming demand is high and there is an increase in production and
sales by 16,500 units above the breakeven quantity. Calculate the annual profit
per unit. = RM27.50 [4 marks]
ii. To increase profit further, the sales manager is recommending a 10% reduction
in selling price which he believes will produce a 25% increase in the number
sold each year.
(1)What is the change in average fixed costs? = decrease by RM2.50 [2 marks]
(2)Calculate the percentage change in labor costs. = 25% [2 marks]
(3)Should this suggestion be implemented? Calculate to explain.
= Decision: Should not reduce price, √ because profit will decline by RM60,000. √[7 marks]
[Q1, FE Sem 1 12/13]
,onessemson Sdn Bhd" sells toys hand,hones" Below is information for the first &7month sales in212"
Fixed Expenses Rent
Salaries
Depreciation
RM26,000
RM90,000
RM12,000Variable Expenses Cost of Goods manufactured
and sold
Sales Commissions
RM252,000
RM21,000Sales revenue Units sold 50,000 RM420,000
i. What is the company's contribution margin per unit? [5 marks]CM = RM2.94
ii. What is the break-even point in RM? [5 marks] BEQ = 43, 537 units
in RM x RM8.40 = RM365,710.8
iii. If the company wants to earn a profit of RM80,000 instead of breaking even, whatwould be the new selling price be is the units sold is still 50,000 units?SP= RM9.62
/0!2N 1 -$ mars5 Final Examination Semester 1, 2015/2016T&e ' is ( com)in("ion o* C& + C& 5
(a) C,in and ',in are twins" C,in is ,lanning for his retirement 10 years from now" e ,lansto inest +5!#% ,er year for the first % years and +5%# ,er year for the following11 years (assume all cash flows occur at the end of each year)" 'f oth C,in and ',in caninest in saing account with 0? interest rate# how much ',in has to de,osit each year ine-ual amount into his account so that after 10 years# the total amount in his account is thesame as his rother C,in< (Gote: all cash flows occur at the end of the year)"
A:RM6#*$-.34 =/ marks>
() Ali Hust ,urchased a rand new machine worth +5*#" e estimates that themaintenance cost for the machine during the first year will e +52#%" 8hemaintenance cost is e.,ected to increase ) +5% ,er year throughout its9 seen yearsuseful life" Ali wants to set u, an account and all future maintenance e.,enses will e
,aid out of this account" Assuming the maintenance cost occur at the end of year# howmuch does Ali has to de,osit in the account now at 1? interest rate<
=* marks>
A: RM-3#'4-
(c) 8he management of 8itans lectronics $om,any is considering to ,urchase ane-ui,ment to e attached with the main machine use to manufacture a ,roduct" 8hecom,any has two o,tions# A and B" 'nformation on oth e-ui,ment is gien elow"
8he management of 8itans lectronics $om,any wants a 12? return on all inestments"!sing #resen" -or"& me"&od# which e-ui,ment should the com,any ,urchase<(Gote: .ce,t for initial outlay# all cash flows occur at the end of the year)"
A: 2ption A 7= 8('$.*(9 2ption 7= ;3(1.*%. thus <hoose 2ption A =1* marks>
(a) Hoojane wants to invest portions of her yearly bonuses in Amanah Saham Wawasan
2020 (ASW 2020) that has an annual return of 4%. Her investment plan is to invest
RM4,500 now, RM6,000 two years from now, and RM8,000 four years from now.
What will be the total amount in her ASW2020 account after 8 years?
[5 marks]
ANSWER: = 23,109.7
(b) Amintoo has been working for Ti-En-Bi for 5 years. On Ti-En-Bi Annual Dinner Night,
Amintoo won cash prize of RM20,000. Amintoo, such a good man he is, wants to
expedite his payment back to PTPTN using the cash he won.
He plans to put the whole RM20,000 now in an investment scheme with 8% return thatallow him to withdraw equal amount annually for 5 years, starting from first year.
How much is Amintoo’s annual payment to PTPTN?
[5 marks]
ANSWER:= 5,010 per year
Final Examination Semester 1, 2014/2015
(a) i. Compare the interest earned from an investment of RM1,000 for 15 years at
8% per annum of simple interest, with the amount of interest that could be earned ifthese funds were invested for 15 years at 8% per year, compounded annually.
Explain why the interest amounts that you have calculated are not the same.
[5 marks] (a) i. Simple Interest: Compound Interest:
= $1,200 = $2172.17
ii. Miss Anita, a talented singer won the recent Akademi Fantasia singing competition
and was awarded the first cash prize of RM500,000. She decided to save the amount
in a fixed deposit account that give returns of 10% interest compounded yearly. How
long would it take for Anita to have one million (RM1,000,000) from her savings?
[3marks] N =7.27 years
(b) Mr James, Mr Messi and Mr Neymar are three good friends whom are about to retire
soon. Answer the following questions based on different scenarios of retirement planning
given for each person. Assume that the savings account for all of them earn 6% annualinterest.
i. Suppose Mr James has accumulated RM400,000 in his savings account upon his
retirement. He wishes to withdraw a fixed sum of money at the end of each year for
15 years. What is the maximum amount that can be withdrawn for each year?
[2 marks]
ii. Mr Messi expects to withdraw RM76,500 from his savings account at the end of each
retirement year to maintain his normal lifestyle. How much money must Mr Messi
have in the bank at the start of his retirement considering that he is planning a 12-
year retirement period? [2 marks]
iii. Mr Neymar though is planning a 16-year retirement. In order to supplement his
pension and offset the expected effects of inflation, he intends to withdraw RM85,300at the end of the first year, and to increase the withdrawals by RM10,000 at the end of
each successive year. How much money must Mr Neymar have in his savings account
at the start of his retirement? [4 marks]
iv. Assuming that Mr Neymar has decided to extend his retirement to another four
more years. Due to this longer retirement period, he intends to withdraw at a lower
amount of RM74,800 at the end of the first year, and decrease it by RM 5,000 at theend of each successive year. Calculate the amount of savings that he must now have
at the start of his retirement. [4 marks](b) i. = $!1,200
ii. " = $#!1,#0.70
iii. " = $1,!%#,#2&.27
v. P = $421,796.52
Final Examination Semester 2, 2013/2014
(a) Aime was born on 31 December 2012. In order to meet her future tertiary educational
expenses, her father intends to invest in an Educational Saving Plan by depositing an
annual equal sum of RM3, 600 at the end of each year starting on her 1st birthday on 31
December 2013. Given that the saving plan yields a return of 9% per annum, what will
be the total value of the saving plan when Aime celebrates her 18th birthday? [3 marks]
(d) +inching Furniture Sdn Bhd de,osited !? of its ,rofit amount from ,art (c)# at an interest rate of %? com,ounded monthly in the com,any9s saings account"
i" Dhat will e the additional amount in the saings account after one year< A= e)tra RM(13 =2 marks>
ii" 4o you agree that the Annual Percentage ield (AP) is less than %?<$alculate the alue of AP to su,,ort your answer" = marks>
A= N2. A='.-(( B '
Final Examination Semester 2, 2014/2015
(a) ONEJIMAT Sdn Bhd, a credit card company based in Kajang has offered you a card that
charges interest at 1.15% per month, compounded monthly.
i. Determine the annual percentage rate (APR) and the annual percentage yield
(APY) that ONEJIMAT Sdn Bhd charges on its credit card. Explain why the APR
and the APY amounts that you have calculated are not the same.
= APR= 13.8% = APY=14.71% [4marks]
ii. If your current outstanding credit card balance is RM3,000 and you skip
payments for the next three months, what would be the total outstanding
balance three months from now?
= RM3,104.69 [2 marks]
(b) Miss Aida, a recent university graduate was offered a job and wanted to purchase a newcar to facilitate her travel to work. The price of the car is RM58,000 and she is required to
make a 10% down payment. Miss Aida will borrow the remainder from Maybank
Finance at an interest rate of 3% compounded monthly. The period of the loan is six
years.
i. What is the amount of monthly loan payment that Miss Aida need to pay to
ii.Miss Aida has made 36 payments and wants to know the balance remaining
immediately after the 36th payment. What is that balance?
= RM27,283.62 [2 marks]
Final Examination Semester 1, 2014/2015
i. Mr Johari wanted to purchase a RM800,000 semi-detached house by making a 12.5%
down payment to the developer. He borrowed the remaining amount from Maybank
Finance, which he will repay on a monthly basis over the next 10 years. If the bank
charges an interest rate of 9% per year compounded monthly, how much monthly
installment must Mr Johari pay to Maybank Finance?
K +5%%0 =! marks>
Final Examination Semester 2, 2013/2014
Upon graduation, Mr. Rajin and Ms. Lawa decide to venture into business by setting up a small
bakery store. Both are considering the following three ways of financing the oven.
Option A (Debt financing): Purchase the new Oven at the normal price of RM12, 500and pay for it over 36 months with equal payment at 6% APR financing. A
down payment of RM1, 875 is required. There is a resale value of RM6, 875 at
the end of 36 months.
Option B (Cash purchase): Purchase the new Oven at a discount price of RM10, 000 to
be paid immediately. Again, it has a resale value of RM 6,875 at the end of 36
months.
Option C (Leasing): Lease the new Oven for 36 months with an equal monthly leasing
sum of RM226. Down payment of RM1, 250 is required. At the end of the
lease, the Oven simply returns to the leaser.
Required:
Given that the funds that used in the leasing and purchasing are presently earning 6%
annual interest compounded monthly. Find the most economical financing option for
Option B is the most economical since it has the lowest (RM4, 255) equivalent present value.
1.[Q2, FE Sem 1 12/13]a)A design-build-operate engineering company borrowed RM3 million for 3 years so that
it could purchase new equipment. The terms of the loan included compound interest
and repayment of the total amount owed in a single lump-sum payment at the end of
the 3-year period. Interest at the end of the first year amounted to RM450,000.
(i) What was the interest rate on the loan?[2 marks] = 15% per year
(ii) How much interest was charged for year 2? [3 marks] = RM517,500
Federal facilities associated with an international port of entry at Southern Region are expected
to cost RM60 million. A six-lane, 1274 foot long bridge is expected to cost RM24 million. Land
and inspection facilities, offices, and parking will add another RM15million to the cost.
Construction is expected to take three years. Assuming that all of the funds are allocated attime 0, what is the future worth of the project in year 3 at an interest rate of 6% per year
Ujeependu Kaboom Sdn Bhd. has just finished a 4-year R&D and pilot testing for stress-
relieving bag pack targeted for university students. The bag pack is expected to have a 6 yearproduct life. The R&D expenditures for the past 3 years and the current year, together with the
anticipated net cash flows that the company can generate over the next 6 years are summarized
Year Cash Flow (RM)1 18,5002 25,5003 27,9804 32,6605 40,2306 48,500
(a)How long does it take to recover the total investment cost? ( Hints: use conventional
payback method) [6 marks]
= t taes 4.3' year to recover the total investment cost +usin& conventional pay?acmethod,
(b)What is the discounted payback period at an interest rate of 12%?[10 marks]=Rm34,637 will be fully paid around 0.71 year into year sixth. As such, the discounted payback
period is 5.17 years(c)Would the investment of this injection molding machine be justified given that the
interest rate is at 15% [9 marks]
NPW= -6,591.11
Since NPW is negative, it is not justifiable for the company to proceed with the purchase.
iii. Determine the total amount of interest paid over the 20-months period.
A: RM3#1(3.*( =! marks>
Final Examination Semester 2, 2014/2015
Syarikat EasyRide Sdn Bhd is considering purchasing a minivan to transport children to a
primary school in Semenyih. The minivan initially cost RM70,000 and the company spend
another RM5,000 to paint it and also refurbish the van’s interior. The salvage value of the
minivan is RM25,000 after eight years of service life at an interest rate of 6%. It is also estimated
that the net cash flows from the transport service will be RM20,000 for the first year and
increases by RM2,500 per year for the next year and each year thereafter.
i. What is the annual capital cost of owning and operating the minivan?
= CR = RM9,550 [5 marks]
ii. Determine the annual equivalent cost if the operating and maintenance cost of
the minivan is RM14,400 annually.K A$K +52#0! =2 marks>
iii. What is the annual equivalent savings (revenues) from operating the minivan?K ASK +52/#0%% = marks>
iv. From your above analysis, explain whether this is a good investment for the
company.K (AS7A$) KAD K +5*%" S" AD is ,ositie =2 marks>
A 300 units condominium building project by Tegap Construction Sdn Bhd. requires an
investment of RM12 million. The expected maintenance cost for the building is RM300,000 in
year 1, RM350,000 in year 2, and will increase by RM50,000 per year from year 3 to year 4. Thecost to hire a manager for the building is RM5,000 per month. After 4 years of operation the
building can be sold for RM8 million.
b)If the building remains fully occupied during the four years, calculate the annual
rent per unit that will provide a return on investment of 12%. [17 marks]
= find PW AW divide by 300 units = RM9,015.49
c)Assume Tegap Construction Sdn Bhd. decided to sell the units for RM500,000 each.
Mr Danial is interested to buy one unit and make a RM100,000 down payment. He
Q5 [25 marks] Final Examination Semester 1, 2015/2016
(this question is a combination of Ch7 + Ch 6 & Ch14)
(a) our team are inoled with an e-ui,ment selection task in your com,any to re,lace anaging asset that the com,any owns" ital statistics for the new e-ui,ment with threedifferent models are as in the tale elow" 8he minimum attractie rate of return eingused y your com,any for economic decision is 1? ,er year" Dhich model would your team recommend using the 'nternal +ate of +eturn method< =12 marks> +/se 1% and 4% in your calculation usin& trial and error method,
5odel A 5odel B 5odel $Purchase Price +5%#! +50#! +51#
Get $ash Flow +52#! +52# +5#2Salage alue +5! +5* +5*Cseful life# years ! ! !'ndiidual '++ 1!"0? /"%? 1%"/0?
A: nterpolated RR+model <; model A, = 3*.63
+Note that Model is not considered as its RR C MARR of 1%,
() 8o Hustify the ,urchase of the acce,tale model (challenger) in ,art (a)# your team hasagreed to conduct a re,lacement analysis" Pertinent data of the aging asset (defender)are as follows:
4efender Purchase Price(! years ago) +51#$urrent 5arket alue +5*#C,grade $ost +51#&
Get $ash Flow +51#%Salage alue +5!
Cseful life# years !
's the ,urchase of the new model to im,roe efficiency still remain economicallyattractie< (/se annual e@uivalent method, =1 marks>
A= AE defender: 404.62; AE challenger: 627.52 replace the defender
Final Examination Semester 2, 2014/2015
(this question is a combination of Ch6 & Ch7 & Ch14)
Mr. Tim, a construction contractor is considering to replace his old machine with a new
machine. The old machine has another 5 years useful life. The cash flow details for the old andnew machines are as follows:
Challenger is the asset proposed to be the replacement
b)
i. = RM3,756.2
ii. PW(12%)strategy 1 = RM19,724.14 7+1-,strate&y - = RM--#(4%.3'
Strategy I should be selected due to lower PW.
Final Examination Semester 2, 2013/2014
-WITH COMBINATION OF CH6-
8A5$I 5anufacturing $om,any uses an ins,ection machine 5odel N7'st that the com,any ought * years ago to test the mechanical strength of electrical insulators" +ecently the com,anyis considering re,lacing the machine with a new model" 8A5$A has two o,tions: to ,urchase5odel C7erse or 5odel 7+o" 5odel u7erse is now aailale in the market ut 5odel7+o is only aailale in the market ne.t year" 8hese two models are com,arale in terms of
,erformance and s,ecifications" 8he estimated salage alues for the three models are gien
elow"
Assume that 8A5$I re-uires 12? 5A++ and a useful life of ! years on all alternaties"
+e-uired:
(a) Compare the economic life of the existing model with Model YU-Verse. Should
TAMCO consider to acquire Model YU-Verse? [10 marks]
(b) Compare the economic life the existing model with Model HE-Ro. Should
Chapter 9(Q3.b) Final Examination Semester 1, 2015/2016
() i" A rice cleaning e-ui,ment was ,urchased in 4ecemer 20 for +5%#! andis yearly de,reciated y the doule declining alance (44B) method for ane.,ected life of 1 years" Dhat is the ook alue of the e-ui,ment at the endof 21*< Iriginal salage alue was estimated to e +51#! at the end of 1years" +hints: only do full year depreciation,. =0 marks>
A:
repare the ta?le
ii" ie IG out of three conditions must an asset satisfy to e considered de,reciale"=2 marks>
Final Examination Semester 2, 2013/2014
(c) i. Assuming that you own a car. Describe how you calculate the economic
depreciation accumulated for your car with each passing year. [2marks]
ii. InnoCom Sdn Bhd buys a new telecommunication machine that costs $160,000.
It has a useful life of 6 years and can be sold for $50,000 at the end of this period.
It is expected that $10,000 will be spent by the company to dismantle and
remove the machine at the end of its useful life. Compute the annual
depreciation allowances and the resulting book values and put them in a table
form by using the following methods:
(1) Straight- line depreciation [4 marks]
(2) 150% declining balance [7 marks]
(c) i. Subtracting the current market value of the car from the original
price paid for the car.
Economic depreciation = Purchase price – market value
[2 marks]
ii. SL Dep = (I – S) /N
Salvage value (S) = $50,000 - $10,000 = $40,000
SL Dep = ($160,000 - $ 40,000)/6 =$ 20,000 [1mark]
