COEB442 - Sem - 2 - 2015-2016 Revision

COEB442 Engineering Economics
Revision
Sem 1, 2015/2016
Dear students,
Majority of the questions here are taken from previous examinations. Plus
few from textbook and past tests.
Page | 1
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 Sdn

Bhd for financial year end July 2015.
ITEM
Building
Cash
Inventories
Revenues from sales
Computer equipment
Salary expenses
Vehicles
Prepaid rental expenses
Account receivables/ Debtors
Revenues from investments (other than sales)
Account payables/ Creditors
Administration expenses
Marketing and selling expenses
Long-term Payables
Cost of goods sold
Accrued insurance expense
RM
1,200,000
86,000
34,000
2,435,000
34,000
795,500
250,000
12,000
52,000
350,000
78,500
187,600
235,000
580,000
1,080,000
21,000
To assess Akookeyes financial performance, the accountant wants few analysis using the
data provided.
Required:
i.
Is the company utilizing its assets efficiently in generating its sales, given that the
industrys average is 3? Support your answer with calculation.
[6 marks]
A: assets turnover= RM1.46 sales per RM1 asset. Not efficient compared to
industry which is 3.
ii.
Prepare the Profit or Loss/Income Statement for Akookeye Sdn Bhd. with company tax
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rate at 25%.
[8 marks]
A: Income Statement with Gross profit=RM1,355,000, operating profit =RM486,900,
profit after tax of RM365,175
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Final Examination Semester 1, 2014/2015

(a)
(b)
Give a short definition for the following terms:

i.
Income Statement
[1 mark]
ii.
Net Cash Flow
iii.
Give ONE example of financing activities in a company.
[1 mark]
[1 mark]
The data below were based on the financial statements of Top Manufacturing
Corporation for year 2013 (in RM thousands).
Items
Inventories
Land, Buildings, Plant and Machinery
Cost of sales
Long term liabilities
Accounts payable and Short Term Borrowings
Distribution, selling and marketing expenses
Interest Expenses
Taxation
Dividends
RM
25,500
57,000
85,000
33,000
45,000
20,000
1,000
1,000
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]

(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?

Revision
Sem 1, 2015/2016
[2 marks]
(b)
The data below were based on the financial statements of Megah Manufacturing
Corporation for year 2012 (in RM thousands).
Items
RM
235
350
85
940
1,910
2,480
5,560
1,150
2,370
Inventory
Accounts receivable
Prepaid taxes and insurance
Cash and cash equivalents
Land, Buildings and Machines
Cost of sales
Net Revenue
Working capital
Total equity
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Calculate the following:

i.
the current liabilities
= RM460k
[2 marks]
ii.
the long-term liabilities = RM690k
[2 marks]
iii.
the gross margin
[2 marks]
iv.
the quick ratio and interpret your answer
= RM3080k
=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

companys annual report. Describe the following items in the income statement:
ii.
1.
Cost of sales
2.
Earnings per share
Briefly explain the difference between preferred stock and common stockof
a corporation. How do they relate to a corporations retained earnings?
iii.
The data below are taken from the financial statements of Beranang Hardware
Manufacturing Corporation. (in RM1,000s)
Cash
Sales revenue
Accounts receivable
Accounts Payable
Notes Payable
Prepaid taxes and insurance
Income taxes payable
RM
880
30,000
470
940
510
60
700

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Selling expenses
Long term debt
Cost of goods sold
Inventory
Land
Plant and Equipment
2,000
2300
20,000
1,400
1,640
2,850
Calculate :
1. the current assets
= 2,810
2. the current liabilities
= 2,150
3. the shareholders equity
= 2,850
4. the working capital
= 660
5.
the debt ratio and interpret your answer
= 60.95%
- High proportion of financing through borrowing from creditors

6.
the acid test ratio and interpret your answer
= 0.656 times
- The company depends heavily on inventories to meet its obligation
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Chapter 8
Q.4 (a-c) Final Examination Semester 1, 2015/2016
Rinching Furniture Sdn Bhd operates a factory at the Beranang Industrial Zone that
manufacture ergonomic rattan chair. The data given below are for costs in year 2014 for
producing 3,000 units of the rattan chairs. Currently, each rattan chair is been sold at RM120.
Units Produced
Costs (RM)
Direct labor
90,000
Direct raw materials
60,000
Manufacturing overhead:
Variable portion
------------Fixed portion
54,000
Selling and administrative costs:
Variable portion
24,000
Fixed portion
30,000
(a) Given that the manufacturing cost per unit is RM80, calculate the variable portion
value of the manufacturing overhead costs in year 2014. [Hint: Fill in the missing value
in the table] A=RM36,000
[4 marks]
(b) Using the answer that you have calculated in part (a), compute the following:
i. Total variable costs
A=RM210,000
[2 marks]
ii. Total variable costs per unit A=RM70
[1 mark]
iii. Total costs
A=RM294,000
[2 marks]
(c) Based on the current selling price set by the company, answer the following:
i. What is the companys profit per unit for the sale of 3,000 units of rattan
chairs?
A=RM22
[3 marks]
ii. Calculate the contribution margin per unit of the rattan chair when sales
are at 3,000 units. Interpret the meaning of your answer. A=RM50 [3 marks]
iii. Prove that the profit per unit plus the average fixed costs is
equal to the contribution margin value as calculated in part c(ii). [2 marks]
A= RM50
iv.
Determine the break-even volume and sales.
A=vol 1680, sales RM201,600
[3 marks]
The following are the data for LightSys Software Corporation per month.
Units Sold
Total Variable Costs
40,000 units of pendrives

RM560, 000
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Contribution Margin Per unit

Profit
RM6
RM70, 000
(a) What is the price per unit of the pendrive? = RM20
[4 marks]
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(b) How much sales value can the company generate?

(c)
=RM800k
[2 marks]
Do you agree that the average fixed cost per unit is RM1.75?
Calculate to answer. = AFC= RM4.25, NO
(d)
[5 marks]
How many units of pendrive must LightSys sell in order to break even?
(round to the nearest whole unit) = 28,334 units
(e)
[4 marks ]
Given the variable production cost per unit increases by RM 2, but no change in fixed
costs, can the company maintain the same level of profit if it sells 50,000 units of
pendrive per month?
Calculate to answer.
=NO, profit declined by RM40k
[5 marks]

Toys N Fun Company sells transformer toys imported from Taiwan. The toys are sold to
customers in Klang Valley area. Salespersons are paid basic salary plus commission on sales
made by them. Details data concerning sales and expenses made by the company is shown
below.
Selling price per toy
RM
75
Invoice cost (variable manufacturing cost)
RM
33
Sales Commission
RM
12
Total
RM
45
Variable expenses per toy:
Annual fixed expenses:

Rent
RM120,000
Marketing
RM300,000
Salaries
RM180,000
Total
RM600,000
Required:
(a) Calculate the contribution margin per unit. Explain the meaning of your answer

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= RM30
[4 marks]
(b) Compute breakeven number in units.
[2 marks]
=20,000 units
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(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.

Revenue line
RM
Profit
Break-even point
Variable cost
Loss
Fixed cost
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 on each toy sold in
excess 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.
[5 marks]
Net income= RM80,500
(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

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mark]
ii.
Calculate the new total fixed costs.
= RM814,000
[1
mark]
iii.
What will be the new breakeven point (in units)? = 19,381 units
[2
marks]
iv.
Should the company accepts this recommendation? Compare with

your answer in (b)
With the new system, the company will starts making profit after selling 19,381 units
compare to the old system 20,000 units . Should implement the suggestion given by
[3 marks]
the manager

IT Excel Sdn. Bhd., a manufacturing company that produces a computer component leases a
building for RM250,000 per year for its manufacturing facilities. In addition, the machinery in
this building is being paid for in installments of RM50,000 per year. Each unit of the product
produced costs RM40 in labor and RM20 in materials. The variable costs are estimated at 60
percent of total revenue.
(a)
Determine the price per unit of the product. = RM100
[2 marks]
(b)
Calculate the quantity at which the manufacturer will cover the fixed costs.
= 3,000 units
(c)
i.
[2 marks]
How many units per year must be sold for the company to breakeven?
= 7,500 units
ii.
[2 marks]
Show that at breakeven point contribution margin is equal to average fixed

costs.
= CM=RM40; AFC at BE = RM40; therefore MC=AFC=RM40
iii.
[2 marks]
Can an increase in the overtime rate paid to staff lower down the breakeven
point? Briefly explain.
[2 marks]
= No, it would increase fixed costs, more should be produced and sold to breakeven.
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(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
ii.
[4 marks]
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]

Eponvessemson Sdn Bhd. sells toys handphones. Below is information for the first 6-month sales in
2012.
Fixed Expenses
Variable Expenses
Sales revenue
Rent
RM26,000
Salaries
RM90,000
Depreciation
Cost of Goods manufactured
RM12,000
and sold
RM252,000
Sales Commissions
Units sold 50,000
RM21,000
RM420,000
i.
What is the company's contribution margin per unit?
ii.
What is the break-even point in RM?
[5 marks]
[5 marks]
CM = RM2.94
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, what
would be the new selling price be is the units sold is still 50,000 units? SP = RM9.62
[5 marks]
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Chapter 3
QUESTION 1 [25 marks] Final Examination Semester 1, 2015/2016
The Q is a combination of Ch 3 & Ch 5

(a)
(b)
Upin and Ipin are twins. Upin is planning for his retirement 19 years from now. He plans
to invest RM5,800 per year for the first 8 years and RM8,300 per year for the following
11 years (assume all cash flows occur at the end of each year). If both Upin and Ipin can
invest in saving account with 9% interest rate, how much Ipin has to deposit each year in
equal amount into his account so that after 19 years, the total amount in his account is the
same as his brother Upin? (Note: all cash flows occur at the end of the year).
A:RM6,752.34
[7 marks]
Ali just purchased a brand new machine worth RM40,000. He estimates that the
maintenance cost for the machine during the first year will be RM2,800. The
maintenance cost is expected to increase by RM800 per year throughout its seven years
useful life. Ali wants to set up an account and all future maintenance expenses will be
paid out of this account. Assuming the maintenance cost occur at the end of year, how
much does Ali has to deposit in the account now at 10% interest rate?
[4 marks]
A: RM23,842
(c)
The management of Titans Electronics Company is considering to purchase an

equipment to be attached with the main machine use to manufacture a product. The
company has two options, A and B. Information on both equipment is given below.
Initial outlay (RM)

Annual Cash flow (RM)
Salvage value at end year 4 (RM)
Option A
6,000
Year 1 - 2,300
Year 2 - 2,300
Year 3 - 2,300
Year 4 - 2,300
0
Option B
8,000
Year 1 - 1,700
Year 2 - 1,900
Year 3 - 2,500
Year 4 - 2,900
1,500
The management of Titans Electronics Company wants a 12% return on all investments.
Using Present Worth method, which equipment should the company purchase?
(Note: Except for initial outlay, all cash flows occur at the end of the year).
A: Option A PW= +985.79; Option B PW= -391.70. thus Choose Option A [14 marks]
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(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.
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What will be the total amount in her ASW2020 account after 8 years?
[5 marks]
ANSWER:
(b)
= 23,109.7
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 that
allow him to withdraw equal amount annually for 5 years, starting from first year.
How much is Amintoos annual payment to PTPTN?
[5 marks]
ANSWER:= 5,010 per year
(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 if
these 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:
= $1,200
ii.
Compound Interest:
= $2172.17
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% annual
interest.
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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.
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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 12year retirement period?
iii.
[2 marks]
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 RM85,300
at 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?
iv.
[4 marks]
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 the
end of each successive year. Calculate the amount of savings that he must now have
at the start of his retirement.
(b)
[4 marks]
i. A = $41,200
ii. P = $641,360.70
iii. P = $1,496,625.27
v.
P = $421,796.52

(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 1 st 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]
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(b)
Suppose there is another new Saving Plan offer by XYZ bank that allows Aimes father
to make the following annual withdrawal.
Date of withdrawal
On 18th Birthday
On 19th Birthday
On 20th Birthday
Amount of Withdrawal (RM)

45,000
50,000
55,000
Require: Calculate the annual saving amount that the father is required to deposit into
the Saving Plan.
[9 Marks]
(a) A=RM3,600,
N=18, i=9%
F =
RM148,685
(b) A =
1089
A =
1085
A =
1072
Total required equal annual contribution is 1089 +1085 + 1072 = RM3, 246
From textbook
3.1
Simple interest 12 years
3.9
Compound interest 9 years

180,000 (F/P, 6%, 10y) $322,353
3.20
RM14,796.27
3.24
RM441,427.09
3.33
3.36
Labour cost savings 40,000(P/A,10%,10y) = RM245,782.68

i.e < cost $250,000. Thus DONT BUY the machinery
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Chapter 4
(Q4.d) Final Examination Semester 1, 2015/2016
Page | 14
(d) Rinching Furniture Sdn Bhd deposited 50% of its profit amount from part (c), at
an interest rate of 8% compounded monthly in the companys savings account.
i.
What will be the additional amount in the savings account after one year?
A= extra RM913
[2 marks]
ii.
Do you agree that the Annual Percentage Yield (APY) is less than 8%?
Calculate the value of APY to support your answer.
[3 marks]
A= NO. APY=8.299% > 8%

(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%
[4
marks]
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
(b)
[2 marks]
Miss Aida, a recent university graduate was offered a job and wanted to purchase a new
car 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
Maybank Finance?
=RM793.44
[5
marks]
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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]
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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?
= RM8890
[5 marks]

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, 500
and 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
the new Oven.
[13 Marks]
Effective loan interest payment is 6% /12

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Monthly loan payment is

P Option A=
6,747
P Option B=
4,255
P Option C=
8,678.85
323
Page | 16
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 at
time 0, what is the future worth of the project in year 3 at an interest rate of 6% per year
compounded quarterly?
[5 marks]
16
= RM118,364,400

Revision
Sem 1, 2015/2016
Chapter 5
Ujeependu Kaboom Sdn Bhd. has just finished a 4-year R&D and pilot testing for stressrelieving bag pack targeted for university students. The bag pack is expected to have a 6 year
product 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
in the table below.
Period (n)
Cash Flow (Unit: RM
-3
-2
-1
0
1
2
3-5
6
million)
-0.5
-2
-1.6
-1
0.8
2.4
4 each year
3.5
Begje Ade Sdn Bhd, a large bag retailer company is interested in purchasing the stress-relieving
bag pack project and the right to commercialise the product from Ujeependu Kaboom Sdn Bhd;
planning to purchase it now (n=0). Begje Ade Sdn Bhd has offered a purchase price of RM6.5
million.
Assume Ujeependu Kaboom Sdn Bhds MARR= 15%.
i.
What is the total amount of R&D costs at Y0?

= RM6.245 million
ii.
[4 marks]
Calculate the present value of the net cash flow streams at Y0.
= RM4.684 million
iii.
[8 marks]
Should Ujeependu Kaboom Sdn Bhd accept the offer and sell the project to Begje
Ade Sdn Bhd?
= YES. Offer price > PW
[3 marks]
Highland Sediment Brick Sdn Bhd is considering purchasing a new injection-molding machine
for RM100, 000. It will cost an additional RM20, 000 to do the site installation. The machine will
be used for six years with zero salvage value at the end of sixth year. The company is expected
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to receive annual returns as given below.

Year
1
2
3
4
5
6
Cash Flow (RM)

18,500
25,500
27,980
32,660
40,230
48,500
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(a) How long does it take to recover the total investment cost? (Hints: use conventional
[6 marks]
payback method)
=It takes 4.38 year to recover the total investment cost (using conventional payback
method)
(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.
From textbook
5.2
5.6
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5.8
PW of 62,847.89 > 0 , the investment is justified

a) = $15,040<0
b) =-50,254
5.10
c) i= 15.93%
Page | 19
the answer is D, all are correct

PW(16%) = $3,500,000 +[$1,550,000- $360,000- $160, 000](P /A ,16%,10)
5.14
+$200,000(P /F ,16%,10) = $1, 482,730

Since PW is positive, the project is justified
5.38
Both give same payback period of 3 years. Thus, cannot select.

a)
PW A = $16,732.35
PW B = $16, 441.18
Select A
5.41
b)
FW A= $23,507.74
FW B= $23,098.67
Select A
machine
A
5.45
(104,249.63)
machine
B
(91,371.58)
Thus, machine B is a better choice
19

Revision
Sem 1, 2015/2016
Chapter 6
(Q2.a & b) Final Examination Semester 1, 2015/2016
The Q is a combination of Ch6 & Ch4
(a)
Page | 20
Ahmad Zaki Enterprise is a taxi service provider. The company is

considering to purchase a new Perodua Alza 1.5 Premium that costs
RM60, 000. The car is assumed to have a five-year useful life. At the
end of five years, it can be sold for RM20, 000. The monthly operating
and maintenance costs are RM650. It is calculated that the company
is able to earn after- tax revenue of RM19, 000 per year with this new
car.
i.
Using capital recovery cost analysis, compute the equivalent

annual cost (AEC) for this new car if the company obtains the
financing for the whole total amount at an interest rate of 4%.
[7 marks]
A: AEC car = RM17,584
ii.
Determine whether it is a wise investment based on AE criterion? [3

marks]
A: AE = AES-AEC AE=1,416 positive. Yes a wise investment
(b)
The managing director of Ahmad Zaki Enterprise, however, decided to choose

Proton Exora 1.6 Premium that costs RM80, 000. The company makes a down
payment in the amount of RM8, 000. It would then borrow the remainder from
CIMB bank at an interest rate of 3% compounded monthly. The company also
agrees to pay off the loan monthly for a period of five years.
i.
ii.
What is the amount of its monthly installment payment?

A= RM1,296
[5 marks]
The company has successfully made 20 payments and wish to figure out
the balance remaining immediately after 20th payment. What is that
balance?
A: RM49,273.79
[5 marks]
20

Revision
Sem 1, 2015/2016
iii.
Determine the total amount of interest paid over the 20-months period.
A: RM3,193.79
[5 marks]
Page | 21

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 vans 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
ii.
[5 marks]
Determine the annual equivalent cost if the operating and maintenance cost of
the minivan is RM14,400 annually.
= AEC= RM23,950
[2 marks]
iii.
What is the annual equivalent savings (revenues) from operating the minivan?
= AES= RM27,988
[ 3 marks]
iv.
From your above analysis, explain whether this is a good investment for the
company.
= (AES-AEC) =AEW = RM4038. YES. AEW is positive
[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. The
cost 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
21

Revision
Sem 1, 2015/2016
obtained a 30-year loan for the remaining amount. Payments will be made monthly
at an amount of RM3,220. The nominal interest rate is 9%. If he planned to pay the
remaining balance on the loan after 20 years (240 payments), how much should he
pay the bank?
[8 marks]
= RM254,192.25
Page | 22
(Q3, FE Sem 2 12/13)
From textbook
6.5
AEC(6%)
= R-E-CR
=0 14,000 CR
6.14
= - 25,670
CR
= (70,000 -25,000)(A/P,6%,6) + (0.06)(25,000)
6.16
6.20
22

Revision
Sem 1, 2015/2016
Chapter 7
Q5 [25 marks] Final Examination Semester 1, 2015/2016
Page | 23
(this question is a combination of Ch7 + Ch 6 & Ch14)
(a)
Your team are involved with an equipment selection task in your company to replace an
aging asset that the company owns. Vital statistics for the new equipment with three
different models are as in the table below. The minimum attractive rate of return being
used by your company for economic decision is 10% per year. Which model would your
team recommend using the Internal Rate of Return method?
[12 marks]
(Use 10% and 40% in your calculation using trial and error method)
Purchase Price
Net Cash Flow
Salvage Value
Useful life, years
Individual IRR
Model A
RM8,500
RM2,500
RM500
5
15.39%
Model B
RM9,500
RM2,300
RM400
5
7.83%
Model C
RM10,000
RM3,200
RM400
5
18.79%
A: Interpolated IRR(model C- model A) = 37.63%

(Note that Model B is not considered as its IRR < MARR of 10%)
(b)
To justify the purchase of the acceptable model (challenger) in part (a), your team has
agreed to conduct a replacement analysis. Pertinent data of the aging asset (defender)
are as follows:
Purchase Price(5 years ago)

Current Market Value
Upgrade Cost
Net Cash Flow
Salvage Value
Useful life, years
Defender
RM13,000
RM4,000
RM1,600
RM1,800
RM500
5
Is the purchase of the new model to improve efficiency still remain economically
attractive? (Use annual equivalent method)
[13 marks]
A= AE defender: 404.62; AE challenger: 627.52 replace the defender
(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 and
new machines are as follows:
23

Revision
Sem 1, 2015/2016
Old Machine Purchased 3 years ago at RM 1,500,000. At present the annual operating cost is
RM 440,000 per year at end of first year and increasing by 10% per year in the subsequent years
till the end of year 5. Expected annual income is RM 980,000 per annum and decreasing by 15%
each year. After five years, the market value of the machine 5 is expected to be
RM 500,000. If Page | 24
Mr. Tim decided to replace the old machine with a new machine now, the old machine can be
sold immediately in the market for RM 800,000.
New Machine The cost price is RM 2,000,000. The annual operating cost RM 580,000 at end of
first year and increasing by RM 30,000 in the subsequent years till the end of its 5 years useful
life. Expected annual income RM 1,650,000 per annum. At the end of its useful life, the machine
is expected to be sold for RM 450,000.
Mr. Tim uses 12% MARR to evaluate his investment.
Required:
(a)
Based on the MARR given, calculate the annual equivalent worth (AEW) of each
option. Should Mr. Tim replace the old machine?
= AEW OLD = RM84,372
AEW NEW = RM532,763
(b)
[18 marks]
Calculate the IRR of the project you suggested. (Hint: you can try 40% and 50%
interest rate in your calculations).
= IRR chosen (NEW) = RM 43.14%
[7 marks]
FastBits Electronic Company Sdn. Bhd. is evaluating new precision inspection devices to help
verify package quality. The manager has obtained the following bids from four companies. All
devices have a life of five years and a minimum attractive rate of return of 6%. The alternatives
are mutually exclusive.
Initial Cost (RM)

Annual Costs (RM)
Net Cash Flows (RM)
IRR
(a)
Company A
Company B
Company C
Company D
400,000
100,000
500,000
200,000
900
12,000
23,000
9,000
100,900
27,700
125,200
46,200
8.3%
12%
8%
5%
Determine the annual benefits of the devices from all four companies. Device from
24

Revision
Sem 1, 2015/2016
which company has the highest annual benefit?

(b)
FastBits should reject the bid from which company based on the given individual IRR?
Why?
(c)
[5 marks]
[2 marks]
Using incremental internal rate of return analysis, from which company, if any, should
the manager purchase the new precision inspection device? Use trial and error method
with 6% and 10% interest rates.
(d)
[14 marks]
Show that the same company selection would be made with proper application of the
Present Worth (PW) method.
(a)
(a)
RM101,800
(b)
RM39,700
(c)
RM148,200
(d)
RM55,200
[4 marks]
Company C (10= 5 marks)

(b)
Project D; IRR<MARR (4=2 marks)
(c)
A-B Increment:
= 7.02%
Since IRR on increment > MARR, select company A.
C-A Increment:
= 6.82%
Since IRR on increment > MARR, select company C.
The manager should purchase from company C.
(d)
NPW A = RM25,031
NPW B = RM16,683
NPW C = RM27,392
Device from company C has highest NPW, therefore buy from company C.
From textbook
7.1
1,745 = 1500 (1+i)1

i = 16.33%
25
Page | 25

Revision
Sem 1, 2015/2016
7.2
7.10
(b) i* = 21.98%
(c) NO NEED TO ATTEMPT (c)
7.29
7.30
7.37
(a) you have to use RIC, (A2-A1) at a MARR of 10% is 7.36%, which is
smaller than MARR, so we select A1. not relevant for exam
7.41
7.45
With MARR at 12%, IRR for Model A: 7.12%, IRR for Model B: 5.65%.
Neither model is attractive.
26
Page | 26

Revision
Sem 1, 2015/2016
Page | 27
7.50
7.51
Project B
27

Revision
Sem 1, 2015/2016
Chapter 14
Refer to question above (Mr Tim)
-WITH COMBINATION OF CH6 & CH5(a)
Define the terms defender and challenger as commonly used in replacement analyses.
[2 marks]
(b)
A certain operation now is being carried on with Machine X, whose present salvage
value is estimated to be RM3,000. The future life of Machine X is estimated at 6 years, at
the end of which its salvage value is estimated to be zero. There are TWO replacement
strategies for machine X.
Strategy 1: It is expected that Machine X will be used for another 6 years and will be
replaced by Machine Y.
Strategy 2: The desirability of replacing Machine X with Machine Z now is also being
considered.
The interest rate is 12%.
Investment and cost data for Machines X, Y, and Z are given in the table below:
Machine
Investment (RM)
Useful life (years)
Annual Operating
Costs(RM)
Salvage
Value
(RM)
i.
MACHINE X
MACHINE Y
MACHINE Z
3,000
20,000
16,000
14
20
1,000
800
950
2,000
1,500
Calculate the annual equivalent cost for Machine Y during its life.
[7 marks]
ii.
Use PW cost analysis to decide which replacement strategy is better for the next
20 years.
[16 marks]
ANSWERS
a) Defender is an existing asset being considered for replacement

28
Page | 28

Revision
Sem 1, 2015/2016
Challenger is the asset proposed to be the replacement

b)
i.
= RM3,756.2
Page | 29
ii.
PW(12%)strategy 1 = RM19,724.14
PW(12%)strategy 2I = RM22,940.38
Strategy I should be selected due to lower PW.

-WITH COMBINATION OF CH6-
TAMCO Manufacturing Company uses an inspection machine Model EX-Ist that the company
bought 4 years ago to test the mechanical strength of electrical insulators. Recently the company
is considering replacing the machine with a new model. TAMCA has two options: to purchase
Model YU-Verse or Model HE-Ro. Model Yu-Verse is now available in the market but Model
HE-Ro is only available in the market next year. These two models are comparable in terms of
performance and specifications. The estimated salvage values for the three models are given
below.
The estimated salvage values (RM)
Year
0
1
2
3
4
5
Existing model
EX-Ist
18,000
15,500
Option 1 - Model YU-Verse

(available now)
37,000
34,500
Option 2 - Model HE-Ro

(available next year)
38,000
35,000
13,000
31,500
30,500
11,000
27,500
25,000
7,500
22,000
19,500
4,000
15,000
13,000
Assume that TAMCO requires 12% MARR and a useful life of 5 years on all alternatives.
Required:
(a)
Compare the economic life of the existing model with Model YU-Verse. Should
TAMCO consider to acquire Model YU-Verse?
(b)
[10 marks]
Compare the economic life the existing model with Model HE-Ro. Should
TAMCO consider to acquire Model HE-Ro?
29
[10marks]

Revision
Sem 1, 2015/2016
(c)
Which model i.e. YU-Verse or He-Ro should TAMCO choose? Show calculations
to support your answer.
[5 marks]
ANSWERS
Page | 30
Year
Existing model
YU-Verse
18,000
37,000
4,660
3,940 *
4,519
4,034
4,234*
4,255
4,357
4,578
4,364
4,903
The economic life of the existing model is 3 years compared to YU-Verse that is in year
1. TAMCO should consider to acquire YU-Verse now.
Year
0
1
2
3
4
5
Existing model
18,000
4,660
4,519
4,234*
4,357
4,364
HE-Ro
38,000
3,560*
4,098
4,412
4,430
4,495
The economic life of the existing model is 3 years compare to HE-Ro that is in 2 years.
TAMCO should consider to continue using the present model for another one more year
before acquire HE-Ro.
(c)
U-Verse is available now. Thus if TAMCO decided to replace now,

AEWU-Verse = RM3,940
Bombastic Manufacturing Company is considering replacing a stamping machine that has been
used in its factory. The new machine will cost RM45,000 delivered and installed, with an
estimated economic life of 8 years and a salvage value of RM3,000 at the end of its life. The new
machine is expected to perform with so much efficiency and Mr. Tan, the Production Engineer
30

Revision
Sem 1, 2015/2016
estimates that over its 8-year life, labor, material and other direct costs can be reduced from
RM15,000 to RM12,000 annually.
Page | 31
The old machine that is still in used was purchased 5 years ago at RM30,000. At the time of
purchased, its economic life was estimated to be eight years with a salvage value of zero. If
the company decides not to purchase the new machine, it will then retain its old machine
and the estimated market value, book value and operating costs for the old machine for the
next three years is shown in the table below.
Market Value (RM)
10,600
7,400
4,100
1,500
Book Value (RM)
12,400
7,850
4,660
1,880
3,540
4,130
4,810
5,680
Year-end
Operating Costs
(RM)
If the MARR is 10% before taxes,
a) Determine the remaining useful life of the old machine (Hint: Refer to the
estimated figures of market values and operating costs given in the table).
b) Determine whether it is economical to make the replacement now.
31

Revision
Sem 1, 2015/2016
Answers
a) Determine the remaining useful life of the old machine (Hint: Refer to the estimated
figures of market values and operating costs given in the table).
Page | 32
Year-end
0
1
2
3
4
AE (10%)
-7,799.96
-7,976.34
-7,928.63
-7,800.56
The old machines MOST ECONOMICAL useful economic life is 1 more year with an
AEC value of RM7,799.96.
b)
Determine whether it is economical to make the replacement now.

AEC c =RM- 5,171
Since AECc < AECD , the defender should be replaced now
For this q, you could do similar exercise from Ch 14 14.8 on page 794
Check figures for
14.8 (a)
Best useful life
If useful
life is
1
2
3
4
AW
(12%)
(7,524)
(6,435)
(6,719)
(6,795)
(take the lowest

AW)
14.8 (b) & (c)

AW challenger = - 6344 > AW defender , thus replace now.
32

Revision
Sem 1, 2015/2016
Chapter 9
(Q3.b) Final Examination Semester 1, 2015/2016
(b)
i. A rice cleaning equipment was purchased in December 2009 for RM8,500 and
is yearly depreciated by the double declining balance (DDB) method for an
expected life of 10 years. What is the book value of the equipment at the end
of 2014? Original salvage value was estimated to be RM1,500 at the end of 10
years. (hints: only do full year depreciation).
[9 marks]
A:
Prepare the table
ii. Give ONE out of three conditions must an asset satisfy to be considered depreciable.
[2 marks]

(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:
(c)
i.
(1)
Straight- line depreciation
(2)
150% declining balance
[4 marks]
[7 marks]
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
33
[1mark]
Page | 33

Revision
Sem 1, 2015/2016
For 150%DB,
= (1/N) x Multiplier
=1.5/6 = 0.25
Year
0
1
2
3
4
5
6
[1 mark]
SL
Book
depreciation
using
[1 mark]
method
balance
declining
[2 marks]
[4 marks]
balance
$40,000
$30,000
$22,500
$16,875
$12,656.25
$9492.19
[2 marks]
$160,000
$120,000
$90,000
$67,500
$50,625
$37,968.75
$28,476.56
$20,000
$20,000
$20,000
$20,000
$20,000
$20,000
value 150%
SL declining
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
Book
value
using
150%
2. Quality Plastics Inc. makes plastic bowls. It recently bought a new machine, on January 1,
that molds plastic pellets into the desired shapes. The price of that machine was RM480,000.
It cost RM8,000 to deliver the machine to the factory. It cost RM12,000 to install and properly
calibrate the machine. It has an expected useful life of 5 years, and is expected to have
RM50,000 salvage value at the end of 5 years.
(a) What is the depreciable cost of the new machine? =RM500,000
[2 marks]
(b) What is the amount of the annual depreciation if straight line method is use?
Determine the book value at the end of year 4.
=annual depreciation: RM90,000
=Book value: RM140,000
[4 marks]
(c) Calculate the depreciation percent of the new machine that will be used to compute the
depreciation amount, the amount of annual depreciation and book value at the end of
each year if the company decides to use double declining balance method. [13 marks]
YEAR
DDB
BOOK VALUE
DEPRECIATION
0
1
2
3
4
5
200,000
120,000
72,000
43,200
14,800
500,000
300,000
180,000
108,000
64,800
50,000
34
Page | 34

Revision
Sem 1, 2015/2016
(d) Compare the amount of accumulated depreciation of the machine in the books at the
end of the third year comparing straight line method and double declining (Q HAS
BEEN MODIFIED)
[6 marks]
Straight line method: RM90,000 X 3 =RM270,000
Page | 35
Double declining:= RM392,000

[Q4, FE Sem 1 12/13]
3. [FE Sem 1 13/14 Q HAS BEEN MODIFIED]
(a)
What is depreciation?
(b)
[1 mark]
Idea Perfect Sdn Bhd purchased a RM196,000 hole-punching machine with a freight
charge of RM1,000 and an installation cost of RM3,000. The machine has a recovery period of 5
years and the salvage value is expected to be zero. Complete the depreciation below.
Year
Straight Line
Book value
Double declining
Book value
depreciation
using SL
balance (DDB)
using DDB
without
method
depreciation [5
method
switching
[2 marks]
marks]
[5 marks]
[2 marks]
0
1
2
3
4
5
Answers
Year
Straight Line
Book value
Double
Book value using
depreciation
using SL
declining
DDB method
without
method
balance (DDB)
[5 marks]
switching
[2 marks]
depreciation [5
[2 marks]
0
1
5
RM40,000
RM40,000
marks]
RM200,000
RM160,000
0
RM80,000
RM10,368
RM200,000
RM120,000
RM15,552
THE DEPRECIATION VALUE FOR 5TH YEAR USING DDB MUST BE ADJUSTED TO GET 0
SALVAGE VALUE.
35

Revision
Sem 1, 2015/2016
Depreciation is defined as a gradual decrease in the utility of fixed assets with use and time.
Page | 36
From textbook
9.3
9.7
9.10
36

Revision
Sem 1, 2015/2016
Page | 37
9.11
9.12
a)
= (1/5)2 = 0.4
b) D2
= (0.4)(1-0.4)(38,000)=9,120
(the yellow one is portion for the 1st year depreciation)
c) B4
= (38,000)(1-0.4)4= 4924.80
37

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COEB442 Engineering Economics

All the best ya.

Below is information gathered from the Financial Statements of Akookeye Sdn

COEB442 Engineering Economics

Final Examination Semester 1, 2014/2015

Give a short definition for the following terms:

Net Cash Flow

Give ONE example of financing activities in a company.

the total assets

the operating profits = RM 10,500

the retained earnings = RM6,500

Final Examination Semester 2, 2013/2014

A corporation net income is derived by subtracting income taxes from the

What is a cash flow statement and why it is important to a company?

COEB442 Engineering Economics

Calculate the following:

the current liabilities

the long-term liabilities = RM690k

the gross margin

the quick ratio and interpret your answer

(12 marks, Q1, FE Sem 1 13/14)

The income statement is one of the most common financial statements in a

Earnings per share

COEB442 Engineering Economics

2. the current liabilities

3. the shareholders equity

4. the working capital

the debt ratio and interpret your answer

- High proportion of financing through borrowing from creditors

the acid test ratio and interpret your answer

- The company depends heavily on inventories to meet its obligation

COEB442 Engineering Economics

40,000 units of pendrives

COEB442 Engineering Economics

Contribution Margin Per unit

(a) What is the price per unit of the pendrive? = RM20

(b) How much sales value can the company generate?

=NO, profit declined by RM40k

Final Examination Semester 1, 2014/2015

Invoice cost (variable manufacturing cost)

Variable expenses per toy:

Annual fixed expenses:

COEB442 Engineering Economics

(b) Compute breakeven number in units.

The graph below is a cost-volume-profit graph.

Net income= RM80,500

Calculate the new contribution margin per unit.

COEB442 Engineering Economics

Calculate the new total fixed costs.

Should the company accepts this recommendation? Compare with

Final Examination Semester 2, 2013/2014

Determine the price per unit of the product. = RM100

Show that at breakeven point contribution margin is equal to average fixed

COEB442 Engineering Economics

Assuming demand is high and there is an increase in production and

To increase profit further, the sales manager is recommending a 10% reduction

(3) Should this suggestion be implemented? Calculate to explain.

[Q1, FE Sem 1 12/13]

What is the company's contribution margin per unit?

What is the break-even point in RM?

BEQ = 43, 537 units

COEB442 Engineering Economics

The Q is a combination of Ch 3 & Ch 5