EM302 Exam style questions to practice on (2014)

Question 1 [20 Marks]

Use 50-100 words to comment on the following:
a) Understanding and implementation of Ethics in Engineering. [5 Marks]
b) Methods for quality control with emphasis on the Shewhart Cycle and six
sigma techniques. [5 Marks]
c) Scope Creep, prevention and control. [5 Marks]
d) Types of industrial relations: advantages and disadvantages. [5 Marks]
Question 2 [20 Marks]
A company wants to start a major project in three years time. They have decided to
deposit a sum of $10,000 every three months into a fund that offers an annual
interest of 9% but compounded monthly. In addition to regular savings, a lump sum
of $30,000 is deposited at the end of the first year, and $50,000 is deposited at the
end of the second year.
a) What is the balance in three years, before the project starts? [10 Marks]
b) What is the value of the balance in todays dollars? [5 Marks]
c) How can the company organize its workforce and what should they do to
make a full start with the project when the time comes? [5 Marks]
Question 3 [20 Marks]
The government has hired you as a consultant to make recommendations on the
costs of a new rail system being proposed to transport an expected 200,000
commuters annually between two major city centres.
You estimate that the rail system will initially cost build is $300m to build in todays
money. Additional building funds are required at the end of years 1, 2 & 3 to the
value of one third of the previous years investment amount.
You also estimate that the rail system will need an upgrade every 15 years at a
future cost of $20m. The rail system is expected to begin earning a return at the
end of the first year.
a) Assuming that each year the rail system project returns the same amount on
an indefinite basis and given an interest rate of 8% calculate what that annual
return should be in order to make this project breakeven. [15 marks]
b) It is expected that each commuter uses the service twice per day for 48 weeks
p.a. from Monday to Friday, what should the price of a one way ticket be to
breakeven. [5 marks]

Solutions to practice questions

Q1 Solution
a) Ethics deals with what we believe to be good or bad and with the moral obligations
that these beliefs imply. Ethics involves the rules for deciding right and wrong and
the code of conduct that is based on our decisions.
Engineers have a responsibility to act in an ethical and responsible manner in all
their professional dealings. Essentially we are required to act in a rational and
objective manner that is transparent and easily defendable
Talk about the IEEE codes of Ethics
b) Both methods are widely used. Shewhart Cycle works on Plan-Do-Check-Act, PDCA.
Other methods are:
Peer reviews: are effective means of reducing defects during the development lifecycle
Failure testing: involves the operation of a product until it fails under stresses
such as vibration, temperature, humidity, etc. Failure tests expose unanticipated
weaknesses in a product. Often quite simple changes improve products.
Statistical methods: such as six sigma technique. Six sigma methods are based
on the likelihood of a failure within six standard deviations on the normal distribution.
The probability is less than four in a million.
c) Scope control: is the managing the changes at any stage of the project. In order
to control a project a scope baseline must be set. Scope baseline is the
measurement of the success of the project. Scope Management is very important
since it can suffer from Scope Creep. That is, all projects tend to have changes
and incremental expansions that may not have been a part of the initial planning.
There are two distinct types of scope creep:
Business scope creep and Features (technology) scope creep.
The style of scope creep management is dependent upon on the people who
create the changes.
d) Industrial relation is a social science that studies employment relationship. It
helps to make the relationship better for all parties concerned.
There are three approaches:
1. Unitary , 2. Pluralist and 3. Radical
Unitarism implies an integrated, harmonious cooperative relationship between
the employees and employers. Trade unions are considered to be unnecessary.
Pluralism implies that organizations constituted by divergent subgroups, each
having their own objectives. Therefore, subgroups are bound to have frictions.
Radical relation implies that there is a fundamental difference of interest between
capital and labor.
Nowadays in industrial societies, free market is taking over and trade unions are
declining. There are industrial relation tribunals and courts to settle disputes.
Q2 Solutions

Payment period K = 4 per year

Interest period M = 12 per year
a) Convert monthly interest to quarterly interest
Step 1: M = 12; K = 4; C = 3
Step 2: Discrete id = (1 + 9 %/( 3x4))^ 3 1 = 2.27% per qtr
Step 3: N = 4 x 3 = 12 quarters
Step 4: We know that the payments are $10,000 per quarterly hence we need to find
the future value of our deposits

Calculate the effective interest rate compounded monthly, i.e. M=12

EAR = (1 + i/( M))^M 1 = (1 + 9 %/( 12))^12 1 = 9.38% per year

Total Sum available at the end of three years = $136,152+35,892+54,690 = $226,735

b) Balance in todays value is

c) Company should organize the workforce for the project in Matrix form to set up the
basic teams.
They can also do feasibility studies, market search, risk analysis, work out the scope of
the project even pre [pare drawings and do R&D.

Question 3 Solution
a) Note that:
PV
PV

PV

Cash OutFlow

= PV

Cash Inflow

= PV Construction + PV Upgrade
2
2
(300) ] / [(1+ 0.08 )2 ] +
Construction = $300,000 + [(1/3)(300) ] / [(1+ 0.08 ) ] + [(1/3 )
[(1/3 )3 (300) ] / [(1+ 0.08 )3 ]
PV Construction = $429.99 m
Cash OutFlow

Now need to calculate:

PV

Upgrade

= ?

We require determining the present value of the upgrade. We know that it will cost $20m in
15 years time. Using Future Value analysis, PV Upgrade =:
F=

A [(1 + i )

1]

Substituting in the values, rearranging and solving for A gives:

A=

$20m ( 0.08)
[

15
(1 + 0.08 )

$ 736,648.25 per year

1]

Note: This investment of $ 736,648.25 continues on for ever, thus using the perpetuity
formula gives:

PV

Upgrade

= A / i = ($ 736,648.25) / (0.08) = $9.208m

Using:

PV

Cash OutFlow

= PV

+ PV

Construction

Upgrade

= $300m + $9.208m
= $438.21m

Now calculate: PV

Cash Inflow

Let X equal the annual expected income starting from year 1 to infinity. This revenue
stream continues on for ever, thus using the perpetuity formula gives:

PV

Cash Inflow

= A / i = ($ X) / (0.08)

At breakeven, PV

Cash OutFlow

= PV

Cash Inflow

Thus we have ($ X) / (0.08) = $438.21m

Gives X = $35 m Hence we require an annual income of $35m to break even.
b) Each of the 200,000 commuters will use the service twice a daily for 48 weeks per year
at a rate of 5 days / week i.e. from Monday to Friday.
To breakeven we have: Total expected revenue from ticket sales = PV

Cash OutFlow

Let Y equal the price of a one way ticket between the two city centres
Total expected revenue from ticket sales
= (200,000 commuters)($Y/ticket)(2 trips per day)(5days x48 weeks )
Equating this with PV

Cash OutFlow

gives:

(200,000 commuters)($Y/ticket)(2 trips per day)(5 days x48 weeks) = $35m

Thus Y = $0.3646 or 36.46cents per ticket