MME 4272: Engineering Management II

ASSIGNMENT # 3
Factors, BEP and Depreciation (35+30+35)

Total Marks: 100

A diamond is a lump of coal that did well under pressure. Source unknown

Application of Factors
Problem #1 [5] What amount would you need to pay each January 1 into a savings account if at the end
of 15 years (15 payments) you desire RM 30,000? Annual interest is 7%. (Note: The last payment will
coincide with the time of RM 30,000 balance.)
Problem #2 [5] A future amount, F, is equivalent to $1,500 now when six years separate the amounts and
the annual interest rate is 12%. What is the value of F?
Problem #3 [5] A present obligation of $20,000 is to be repaid in equal uniform annual amounts, each of
which includes repayment of the debt (principal) and interest on the debt, over a period of five years. If
the interest rate is 10% per year, what is the amount of the annual repayment?
Problem #4 [6+4=10] Suppose that the $20,000 in problem 3 is to be repaid at a rate of $4,000 plus the
interest that is owed based on the beginning-of-year unpaid principal.
(a) Compute the total amount of interest repaid in this situation and compare with that of problem 3.
(b) Why are the two amounts different?
Problem #5 [4+6=10] It is estimated that a copper mine will produce 10,000 tons of ore during the
coming year. Production is expected to increase by 5% per year thereafter in each of the following six
years. Profit per ton will be $14 for years one through seven.
(a) Draw a cash flow diagram for this copper mine operation from companys point of view.
(b) If the company can earn 10% per year on its capital, what is the future equivalent of the copper
mines cash flows at the end of year seven?
Break-Even-Point

Problem # 6 [6+6=12]
Jacks Grocery is manufacturing a store brand item that has a variable cost of $0.75 per unit
and a selling price of $1.25 per unit. Fixed costs are $12,000. Current volume is 50,000
units. The Grocery can substantially improve the product quality by adding a new piece of
equipment at an additional fixed cost of $5,000. Variable cost would increase to $1.00, but
their volume should increase to 70,000 units due to the higher quality product.
(a) Should the company buy the new equipment?
(b) What are the break-even points ($ and units) for the two processes?
Problem # 7 [5+6+7=18]
The J & J Company has three product lines of belts A, B, and C having contribution margins
of $3, $2, and $1, respectively. The president foresees sales up to 200,000 units in the coming
period, consisting of 20,000 units of A, 100,000 units of B, and 80,000 units of C. The
companys fixed costs for the period are $255,000.

(a) What is the companys break-even point in units, assuming that the given sales mix is
maintained?
(b) If the mix is maintained, what is the total contribution margin when 200,000 units are sold?
What is the operating income?
(c) What would be the operating income become if 20,000 units of A, 80,000 units of B, and
100,000 units of C were sold? What is the new break-even point in units if these
relationships persist in the next period?
Depreciation
Problem #8 [2+2+2=8]
A diagnostic center has just purchased a MRI system for $325,000 with an additional $25,000 charge for
installation onto a truck for mobility. The expected life is 8 years with a salvage value of 10% of the
purchase price. Use classical straight line depreciation to determine (a) the first cost and salvage value, (c)
annual depreciation amounts, and (d) book value after 5 years.
Problem #9 [2+4=7]
Upjohn Company has bought a new packaging machine with an estimated useful life of five years. The
cost of the equipment was $55,000, and the salvage value was estimated to be $5,000 at the end of
year 5. Compute the annual depreciation expenses over the five year life of the equipment under
each of the following methods of depreciation:
(a) Straight line method
(b) Double-declining balance method
Problem #10 [3+5+5+4+3=20]
A special-purpose computer workstation has B = $50,000 with a 4-year recovery period.
(a) Tabulate and plot the values for SL depreciation, accumulated depreciation, and book value for each
year if there is no salvage value
(b) Tabulate and plot the values for SL depreciation, accumulated depreciation, and book value for each
year if the salvage value, S=$16,000.
(c) Use a spreadsheet to solve this problem by using DDB method.
(d) Plot the book value for SL and DDB depreciation on a single XY scatter chart.
(e) Calculate the DDB annual depreciation rate for all years 1 through 4.
Tips for submission:

Solve the problems yourself for deeper understanding

Mind that Only hand written submission is acceptable

However, you can print only the cover page if you want. Other parts have to be hand written.

Use a cover page. Write down your matric number, name, section, course title, assignment number etc.

Put the Due date of Submission and the Date of Submission on the front page

Be prepared to lose at least 10% marks if any of the above requirements is not met.

Note: Date of Submission: 10/05/2016 (for Sec 7) and 12/05/2016 (for Sec 8),

Delay will cost @ 10% marks per day

No need of submission after 5 days from the due date.