REVISION

BPK 30902
CHAPTER 1 – Intro to Engineering Economy
CHAPTER 2 – Fundamental Cost Concept
CHAPTER 3 – Cost Estimation Technique pt 1
CHAPTER 3 – Cost Estimation Technique pt 2
3.3.1 Indexes, I, provide a means for
developing present and future cost and
price estimates from historical data.

k = reference year for which cost or price is known.

n = year for which cost or price is to be estimated (n>k).
Cn = estimated cost or price of item in year n.
Ck = cost or price of item in reference year k.

Indexes can be created for a single item or for multiple items

(eqs. 3-1, 3-2).
Indexed can be created for a single item or for
multiple items. For a single item, the index
value is simply the ratio of the cost of the item in
the current year to the cost of the same item in
the reference year, multiplied by the reference
year factor (typically, 100). A composite index is
created by averaging the ratios of selected item
costs in a particular year to the cost of the same
items in a reference year.

x
3.4.1 The power-sizing technique
(or exponential model) is frequently used for
developing capital investment estimates for
industrial plants and equipment.

(both in $ as of the point in time

for which the estimate is desired)

(both in the same physical units)

3.4.2 A learning curve reflects increased
efficiency and performance with repetitive
production of a good or service. The concept is
that some input resources decrease, on a per-
output-unit basis, as the number of units
produced increases.
The time of number output unit =

Total time to produce x unit , Tx = K [un +….]

The cumulative average time for x unit , Cx = Tx/ x

FINAL EXAMINATION
SEMESTER I
SESSION 2013/2014

Q3 (b) Cost for a generator set of 100-KW was RM35,000 ten years ago while
the cost index for this generator was 187 and is now 194 with the cost capacity
factor 0.75. The EE team is considering a 240-KW and 300-KW units of the same
general design to power a small-medium isolated plant. Both models require an
additional pre-compressor, which currently costs RM22,000.

(i) Calculate the total cost of the 240-KW unit. (9 marks)

(ii) Compute the total cost of a 300-KW unit. (6 marks)

Solution:
CB = Ck (In/Ik)
= 35,000(194/187)
= RM 36,310.16 ................................................(3 marks)

CA1 = CB(SA/SB)X
= 36,310.16(240-KW/100-KW) 0.75
= RM 70,014.27
TC = 70,014.27 + 22,000
= RM 92,014.27 ................................................(6 marks)

Solution:

CA2 = CB(SA/SB)X
= 36,310.16(300-KW/100-KW) 0.75
= RM 82,769.27
TC = 82,769.27 + 22,000
= RM 104,769.27 ...........................................(6 marks)
FINAL EXAMINATION
SEMESTER I
SESSION 2014/2015

Q2(b) The structural engineering design section of Agile E-Power, a multinational

electrical utility corporation has developed several standard designs for a group of similar
transmission line towers. The detailed design for each tower is based on one of the
standard designs. A transmission line project involving 60 towers has been approved. The
estimated number of engineering hours needed to accomplish the first detailed tower
design is 123.

Determine:
(i) The number of engineering hours needed to design the eight and sixteenth tower
using a 95% learning curve. (5 marks)

(ii) The reduction percentage when the production is doubled. (5 marks)

(iii) The estimated cumulative average hours required to produce the first five tower
designs (5 marks)
SOLUTION:
K = 123 hours
s = 0.95 (95% learning curve)
n = (log 0.95) / (log 2) = -0.074 ........................................... (1 marks)
Z8 = 123(8)-0.074 = 105.46 hours ......................................... (2 marks)
Z16 = 123(16)-0.074 = 100.18 hours ......................................... (2 marks)

(Z8 - Z16) / Z8 = (105.46-100.18)/105.46 = 0.05

Assumption / conclusion: The 95% learning curve results in a 5% reduction in number of engineering
hours each time the quantity of the tower needed to be designed is doubled. (5 marks)

T5 = 123 ∑10 U=1u-0.074

= 123 [1-0.074 + 2-0.074+ 3-0.074+ 4-0.074+ 5-0.074]
= 123[1 + 0.9500 + 0.9219 + 0.9025 + 0.8877]
= 123 [4.6621]
= 573.4383 hours ........................................... (3 marks)

Cx = Tx / x = T5/ 5 = 573.4383 / 5 = 114.69 hours............. (2 marks)

CHAPTER 4 – Time Value of Money pt 1
CHAPTER 4 – Time Value of Money pt 2
CHAPTER 5 – Benefit Cost Ratio
5.3 The benefit-cost ratio method
• The consideration of the time value of money
means this is really a ratio of discounted benefits
to discounted costs.

• B-C ratio is the ratio of the equivalent worth of

benefits to the equivalent worth of costs.
• . Conventional BC Ratio with PW
• Modified BC Ratio with PW
• Conventional BC Ratio with AW
• Modified BC Ratio with AW
Symbol
Benefit Cost Ratio Method (B-C Ratio)
B = Benefit
I =Investment
MV = F= Market Value at the end of useful life
(nilai sisa)
O & M = Operation & Maintenance
CR = I-MV
Capital Recovery Amount
(kos pemulihan modal, allowance,
salvage value)
Two B-C ratios for Present Worth (PW)
Tips : All must multiple with (P/A, i, n) except I

Conventional B-C ratio with PW

Modified B-C ratio with PW

A project is acceptable when the B-C ratio is greater than

or equal to one.
B-C ratios for annual worth
(AW)
Tips: only CR must multiple with (A/P, i, n)

Conventional B-C ratio with AW

Modified B-C ratio with AW

A project is acceptable when the B-C ratio is greater than

or equal to one.
Guideline for economic justification

If B/C ≥ 1.0 accept project

If B/C < 1.0 project not acceptable
 i=10%

N=25
 FINAL EXAMINATION
SEMESTER I
SESSION 2013/2014
Q1 b. JAY Corporation is considering a new project to construct a new jetty
near Danga Bay for the use of gateway tourism’s ferry to and from
Singapore and Indonesia. Also included in the project is to build custom and
immigration facilities. The land acquisition is estimated to be RM1.2 million.
Construction cost for the jetty and other facilities is expected to be RM1.8
million with an additional annual maintenance cost of RM 90,000. Finally,
the projected increase in marina travelers will require an additional jetty
traffic controller with an annual cost of RM50,000. Market value of some
assets at the end of useful life is estimated RM20,000. Annual benefits of the
jetty have been estimated as in Table Q1.
 Table Q1: Annual benefits of the JAY Corporation Jetty project
Rental receipts from ferry & boats RM300,000
Jetty charges to passengers RM240,000
Convenience benefit to the local RM60,000
community
Additional tourism income to state of RM120,000
Johor

Apply the B-C ratio method for both conventional and modified cases
using PW and AW methods with the study period of 10 years and a
MARR of 15% per year to determine whether JAY Corporation should
proceed with the jetty project.
(30 marks)
 FINAL EXAMINATION
SEMESTER I
SESSION 2014/2015

Q4. Your company are invited to propose a new multipurpose transportation

terminal in southern region state as a hub for air, sea and land
transportation. Also included in the project is to build custom and
immigration facilities. The land acquisition is estimated to be RM30 million.
Construction cost for the terminal and other facilities is expected to be RM
86 million with an additional annual maintenance cost of RM 9 million. The
custom and immigration facilities building and sophisticated equipment
should also be considered with a cost of RM 27 million and RM 6 million per
year maintenance expenditures.

•
(a) Determine the value of Total Cost, Benefit and Disbenefit
from the above statement. (9 marks)

(b) Apply the B-C ratio method for both conventional and
modified cases using PW and AW methods with the study
period of 20 years and a MARR of 20% per year to
determine whether the project should be proceed.
(16 marks)