Unformatted text preview: Student Name _______________________ ME353 Engineering Finance key First Midterm Exam Open Book You may use Excel, the ME353 website, the Excel add-ins and the course textbook. You may not use the Blackboard class site. You may not open files prepared before the exam. You may not communicate with others. The exam is presented in this document. To receive credit you must answer the questions in the spaces provided. Submit an Excel workbook through Blackboard when you are finished with the exam. Include a worksheet for each of the first three problems. 1. (14 Points) A company wants to establish new production line to manufacture oil rigs. You are to perform an economic analysis for the line. Use the Estimate add-in and the following information for your analysis. Use an interest rate of 0%. The line will be installed immediately and operate for four years. An initial investment of $7000 is necessary to establish the line. At the end of its life the line will be dismantled. The disposal value of the assets will be $4000. This is a receipt for the company. The operating costs in each year consist of material cost and labor cost. Each rig produced requires 10 units of material. The material cost is $3 per unit of material in the first year. The unit cost will increase by 5% per year in subsequent years. For labor, there is an annual fixed cost of $1000 that does not depend on the production level. Each rig requires 4 labor units. The variable cost for labor is $10 per unit of labor. Demand for rigs is expected to follow the pattern below. Year Demand 1 100 2 200 3 250 4 275 During the first two years the selling price will be $130 per rig. For the remaining years the selling price decreases to $80 per rig. To finance the production line, the company will borrow $10000 at time zero. The loan will be repaid in four end-of-year payments of $3500 each. a. Show the cash flow below along with the net profit over the life. Be clear about whether costs or revenues are positive.
Time Cash Flow 0 1 2 3 4 Net Profit b. Credit for the worksheet. Time Cash Flow 0 3000 1 1500 2 7200 3 2769 4 950 Net Profit 9881 Note that the red numbers are negative and the black positive Costs are positive, so the total profit is 9881. 2 2. (12 Points) You are to estimate the cost of producing a specified number (called a lot) of items of some product A. The product consists of several parts arranged into subassemblies. You are to perform an economic analysis to find the cost of producing a given number of items or product A. In the following a fixed cost is incurred for producing a lot independent of the number of items produced. The variable cost is the cost of buying a single unit of a part. Note that in some cases an item requires more than one unit of a given part. There are seven parts identified as P1, P2, etc. The parts are arranged into three subassemblies: S1, S2 and S3. S1 consists of one each of parts P1 and P2. There is a fixed cost of 150 for producing this subassembly. The unit cost of P1 is 1 and the unit cost of P2 is 0.2. S2 consists of 10 units of part P3 and 4 units of P4. There is a fixed cost of 40 for producing this subassembly. The unit cost for P3 is 0.03. The unit cost of P4 is 0.5. S3 consists of one each of parts P5, P6 and P7. There is a fixed cost of 50 for producing this subassembly. The unit cost for P5 is 0.4. The unit cost of P6 is 0.6. P7 can be obtained in any amount for a fixed cost of 100 and no variable cost. Use the Estimate add-in and the following information for your analysis. On the worksheet submitted with this problem, show the CBS with three levels. The second level is identified by the subassemblies. a. What is the cost of producing a lot of 50 items of product A. Break the cost into subassemblies and show your results below.
Subassembly S1 S2 S3 Summary Level 2 Index Description 0 Start 1 Sub 1 2 Sub 2 3 Sub 3 4 Income Estimate Level 1:OB3_1_2 Cost 565 Cost for lot Total Cost Prod. Cost 0 210 155 200 0 b. Say the product can be sold for $10 each. What lot size (number of items produced) will cause the company to break-even with total revenue equaling total cost? Part b. 3 Summary Level 2 Index Description 0 Start 1 Sub 1 2 Sub 2 3 Sub 3 4 Income Prod. Cost 0 224 182 212 618 Estimate Level 1:OB3_1_2 Cost 0 Production Volume 62 4 3. (16 Points) You are to estimate the capital cost of a project. The project consists of several work packages (WP).
Work Package WP1 WP2 WP3 WP4 WP5 WP6 WP7 Most Min. Likely 75 150 50 100 6 15 10 25 40 80 30 60 50 100 Max. 300 200 30 50 160 120 200 Managers estimate minimum, most likely, and maximum costs of the work packages. All cost estimates are assumed to have the triangular distribution with the parameters as shown. Use the Estimate and Random Variables add-ins for your analysis. a. Credit for the worksheet. b. Show the mean and standard deviation of the project cost. Mean S.D. Mean 617 Var. 5197 S.D. 72 c. What estimate of the project cost would be obtained if each manager estimated the 60th percentile for his or her WP? d. Assume the project cost can be approximated by a normal distribution. What is the probability that the project cost will exceed 600? e. Simulate 1000 observations of the project cost. Include the histogram in your workbook. Show the mean and standard deviation obtained from the simulation. One possible solution is Replication 1 Simulated Cell $X$14 Sample Size 1000. Mean 612.6638 648 0.593214571 Mean S.D. 5 Stand. Dev. 71.4527 6 4. (8 Points) A small engineering firm, performing research and development for a space shuttle project, has promised 10 prototype units of a new sensor they have developed for the shuttle fuel system. Engineers estimated the number of engineering man-hours needed to accomplish the first prototype was 126 hours. The second unit took only 75.6 hours. a. Based on the two observations, what is the learning curve percentage? b. What is the estimated number of hours needed for all ten prototype units?
a. 0.6 learning curve slope Compute n = log s/log 2 -0.737 Z(u)=K*u^n u 1 Z(u) 126 b. 480.4 hrs. 2 75.6 3 56.07 4 45.36 5 38.48 6 33.64 7 30.03 8 27.22 9 10 24.95 23.09 Time to complete all designs. 7 ...
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