1. Choose either case 1 or case 2

2. Choose additional 1 case (from cases 3 to 6) to solve from among the given choices.

Hence total cases to work/solve is 2.

3. For the 2 cases, solve the following and present the solution in structured manner

a. Payback period

b. Profitability index

c. Internal Rate of Return

d. Break-even Analysis (if applicable)

e. Depreciation schedules (use one method only) f. PW, AW, or FW Analysis (use one method only)

Case 1:

An engineering company is considering the purchase of one of two computer systems.

System 1 is based on small. Decentralized personal computers and has an initial cost of BD100,000. These will be replaced in five (5) years at a cost of BD100,000. The salvage value is BD10,000 at the end of years 5 and 10. It is estimated that the benefits for the first five (5) years will be BD30,000 per year, and the second five (5) years, is BD60,000.

System 2 is based on a larger, more powerful work stations and has an initial cost of BD500,000. The replacement will occur at the end of year ten (10), where the salvage value is BD5,000. The amount of benefits is estimated to be BD90,000 per year over the ten (10) years period.

The company uses a 10% interest rate. Which system should the company purchase?

Case 2:

An engineer must choose between two pumps for use in a water distribution system. Both pump A and pump B will deliver water at an adequate flow rate and pressure head. The data for the two pumps are given below:

Item Initial Cost (BD)

Operating Cost per year (BD) Lifetime (years)

Salvage Value (BD)

Pump A 200,000 30,000 12 10,000

Pump B 300,000 23,000 12 60,000

If the interest rate is charge at 7%:

a) which pump are you going to choose?

b) If the lifetime of pump B is changed to 16 years, and the analysis period is 48 years,

which pump is better?

Case 3:

XYZ company would like to start a company with an initial investment of BD 50,000. The company would generate a revenue of BD 20,000 every year, and the investment has a life of 5 years. After 5 years, the company would have no market value. The company produces a generator soundproofing unit that is a requirement for generators above 1000mw by law. The fixed cost (CF) is BD 73,000 per month, and the variable cost (cv) is BD 83/unit. The selling price per unit (p) =180-0.02D.

Case 4:

A city is considering extending the runways of its municipal airport so that commercial jets can use the facilities. The land necessary for the runway extension is currently a farmland that can be purchased for BD350,000. Construction cost for the runway extension are projected to be BD600,000 and the additional annual maintenance costs for the extension are estimated to be BD22,500. If the runways are extended, a small terminal will be constructed at a cost of BD250,000. The annual operation and maintenance cost for the terminal are estimated at BD75,000. Finally, the projected increase in flight will require he addition of two air traffic controllers at an annual cost of BD100,000.

Case 5:

A homeowner is considering whether to invest in solar panels. This homeowner has gathered the following information for the town:

The average cost for residential energy is BD0.124/kWh.

The government subsidizes 70% of whatever is invested by the household. Each square foot of panel produces 19.13 kWh every- year.

The cost of installation per square foot of solar panel is BD93.91.

The house has 350 square feet of roof space. Assume the homeowner's interest rate is 6% per year.

Case 6:

A commercial fitness and gym equipment's company is considering setting up a gym with a land that can be purchased for BD400,000. Construction cost for the gym equipment's and the decoration is planned to be BD250,000 and the additional annual maintenance costs for the gym are projected to be BD100,000. The one year package is BD200/person and its predicted to have 1,000 trainers each year with 30% of them going to have a massage once a month for BD15.