Engineering Economics

(i)During your FYP, your group came up with a home automation solution. You have started a business venture, Automaton, to provide the automation solution. You have established a manufacturing plant in I-9 industrial estate, Islamabad. The capital investment in plant and equipment is $ Your_Roll_Number (e.g. 17i-0454 $170,454) One of your product on offer has following cost structure (in dollars):

Hyper-Acti+ (HA+)

Material cost = 5

Labor cost = 3

Administrative costs, monthly = 3,000

Annual advertisement costs = 3,000

Direct overhead = 40% of material cost

Annual insurance fee = 5,000

Monthly building rent = 1,000

Depreciation = 10% of the capital investment

Selling Price = 30

Note: Answers without working will not be rewarded any marks.

1. Determine the annual break even number of units?
2. What is the annual breakeven sales in dollars?
3. Calculate the profit earned when sales are 30% above break-even volume, ignore the tax effect, as your business is tax exempted.
4. What will be the breakeven sales target if the monthly rent is increased by 10%?
5. Your company operates from 9 to 5 (eight-hour) daily, 20-days a month. Calculate hourly breakeven sales target (in number of units).
6. Your sales department reported that due to the pandemic the sales cannot go beyond 2,000 units but price can be adjusted. What should be the new selling price to breakeven?

(ii).Warda_Hamna-3 (WH3) G-11/3 Islamabad, a 100-apartments complex, was launched last year after huge success of the first two projects by Haji Allah Ditta Group. Following financial data was gathered for project screening purpose.

Price of Land: $ Your_Roll_Nummber (e.g. 17i-0545 = $ 170,545)

Building construction cost: $ Your_Roll_Nummber x 2

Annual O&M cost: $ Your_Roll_Nummber 50,000

Annual Insurance and property tax: $ 4% of (total initial investment + annual O&M cost)

Planning horizon: 30 Years

It was estimated that only land cost could be recovered as salvage value at the end of the project life. The first two projects success suggested that WH3 will have on average a

whopping 90% occupancy annually. Haji Allah Ditta considers such projects worthwhile for a minimum annual rate of return of 15%. All apartments are of the same size and specifications, and shall be charged the same monthly rent.

1. Calculate the monthly rent of an apartment to be charged to fulfil Haji Sbs annual earnings expectations.
2. Due to current pandemic outbreak, the annual occupancy rate is expected to drop to 75%. What should be the revised monthly rent per apartment to keep the annual earnings at the same level?