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Seat No.: Enrolment
GUJARAT TECHNOLOGICAL UNIVERSITY
ME SEMESTER II EXAMINATION SUMMER 2017
Subject Code: 2724609 Date:30/05/2017
Subject Name: Engineering Economics Financial Management
Time: 02:30 PM to 05:00 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
4. Use of factor tables is permissible.
Q.1

Define the following terminologies.
Rate of Return, Net cash flow, Uniform gradient, Sinking fund factor, Short run production, Perfect market, Inflation,
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Solve following problems using factor table. Draw cash flow diagram in each case.
i. A person invests 2,00,000 in term deposit now at 10% rate of interest. How much money will be compound accumulated after 5 years?
ii. If a person is investing Rs. 20,000 uniformly every year for 15 years, what will be the compound amount accumulated, if the 10% interest rate is applicable?
iii. How much money should be invested now, if a person needs Rs. 6,00,000 after 8 years, if rate of interest is 10%.
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Q.2

Prepare trading account, profit and loss account and balance sheet of Amin Industries Pvt. Ltd. with the help of following trial balance as on 31/3/2017.
Name of Account
Debit
Credit
Capital Drawings
15000
139000
Adjusted Purchase Sales
500000
850000
Goods return
40000
Discount
4000
6000
Rent
5000
Debtors Creditors
100000
80000
Commission
6000
Bills
15000
25000
Cash balance
10000
Bank balance
25000
Building
200000
Furniture
30000
Machinery
100000
Wages
5000
Carriage inward
5000
10% Bank loan interest
10000
100000
Closing stock
30000
Office Expenses
100000
Total
12,00,000
12,00,000
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2

An industrialist is trying to select one alternative out of two machines with the estimates presented below.
Machine A Machine B
First cost, P 2,50,000 4,00,000
Annual Operating Cost, 40,000 25,000
Salvage Value Rs. 50,000 70,000
Life, (years) 5 10
Determine which machine should be selected on the basis of Present Worth Analysis, if rate of interest is 10% year.
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OR

Calculate the capitalized cost of a project that has an initial cost of Rs.2,00,000 and an additional investment cost of Rs.40,000 after 9 years. The annual operating cost will be Rs.6000 for the first 4 years and Rs.9000 thereafter. In addition, there is expected to be recurring major rework cost of Rs.20,000 every 12 years. Assume that interest rate, i 10% per year.
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Q.3

Mr. Mukesh Patel is investing Rs.50,000 now in common stock that is expected to yield Rs.4000/year for 10 years and Rs.25,000 at the end of 10 years, what is the rate of return?
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i. What is depreciation? Explain reducing balance method.
ii. The cost of a car is Rs. 8,00,000, scrap value is Rs. 1,00,000, estimated life 10 years, Depreciation rate 10%. Calculate the annual depreciation by straight line method. Draw line diagram showing first 5 years' depreciation.
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OR
Q.3

A small industry is trying to decide between purchase of hardness testing machine for checking the hardness or sending the samples to a private lab. In order to equip the tester, an initial expenditure of Rs. 2,00,000 will be required.
In addition, a full time technician will have to be hired at a cost of Rs. 5000 per month. A total of 500 analytical tests are required each month.
If the analysis are done in-house, the cost per sample will average Rs.5, but if the samples are sent to an outside lab, the average cost will be Rs.30
The equipment purchased for the lab is expected to have a useful life of 5 years. If the utility uses an interest rate of determine the B/C ratio and modified B/C ratio for the project.
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i. Explain Break Even Analysis with graphical representation.
ii. A manufacturer of motor cycles is selling accessories at Rs. 1000 unit set. In case industry makes them in-house, the fixed cost and variable cost would be Rs.8,00,000 and Rs.600 unit set respectively. Whether manufacturer should make or buy the accessories, if there is a demand for 2400 set of accessories? Evaluate answer using Break Even Analysis.
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Q.4

A Geminy Engineering Company has following department-wise actual costing. Apportion the overheads to the workshops. Apportion of administration should be on purchase and apportion of purchase stores should be on two shops.
Cost Centers
Department Overheads
No. of people
Direct Material Cost
Office
40,000
2

Purchase stores
60,000
4

Press shop
80,000
10
3,00,000
Spray Painting shop
70,000
10
1,00,000
2,50,000
26
4,00,000
1
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What are various modes of long term financing? Explain briefly.
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Q.4

Explain financial environment, including investment sector, financial broker, secondary market, saving sector and financial intermediaries.
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What is budget? What are the objectives of formulating budget?
Explain the significant features of partnership form of business.
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Q.5

Explain: Law of demand, law of supply and equilibrium condition of both.
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Explain: Division of labour. What are its merits and demerits?
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Q.5

Explain: Law of diminishing marginal utility with graphical diagram.
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Explain: Perfect competition, monopoly and oligopoly.
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4
Factors table for 10% Interest Rate