1)a) Briefly explain the law of demand
b) Differentiate between Sink cost and opportunity cost and hence explain the situation in which they are significant
c) A 50 year old man is preparing for his retirement. He plans to retire at age 65 and estimates that he can live comfortably on Rs. 1,00,000 per year in terms of today’s value. It is estimated that future rate of inflation will be 6% per year and he is able to invest his savings at 8% compounded annually. What equal amount must he save each year until he retires, so that he can make withdrawals as desired for 5 years beyond his retirement?
2)a) Explain the significance of elasticity of demand in case of: i) Consumer goods ii) Producer goods.
b) Differentiate between simple interest and compound interest with a suitable example
c) Breakeven production of a firm is 5,000 units. Its fixed cost is Rs.50,000, the variable cost/unit is Rs. 25. Find out the price of the product. How much the firm should produce to earn a profit of Rs. 25,000?
3)a) Define the following economic concepts
i. Mutually exclusive alternatives
ii. Future value of an annuity iii. Contribution Margin
b) Explain the fundamental reasons for replacement of assets?
c) Five years ago conveyor system was installed in a manufacturing plant at a cost of Rs.27,000. It was estimated that the system which is still in good condition would have a useful life of 20 years. Annual operating costs are Rs. 1350. The numbers of parts to be transported have doubled and will continue at the higher rate for the rest of the life of the system. An identical system can be installed for Rs. 22,000 or a system with a 20 year life and double the capacity can be installed for Rs. 31,000. Annual operating cost is expected to be Rs. 2500. The present system can be sold for Rs. 6500. Either of the three systems will have a salvage value at retirement of 10% of the original cost. The MARR is 12%. Compare the two alternatives of obtaining the required services on the basis of equivalent annual cost over a 15 years study period, recognizing any unused value remaining in the systems at the end of that time.
4)a) Explain the elements of Benefit-cost ratio for a project of constructing a new road in a rural area.
b) An asset has a first cost of Rs. 2,50,000.00 and an expected life of 10 years. The estimated salvage value of the asset at the end of 10 years is Rs. 50,000.00. If reducing balance method of depreciation is used, find, i) Undepriciated amount of capital remaining in the asset at end of 6th year ii) The depreciation charges for 4th year and 8th year.
c) A machine costs Rs. 35,000 and has a life of 17,500 hours. i) Determine the depreciation charges if the machine is used for 1,500 and 2,200 hours in the first two years respectively. ii) After 2 years if the total useful life is estimated to be 22,500 hours, calculate the new depreciation rate for the 3rd year and later.
5)a) An air compressor is installed at a total cost of Rs. 80,000.00. It is estimated that the compressor would result in a saving in production cost of Rs. 10,500 per year for 15 years, with a zero salvage value at the end of 15 years. What is the expected rate of return? If the cost of capital of the organization is 12%, does this investment be feasible?
b) A company which markets micro-computers has just introduced a new line which is expected to sell for Rs. 10,000/-per system. The company offers the following payment plans for the potential customers. OPTION 1: Pay 4 equal end-of-year installments of Rs. 3,155/- each OPTION 2: Pay Rs. 14,641/- at the end of 4 years
OPTION 3: Pay Rs. 1,000/- at the end of each year for 3 years and Rs.11, 000/- at the end of 4 years. Which is the best option for a customer; and to the company; if the money worth is 8%?
c) What quarterly interest rate is equivalent to an effective annual rate of 6%?
6)a) Briefly explain minimum cost analysis?
b) Derive an expression for annual and book values according to Sum-of-the-years Digits method.
c) A bridge is being considered across a stream. The superstructure will be made of steel and will have a weight per meter depending on the span between the piers in accordance with W= 14S+950 where S=span length and W=weight in kgs. Piers will be made of concrete and will cost Rs. 9,50,000 each. Superstructure can be erected at a cost of Rs.30/-per kg. If the number of piers required is to be one less than the number of spans, find the number of piers that will result in a minimum total cost fro piers and superstructure if the length of the bridge is 375 meters? Also determine the minimum total cost?