Quiz 1: Engineering Economic Decisions
New product or product expansion: In Journal WJ, a published article states that an ipad produced by Company X will launch to market soon. The new ipad will have advantages of HD screen, smart looking, and quad core processor. Hence, the new product will consume low power and considered as the fast processer than earlier. Process selection: In Journal WJ, a published article states that the Company X, which is a mobile company, will soon launch a mobile to the market with quad core processer. The company supports its product with best features such as; the process will be more advanced than the earlier. Cost reduction: In Journal WJ, a published article states that the Company AL has realized that lathe machine is more expensive than CHC machine. Hence, the company opted to use CHC machine considering the cost reduction factor of it. Equipment replacement: In Journal WJ, a published article states that the Company ED feels that Lathe machine is more efficient with longer useful life than CHC machine. Hence, the company opted to use Lathe machine in metal snipping. Quality improvement: In Journal WJ, a published article states that the Company Y felt that AGIL manufacturing is better than Lean manufacturing for steady elimination of waste. Hence, the company decided to shift to AGIL manufacturing in future products.
A.Economic decisions are not necessarily time invariant because economic decisions is based on the information available at the time of decision and also from the uncertainties availed from the forecasted data. Hence, the statement in Option a is incorrect. b.In investment evaluation, the most important factors to be considered are the time and risk. Any investment such as commercial real estate loans is evaluated based on the risk, because lower risk may result in lower income or profit, where higher returns are expected with higher risk along with the time horizon. Hence the statement in Option b is correct. c.The financial statements of companies has the larger impact on large scale engineering projects such as large technology or IT related companies are evaluated based on its financial statements to work out its predicted performance benefits with the actual costs and results. Hence, the statement in Option c is correct. d.Engineer's primary role is to make capital expenditure decisions, which forms a foundation for the future profitability of any company. Hence, the statement in Option d is correct.
Illustration of fundamental principles of engineering economics: Principle 1: • Company S estimated the cost of building a bridge was $2.4 million in 2011 and it increased to $5million in 2014. • Bank C offered 10 year saving policy where a deposit on today will double after 10 years. This offer of bank C and estimation of company S states one of the fundamental principles of engineering economics that an earlier dollar is worth more than a later dollar. Principle 2: • Company H launched a new printing machine with low price. The printing quality of this machine is better than many other printers. But the processor of the printer is very slow. The new launch of company H states one of the fundamental principles of engineering economics that is all that counts is the difference among alternatives. Principle 3: • Company NC acquired company MC last year. Now marginal revenue of company NC is $2million. Whereas, marginal cost is less than $1.5 million. The above example states one of the fundamental principles of engineering economics that is marginal revenue must exceed marginal cost. Principle 4: • Bank ZC has opened a new office in New York zone. Since there is number of well-established bank in this zone, many analyst feels it is a risky decision. However, CEO of the bank is confident that the bank has implemented some new policy to attract customer, which will help the bank to survive in this region. The above example states one of the fundamental principles of engineering economics that is additional risk is not taken without expected additional return.