14-EC-1 - Version anglaise - Novembre 2021

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Concordia University *

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Economics

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Apr 3, 2024

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ORDRE DES INGÉNIEURS DU QUÉBEC NOVEMBER 2021 SESSION Open-book examination Calculators : only authorized models Duration : 3 hours 14-EC-1 Engineering Economics Question 1: 15 Question 2: 20 Question 3: 20 Question 4: 15 Question 5: 15 Question 6: 15 Total 100
Question 1 (15 points): You work as an engineer at AICOIN Inc. The company asks you to evaluate the profitability of a wind power project in which it intends to invest. The business has already estimated the cash flows it can reasonably expect from this investment for the next few years. In addition, AICOIN Inc. uses a minimum acceptable rate of return (MARR) of 7% compounded monthly (7%; 12) for its investments and the cash flow is concentrated at the end of the period every three months . Please calculate the net present value (NPV) Quarter Cash flow ( in thousands of $) 0 -1 500 1 400 2 300 3 200 4 100 5 -250 6 -250 7 -250 8 -250 9 -250 10 -250 11 300 12 300 13 300 14 300 15 300 ______________________________________________________________________
Question 2 (20 points): You are the chief engineer of the TELACOM printer's department and you carry out the economic study of the project to purchase a new automated press with a purchase price of $2 million. Delivery and installation costs are $150,000. The recovery value of this equipment is estimated at $650,000 in 5 years i.e. at the end of its economic life. The use of this equipment will result in a large 5-year printing contract, which will generate revenues of $800,000 per year and operating expenses of $100,000 per year for each year of the contract. The purchase of this equipment will lead to a tax-deductible depreciation (CCA: Capital cost allowance) of $300,000 per year. Given that TELACOM is taxed at a 40% rate per year and uses a 16% effective MARR (minimum acceptable rate of return) for this project, based on the present value (NPV: net present value) criterion, is this project financially profitable? Note1 : The net after-tax cash flow year by year is required to develop your answer. Note 2: For this question, assume that inflation does not exist.
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