ENGINEERING MANAGEMENT 302 PROGRESS TEST 2 - 2012 Time allowed: 60 minutes 27 September 2012 NAME ID (Perth):

ANSWER ONLY THREE (3) QUESTIONS OUT OF FOUR (4). TOTAL MARKS: 25.

QUESTION 1

[9 MARKS]

Consider the following Cash flow diagram.

$1.8m $1.2m $1.2m $1.2m $1.2m $0.8m $0.8m $0.8m $0.8m 0 1 2 3 4 5 6 7 8 9

X 2X

What is the value of X that makes the inflow series equal to the outflow series at an interest rate of 12% compounded annually? QUESTION 2 [8 MARKS]

A backup diesel generator costs $120,000 and has a useful operating life of 100,000 hours or 15 years. The expected salvage value of the generator is $20,000. The generator operated for 4,000 hours in the first year and 6,000 hours in the second year. Determine the depreciation using the straight-line method for the first year and for the second year based on the operating hours. Explain the financial implications if the company adopted the double-declining balance method to calculate depreciation on a yearly basis. QUESTION 3 [ 8 MARKS]

Briefly discuss the following:a) Describe the project life cycle using a project life cycle chart. b) Define critical path and total slack in a project timeline. c) How would Scope Creep phenomenon affect the success of a project? d) Discuss two methods on how a risk could be mitigated.
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Answers A1//

(1.12) 7 1 [(1.12) 4 1] X 1.2 7 4 0.12 (1.12) 4 1.8 0.12 (1.12) 0.8 [(1.12) 1] 2X + = + + 1.12 0.12 (1.12) 4 1.12 4 (1.12) 9

------------5pts

2 X + 4.075 X = 2.42988 + 2.31635 + 0.6491 = 5.3953 -----------------3pts X = 0.8881 -------------------------------1pt

A2//

Depreciation using the straight-line method, The depreciation rate =[(120k-20k)/15] =6.67k Book values: B0 = 120k B1 = 120k - 6.67k = 113.33k B2 = 113.33 - 6.67k = 106.67k

..

4pts

Using unit of production method,

D4k = [(120k-20k)/100k] 4,000 = $4,000 D5k = [(120k-20k)/100k] 6,000 = $6,000 4pts If you double decline method Dyear1 = 120k-(2$120/15) = $104,000 depreciation on item base Dyear2 = 104k-(2$104k/15k) = $90,133.3 Depreciation is $16,000 much higher than

Depreciation is $13,666.7

Machine is inefficiently used in the first two years therefore it may better to adopt depreciation based on items produced to reserve savings for the later years. A3//

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a) Describe the project life cycle using a project life cycle chart.

Student should draw either of the charts above (1 mark) mention the three stages of life cycle and discuss characteristic of each stages (1 mark) A. Project Initiation.

Planning phase where a project manager is selected, a project team is put together and resources are set up and work programs are organised

Project activities, cost and staff involved are minimal

B. Mid-Life

Momentum builds quickly and rapid progress is made , progress leads to less uncertainty about final goals

Project activities, cost and staff involved are at the peak level

C. Conclusion.

Slow progress during Integration of project modules, uncertainty about teams future leads to slow termination, project group may be maintained for the next project

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Project activities, cost and staff involved graduate reduced

b) Define critical path and total slack in a project timeline.

Critical Path is the shortest possible time required to complete a project. (1 mark)

Total slack time is the extra time shared by more than 1 activity. A delay of an activity that has total slack but no free slack reduces the slack of other activities on the same path. (1 mark)

c) How would Scope Creep phenomenon affect the success of a project? Scope Creep is a phenomenon where projects tend to have changes and incremental expansions that may not have been a part of the initial planning. (1 mark) Scope creep could cause unexpected delay in project and increase in project cost. (1 mark) d) Discuss two methods on how a risk could be mitigated.

Avoidance Reduction Transference Retention

Not performing an activity which carries risk. Could result in loss of potential gains and profits reducing the severity of the losses e.g. through outsourcing

Transfer the risk to a third party e.g. insurance

Involves accepting losses when they occur.

2x0.5 mark for mitigation method and 2x0.5 mark for discussion

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