MG6863 Engineering Economics
Unit 2 Value Engineering
Part-A
1. Define value engineering.
It is defined as the systematic application of recognised techniques which identify the function a product or service, establish a
monetary value for the function and provide the necessary function reliability
at the lowest overall cost.
Value = Function or Utility/Cost
2. What are the main
objectives of value engineering?
(i)
Simplify the product
(ii)
Reduce cost of the product
(iii)
Modify and improve product design as to make it acceptable to
consumer
(iv)
Improve organizational efficiency
(v)
Ensure greater return of investment
3. What do you understand
make or buy decisions?
It
is a determination whether to produce a component part internally or to buy it
from an outside supplier.
The
organization should evaluate the costs and benefits of a manufacturing a
product against purchasing it and then select the alternative which results in
the lower cost.
4. Explain time value of
money.
The
economic value of sum depends on when it is received. Because money has earning
power over time (it can be put to work, earning more money for its owner), a
rupee received today has a greater value than a rupee received at some future
time.
5. What is meant by effective
interest rate?
It
is a percentage which is periodically applied to measure the cost of money when
the interest rates compounded for less than a year. i.e,monthly, quarterly and
half yearly.
It
is given by
R=
(1+i/C) c-1
Where
i=the nominal interest rate
C=the number of interest periods in
a year
6. What is uniform gradient
conversion?
The future sum of annual equal payments at the end of the every year for N years is equal to the total amount of gradient series at the
end of N years.
7. What is meant by capital
recovery factor?
To
find the annual equivalent amount and this is to be paid by the company at the
end of every interest period.
A= P( i(1+i)N/(1+i)N-1)=P(A/P,i,N)
8. What is compound amount
factor?
The
factor (i+i)N is known as compound amount factor. Like the concept
of equivalence. By using this factor, all other important interest formulas can
be derived which is designated (F/P,i,N).
9. What is present worth
factor?
The
factor 1/(1+i)N is known as present worth factor and is designated
(P/F,i,N). It is also referred as the discounting factor.
10. What is sinking fund factor?
The
factor i/((1+i)N-1) is called the equal payment series sinking fund
factor and is referred by the notation (A/F,i,N).
A
sinking fund is an interest-bearing account into which a fixed sum is deposited
each interest period and it is commonly established for the purpose of
replacing fixed assets.
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