Question

By reading any recent business publication (since October 2018), identify and explain the business investment news related to each of the five main types of engineering economic decisions: (1) equipment or process selection, (2) equipment replacement, (3) new product or product expansion, (4) cost reduction, and (5) improvement in service or quality

Answer 1

Solution:

1) Equipment or process selection:

equipment selection must be done in such a way n that the needs of the equipment with respect to the processes, flow direction, ease of operation and maintenance, etc. must be blended into the overall plan, with the ultimate objective of maximizing the productivity of each machine and minimizing handling.

2) Equipment replacement:

Decision regarding replacement of an existing asset with another is based on the net present value and internal rate of return of the incremental cash flows. n analysing whether to replace the existing equipment, we need to work out the net cash flows of the existing equipment and net cash flows after the replacement and then finding the difference between both to arrive at the incremental cash flows. The incremental cash flows are then used to calculate net present value and/or internal rate of return.

3) New product or product expansion:

Product-line expansion can include new versions of an existing product, upgrades to existing products or completely new products.

Product-line expansion is important to companies that have products in the late stage of its life cycle To avoid losing business to competitors with higher performance products.

Product-line expansion enables companies to take advantage of opportunities in different market sectors.

Introducing products that caters to customer needs is an important reason of product-line expansion

Expanding a product line can help to increase customer loyalty.

4) Cost reduction:

Engineers and equipment manufacturers have come to recognize the important role that reduced energy costs can play in the profitability of a manufacturing unit. The extent to which energy saving equipment is incorporated in a design largely depends on the size of the mill, the suitability and cost of the equipment, as well as the potential energy savings in terms of return on investment.

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