Final Exam

MEEG 4132
Fall 2020

15 December 2020

Student: ___________________

Instructor: Prof. James H. Leylek

Problem I (20 Points)

Two major hospital systems, owned and operated by a parent company, are located in
two cities that are located 200 miles apart. These hospitals constantly exchange a
complete array of medical & operational supplies between them. Each hospital owns two
medium size trucks, which routinely run 4 times on a weekly basis. In a typical trip, the
trucks are full of supplies during one leg of the trip, and are empty during the return trip.
It takes an entire day to complete a trip, which includes loading/unloading, round-trip
drive time, lunch break, etc…. Each driver costs the hospital system $330 per day (this
includes wages and benefits). Additionally, each truck has an operating cost (comprised
of fuel, insurance, maintenance, etc…) of $1.75 per mile.

a) Calculate the total cost of this entire operation for the parent company on a “per
week” basis;

b) A new “consolidated operation” plan calls for each hospital sending its trucks
only 2 times a week, and carry the other hospital’s supplies on the return trip –
this means that trucks are full during both legs of every trip. Calculate the total
weekly savings for the parent company;

c) If there was a $0.23 per mile of “environmental impact” tax imposed on all trucks
in such operations, then what would be the total cost of the original and
consolidated operations, and therefore the savings on a weekly basis for the parent
company?
Problem II (10 Points)

A typical family vacation, which involves air travel to destination, will typically include a
rental car, and a unique decision that must be made every time. Rental car companies
provide cars will full tank of gas, and ask us to pick among three options, which are: (1)
Return the car with a full tank of gas; (2) Return it “as is” and let the rental car company
fill it for $5.00 per gallon; and (3) “Pre Pay” for the gas at a fixed-price of $60 (which
allows the family to return the car with an almost empty tank for no extra charge!). At a
time when the local price of gasoline is $2.00 per gallon, and considering a mid-size SUV
that has a 20-gallon fuel tank and gets a 23 miles/gallon, which of the following options
should the family pick if the anticipated total miles of travel is:

a) 200 miles;

b) 400 miles;

c) 800 miles;

d) 1,200 miles.
Problem III (10 Points)

A company in the business of manufacturing auto parts for a major car manufacturer
makes a major investment in order to purchase a new machine tool. The new machine
comes with 250 free service hours over the first year. Additional time costs $200 per
hour. What are the average and marginal costs per hour for the following hours of actual
usage:

a) 150 hours;

b) 200 hours;

c) 250 hours;

d) 500 hours;

e) 1,000 hours.
Problem IV (10 Points)

It is critically important for engineers to commit to lifelong learning. Also, it is vital for
engineers to become professional engineers. It is, therefore, not surprising that
professional societies established rules for engineers to accumulate a certain number of
“continuing education” credits every year in order to keep their professional licenses
valid. The UVW Corporation is interested in creating a training program on “artificial
intelligence” technology, which qualifies for continuing education credit for the entire
year for all the attending engineers. The company plans a 10-week program that employs
a number of world-class experts in the field to function as the instructors. The fixed cost
of instructors, space, technology demonstration hardware/software, etc. is estimated to be
$500,000. The organizers in charge of developing this training program feel confident
that a typical professional engineer (and/or the companies that employ them) will not
hesitate to invest $500/week per engineer for such an important and timely training. The
specific venue of choice has a capacity to accommodate 250 engineers. It is estimated
that the variable cost per student is $500/week.

a) Establish a mathematical relationship for total cost and total revenue;

b) Conduct the necessary analysis in order to determine the minimum number of

students needed for this training program to break even;

c) What exactly is the profit or loss if the program operates at 85% capacity?
Problem V (10 Points)

A very talented MEEG graduate decides to diversify her investment portfolio through
high yield financial options provided by well-known wealth management firms. She is
ready to invest a lump sum of $250,000 with the objective of doubling her investment.
She finds, as her top picks, the following two options:

a) Simple interest rate at 6.55% per year;

b) Compound interest rate at 6.22% per year.

How many years will it take for this brilliant MEEG graduate to achieve her goal in
option (a) and (b)?
Problem VI (10 Points)

As we have discussed many times, certain reasons to borrow money are very justifiable –
money for education is one perfectly good example of this. A medical student decides to
borrow $500,000 at 3% per year for 8 years in order to cover all the school and family
expenses. He arranges a program that will allow him to pay the principle and interest as
one lump sum after 15 years (4 years of medical school, 2 years of residency, 2 year of
fellowship, and 7 years of actual medical practice). Exactly how much will be the total
payment?
Problem VII (10 Points)

A company in the business of providing private jet service to major company executives
foresees a need for adding another aircraft to its fleet in the future. They decide on a
specific Falcon Jet, which will cost $30,000,000 to purchase. The company finds a very
reputable investment firm offering a high-yield bond-fund that will pay 7.27% per year in
interest. How much money should the company invest in this fund now in order to have
$30M needed to purchase the aircraft in 10 years?
Problem VIII (10 Points)

A wealth management expert approaches you with a “major opportunity” to invest

$100,000 now in a rare, limited edition, designated as “collector’s item” Corvette, and
states his “unbiased opinion” that it will be worth $2,000,000 in year 2060. Considering
the low inflationary period that we’re in now, and the fact that in a very low interest rate
period like this a 5% per year return is rated as “good.” What rate of return (or interest
rate) does this proposal represent? Should you accept it?
Problem IX (10 Points)

An engineer working for QRS Consulting Engineers retires after working for that
company for many, many decades. She is vested in an old-fashion pension program. She
receives a letter indicating that the pension plan, according to a pre-determined formula,
will send her $2,000 per month for the next 12 years. The prevailing interest rate
happens to be 5.15%. Calculate the following two items:

a) Present worth of all these pension payments;

b) Future worth at the end of 12 years.