JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD B.Tech III ENGINEERING ECONOMICS AND ACCOUNTANCY Previous Question Paper (February - 2022 - R18)
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Main
Define elasticity of demand. Describe the various methods of measuring the elasticity of demand.
Answer
Elasticity of demand measures the responsiveness of the quantity demanded of a commodity to changes in its price, the income of the consumer, or the prices of related goods. It is mathematically expressed as the percentage change in quantity demanded divided by the percentage change in the influencing variable.
The primary methods for measuring price elasticity of demand include:
- Percentage or Proportionate Method: Calculates elasticity by dividing the percentage change in quantity demanded by the percentage change in price.
- Total Outlay Method: Examines the relationship between price changes and total expenditure. If total expenditure remains constant, elasticity is unitary; if it moves inversely with price, elasticity is greater than one; if it moves in the same direction, elasticity is less than one.
- Point Method (Geometric Method): Measures elasticity at a specific point on a demand curve by calculating the ratio of the lower segment to the upper segment of the curve at that point.
- Arc Method: Used to measure elasticity over a finite range of the demand curve rather than at a single point, using the average of the initial and final prices and quantities.
Explain the basic principles and methodology of engineering economics.
Answer
Engineering economics involves the systematic evaluation of the economic merits of proposed engineering solutions. It bridges the gap between engineering design and management decision-making by applying economic principles to technical problems.
The basic principles include:
- Time Value of Money: Recognizing that a unit of currency today is worth more than the same amount in the future due to its earning potential.
- Alternatives Analysis: Evaluating multiple feasible solutions to identify the one that provides the best economic return.
- Cash Flow Perspective: Focusing on actual cash inflows and outflows rather than accounting profits.
- Incremental Analysis: Comparing the additional costs and benefits of choosing one alternative over another.
The methodology typically follows these steps: defining the problem, identifying feasible alternatives, establishing evaluation criteria (such as Net Present Value or Internal Rate of Return), gathering data, performing the economic analysis, and selecting the preferred alternative based on the results.
Explain Baumol’s sales maximization theory.
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Explain the Marris balanced rate of growth theory of the firm.
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Explain the methods of inflation calculation and describe the measures to control inflation.
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Explain the various concepts of national income.
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Explain the new Industrial policy of India.
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Define Fiscal policy. Explain in detail with recent amendments.
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What are the various methods of evaluating capital expenditure proposals? Write its merits and demerits.
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Dream well Co. is considering two projects, X & Y, with cash flows (CF) as follows:
| Period | CF(X) | CF(Y) |
|---|---|---|
| 0 | -60,000 | -120,000 |
| 1 | 23,000 | 70,000 |
| 2 | 23,000 | 30,000 |
| 3 | 23,000 | 30,000 |
| 4 | 23,000 | 25,000 |
The opportunity cost of capital for X is 13%. The opportunity cost of capital for Y is 11%. Calculate the Payback period, ARR and NPV for each project. Based on your analysis which project should be accepted?
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Distinguish between profits and cash flows. Why are cash flow important in investment decisions?
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Bullock Gold Mining: Seth Bullock is evaluating a new gold mine. The mine has a cost of $750 million today, and a cash outflow of $75 million nine years from today. The expected cash flows are:
| Year | Cash Flow |
|---|---|
| 0 | -$750,000,000 |
| 1 | 130,000,000 |
| 2 | 180,000,000 |
| 3 | 190,000,000 |
| 4 | 245,000,000 |
| 5 | 205,000,000 |
| 6 | 155,000,000 |
| 7 | 135,000,000 |
| 8 | 95,000,000 |
| 9 | -75,000,000 |
Bullock Mining has a 12% required return. i) Calculate PBP, IRR, NPV and PI value. ii) Based on your analysis, should the company open the mine?
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Illustrate the EBIT-EPS analysis with suitable example.
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The more debt the firm issues, the higher the interest rate it must pay. That is one important reason why companies should operate at conservative debt levels. Critically evaluate this statement.
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Explain the following: i) Profit Volume Ratio ii) Break Even Point iii) Margin of Safety
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Explain the following: i) Journal ii) Trial Balance.
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