1.

Which of the following is used for selecting the best alternative from among a set of mutually
exclusive alternatives in economic analysis ?
(A) Present worth analysis
(B) Annual cash flow
(C) Rate of return
(D) All of the above

2. A company must install one of two production machines that have identical costs. What
criterion should be selected to determine which machine to install as per present worth analysis?
(A) Choose the machine from the closest vendor.
(B) Choose the machine with the higher PW (benefits).
(C) Choose the machine with the lower PW (costs).
(D) Choose either machine

3. A contractor must purchase one of three trucks for his business. The trucks vary in both costs
and benefits. What criterion should be used to determine which truck to purchase if present
worth analysis is to be used?
(A) Choose the truck with the lowest PW (costs).
(B) Choose the truck with the highest PW (benefits).
(C) Choose the truck from the closest supplier.
(D) Choose the truck with the highest [ PW (benefits) - PW (costs) ].

4. If elevator X costs Rs. 20,00,000 with an annual operating and maintenance (O&M) cost of
Rs. 30,000. If the service life of the elevator is 20 years and minimum attractive rate of return
(MARR) is 10%, then its present worth (cost) will be _________.
(A) 20,30,000
(B) 22,55,420
(C) 24,45,200
(D) 26,00,000

5. Cost of elevator X is Rs. 20,00,000 with an annual operating and maintenance (O&M) cost of
Rs. 30,000, whereas cost of elevator Y is Rs, 25,00,000 with an annual O&M cost of Rs. 20,000.
If both elevators have equivalent service conditions and the service life of both is 20 years, as per
present worth analysis which elevator should be installed? Assume minimum attractive rate of
return (MARR) is 10%,
(A) Elevator X
(B) Elevator Y
(C) Either elevator X or Y as both are equivalent
(D) Insufficient data

6. A company with a MARR of 15% must install one of two production machines that provide
equivalent service. Machine A has an initial cost of Rs 40,000 with an annual operating and
maintenance (O&M) cost of Rs. 30,000 and a salvage value of Rs. 5,000 after its 5-year life.
Machine B has an initial cost of Rs 60,000 with an annual operating and maintenance (O&M)
cost of Rs. 20,000 and a salvage value of Rs. 12,000 after its 5-year life. As per present worth
analysis which machine should be purchased?
(A) Machine A
(B) Machine B
(C) Either Machine A or B both are equivalent
(D) Insufficient data

7. Present worth analysis involves _________.

(A) resolving available alternatives into an equivalent uniform annual cash flow
(B) resolving benefits and costs involved in available alternatives in terms of rate of return
(C) resolving available alternatives into equivalent present consequences
(D) All of the above

8. Machine A has an initial cost of Rs. 6,000 with total annual maintenance costs of Rs. 750.
Machine B has an initial cost of Rs. 8,500 with total annual maintenance costs of Rs. 405. At a
10% interest rate, in approximately how many years do the two machines have the same present
worth?
(A) Never
(B) 3 years
(C) 8 years
(D) 10 years

9. A piece of construction equipment has an initial cost of Rs. 80,000, a salvage value of Rs.
10,000, and annual operating costs of Rs. 13,000. Assuming a 15-year useful life and a 10%
interest rate, the annual equivalent of the equipment is approximately
(A) Rs. 17,667
(B) Rs. 22,150
(C) Rs. 23,205
(D) Rs. 24,105

10. A factory purchased a new tooling machine for Rs. 20,500. It is projected that it will have a
useful life of 9 years with a Rs. 5,000 salvage value at the end of the 9 years. Assuming a 10%
interest rate, the equivalent uniform annual cost is approximately
(A) Rs. 1,550
(B) Rs. 1,722
(C) Rs. 3,191
(D) Rs. 3,223

11. A payment of Rs. 15,000 8 years from now is equivalent, at 12% interest, to an annual
payment for 10 years starting at the end of this year. The equivalent uniform annual payment is
closest to
(A) Rs. 1,072
(B) Rs. 1,210
(C) Rs. 1,486
(D) Rs. 1,500

12. The rate of return for a Rs. 1,000,000 investment that will yield Rs. 100,000 per year for 30
years is approximately
(A) 7.50%
(B) 8.20%
(C) 9.30%
(D) 10.70%

13. An engineer invested Rs. 150,000 in a company. In return, she received Rs. 12,000 per year
for 7 years and her Rs.150,000 investment back at the end of the 7 years. Her rate of return on
the investment was approximately
(A) 8%
(B) 8.15%
(C) 12%
(D) 12.11

14. Two alternatives for a construction project are being considered. Both projects have a 5-year
life. Alternative A initially costs is Rs. 2,260 and yields Rs. 355 annually for 5 years. Alternative
B initially costs Rs. 5,500 and yields Rs. 1,250 annually for 5 years. The rate of return on the
difference between the alternatives is approximately
(A) 3.60%
(B) 8%
(C) 12%
(D) 15%

15. Four mutually exclusive investment alternatives A, B, C and D have a 5-year useful life and
no salvage value. The MARR is 6%. Which Investment should be selected?
Initial Cost : Rs. 400(A) Rs. 125(B) Rs. 225(C) Rs. 500(D)
Annual Benefit : Rs. 100(A) Rs. 35(B) Rs. 50(C) Rs. 135(D)
(A) A
(B) B
(C) C
(D) D

16. A project has an initial cost of Rs. 100,000 and uniform annual benefits of Rs. 12,500. At the
end of its 8-year useful life, its salvage value is Rs. 30,000. At a 10% interest rate, the net present
worth of the project is approximately
(A) −Rs. 19,318
(B) Rs. 0
(C) Rs. 30,000
(D) Rs. 100,000

17. A feasibility study shows that a fixed capital investment of P10,000,000 is required for a
proposed construction firm and an estimated working capital of P2,000,000. Annual
depreciation is estimated to be10% of the fixed capital investment. Determine the rate of
return on the total investment if the annual profit is P3,500,000.
A. 28.33 %
B. 29.17 %
C. 30.12 %
D. 30.78 %

18. Annuity is required over 10 years to equate to a future amount of 15,000 with i=5%

a. 1,192.57

b. 1, 912.75

c. 219.60

d. 1, 921.65

19. A factory operator bought a diesel generator set for P 10,000.00 and agreed to pay the dealer
uniform sum at the end of each year for 5 years at 8% interest compounded annually, that the
final payment will cancel the debt for principal and interest. What is the annual payment?
2,500.57
2,544.45 
2,540.56
2,504.57
20.  In a cash flow series
A) Uniform gradient signifies that an income or disbursement changes by the same amount in
each interest period
(B) Either an increase or decrease in the amount of a cash flow is called the gradient
(C) The gradient in the cash flow may be positive or negative
(D) All of these

21. In the cash-flow diagram shown in the given figure

(A) Equal deposits of Rs 3000 per year (A) are made, starting now
(B) The rate of interest is 10% per year account
(C) The amount accumulated after the seventh deposit is to be computed
(D) All of these

22. Two options A and B for engineering projects has the following cash flows.
Year : 0 1 2 3 4
Option A : −2,000, +1,100, +1,100, +1,100, +1,100
Option B : −2,400, +1,250, +1,250, +1,250, +1,250
At an 8% interest rate, which project should be selected based upon future worth analysis?
(A) Alternative A
(B) Alternative B
(C) Both projects will lose money
(D) Both projects are equally good investments

23. Two alternatives A and B have the following cash flows.

Year : 0 1 2 3 4
Option A : −Rs. 1,500, +Rs. 600, +Rs. 600, +Rs. 600, +Rs. 600
Option B : −Rs. 2,700, +Rs. 100, +Rs. 100, +Rs. 100, +Rs. 100
At a 6% interest rate, which alternative should be selected?
(A) B because the PW of A is negative
(B) A because the PW of A is greater than the PW of B
(C) A because the PW of B is greater than the PW of A
(D) B because the PW of B is greater than the PW of A

24. With the Annual Equivalent Worth or Annuity Method (AEW), a common period of analysis
must be used to determine the better of two projects with unequal lives.
a) True b) False
25. With the Present worth Method, a common period of analysis must be used to determine the
economic validity of two projects with unequal lives.
a) True b) False
26. The difference between the present and future worth of money at some time in the future is
called ______.
A. Discount
B. Deduction
C. Inflation
D. Depletion

27. Net present worth for an alternative is equal to ____________.

(A) Present worth (benefits)
(B) Present worth (cost)
(C) Present worth (benefits) - Present worth (cost)
(D) Present worth (cost) - Present worth (benefits)

28. When the alternatives have identical cost, as per present worth analysis technique the focus
should be on ___________ .
(A) Maximizing present worth (benefit)
(B) Maximizing present worth (cost)
(C) Maximizing present worth (cost - benefits)
(D) None of the above
29. Machine has an initial cost of Rs 60,000 with an annual operating and maintenance (O&M)
cost of Rs. 20,000 and a salvage value of Rs. 12,000 after its 5-year life. Its present worth of cost
will be ______________, assuming 15 % MARR.
(A) 60000
(B) 121100
(C) 148000
(D) 160300

30. The amount of money deposited 10 years ago at 8% interest that would now provide a
perpetual payment of Rs. 15,000 per year is approximately
(A) 84,250
(B) 86,850
(C) 1,50,000
(D) 1,87,500