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Engineering Economics: Multiple Choice

This document contains 20 multiple choice questions about engineering economics concepts like cost classification, break-even analysis, time value of money, depreciation methods, and capital budgeting techniques. The questions cover topics such as identifying fixed costs, calculating profit maximization, defining sunk costs, computing break-even points, compound interest, cash flow diagrams, straight-line depreciation, book value, salvage value, investment decision criteria like net present value, internal rate of return, payback period and benefit-cost ratio.

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Alfredo Conde
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
117 views

Engineering Economics: Multiple Choice

This document contains 20 multiple choice questions about engineering economics concepts like cost classification, break-even analysis, time value of money, depreciation methods, and capital budgeting techniques. The questions cover topics such as identifying fixed costs, calculating profit maximization, defining sunk costs, computing break-even points, compound interest, cash flow diagrams, straight-line depreciation, book value, salvage value, investment decision criteria like net present value, internal rate of return, payback period and benefit-cost ratio.

Uploaded by

Alfredo Conde
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Engineering Economics

MULTIPLE CHOICE

1. Among the following cost items, the one that can be classified as fixed is:
a. raw material c. depreciation on building
b. direct labor d. electricity
ANS: C PTS: 1

2. For a firm, profit is greatest when


a. revenue is high but expense is also high c. revenue is low but expense is high
b. revenue is high but expense is low d. revenue is equal to cost
ANS: B PTS: 1

3. Cost that has occurred in the past and has no relevance to estimates of future costs and revenues
related to an alternative course of action is referred to as:
a. sunk cost b. opportunity cost c. overhead cost d. life-cycle cost
ANS: A PTS: 1

4. At break-even point.
a. total revenue equals total costs
b. profit or loss is zero
c. increasing or decreasing output by 1 unit will result in either profit or loss
d. all of the above
ANS: D PTS: 1

5. Interest is said to be compounded when


a. interest earned is proportional to initial amount of loan for the entire duration of the loan
b. interest charge for any interest period is based on remaining principal plus accumulated
interest charges.
c. interest charge is based on the effective rate of interest for an interest for an interest period
d. none of the above
ANS: B PTS: 1

6. On a cash flow diagram,


a. a positive cash flow is an upward arrow
b. a negative cash flow is receipt for one who borrows money
c. a positive cash flow is an expenditure for one who lends money
d. none of the above
ANS: A PTS: 1

7. A contractor imports an equipment for 1.2 M pesos. Customs, installation and other costs initially
incurred to make the equipment serviceable amounted to P200, 000. At the end of 5 years, the
equipment will have a market value of P200, 000. If depreciated by the straight-line method,
cumulative depreciation through the end of the second year will be
a. P200, 000 b. P240, 000 c. P400, 000 d. P480, 000
ANS: D PTS: 1
8. The book value of the equipment in No.7 at the end of year 4 is
a. P240, 000 b. P400, 000 c. 440, 000 d. 560, 000
ANS: C PTS: 1

9. A company spent P420, 000 to acquire and install a new machine. t the end of 3 years, the company
had no further use for the machine and had it dismantled for P9, 000. the machine was sold for P60,
000. The salvage value of the machine is
a. P60, 000 b. P69, 000 c. P51, 000 d. P360, 000
ANS: C PTS: 1

10. A farmer is trying to decide whether to buy new machine now or wait and purchase similar one 4
years from now. If purchased now, the machine would cost P250, 000, but 4 years from now, it is
expected that the manufacturers of the machine will sell it for P450, 000. If the interest rate is 15% per
year.
a. the farmer should buy the machine now
b. the farmer should buy the machine 4 years from now
c. the farmer should not buy the machine
d. the farmer should buy a different machine
ANS: A PTS: 1

11. A proposed project will require n initial investment of P50, 000 and is estimated to have year-end
revenues and costs as follows:
End-of-year Revenue Cost
1 P75, 000 P60, 000
2 90, 000 77, 500
3 100, 000 80, 000
4 95, 000 75, 000
2 60, 000 40, 000
An additional investment of P25, 000 will be required at the end of the second year. The project would
terminate at the end of the 5th year, and the assets are estimated to have a salvage value of P30, 000 at
that time.
The IRR for this project is closest to
a. 13% b. 15% c. 17% d. 19%
ANS: C PTS: 1

12. The simple payback period for the project in no. 11


a. 2 years b. 3 years c. 4 years d. 5 years
ANS: D PTS: 1

13. The benefit-cost ratio for the project in no. 11 is


a. 0.92 b. 1.62 c. 1.08 d. 1.45
ANS: B PTS: 1

14. An investment proposal has the following cost information


First Cost P10, 000
Expected Life 5 years
Salvage Value 1, 000
Annual Receipts 8, 000
Annual Expenses 4, 000
If the interest rate is 15%, the net present value of this proposal is:
a. P2, 508 b. P3, 906 c. P5, 060 d. P8, 024
ANS: B PTS: 1

15. The annual worth of the proposal in no. 14 is


a. P2, 394 b. P1, 509 c. P1, 165 d. P748
ANS: C PTS: 1

16. Which of the following is referred to as the single payment present worth factor?
a. (F/P, i%, N) b. (P/F, i%, N) c. (P/A, i%, N) d. (A/P, i%, N)
ANS: B PTS: 1

17. Problems involving solution selection among alternatives where the time value of money is not
significant factor in the selection are known as:
a. break-even analysis c. allocation of overhead cost problems
b. present economy studies d. money-time relationship problems
ANS: B PTS: 1

18. An agricultural engineer estimated that the purchase of an automated tiller can save a farmer P150, 000
a year in labor cost. The tiller has an expected life of 5 years and no salvage value. If the farmer must
earn a 20% annual return on such investment, he should spend no more than what amount to justify
the purchase of the tiller? (Choose closest amount)
a. P150,000 c. P450,000
b. P350,000 d. P500,000
ANS: C PTS: 1

19. If the tiller was purchased by the amount you choose in no. 18 and depreciated by the double-declining
balance method, the depreciation charge at the end of the third year will be
a. P19,000 c. P57,600
b. P44,800 d. P64, 000
ANS: C PTS: 1

20. The barangay council of remote village was given some amount of money by the national government
to build a structure that will last 30 years. Estimates of the annual costs and revenues of various
structures are as follows:
Initial Cost Revenues less Costs
Recreation Hall P300, 000 69, 000 a year
Cooperative Store 400, 000 76, 000 a year
Clinic 200, 000 40, 000 a year
Nursery School 250, 000 55, 000 a year
A salvage value equal to 20% of the first cost is expected for each structure. If the interest rate is
12%, which structure should the barangay council choose?
a. recreation hall b. cooperative hall c. clinic d. nursery school
ANS: A PTS: 1

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