Instruction
- Total number of questions : 20
- Time allotted : 30:00 Minutes:Seconds.
- Each question carry 1 mark, no negative marks.
- DO NOT refresh the page.
- All the best
Engineering Economics [ Question No: 1 To 20 ] :
Net profit is 1.2 million and there are 400 000 shares. Earnings per share is
A steeper learning effect corresponds to a learning curve percentage that is
An order of magnitude estimate is prepared to an accuracy of roughly
None of the following belongs in the relevant cost of making a component in-house except
Comparing a high-fixed-cost with a high-variable-cost structure at low volume, the high-variable-cost structure
If instead that firm's variable cost rises to 35, its break-even quantity becomes
Fixed costs are 300 000, price 50 and variable cost 30 per unit. The break-even quantity is
Consider the following statements about replacement analysis.
1. The defender's original first cost is irrelevant 2. The economic service life is where total annual cost is least 3. A fully depreciated asset should always be replaced
The defender's original first cost is irrelevant because it is
Which of the following would NOT change the total depreciation charged over an asset's whole life?
Depreciation of 50 000 in a year at a tax rate of 30 per cent saves tax of
Consider the following statements about benefit cost analysis.
1. A ratio of one corresponds to a present worth of zero 2. The two ratio conventions give the same numerical value 3. The highest ratio does not identify the best of several alternatives
If that value per hour were halved to 30, the annual benefit would become
If that project's discount rate rises to 12 per cent, the capital recovery factor becomes 0.13388 and the ratio falls to about
Comparing the discounted with the simple payback period, the discounted form
An outlay of 10 000 returning 2500 a year for 6 years has an internal rate of return nearest
A simple or conventional investment is one whose cash flow has
Raising the discount rate in a present worth comparison tends to favour the alternative with
A series of 1000, 1200, 1400 and 1600 is best handled as
The effective annual interest rate differs from the nominal rate in accounting for
Total number of questions : 20
Number of answered questions : 0
Number of unanswered questions : 20
Engineering Economics [ Question No: 1 To 20 ] :
Net profit is 1.2 million and there are 400 000 shares. Earnings per share is
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: 3.00
\[ \frac{1\,200\,000}{400\,000} = 3.00\ \text{per share}. \] Earnings per share converts the firm’s total profit into a figure a shareholder can compare with the price of one share, which is what makes the price to earnings ratio possible.
A steeper learning effect corresponds to a learning curve percentage that is
Your Answer : (Not Answered)
Correct Answer : B
Correct answer: lower
The percentage is the fraction of the time that remains when output doubles, so a lower figure means a greater reduction each time. An 80 per cent curve learns faster than a 90 per cent one, and a 100 per cent curve is no learning at all - which is why the smaller number represents the steeper effect.
An order of magnitude estimate is prepared to an accuracy of roughly
Your Answer : (Not Answered)
Correct Answer : A
It is made from capacity figures and past projects before any engineering has been done, so it serves only to decide whether an idea is worth pursuing further. Committing funds on such a figure is how projects come to overrun, since the estimate was never intended to bear that weight.
None of the following belongs in the relevant cost of making a component in-house except
Your Answer : (Not Answered)
Correct Answer : B
Correct answer: additional fixed cost caused by making it
A relevant cost is one that changes as a result of the decision. Fixed cost incurred specifically because the component is made in-house qualifies; factory rent, continuing head office overhead and depreciation on equipment already owned and idle are all unaffected by the choice and are therefore irrelevant, however they are allocated in the accounts. Including them is the standard way a make-or-buy analysis reaches the wrong answer.
Comparing a high-fixed-cost with a high-variable-cost structure at low volume, the high-variable-cost structure
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: makes a smaller loss or a profit sooner
At low volume the high-variable-cost structure has less fixed cost to cover, so it reaches break-even at a smaller quantity and loses less below it. The high-fixed-cost structure has the wider contribution margin, so it overtakes above the indifference volume and earns more thereafter. Low leverage is the safer structure at low or uncertain volume; high leverage is the more profitable at high volume.
If instead that firm's variable cost rises to 35, its break-even quantity becomes
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: 20 000 units
The contribution falls to \( 50 - 35 = 15 \), so
\[ Q_{BE} = \frac{300\,000}{15} = 20\,000 \ \text{units} \]A five rupee rise in variable cost has done exactly as much damage as a 100,000 rise in fixed cost did in the previous item - a useful comparison, since the variable cost change looks much the smaller of the two on the face of it.
Fixed costs are 300 000, price 50 and variable cost 30 per unit. The break-even quantity is
Your Answer : (Not Answered)
Correct Answer : B
Correct answer: 15 000 units
The contribution per unit is \( 50 - 30 = 20 \), so
\[ Q_{BE} = \frac{300\,000}{20} = 15\,000 \ \text{units} \]Dividing by the price of 50 instead would give 6000 and would ignore the variable cost each unit incurs - the commonest error in this calculation.
Consider the following statements about replacement analysis.
1. The defender's original first cost is irrelevant 2. The economic service life is where total annual cost is least 3. A fully depreciated asset should always be replaced
Your Answer : (Not Answered)
Correct Answer : D
Correct answer: 1 and 2 only are correct
Statements 1 and 2 are correct: the original first cost is sunk, and the economic service life is where the total annual cost is least. Statement 3 confuses accounting with economics - depreciation is a bookkeeping allocation, and an asset fully written down may still be the cheapest way to do the job.
The defender's original first cost is irrelevant because it is
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: sunk and unaffected by the present decision
The money has gone and no decision now can retrieve it. Since the original cost is identical whether the asset is kept or replaced, it cannot distinguish between the alternatives and must be left out. What is relevant is the market value, because that is what keeping the asset actually forgoes.
Which of the following would NOT change the total depreciation charged over an asset's whole life?
Your Answer : (Not Answered)
Correct Answer : C
Correct answer: switching from straight line to sum of years digits
A change of method redistributes the same total across the years; it cannot alter the total, which is the first cost less the salvage value. The other three all change that total directly: a different first cost, a different salvage value, or a shorter life over which the same base must be written off.
Depreciation of 50 000 in a year at a tax rate of 30 per cent saves tax of
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: 15 000
The saving is the charge multiplied by the tax rate: \[ 50\,000 \times 0.30 = 15\,000. \] This is the only route by which depreciation affects cash at all - no money moves when the charge is made, but 15 000 less is paid to the tax authority than would otherwise have been.
Consider the following statements about benefit cost analysis.
1. A ratio of one corresponds to a present worth of zero 2. The two ratio conventions give the same numerical value 3. The highest ratio does not identify the best of several alternatives
Your Answer : (Not Answered)
Correct Answer : C
Correct answer: 1 and 3 only are correct
Statements 1 and 3 are correct: unity corresponds to a zero present worth, and a ranking by ratio ignores scale. Statement 2 is false - the conventional and modified forms place disbenefits differently and give different numbers, which is precisely why the convention used must be stated.
If that value per hour were halved to 30, the annual benefit would become
Your Answer : (Not Answered)
Correct Answer : C
Correct answer: 6 million
\[ 200{,}000 \times 30 = 6{,}000{,}000. \] Halving the value of time halves the benefit, since the benefit is directly proportional to it. The sensitivity is worth noticing: the value of time is a shadow price and is among the least certain figures in a transport appraisal, yet it usually dominates the benefit side.
If that project's discount rate rises to 12 per cent, the capital recovery factor becomes 0.13388 and the ratio falls to about
Your Answer : (Not Answered)
Correct Answer : C
Correct answer: 0.93
\[ \mathrm{annual\ cost} = 2{,}000{,}000 \times 0.13388 = 267{,}760, \qquad \frac{250{,}000}{267{,}760} = 0.93. \] At 8 per cent the same project gave 1.23 and was acceptable; at 12 per cent it fails. Nothing about the project has changed - only the rate - which is why the discount rate is so often the decisive assumption.
Comparing the discounted with the simple payback period, the discounted form
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: gives a longer period and accounts for interest
Discounting reduces each receipt before it is counted, so more of them are needed to reach the first cost and the period is always longer at any positive rate - six years against four in the example above. The improvement is real but partial: the method now respects the time value of money while still ignoring everything beyond the payback point.
An outlay of 10 000 returning 2500 a year for 6 years has an internal rate of return nearest
Your Answer : (Not Answered)
Correct Answer : D
The series present worth factor required is 10 000 over 2500, that is 4.0, and at 6 years the tables give 4.0 at about 13 per cent. Total receipts of 15 000 against 10 000 spent would suggest far more if timing were ignored.
A simple or conventional investment is one whose cash flow has
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: exactly one sign change
A conventional investment spends first and receives afterwards: one or more negative flows, then only positive ones. That single sign change guarantees a unique internal rate of return, which is why the method can be used without qualification on such projects and needs care on any others.
Raising the discount rate in a present worth comparison tends to favour the alternative with
Your Answer : (Not Answered)
Correct Answer : B
A high rate penalises distant cash flows, so the alternative whose burden lies in the future is treated more leniently and the capital-intensive one loses its advantage. The ranking can reverse at some rate, which is the crossover point.
A series of 1000, 1200, 1400 and 1600 is best handled as
Your Answer : (Not Answered)
Correct Answer : C
Correct answer: a uniform series of 1000 plus a gradient of 200
The series rises by a constant 200 each year, which is an arithmetic gradient. The standard treatment splits it into a uniform series equal to the first payment and a gradient starting at zero in the first year, because the gradient factors are tabulated on exactly that convention. Twenty per cent would only fit the first step, not the later ones.
The effective annual interest rate differs from the nominal rate in accounting for
Your Answer : (Not Answered)
Correct Answer : A
Correct answer: compounding within the year
A nominal rate is a convention for quoting: it states the periodic rate multiplied by the number of periods, and ignores that the earlier periods’ interest earns interest. The effective rate is the actual annual growth, \( (1 + r/m)^m - 1 \), and it is always the larger when compounding is more frequent than annual.
Marks
Total number of questions : 20
Number of answered questions : 0
Number of unanswered questions : 20