1) Cost of providing a company’s basic operating capacity is known as

a) Fixed cost
b) Variable cost
c) Unit cost
d) Marginal cost
2) The interest rate at which a firm or company can always earn or borrow
money is called:
a) Nominal interest rate
b) Inflation
c) MARR
d) Deflation
3) When one of several alternatives that meet the same need is selected and
others rejected, the term governing this concept is called:
a) Independent alternative
b) Mutually Exclusive alternative
c) Individual alternative
d) Comparison alternative
4) The costs incurred by purchasing assets to be used in production and /or
service are called:
a) Capital costs
b) Operation costs
c) Maintenance costs
d) Normal costs
5) The future worth is always located in the same period as the last uniform
series amount, when using the F/A factor.
a) True
b) False
6) An arithmetic gradient is a cash flow that either increase or decrease by a
constant percentage, and it starts one year after the Po.
a) True
b) False
7) If the ROR on the incremental cash flow between two alternatives is less
than the MARR which alternative should be selected, if any?
a) Select alternative with higher initial investment
b) Select alternative with lower initial investment
c) None
8) Payback analysis that has form with i > 0%, is commonly known as
Discounted payback analysis
a) True
b) False
 9) Suppose you borrow money from a bank against a certain interest rate and
if your annual installment paid to the bank is greater than the interest
accumulated per year, then in your perspective:
a) Simple interest rate is preferred
b) Compound interest rate is preferred
c) None of above
10) In most engineering economy studies the best alternative is the one that
a) Will last for the longer time
b) Is easiest to implement
c) Is most attractive politically
d) Cost the least
11) Equivalent annual cost of owning an assets and return on initial
investment is called
a) Profit
b) Cost of capital
c) Capital recovery
12) PW of an alternative that will last for ever is called:
a) Cost of capital
b) Weighted cost of capital
c) Capitalized cost
d) None of above
Question for MCQ number 13 and 14
Monthly deposits of $500 are made at i = 10% / year, compounded quarterly
13) The effective monthly interest rate is:
a) 7.68%
b) 10.38%
c) 0.826%
d) 8.39%
14) Balance at the end of 10 years is:
a) $622,508.55
b) $101,907.89
c) $933,750.39
d) $55,005.67
15) Suppose you make quarterly deposit in a savings account which earns 9%
per year, compounded monthly. The effective interest rate per quarter is:
a) 4.5%
b) 9.38%
c) 0.75%
d) 2.27%
16) Two cash flows given below are equivalent at an interest rate of i = 12%,
compounded annually. Determine “C”
 a) C = $ 256.97
b) C = $ 743.42
c) C = $ 289.39
d) C = $ 189.30
17) $100,000 is spent each year starting one year from now for 7 consecutive
years. A single amount “C” is deposited in year 13. the future worth of the
cash flows comes out to be $2,116,620 in year 20. For i = 7% value of “C”
is:

18) For the given cash flows, based on PW analysis show if it is acceptable
alternative or not.
End of Year Net Cash Flow
0 $ -75,000
1 $ 24,400
2 $ 27,340
3 $ 55,760
a) Acceptable
b) Not Acceptable
c) No conclusion drawn
d) Data incomplete
19) Quarterly deposits of $1000 are made into a fund that pays interest at a
rate of 12% compounded monthly. The balance at the end of year two is
a) $8508.55
b) $10,800
c) $6255.55
d) $8901.81
Question for MCQ no 20 to no. 21
A college student in her senior year is considering purchasing a new car. The price of the
car is $18,500, the sales tax is 8%, and the title, license, and registration fee is $450. The
dealer offered to finance 90% of the price of the car for 48 months at a nominal interest
rate of 9% per year, compounded monthly.
20) How much cash does the student need to pay at the time she purchases the
vehicle?
a) $ 3,340
b) $ 3,200
c) $ 3,780
d) $ 4,500
21) How much is the monthly payment?
a) $ 390.52
b) $ 550.5
c) $ 414.33
d) $ 200.26
Question for MCQ number 22 to 24
Assume that you are planning to invest money at 7 % per year such that your investment
starts by investing $2000 at year 1 and it increases by $500 per year up to year 5. In the
year 6 you withdraw $5000 and continue withdrawing at a gradient of $ -1000 to year 10.
Additionally, in the years 11 and 12 you withdraw $ 1000 each.
22) The present worth of deposits is:
a. $ 8,200.4
b. $ 12,023.75
c. $ 3,820
d. $ 9,165.12
23) The present worth of withdrawals is:
a) $ 9,165.12
b) $ 25,80
c) $ 27,840
d) $ 10,084.12
24) The net present worth PT is:
a) $ 2,857.88
b) $ -1,8674.88
c) $ -22,000
d) $ 1,939.63
Question for MCQ no. 25 to 27
A soil excavation contractor estimates that the maintenance cost of the new backhoe he is
about to purchase will be $275 for the first month, and will increase by 0.5% each month
relative to the month before. However, the dealer has offered the contractor a 4-year
maintenance contract for a one-time payment of $18,500, payable at the time the
maintenance contract is purchased. To entice the contractor to purchase the maintenance
contract, the dealer has offered a 10% discount on the maintenance contract if this
contract is purchased at the same time the backhoe is purchased. Use i = 0.75% per
month.
25) The present worth of in-house maintenance is:
a) $ 12,366
b) $ 16,650
c) $ 18,250
d) $ 10,365
26) The present worth of maintenance contract is:
a) $ 19,550
b) $ 11,650
c) $ 14,230
d) $ 16,650
27) Which one should be selected?
a) In-house maintenance alternative
b) Maintenance contract
Question for MCQ 28 to 30
Your factory presently uses workers with paint brushes to finish the metal door frames
that are your primary product. Three methods of automating this process are under
consideration. Which will you choose if you MARR is 18% and you use present worth
analysis? You have no idea how long you will need this service. Show your cash flow
diagram.
SPRAY GUNS SPRAY GUNS WITH PAINT ROBOT
 OVERHEAD
MONORAIL
Initial Cost $22,200 $250,900 $510,130
Annual Savings 6,000 91,000 154,000
(compared to
manual method)
Salvage Value 8,000 44,000 73,000
Life, years 6 6 4
28) The present worth of Spray Guns alternative is:
a) $ 52.795
b) $ 2.396
c) $ 12.250
d) $ -3.212
29) The present worth of Spray Guns wit Overhead Monorail alternative is:
a) $ 114.664
b) $ 14.664
c) $ -14.664
d) $ 15.442
30) Present worth of Paint Robot alternative is:
a) $ 76.14
b) $ -103.741
c) $ 30.32
d) $ 10.11
31) Replacing the incandescent lights in your high-bay area with halogen
bulbs will provide excellent lighting for the heavy machining activities
there and will reduce your electricity bill by $440 per month. You expect
to replace some of the incandescent bulbs each month at a cost of $100 per
month including the replacement bulbs. Installation of the halogen bulbs
will cost $1000 not including the bulbs. Assume that each halogen bulb
will last for at least one year.
What is the most you can pay for the bulbs if your company requires a
one-year payback period?
a) $ 5,48
b) $ 6,000
c) $ 5,480
d) $ 200
Question for MCQ 32 to 33
The plant manager of an industry has arranged to purchase a chemical through a five year
contract at $7,000 per year, starting one year from now. He expects the annual price to
increase by 12% per year thereafter for the next 8 years. Additionally an initial
investment of $35,000 was made now to prepare a site suitable for the contractor to
deliver the chemical. Use i = 15%.

32) The present worth, Pg of gradient series at year zero is:

a) $ 49,400
b) $ 19,985
 c) $ 28,247
d) $ 25,000
33) The total present worth, PT is
a) $ 9,415
b) $ 48,232
c) $ 54,985
d) $ 83,232