Economics for Engineers (3140911) MCQs

MCQs of Present Worth Analysis

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1.
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)
Answer:

Option (c)

2.
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
Answer:

Option (a)

3.
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
Answer:

Option (b)

4.
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) ].
Answer:

Option (d)

5.
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 preset worth (cost) will be _________.
(a) 20,30,000
(b) 22,55,420
(c) 24,45,200
(d) 26,00,000
Answer:

Option (b)

6.
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 elevator have equivalent service conditions and the service life of both is 20 years, as per present wroth 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
Answer:

Option (b)

7.
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 elevator have equivalent service conditions and the service life of both is 20 years, as per present wroth analysis which elevator should be installed?
(a) Elevator X
(b) Elevator Y
(c) Either elevator X or Y as both are equivalent
(d) Insufficient data
Answer:

Option (d)

8.
What is present worth of the cost of an equipment whose current value is Rs. 1600, with service life of 10 years and salvage value of Rs. 325. Assume minimum attractive rate of return (MARR) is 7%,
(a) 1435
(b) 1765
(c) 1275
(d) insufficient data
Answer:

Option (a)

9.
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
Answer:

Option (b)

10.
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
Answer:

Option (b)

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