#### Multiple Choice Questions and Answers on Engineering Economy

01. 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 a 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

Answer: Option D

02. In a cash-flow diagram:

(A) Time 0 is considered to be the present
(B) Time 1 is considered to be the end of time period 1
(C) A vertical arrow pointing up indicates a positive cash flow
(D) All of these

Answer: Option D

03. Which method is adopted to develop an approximate or conceptual estimate for perimeter works for buildings from the following?

(A) Base unit method
(B) Cost per function method
(C) Cost per square metre method
(D) Cost per linear metre method

Answer: Option D

04. Pick up the correct statement from the following:

(A) The ratio of current assets, loans and advances, and the current liquidity is called current ratio
(B) Larger the current ratio, larger is the margin of safety
(C) The operating profit is the difference between gross profit and operating expenses
(D) All of these

Answer: Option D

05. The ratio of current assets to current liabilities is known as

(A) Liquidity ratio
(B) Current ratio
(C) Acid-Test (or Quick) ratio
(D) Debts ratio

Answer: Option B

06. 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

Answer: Option D

07. The more critical (or severe) test of the firm’s liquidity can be judged by:

(A) Liquidity ratio
(B) Current ratio
(C) Acid-Test (or Quick) ratio
(D) Debts ratio

Answer: Option C

08. If interest is paid more than once in a year, ‘i’ is the rate of interest per year, ‘n’ is the number of periods in years and ‘m’ is a number of periods per years, compound amount factor (CAF) is:

(A) (1 + i/m)n
(B) (1 + i/n)m
(C) (1 + i/n)1/m
(D) (1 + i/m)1/n

Answer: Option A

09. Pick up the correct reason for making conceptual (or preliminary) estimate from the following:

(A) To have a check on a definitive cost estimate
(B) To check quotations from contractors and/or sub contractors
(C) To compute target estimate for the owner while drawings and specifications are in initial stage
(D) All of these

Answer: Option D

10. Pick up the correct method adopted for developing the approximate or conceptual estimates from the following:

(A) Base unit method
(B) Cost per function method
(C) Cost per square metre
(D) All of these

Answer: Option D

11. The person desires to pay off the amount in 10 equal annual instalments. The amount of each instalment is:

(A) Rs. 5638
(B) Rs. 6638
(C) Rs. 7738
(D) None of these

Answer: Option A

12. Liquidity ratios are used:

(A) To measure a firm’s ability to meet short-cut obligations
(B) To compare short term obligations to short-term resources available to meet these obligations
(C) To obtain much insight into the present cash solvency of the firm and the firm’s ability to remain solvent in the event of adversity
(D) All of these

Answer: Option D

13. Each financial ratio is generally compared by

(A) A past ratio calculated from the past financial standard of the firm
(B) A ratio developed by using the projected financial statement of the firm
(C) A ratio of some selected firms most progressive and successful at the point of consideration
(D) All of these

Answer: Option D

14. Pick up the correct statement from the following:

(A) Ratio analysis is the procedure of determining and interpreting numerical relationship of various items of the financial statement
(B) All financial ratios are obtained by relating two sets of information contained in a Single financial statement
(C) The relationship between two accounting figures expressed mathematically, is known as a financial ratio
(D) All of these

Answer: Option D

15. Present worth Annuity (PWA) is generally known as

(A) Premium annuities
(B) Income annuities
(C) Future annuities
(D) All of these

Answer: Option D

16. Ratio analysis of a construction firm is used for analysis by:

(A) Share holders
(B) Firm’s management
(C) Banks of the firm
(D) Financial analysts

Answer: Option D

17. Current assets less inventories divided by current liabilities is known as

(A) Liquidity ratio
(B) Current ratio
(C) Acid-Test (or Quick) ratio
(D) Debts ratio

Answer: Option C

18. Refer to the cash flow diagram of uniform gradient in a cash flow (in the given figure), the gradient is: (A) Rs. 10000 per year
(B) Rs. 15000 per year
(C) Rs. 20000 per year
(D) Rs. 25000 per year

Answer: Option D

19. Pick up the correct statement from the following:

(A) The change in the amount of money over a given time period is called ‘time value’ of money, a most important concept in engineering economy
(B) The manifestation of the time value of money is termed as interest
(C) Interest on borrowing = present amount owed – original loan
(D) All of these

Answer: Option D

20. Which one of the following questions is relevant to the construction estimates?

(A) Did the estimators precisely evaluate site conditions
(B) Did the estimators use short cut methods which may be unrealistic in their situation
(C) How much money will the contractor’s risk, loosing if he were to submit bid on the raw estimate of cost
(D) All of these

Answer: Option D

21. Both architect and engineer make use of the cost estimate of the project:

(A) For site selection
(B) For designing of the project
(C) For choosing alternatives
(D) All of these

Answer: Option D

22. Pick up the ratio which gives us sufficient information by which to judge the financial condition and performance of the firm, from the following:

(A) Liquidity ratio
(B) Financial leverage ratio
(C) Activity ratio
(D) None of these

Answer: Option D

23. The interest calculated on the basis of 365 days a year, is known as:

(A) Interest
(B) Ordinary simple interest
(C) Exact simple interest
(D) None of these

Answer: Option C

24. The project contractor relies on the cost of the estimate:

(A) For submission of a competitive bid for a lump-sum contract
(B) For a unit price contract
(C) For preparation of a definitive estimate to help negotiate contract
(D) All of these

Answer: Option D

25. If a seller recovers his capital along with accumulated compensating interest not in one single lump-sum payment but in periodical equal payments, over time:

(A) Capital Recovery Annuity fs availed
(B) Present work Annuity is availed
(C) Sinking Fund Annuity is availed
(D) Sinking Fund Annuity is availed

Answer: Option A

26. Pick up the method used for project evaluation and selection in capital budgeting from the following:

(A) Payback period
(B) Internal ratio of return
(C) Net present worth
(D) All the above

Answer: Option D

27. Pick up the correct statement from the following:

(A) The capital required to get a project started is the first cost
(B) The first cost is a single cash flow or a series of cash flows that are made in the beginning of the activity’s life span (C) The first cost of purchasing a car is the sum of the down payment, taxes and dealers charges
(D) All of these

Answer: Option D

28. Pick up the correct statement from the following:

(A) The difference between sales revenue and cost of goods sold, is known as ‘Gross Profit’
(B) The gross profit percentage is the average profit margin obtained on goods sold
(C) The relationship of contribution to sales is known as contribution ratio
(D) All of these

Answer: Option D

29. The key to profitable operation for project cost control, is:

(A) To keep the project cost equal to original cost estimate
(B) To keep the project cost equal to subsequent construction budget
(C) To keep the project cost within the cost budget and knowing when and where job costs are deviating
(D) None of these

Answer: Option C

30. The financial analysis helps to judge:

(A) The operational efficiency of the firm
(B) The financial position of the firm
(C) Both (a) and (b)
(D) Neither (a) nor (b)

Answer: Option C

31. Pick up the correct statement from the following:

(A) An annuity is a series of equal payments occurring at equal period of time

(B) Annuity is called an equal payment or uniform payment series
(C) An annuity may have periods of time of any length but should always be of equal length
(D) All the above

Answer: Option D

32. The sunk costs include:

(A) A past expenditure
(B) An unrecovered balance
(C) An invested capital that cannot be retrieved
(D) All of these

Answer: Option D

33. Pick up the element of the cost from the following:

(A) Direct material
(B) Direct labour
(C) Over head
(D) All of these

Answer: Option D

34. The ratio obtained by dividing ‘quick assets’ by current liabilities is called

(A) Turnover ratio
(B) Acid test ratio
(C) Solvency ratio
(D) None of these

Answer: Option B

35. The construction estimate of a project is used by:

(A) The owner of the facility
(B) The consulting architect/engineer
(C) The contractor of the project
(D) All of these

Answer: Option D

36. Pick up the correct statement from the following:

(A) The ratios which show profitability in relation to sales and those which show profitability in relation to investment are called profitability ratios
(B) The ratio of gross profit and net sales is called profitability in relation to sales ratio
(C) The ratio of net profit after taxes to total assets is known as profitability in relation to investment ratio
(D) All of these

Answer: Option D

37. The product of CAF (S P) and PWF (S P) is:

(A) 1/2
(B) 1
(C) 1/3
(D) 1/4

Answer: Option B

38. Which one of the following is not a construction estimate?

(A) Initial feasibility estimate
(B) Conceptual preliminary budget
(C) Definite estimate
(D) None of these

Answer: Option D

39. If ‘P’ is principal amount, ‘I’ is the rate of interest per annum and ‘n’ is the number of periods in years, the compound amount factor (CAF) is:

(A) (1 + i)n
(B) (1 + i)(1/2n)
(C) √(n + i)

(D) None of these

Answer: Option A

40. Which one of the following definitions is correct?

(A) The ratio of total debt to share holder’s equity is called ‘debt ratio’
(B) The ratio debt-to-total assets is called Debt-to-total assets ratio
(C) The ratio of earnings before interest and taxes for a particular reporting period to the amount of interest charges for the period is called interest coverage ratio
(D) All of these

Answer: Option D

41. If ‘P’ is principal amount, ‘i’ is the rate of interest and ‘n’ is the number of periods in years, then the interest factor is:

(A) (1 + ni)
(B) (ni – 1)
(C) ni
(D) None of these

Answer: Option A

42. Pick up the correct statement from the following:

(A) Over head rate = total over head in rupees for period/Direct labour in rupees for period
(B) Over head cost per unit = Overhead ratio x direct labour cost/unit
(C) Both (a) and (b)
(D) Neither (a) nor (b)

Answer: Option C

43. If ‘S’ is the future capital accumulated in ‘n’ years at the rate of interest ‘I’ per annum, then present worth is:

(A) S/(1 + i)n
(B) S(1 + i)n
(C) S(1 + i)1/n
(D) None of these

Answer: Option A

44. The financial analysis:

(A) Helps a share holder to compare the expected return on his investment in the firm against the expected return from other alternative investment
(B) Helps a bank to know the financial position of the firm for granting a loan to the firm
(C) Helps to judge the success of the firm’s financial plans
(D) All of these

Answer: Option D

45. Pick up the main purpose of project cost control from the following:

(A) To signal immediate warning of uneconomic operations
(B) To provide a feed back to the estimator
(C) To promote cost consciousness
(D) All of these

Answer: Option D

46. Mr. David deposits Rs 1200 now, Rs 800 two years from now and Rs 1000 five years from now. If the savings bank’s rate of interest in 5%, he will receive an amount of Rs X, 10 years from now, where X is

(A) Rs. 3415
(B) Rs. 4225
(C) Rs. 4413
(D) Rs. 4826

Answer: Option C

47. Pick up the correct statement from the following:

(A) A NPV profile graph shows the curvilinear relationship between the net present value of the project and discount rate employed
(B) In a NPV profile, if discount rate is zero, then net present value is simply total cash inflows less the total cash outflows of the project
(C) As the discount rate increases, the net present value profile slopes downward to the right
(D) All of these

Answer: Option D

48. If ‘a’ is the base amount expenditure, ‘b’ is the increase in the operation cost each year over a period of’ ‘n’ years, the total cost of maintenance is:

(A) a + (n + 1) b
(B) a + (n – 1) b
(C) a × (n – 1) b
(D) a – (n – 1) b

Answer: Option B

49. Which one of the following is included in financial ratios of the firm?

(A) Profitability ratio
(B) Liquidity ratio
(C) Turnover ratio
(D) All of these

Answer: Option D

50. Pick up the correct statement from the following:

(A) The ability of a company to meet obligations which are likely to mature in short term, is called liquidity
(B) The liquidity ratio may be defined as a relationship of current liabilities and current assets and advances
(C) The liquidity ratios are used to indicate the financial position of the firm
(D) All of these

Answer: Option D