### Information Systems And Engineering Economics Set 17

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This set of Information systems and engineering economics Multiple Choice Questions & Answers (MCQs) focuses on Information Systems And Engineering Economics Set 17

Q1 | A couple wants to save for their daughter’s college expenses. The daughter will enter college 8 years from now and she will need $40,000, $41,000, $42,000, and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college (for 8 years)?

- 11945
- 11838
- 12538
- 12142

Q2 | An investment project costs P. It is expected to have an annual net cash flow of 0.125P for 20 years. What is the project’s payback period?

- 6 years
- 0 year
- 11 year
- 8 year

Q3 | Which of the following statements is incorrect?

- the simplicity of the payback period method is one of its most appealing qualities even though it fails to measure project profitability.
- if two investors are considering the same project, the payback period will be longer for the investor with the higher marr.
- considering the cost of funds in a payback calculation is equivalent to finding the time period when the project balance becomes zero.
- if you were to consider the cost of funds in a payback period calculation, you would have to wait longer to breakeven as you increase the interest rate.

Q4 | Find the net present worth of the following cash flow series at an interest rate of 10%

- $550 < pw(10%) ? $600
- $600 < pw(10%) ? $650
- $500 < pw(10%) ? $550
- $650 < pw(10%) ? $700

Q5 | You are considering buying an old house that you will convert into an office building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data?

- 250100
- 232316
- 201205
- 218420

Q6 | Your R&D group has developed and tested a computer software package that assists engineers to control the proper chemical mix for the various process manufacturing industries. If you decide to market the software, your first year operating net cash flow is estimated to be $1,000,000. Because of market competition, product life will be about 4 years, and the product’s market share will decrease by 25% each year over the previous year’s share. You are approached by a big software house which wants to purchase the right to manufacture and distribute the product. Assuming that your interest rate is 15%, for what minimum price would you be willing to sell the software?

- 2887776
- 2766344
- 2047734
- 2507621

Q7 | Find the capitalized equivalent worth for the project cash flow series at an interest rate of 10%.

- ce(10%) ? = ? $1,753
- ce(10%) ? = ? $1,548
- ce(10%) ? = ? $1,500
- ce(10%) ? = ? $1,476

Q8 | The following table contains a summary of how a project’s balance is expected to change over its 5 year service life at 10% interest.:Which of the following statements is incorrect?

- the net present worth of the project at 10% interest is $1,242
- the required additional investment at the end of period 1 is $500
- the net future of the project at 10% interest is $2,000
- within 2 years, the company will recover all its investments and the cost of funds (interest) from the project

Q9 | Reconsider the project balance table calculated at 10% given in 5.9.:Which of the following statements is correct?

- the cash flow in period 3 is $240
- the project is not profitable at i ? = ? 10%.
- the conventional payback period is 1.7 years
- the net present worth of the project is $2,000

Q10 | A newly constructed water treatment facility cost $2 million. It is estimated that the facility will need renovating every 30 years at a cost of $1 million. Annual repairs and maintenance are estimated to be $100,000 per year. At an interest rate of 6%, determine the capitalized cost of the facility.

- 3579806
- 3877482
- 4301205
- 3360343

Q11 | Consider the following two investment alternatives:Suppose that your firm needs either machine for only 2 years. The net proceeds from the sale of machine B are estimated to be $200. What should be the required net proceeds from the sale of machine A so that both machines could be considered economically indifferent at an interest rate of 10%?

- 850
- 700
- 750
- 800

Q12 | Gene Research, Inc. just finished a 4-year R&D and clinical trials successfully and expects a quick approval from the Food and Drug Administration. If the company markets the product on their own, it requires $30 million immediately (n ? = ? 0) to build a new manufacturing facility, and it is expected to have a 10 year product life. The R&D expenditure in the previous years and the anticipated revenues that the company can generate over the next 10 years is summarized as follows:Merck, a large drug company is interested in purchasing the R&D project and the right to commercialize the product from Gene Research, Inc., immediately (n? =? 0). What would be a starting negotiating price for the project from Merck? Assume that Gene’s MARR ? = 20%.

- $524 million
- $105 million
- $420 million
- $494 million

Q13 | A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)

- 135928
- 132275
- 114487
- 72275

Q14 | A manufacturing company is considering two mutually exclusive machines E1 and E2 with the following cash flow information:Which machine would you recommend if the company needs either machine for only 3 years? Assume a MARR of 12%

- project e1
- indifferent
- cannot compare without knowing the year-end salvage values over their service lives
- project e2

Q15 | Consider a project with a first cost (investment) of $250,000, an annual O&M cost of $50,000, annual revenue of $160,000, and a salvage value of $40,000 after a 10-year life. Find the annual worth of the project assuming an interest of 13% per year.

- 35867
- 81000
- 82445
- 66099

Q16 | Find the annual equivalent worth for the following infinite cash flow series at an interest rate of 10%:

- 461.2
- 445.2
- 985.4
- 438.6

Q17 | Your firm has purchased an injection molding machine at a cost of $100,000. The machine’s useful life is estimated at 8 years. Your accounting department has estimated the capital cost for this machine at about $25,455 per year. If your firm’s MARR is 20%, how much salvage value do you think the accounting department assumed at the end of 8 years?

- 12000
- 9000
- 10000
- 11000

Q18 | You just purchased a pin inserting machine to relieve some bottleneck problems that have been created in manufacturing a PC board. The machine cost $56,000 and has an estimated service life of 5 years. At that time, the estimated salvage value would be $5,000. The machine is expected to operate 2,500 hours per year. The expected annual operating and maintenance cost would be $6,000. If your firm’s interest rate is 15%, what would be the machine cost per hour?

- 8.79
- 7.85
- 11.85
- 5.89

Q19 | The following infinite cash flow series has a rate of return of 10%. Determine the unknown value of X.

- 120
- 100
- 82
- 90

Q20 | An asset with a first cost of $100,000 is depreciated over 5-year period. It is expected to have a $10,000 salvage value at the end of 5 years. Using the straight-line method, what is the book value at the end of year 2?

- 82000
- 90000
- 64000
- 60000

Q21 | The rate of tax that is leivable on STCGarising from transfer of Equity shares of aCompany or units of an Equity oriented fund is

- 0.1
- 0.15
- 0.2
- 0.3

Q22 | For an employee in receipt of hostelexpenditure allowance for his three children,the maximum annual allowance exempt under section 10(14) is

- a) rs.10, 800
- b) rs.7,200
- c) rs.9,600
- d) rs.3,600

Q23 | For an industrial undertaking fulfilling theconditions, additional depreciation in respectof a machinery costing Rs.10 lakh acquired and installed on October 3, 2005 is

- a) rs.75,000
- b) rs.1,50,000
- c) rs.1,00,000
- d) none of the above

Q24 | A.O.P should consist of :

- a) individual only
- b) persons other than individual only
- c) both the above
- d) none of the above

Q25 | Body of individual should consist of :

- a) individual only
- b) persons other than individual only
- c) both the above
- d) none of the above