ST.

JOSEPH’S COLLEGE OF ENGINEERING

CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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UNIT-1: INTRODUCTION TO ECONOMICS
Introduction to Economics-Flow in an Economy-Law of Supply and Demand-Concept of
Engineering Economics-Engineering Efficiency-Scope of Engineering Economics-Elements of
Cost-Marginal Cost and Marginal Revenue-Sunk Cost-Opportunity Cost-Break-even Analysis-
V-RATIO-Elementary Economic Analysis-Material Selection for Product Design Selection for a
Product, Process Planning
Sl.No Questions-MCP Answer
1 Engineering Economic analysis is used to answer d
a) Which engineering projects are worthwhile?
b) How should the engineering projects be designed?
c) How to achieve long term financial goals?
d) All the above
2 What is the economic criterion for a business to make profit c
a) Minimize the cost
b) Maximize the benefits
c) Both a and b are correct
d) None of the above
3 The amount of money or other input resources like labour, materials etc, the c
objective is to
a) Effectively use the inputs
b) Maximize the benefits or outputs
c) Both a and b are correct
d) None of the above
4 The economically efficient criterion for a situation of a fixed output is to a
a) Minimize the costs or other inputs
b) Maximize the benefits or outputs
c) Both a and b are correct
d) None of the above
5 Which is/are true c
a) Fixed cost is constant or unchanging regardless of the level of
output or activity
b) Maximize the benefits or outputs
c) Both a and b are correct
d) None of the above
6 Total Profit= Total Revenue –Total Costs, in this equation total costs is c
a) Total Cost= Fixed Cost – Variable Cost
b) Fixed Cost + Variable Cost +Miscellaneous Costs
c) Total Fixed Cost + Total Variable Cost
d) Fixed Cost + Variable Cost + Overheads
7 At break-even point for a business means c
a) The total cost of product, goods or service equals total
revenue generated
b) The total cost of product, goods or service equals total
revenue generated with no loss no gain
c) Both a and b are correct
d) Stagnation growth for a business
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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8 The loss region in a break-even chart implies c
a) Total costs are equal to total revenue
b) Total costs are less than the total revenue
c) Total costs are greater than the total revenue
d) No profit and No loss situation
9 The profit region in a break-even chart implies b
a) Total revenues are equal to total costs
b) Total revenues are greater than the total costs
c) Profit made by the company
d) No profit and No loss situation
10 The money already spent as a result of past decision is called as c
a) Opportunity Cost
b) Marginal Cost
c) Sunk Cost
d) Nonrecurring Cost
11 The benefit that is forgone cost by engaging a business resource in a chosen b
activity instead of engaging that same resource in the forgone activity is
called as
a) Marginal Cost
b) Opportunity Cost
c) Incremental Cost
d) Forgone Cost
12 The expense that is known, occurring at regular intervals and anticipated are a
referred to as
a) Recurring cost
b) Non-recurring cost
c) Incremental cost per year
d) Decrement cost per year
13 The total budgetary estimate for future and current projects in a company is a
referred to as
a) CAPEX Statement
b) ANNUAL Expenditure Statement
c) Project Cost
d) Annual Budget for the financial year
14 The costs and benefits associated with an engineering project over time are a
summarized on a
a) Cash Flow Diagram (CFD)
b) Project Cost Diagram (PCD)
c) Capital Expenditure (CAPEX)
d) Annual Equivalent Costs
15 The increase or decrease in the cost of producing one more unit or serving a
one more customer is called as
a) Marginal Cost
b) Marginal Revenue
c) Incremental Cost
d) Decrement Cost
16 The income received from selling one additional unit of a good or service is b
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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referred to as
a) Marginal Cost
b) Marginal Revenue
c) Total Revenue generated
d) Break-even Revenue
17 The microeconomic law that states that, all other factors being equal, as the b
price of a good or service increases, the quantity of goods or services that
suppliers offer will increase, and vice versa is referred to as
a) Law of Demand
b) Law of Supply
c) Law of Demand and Supply
d) None of the above
18 The law states that all other things being equal, the quantity bought of a good a
or service is a function of price, is referred to as
a) Law of Demand
b) Law of Supply
c) Law of Demand and Supply
d) None of the above
19 Holding all other factors constant, an increase in the price of a good or a
service will decrease the quantity demanded, and vice versa, is referred to
a) Law of Demand
b) Law of Supply
c) Law of Demand and Supply
d) None of the above
20 Theoretically, if the demand increases and the supply remains unchanged, a
then
a) It leads to higher equilibrium price and higher quantity
b) It leads to lower equilibrium price and lower quantity
c) It leads to lower equilibrium price and higher quantity
d) It leads to higher equilibrium price and lower quantity
21 Theoretically, if the quantity demand of the product changes drastically when a
its prices increases or decreases, then the product is considered to be
a) Elastic
b) Inelastic
c) Neutral
d) Increment or decrement Elastic
22 Theoretically, if a change in price causes a bigger percentage change c
in demand, then the
a) Demand is Price Elastic
b) Demand will increase the tax burden for the Producer
c) Both a and b are correct
d) Demand for the Product Increase
23 Which factor does not influence supply d
a) Cost of inputs
b) Technology
c) Weather
d) Taste of customers
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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24 Engineering Economics of a business deals with d
a) Minimizing Costs
b) Maximizing Profits
c) Generating Revenues
d) All the three
25 The direct material costs, labour costs and direct expenses are referred to as a
a) Variable Costs
b) Fixed Costs
c) Overhead Costs
d) None of the above
26 Which is / are true d
a) Variable cost varies with the volume of production
b) Overhead cost is fixed, irrespective of the production volume
c) Prime cost is the sum of direct material, direct labour and
direct expenses
d) All the above are true
27 Sales is defined by a
a) Cost of sales +Profit
b) Cost of goods sold + Total Overhead costs
c) Prime cost +Factory overheads
d) Selling price of a product
28 The total cost of the firm for a given production volume is given as a
a) Total Variable cost + Fixed Cost
b) Variable cost + Fixed Cost
c) Variable cost +Fixed cost+ Total overheads
d) Product Manufacturing + Selling Cost

29 The equation used for calculating break-even quantity is a

FC
a)
s−v

( FC ) x s
b)
s−v

Profit x Sales
c)
Contribution
d) None of the above
30 Economic efficiency of a business system is defined by d
a) Worth/ Cost
b) Output / input
c) Mechanical energy produced / Heat equivalent of fuel used
d) Both a and b
31 An alternative raw material can be selected based on d
a) Cheaper raw material price
b) Reduced machining / process time
c) Enhanced durability of the product
d) All the above
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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32 The objective of process planning/process modification is to identify a
a) The most economical sequence of operations to produce a
part
b) To reduce overall production cost
c) To effectively utilize the available resources
d) To improve quality of the part produced

UNIT II - VALUE ENGINEERING

Make or buy decision, Value engineering – Function, aims, and value engineering procedure.
Interest formulae and their applications –Time value of money, Single payment compound
amount factor, Single payment present worth factor, Equal payment series sinking fund
factor, Equal payment series payment Present worth factor- equal payment series capital
recovery factor – Uniform gradient series annual equivalent factor, Effective interest rate,
Examples in all the methods.
Sl.No Questions-MCP Answer
1 The technique of value analysis can be applied to d
a. complicated items only
b. simple items only
c. crash-programme items only
d. Any item
2 The term ‘value’ in value engineering refers to c
a. total cost of the product
b. selling price of the product
c. utility of the product
a. manufactured cost of the product
3 Value engineering aims at finding out the c
a. depreciation value of a product
b. resale value of a product
c. major function of the item and accomplishing the same at least cost
without change in quality
d. breakeven point when machine re-quires change
4 The cost reduction technique in comparison to the worth of a product is b
known as
a. Reverse engineering
b. Value engineering
c. Material engineering
d. Quality engineering
5 Value analysis examines the d
a. Design of every component
b. Method of Manufacturing
c. Material used
d. All of the above
6 Value analysis is normally applied to b
a. New products
b. Old products
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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c. Future products
d. Both (a) and (b)
7 Value can be defined as the combination of __________ which ensures the a
ultimate economy and satisfaction of the customer
a. Efficiency, quality, service and price
b. Efficiency, quality, service and size
c. Economy, quality, service and price
d. Efficiency, material, service and price
8 Value is the cost directly proportionate to b
a. Price
b. Function
c. Product material
d. All of the above
9 The price paid by the buyer is b
a. cost value
b. Use value
c. Esteem value
d. Exchange value
10 The cost incurred by the manufacturer beyond the use value is called b
a. Cost value
b. Esteem value
c. Exchange value
d. None of the above
11 Value analysis is a _________ process a
a. Remedial
b. Preventive
c. Continuous
d. None of the above
12 Value analysis should be applied when the following symptom(s) is (are) d
present
a. Rate of return on investment is reducing
b. Reduction in sales of the product
c. Firm is unable to meet delivery promises
d. All of the above
13 Who is named the father of value analysis a
a. Lawrence D.Miles
b. George Terborch
c. Michael Jucius
d. Edwin B.Flippo
14 Important reason(s) for arising unnecessary costs are d
a. Poor design of the product
b. Too tight specifications
c. Lack of standardization
d. All of the above
15 The costs those which neither contributes to function nor the appearance of b
the product is called
a. Extra cost
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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b. unnecessary cost
c. Esteem cost
d. Exchange cost
16 Value engineering can be applied in the following area d
a. Construction
b. Process
c. Manufacturing
d. All of the above
17 Which job plan phase is backbone or mostly preferred by value engineering a
a. Identification
b. Creative
c. Evaluation
d. Development
18 Work cost implies d
a. Primary cost
b. Factory cost
c. Factory expenses
d. Primary cost + factory expenses
19 'Value' for value engineering and analysis purposes is defined as d
a. Purchase value
b. Depreciated value
c. Present worth
d. Function/cost
20 If Rs 1000 is invested now at 10% interest annually, two equal year end c
payment value of Rs___________ can be received
a. 623.2
b. 600
c. 576.2
d. 520.2
21 An enthusiastic new engineering graduate plans to start a consulting firm by b
borrowing Rs100000 at 10% per year interest. The loan payment each year to
pay off the loan in 7 years is approximately
a. Rs18745
b. Rs 20540
c. Rs 22960
d. Rs 23450
22 An engineer was believed in “save now and play later” wanted to retire in 20 a
years with Rs1500000. At 10% interest compounded annually, to reach the Rs
1500000 gaol, the engineer must annually invest an equal year end amount of
a. Rs26250
b. Rs 28190
c. Rs 49350
d. Rs 20380
23 A machine undergoes a major over haul now, because of which additional b
cash flow of Rs 20000 is generated at the end of each year for five years. If
i=15% per year, the amount that can be afforded to invest to overhaul the
machine will be
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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a. Rs 67221
b. Rs 67044
c. Rs 68044
d. Rs 68221
24 A company is considering the purchase of a machine for Rs 50000. If the c
company purchases the machine now, the equivalent future amount in year 4
that the company is paying for the machine at 4% per year interest is
a. Rs 53362
b. Rs 56565
c. Rs 58492
d. Rs 60203
25 A father on the day his son is born, wishes to deposit an amount that would b
provide withdrawals of Rs 20000 on each of the sons 18 th, 19th, 20th and 21st
birthdays. At interest of 12% per year, the amount to be deposited will be
a. Rs 8385
b. Rs 8845
c. Rs 9035
d. Rs 10025
26 A person has an option to purchase of land that will be worth Rs 10 Lakhs in c
six years. If the value of land increases at 8% each year, the investor willing to
pay for the property now will be
a. Rs 505600
b. Rs 580330
c. Rs 630200
d. Rs 680203
27 A person borrows Rs 10000 for eight years. The amount he has to repay at the b
th
end of 8 year at 10% rate of interest compounded annually will be
a. Rs 18336
b. Rs 21436
c. Rs 23506
d. Rs 24890
28 If 8 annual deposits of Rs 5000 each are placed in an account, the money that b
will be accumulated immediately after last deposit at 10% rate of interest
compounded annually will be
a. Rs 50050
b. Rs 57180
c. Rs 58760
d. Rs 60090
29 A company has extra capacity that can be used to produce a sophisticated a
fixture which it has been buying for Rs. 900 each. If the company makes the
fixtures, it will incur materials cost of Rs. 300 per unit, labour costs of Rs. 250
per unit, and variable overhead costs of Rs. 100 per unit. The annual fixed cost
associated with the unused capacity is Rs. 10, 00, 000. Demand over the next
year is estimated at 5,000 units. Would it be profitable for the company to
make the fixtures?
a. Rs 5500000
b. Rs 6000000
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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c. Rs 6500000
d. Rs 7000000
30 A manufacturer of TV buys TV cabinet at Rs. 500 each. In case the company c
makes it within the factory, the fixed and variable costs would be Rs. 4,00,000
and Rs. 300 per cabinet respectively. What is the break even quantity?
a. 1000 units
b. 1500 units
c. 2000 units
d. 2500 units
31 Summation of the labour, material, overhead and all other elements of cost b
required to produce an item or provide a service
compared to a base is called as
a. Exchange value
b. Cost value
c. Use value
d. Esteem value
32 Value of the product is a
a. Performance/Utility
b. Appearance/Utility
c. Performance/Service
d. Performance/Life span
33 __________ identifies the characteristics which make the c
product/component/part/item/device to work or sell
a. Cost
b. Service
c. Function
d. Maintenance

UNIT-III: CASH FLOW

Methods of comparison of alternatives – present worth method (Revenue dominated cash
flow diagram), Future worth method (Revenue dominated cash flow diagram, cost
dominated cash flow diagram), Annual equivalent method (Revenue dominated cash flow
diagram, cost dominated cash flow diagram), rate of return method, Examples in all the
methods.
Sl.No MCQ Questions Answers
1 Net present worth for an alternative is equal to ____________. c
a. Present worth (benefits)
b. Present worth (cost)
c. Present worth (benefits) - Present worth (cost)
d. Present worth (cost) - Present worth (benefits)
2 When the alternatives have identical cost, as per present worth analysis
technique the focus should be on ___________ a
a. Maximizing present worth (benefit)
b. Maximizing present worth (cost)
c. Maximizing present worth (cost - benefits)
 ST. JOSEPH’S COLLEGE OF ENGINEERING
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Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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d. None of the above
3 A company must install one of two production machines that have identical b
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
4 Assuming annual interest of i%, If initial present sum is P and required end-of- b
period withdrawal is of A forever without diminishing initial sum P, then P and
A are related as ..
a. P = Ai
b. A = Pi
c. P = A(i+1)
d. A = P (i+1)
5 Which of the following is used for selecting the best alternative from among a d
set of mutually exclusive alternatives in economic analysis?
a. Present worth analysis
b. Annual cash flow
c. Rate of return
d. All of the above
6 A contractor must purchase one of three trucks for his business. The trucks d
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) ].
7 If elevator X costs Rs. 20, 00,000 with an annual operating and maintenance b
(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
8 Cost of elevator X is Rs. 20,00,000 with an annual operating and maintenance b
(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 elevators 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
9 Cost of elevator X is Rs. 20,00,000 with an annual operating and maintenance c
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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(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 elevators 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
10 What is present worth of the cost of equipment whose current value is Rs. a
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
11 A company with a MARR of 15% must install one of two production machines b
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
12 Machine has an initial cost of Rs 60,000 with an annual operating and b
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
13 A machine has an initial cost of Rs 40,000 with an annual operating and c
maintenance (O&M) cost of Rs. 30,000 and a salvage value of Rs. 5,000 after
its 5-year. If MARR is assumed to be 15 %, the present worth of cost will be
___________.
a. 40000
b. 70000
c. 138075
d. 190370
14 A machine has initial cost of Rs. 16000 and useful life of 4 years. If the salvage b
value of the machine after 2 years is 4000 and after 4 years is 2000, find
present worth of cost of the machine for desired service life of 6 years with
identical replacement after 4 years. Assume MARR of 10%.
a. 21304
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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b. 23304
c. 25304
d. Insufficient data
15 How much will Rs. 10,000 grow into in 5 years if you earn 10%? a
a. Rs.13, 102
b. Rs.16, 105
c. Rs.16, 289
d. Rs.13, 456
16 A city plans a pipeline to transport water from a distant watershed area to the a
city. The pipeline will cost Rs. 8000000 and will have an expected life of 70
years. The city expects to keep the water line in service indefinitely. Compute
the capitalized cost, assuming 7% interest.
a. 8071000
b. 9071000
c. 8710000
d. 9710000
17 Which of the following is an appropriate way to measure cash flows? a
a. Treat depreciation as a negative cash flow.
b. Treat salvage value as a negative cash flow
c. Treat Investment as a Positive Cash flow
d. None of the above
18 The process of calculating future value of money from the present value is a
classified as
a. Compounding
b. Discounting
c. Money Value
d. Stock Value
19 The Discounted Cash flow Analysis is also Classified as b
a. Time value of Stock
b. Time Value of Money
c. Time value of bonds
d. Time Value of Treasury bonds
20 In Calculation of time, Value of money, the ‘N’ represents a
a. Number of payment Periods
b. Number of investments
c. Number of Instalments
d. Number of years
In a cash flow series: d
21 a) Uniform gradient signifies that an income or disbursement changes by
the same amount in each interest period
b) Either an increase or 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
22 In future worth method after evaluating various alternatives, the following d
alternative(s) will be selected.
a) Maximum future worth of net revenue
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Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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b) Minimum future worth of net cost
c) Minimum future worth of net revenue
d) both (a) and (b)
23 In cash Dominated Cash flow Diagram, a
a) Expenditures are assigned with positive sign and revenues with
negative sign
b) Expenditures are assigned with negative sign and revenues with
positive sign
c) Expenditures are assigned with positive sign and revenues with
positive sign
d) Expenditures are assigned with negative sign and revenues with
negative sign
24 In a revenue Dominated cash flow diagram, a
a) Revenues are assigned with positive sign and expenditures are
assigned with negative sign
a) Revenues are assigned with negative sign and expenditures are
assigned with positive sign
b) Revenues are assigned with negative sign and expenditures are
assigned with negative sign
c) Revenues are assigned with positive sign and expenditures are
assigned with positive sign
25 Increase in non-current liability and Decrease in net current asset is called as b
a) Cash Outflow
b) Cash Inflow
c) Economic Life of an asset
d) None of the above
26 The rate of return of a cash flow pattern is the interest rate at which the a
present worth of that cash flow pattern
a) Reduces to zero
b) Increases to Maximum
c) Both (a) and (b)
d) None of the above

UNIT IV REPLACEMENT AND MAINTENANCE ANALYSIS

Replacement and Maintenance analysis – Types of maintenance, types of replacement

problem, determination of economic life of an asset, Replacement of an asset with a new
asset – capital recovery with return and concept of challenger and defender, Simple
probabilistic model for items which fail completely.

Sl.No MCQ Questions Answers

1 In replacement Analysis, Challenger is defined as b
a) Existing asset being considered for replacement
b) Asset proposed to be replacement
c) Asset no longer in use
d) Asset with Zero salvage value
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2 The process of becoming an equipment /asset out date is known as b
a) Physical deterioration
b) Obsolescence
c) Depletion
d) Amortization
3 Which of the following is not considered while analyzing replacement c
problems :
a) Outsider’s view point
b) Economic merit of the investment
c) First cost of the defender (Purchased in past)
d) None of the above
4 Economic service life results in a
a) Minimum equivalent annual cost
b) Maximum equivalent annual cost
c) Minimum annual equivalent annual cost
d) None of above
5 A truck was purchased 3 years ago for Rs. 45,000 and can be sold today for d
Rs. 24,000. The operating costs are Rs. 9,000 per year, and it is expected to
last 4 more years with a Rs 5,000 salvage value. A new truck which will
perform that same service can be purchased for Rs 50,000, and it will have a
life of 10 years with operating costs of Rs. 28,000 per year and a Rs. 10,000
salvage value. The value that should be used as P for the presently owned
vehicle in a replacement study is
a) Rs. 45, 000
b) Rs. 5000
c) Rs. 50,000
d) Rs. 24,000
6 4 years ago a pump was purchased for Rs. 60,000 with annual operating cost b
of Rs. 32,000. The pump is expected to work satisfactorily for 6 additional
years, after which it will have negligible salvage value. There is an opportunity
to purchase a new pump for Rs. 85,000 with life of 6 years, negligible salvage
value at the end of its life, and an annual operating cost of Rs. 14,000. If the
new pump is purchased, the old pump will be sold for Rs. 16,000. Using 6
years study period and interest rate of 12%, it is better to
a) Continue with existing pump
b) Replace the existing pump with new pump
c) It can’t decided
d) None of the above
7 A new fort lift truck will require an investment of Rs. 20, 000 and is expected b
to have year – end salvage values and annual expenses as shown in table
below. If the MARR 10% per year, the Asset be retained in service for
End of year Salvage value at end of year (Rs.) Annual Expenses (Rs.)
0 20,000
1 15,000 2,000
2 11,250 3,000
3 8,500 4,620
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4 6,500 8,000
5 4,750 12,000
a) 2 year
b) 3 years
c) 4 years
d) 5 years
8 For three mutually exclusive investment alternatives P,Q and R, the capital b
investment and annual cost savings are presented in the following table.
Study period is taken as 10 years.
P Q R
Capital investment -390000 -920000 -660000
Annual Cost Savings 69000 167000 133500
(in Rupees)
Based on present worth (PW) method of Comparison of Alternatives,
PW(10%) of alternative Q is
a) Rs. 33977
b) Rs. 106148
c) Rs. 160304
d) Rs. 180367
9 Based on data from question no 8, Based on Annual equivalent/ worth c
method of comparison of alternatives, AW(10%) of alternative R is
a) Rs. 5547
b) Rs. 17316
c) Rs. 26118
d) Rs. 18990
10 Based on data from question no 8, The alternative which should be chosen is c
a) P
b) Q
c) R
d) Either Q or R
11 Maintenance consist of the following action(s) d
a) Replacement of component
b) Repair of component
c) Service of component
d) All of the above
12 The time elapsed form the point the machine fails to perform its function to d
the point it is repaired and brought into operating condition is known as
a) Down time
b) Breakdown time
c) Idle time
d) Both (a) & (b)
13 The following is not a classification of maintenance b
a) Corrective maintenance
b) Timely maintenance
c) Scheduled maintenance
d) Preventive maintenance
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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14 If belt of an electric motor is broken, it needs a
a) Corrective maintenance
b) Timely maintenance
c) Scheduled maintenance
d) Preventive maintenance
15 The following are scheduled maintenance d
a) Overhauling of machine
b) Cleaning of tank
c) Whitewashing of building
d) All the above
16 Number of breakdowns/ Available machine hours)= b
a) Maintenance effectiveness
b) Frequency of breakdown
c) Effectiveness of maintenance planning
d) None of the above
17 Total productive maintenance aims at c
a) Less idle time
b) Increase in productivity
c) Zero down time
d) None of the above
18 Preventive maintenance is used to ensure the breakdowns: b
a) Are eliminated
b) Are reduced
c) Are less costly
d) Cannot happen
19 In regards to maintenance, breakdown maintenance is _______, While c
preventive maintenance is _______________.
a) Proactive; Cheaper
b) Cheaper; Reactive
c) Reactive, proactive
d) Cheaper; more productive
20 What is the economics life of an asset? b
a) The service life that accounts for the costs of an asset replacement
b) The service life that minimizes the average cost of an asset over
time
c) The service life that minimizes the marginal cost of an asset
d) The service life that maximizes revenue generated by an asset
21 The book value of an asset is equal to the d
a) Asset’s fair value less its historical cost
b) Blue book value relied on by secondary markets
c) Replacement cost of the asset.
d) Asset’s cost less accumulated depreciation
22 Which of the following would not typically be a consideration in the c
equipment replacement question?
a) Forecasts of future demand
b) Expertise workers had on the old equipment
c) The cost of the replacement equipment
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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d) The cost to maintain the old equipment
23 Which type of maintenance is not directly included in the total maintenance c
cost, but might be a component of total overall cost?
a) Preventive
b) Breakdown
c) Predictive
d) Prescriptive
24 Breakdown programs usually involve all of these except c
a) Standby or backup equipment.
b) Well- trained repair people.
c) Operators who knows when to call in help for minor repairs.
d) Inventories of spare parts
25 Which equation represents the capital recovery with return? a
a) (P-F)×(A/P, I, n)+F×i
b) (P+F) ×(A/P, I, n)+F×i
c) (P-F)+(A/P, I, n)+F×i
d) None of the above

UNIT V DEPRECIATION

Depreciation- Introduction, Straight line method of depreciation, declining balance method

of depreciation-Sum of the years digits method of depreciation, sinking fund method of
depreciation/ Annuity method of depreciation, service output method of depreciation-
Evaluation of public alternatives- introduction, Examples, Inflation adjusted decisions –
procedure to adjust inflation, Examples on comparison of alternatives and determination of
economic life of asset.

Sl. No MCQ Questions Answers

1 The main object of providing depreciation is: a
a) To calculate true profit
b) To show true financial position
c) To reduce tax
d) To provide funds for replacement
2 Depreciation arises because of b
a) Fall in the market value of an asset
b) Physical wear and tear
c)      Fall in the value of money
d) None of them
3 Depreciation is a process of a
a) Valuation
b)  Allocation
c) Both valuation and allocation
d) None of them
4 Under the straight line method of providing depreciation it b
a) Increase every year
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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b) Remain constant every year
c) Decreases every year
d) None of them
5 Under the diminishing balance method depreciation it b
a) Increases every year
b) Decreases every year
c) Remain constant every year
d) None of them
6 Under the fixed instalment method of providing depreciation it is calculated a
on
a) Original cost
b) on balance amount
c) On scrap value                      
d) None of them
7 Under the diminishing balance method, depreciation is calculated on c
a) Scrap value
b) On original value
c) On book value
d) None of them
8 The amount of depreciation charged on a machinery will be debited to b
a) Machinery account  
b) Depreciation account
c) Cash account                             
d) Repair account
9 Loss on sale of plant and machinery should be written off against b
a) Share premium
b) Depreciation fund account
c) Sale account
d) Profit & loss account
10 Loss on sale of machinery will be b
a) Debited on machinery a/c
b) Credited to machinery a/c 
c) Credited to profit and loss a/c
d) None of them
11 Asset which have a limited useful life are termed as b
a) Limited assets                      
b) Depreciation assets
c) Unlimited asset                    
d) None of these
12 Process of becoming out of date or obsolete is termed as c
a) Physical deterioration       
b) Depletion
c) Obsolescence
d) Amortization
13 Which of the term is used to write off in reference to tangible fixed assets? a
a) Depreciation
b) Depletion
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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c) Amortization      
d) Both (b) and (c)
14 The economic factors causing depreciation b
a) Time factor
b) Obsolescence and inadequacy 
c) Wear and tear
d) Money valuation
15 Profit prior to incorporation is an example of a
a) Capital reserve
b) Revenue reserve
c) Secret reserve                       
d) None of these
16 Total depreciation cannot exceeds its d
a) Scrap value
b) Cost value
c) Market value
d) Depreciable value
17 Depreciation value of an asset is equal to c
a) Cost + Scrap value
b) Cost + Market price
c) Cost – Scrap value
d) None of these
18 Depreciation does not depend on fluctuations as a
a) Market value of asset
b) Cost of price of asset
c) Scrap value of asset
d) None of these
19 Depreciation is c
a) An income
b) An asset
c) A loss 
d) A liability
20 The books value of an asset is obtained by deducting depreciation from its d
a) Market value
b) Scrap value
c) Market + Cost price             
d) Cost 
21 Depreciation fund method is also known as a
a) Sinking fund method
b) Annuity method
c) Sum of years digits method
d) None of these
22 The method is specially suited to natural resources (mines, quarries, sand, b
pits etc.) is said to be
a) Annuity method
b) Depletion method
c) Revaluation method             
 ST. JOSEPH’S COLLEGE OF ENGINEERING
CHENNAI – 600 119
Multiple Choice Question (MCQ)
Branch: Mechanical Semester: VIII Subject/code: Engineering Economics/ MG6863 2020-2021
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d) Sum of digits method
23 Double – declining method is often used in the d
a) Pakistan
b) South Africa
c) Japan                                      
d) USA 
24 In the provision method of depreciation the asset always appears at a
a) Cost price 
b) Market Price
c) Scrap Value                           
d) None
25 Recovery of money from the earnings of an equipment for its replacement b
purpose is called as
a) Recovery fund 
b) Depreciation fund
c) Replacement fund
d) None of the above                           
26 Benefit to Cost Ratio of a public alternative shall be b
a) Equal to one 
b) Equal and More than one
c) Less than one
d) Equal and Less than one                           
27 Inflation has b
a) Discounting effect
b) Compounding effect
c) Both (a) and (b)
d) None of the above                           
28 Worldwide trend/wish is to a
a) Curtail inflation
b) Increase inflation
c) Maintain constant inflation
d) None of the above                           
29 For realistic economic decision, we need to consider C
a) Interest rate
b) Inflation rate
c) Both (a) and (b)
d) None of the above                           
30 Elements of costs involved in the replacement analysis D
a) Purchase cost (initial cost)
b) Annual operation and maintenance cost
c) Salvage value at the end of every year
d) All the above