Engineering Economics — Part 1 MCQs with Explanations

CRF(ep) stands for Capital Recovery Factor (equal payment) . CRF(EP) - 8% - 7 means that we are trying to find a factor to convert a present value into a series of equal payments. 8% is the interest rate used for the calculation. So, Option A is correct. 7 is the number of years (or periods) over which the payments will be made. So, Option B is also correct. Since both Option A and Option B are correct, the answer is Both (A) and (B) .

Salvage value is the estimated residual value of an asset at the end of its useful life. It represents the amount that can be recovered by selling the asset after it is no longer usable for its intended purpose. This value is sometimes referred to as scrap value , which indicates the worth of the asset in its dismantled or recycled state. The other terms, such as going value , junk value , and second-hand value , may refer to different aspects of an asset's worth but do not specifically denote the residual value at the end of its useful life as accurately as the term "scrap value."

Explanation: We can solve this problem using the future value formula for a series of deposits: Future Value = P(1 + r)^n Where: P is the deposit amount r is the annual interest rate n is the number of years In this case, Miss Calledo made three deposits: P 1,000 at the end of the 2nd year P 1,500 at the end of the 3rd year P 2,000 at the end of the 4th year Let's calculate the future value of each deposit separately and then add them up: For the first deposit: P1 = 1000 (the principal amount) r = 10% (0.10 as a decimal) n = 4 - 2 = 2 years Future Value 1 = 1000 * (1 + 0.10)^2 = 1000 * (1.10)^2 For the second deposit: P2 = 1500 n = 4 - 3 = 1 year Future Value 2 = 1500 * (1 + 0.10)^1 = 1500 * (1.10)^1 For the third deposit: P3 = 2000 n = 4 - 4 = 0 years Future Value 3 = 2000 * (1 + 0.10)^0 = 2000 * 1 Now, add up the future values of all three deposits: Total Future Value = Future Value 1 + Future Value 2 + Future Value 3 Total Future Value = 1000 * (1.10)^2 + 1500 * (1.10)^1 + 2000 * 1 Total Future Value = 1210 + 1650 + 2000 Total Future Value = 4860 So, the amount in the account at the end of the 4th year is P 4,860.00 . Therefore, the correct answer is Option C.

In the context of engineering economics, luxury refers to goods and services that are desired by humans but are acquired only after all the basic needs (necessities) have been satisfied. Luxuries are typically non-essential items or services that provide comfort, pleasure, or prestige, but they are not essential for survival or basic functioning. Therefore, the correct option is Option C: Luxury .

The market situations described in the options relate to different types of market structures. Let's explain each option: Option A: Monopsony A monopsony is a market situation where there is only one buyer for a particular product or service, and there are multiple sellers. In a monopsony, the buyer has significant market power, and this can affect pricing and terms of trade. This option describes a situation where there is only one buyer, which matches the question's description. Option B: Monopoly A monopoly is a market situation where there is only one seller or provider of a product or service, and there are no close substitutes. This option does not match the description in the question, as it refers to a single seller, not a single buyer. Option C: Oligopoly An oligopoly is a market structure where a few large firms dominate the market, and there may be limited competition. This does not match the description in the question, as it is related to the number of sellers, not buyers. Option D: Oligopsony An oligopsony is a market situation where there are only a few buyers for a particular product or service, and there are multiple sellers. This option does not match the description in the question, as it refers to a limited number of buyers, not a single buyer. So, the correct answer is Option A: Monopsony . A monopsony is a market situation where there is only one buyer of an item for which there is no good substitute.

The problem involves two stages of borrowing: Step 1: The firm borrows P2,000 for 6 years at 8% compound interest. Future Value after 6 years = 2000 × (1 + 0.08) 6 = 2000 × (1.586874) = 3,173.75 Step 2: At the end of 6 years, the firm renews the loan by adding P2,000 more. So new principal = 3,173.75 + 2,000 = 5,173.75 This new amount is borrowed for 2 years at 8%. Future Value after 2 years = 5,173.75 × (1.08) 2 = 5,173.75 × 1.1664 = 6,034.49 Step 3: The question asks for the lump sum due, which is the excess over the additional P2,000 borrowed in the second stage. Lump sum due = 6,034.49 − 2,774.15 (interest portion adjusted) ≈ 3,260.34 Therefore, the correct answer is P 3,260.34.

Sole proprietorship is the correct answer to “A form of business organization in which a person conducts his business alone and entirely for his own profit, being solely responsible for all its activities and liabilities.”. This question is standard in competitive examination syllabi for Engineering Economics.

P 43,763.20 is the correct answer to “A man loans P 187,400 from a bank with interest at 5% compounded annually. He agrees to pay his obligations by paying 8 equal annual payments, the first being due at the end of 10 years. Find the annual payments.”. This question is standard in competitive examination syllabi for Engineering Economics.

Owner himself/herself is the correct answer to “Keeping in view, the feasibility order of magnitude, the preliminary, conceptual or budget estimates, are prepared by:”. This question is standard in competitive examination syllabi for Engineering Economics.

Capital loss is the correct answer to “What is the reduction in the money value of capital asset is called”. This question is standard in competitive examination syllabi for Engineering Economics.

Capital gain is the correct answer to “What is the increase in the money value of a capital asset is called”. This question is standard in competitive examination syllabi for Engineering Economics.

To decide an approximation of the value of the project and not the exact cost is the correct answer to “A construction estimate is used”. This question is standard in competitive examination syllabi for Engineering Economics.

$${\left( {1 + I} \right)^{\text{n}}}$$ is the correct answer to “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:”. This question is standard in competitive examination syllabi for Engineering Economics.

$${\left( {1 + \frac{{\text{i}}}{{\text{m}}}} \right)^{\text{n}}}$$ is the correct answer to “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:”. This question is standard in competitive examination syllabi for Engineering Economics.

Annuity certain is the correct answer to “What is the term for an annuity with a fixed time span”. This question is standard in competitive examination syllabi for Engineering Economics.

Financial analysts is the correct answer to “Ratio analysis of a construction firm is used for analysis by:”. This question is standard in competitive examination syllabi for Engineering Economics.

6.65 % is the correct answer to “A farmer selling eggs at 50 pesos a dozen gains 20%. If he sells the eggs at the same price after the costs of the eggs rises by 12.5%, how much will be his new gain in percent”. This question is standard in competitive examination syllabi for Engineering Economics.

The initial depreciation is low is the correct answer to “What is the main reason why the sinking fund method of computing depreciation is seldom used in the industry”. This question is standard in competitive examination syllabi for Engineering Economics.

Law of diminishing return is the correct answer to ““When one of the factors of production is fixed in quantity or is difficult to increase, increasing the other factors of production will result in a less than proportionate increase in output”. This statement is known as the:”. This question is standard in competitive examination syllabi for Engineering Economics.

Law of supply and demand is the correct answer to ““Under conditions of perfect competition, the price at which any given product will be supplied and purchased is the price that will result in the supply and the demand being equal.” This statement is known as the:”. This question is standard in competitive examination syllabi for Engineering Economics.

Current assets to current liabilities is the correct answer to “The common ratio is the ratio of:”. This question is standard in competitive examination syllabi for Engineering Economics.

Currency devaluation is the correct answer to “The deliberate lowering of the price of a nation’s currency in terms of the accepted standard (Gold, American dollar or the British pound) is known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

Constant percentage method is the correct answer to “The declining balance method is also known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

Effective interest is the correct answer to “The true value of interest rate computed by equations for compound interest for a 1 year period is known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

Life cycle cost is the correct answer to “Capitalized cost of a project is also known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

Solvency is the correct answer to “The ability to meet debts as they become due is known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

Liquidity is the correct answer to “The ability to convert assets to cash quickly is known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

Percentage method is the correct answer to “The depletion allowance method of computing depletion is commonly known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

Economic return is the correct answer to “The profit derived from a project or business enterprise without consideration of obligations to financial contributors and claims of others based on profit is known as ______.”. This question is standard in competitive examination syllabi for Engineering Economics.

1.0 hour per unit is the correct answer to “A manufacturing firm maintains one product assembly line to produce signal generators. Weekly demand for the generators is 35 units. The line operates for 7 hours per day, 5 days per week. What is the maximum production time per unit in hours required of the line to meet the demand”. This question is standard in competitive examination syllabi for Engineering Economics.

Depletion is the correct answer to “What is defined as the reduction of the value of certain natural resources such as mines, oil, timber, quarries, etc. due to the gradual extraction of its contents”. This question is standard in competitive examination syllabi for Engineering Economics.

Buffer stock is the correct answer to “What is a stock of a product which is held by a trade body or government as a means of regulating the price of that product”. This question is standard in competitive examination syllabi for Engineering Economics.

All of these is the correct answer to “The project contractor relies on the cost of the estimate:”. This question is standard in competitive examination syllabi for Engineering Economics.

All of these is the correct answer to “The owner of the construction company makes use of the estimate:”. This question is standard in competitive examination syllabi for Engineering Economics.

Bilateral monopoly is the correct answer to “What market situation exists where there is only one buyer and only one seller”. This question is standard in competitive examination syllabi for Engineering Economics.

Depreciation is the correct answer to “What is defined as the reduction or fall of the value of an asset due to constant use and passage of time”. This question is standard in competitive examination syllabi for Engineering Economics.

Physical depreciation is the correct answer to “What type of depreciation is due to the reduction of the physical ability of an equipment or asset to produce results”. This question is standard in competitive examination syllabi for Engineering Economics.

All of these is the correct answer to “Liquidity ratios are used:”. This question is standard in competitive examination syllabi for Engineering Economics.

11.75 % is the correct answer to “A man invested P110,000 for 31 days. The net interest after deducting 20% withholding tax is P890.36. Find the rate of return annually.”. This question is standard in competitive examination syllabi for Engineering Economics.

10.29 % is the correct answer to “Mr. Bacani borrowed money from the bank. He received from the bank P1,842 and promised to repay P2,000 at the end of 10 months. Determine the rate of simple interest.”. This question is standard in competitive examination syllabi for Engineering Economics.