MINDANAO POLYTECHNIC COLLEGE

General Santos City, Philippines

BACHELOR OF SCIENCE IN MECHANICAL ENGINEERING

FINAL EXAM- ENGINEERING ECONOMY

MULTIPLE CHOICE: Select the best answer by underlining the letter corresponding to your choice.

1. Decrease in the value of the properties such as mines, quarries, oil and gas wells and timber
lands due to the gradual extraction of the contents of such properties is called:
A. depreciation C. devaluation
B. depletion D. deflation

2. Is a certificate of indebtedness of a corporation usually for a period not less than 10 years and
guaranteed by a mortgage on certain assets of the corporation or its subsidiaries.
A. Annuity C. depletion
B. bond D. capital

3. Is a method of determining when costs exactly equal revenues.

A. Capital recovery C. capitalized cost
B. break-even analysis D. benefit-to-cost ratio

4. Is the length of time required to recover the first cost of an investment from the net cash flow
produced by that investment for an interest rate of zero.
A. Economic life C. physical life
B. payback period D. life cycle

5. A manufacturer purchased P15 000 worth of equipment with a useful life of 6 years and a P2000
salvage value at the end of the 6 years. Assuming 12% interest rate, the equivalent uniform
annual cost is nearest to:
A. P1,500 B. P2,500 C. P 3,500 D. P 4,500

6. Development cost of a new product are estimated to be P70 000 per year for three years.
Annual profits from the sale of the new product estimated to be P80 000, will begin in the 4th
year and continue for 10 years. Using rate of interest of 20%, compute the present value of the
venture.
A. P14300 B. P46,600 C. P 187,900 D. P309,200

7. A man bought a bond having a face value of P1,000 for P970. The bond rate was 14% nominal
and interest payments were made to him semi-annually for a total of 7 years. At the end of
the seventh year, he sold the bond to a friend at a price that resulted a yield of 16% nominal
on his investment. What was the selling price?
A. P970.15 B. P1,040.25 C. P1,030.24 D. P1,153.90

8. Determine the capitalized cost of a structure that requires an initial investment of P1.5M and an
annual maintenance of P150,000. Interest is at 15%.
A. P 1.5 M B. P2.5M C. P 3.5M D. P 4M

9. An asphalt pavement costing P100,000 which would last for 5 years with negligible repairs. At the
end of 5 years, P5,000 would be spent to remove the old surface before P100,000 is spent again
for a new surface. What is the capitalized cost of the road pavement?
A. P327,008.38 B. P323,724.10 C. P432,250.12 D. P145,685.15

10. A steel drum manufacturer incurs a yearly fixed operating cost of P200,000.00. Each drum
manufactured cost P160 to produce and sells for P200. What is the manufacturer’s break-even
sales volume in drums per year?
A. 2000 B. 3000 C. 4000 D. 5000
 11. A machine is under consideration for investment. The cost of the machine is P25,000. Each year
it operates, the machine will generate a savings of P15,000. Given an effective annual interest
rate of 18%, what is the discounted payback period, in years, on the investment in the machine?
A. 1.75 years B. 3.17 years C. 4.12 years D. 2.16 years

12. A machine has an initial cost of P40,000 and an annual maintenance cost of P5,000. Its useful life
is 10 years and salvage value of P8,000. The annual benefit from purchasing the machine is
P16,000. The effective annual interest rate is 10%. Find the benefit – to - cost ratio.
A. 1.25 B. 1.57 C. 1.65 D. 1.83

13. How large a contribution is required to endow perpetually a research laboratory which requires
P500 000 for original construction, P200 000 per year for operating expenses, P100 000 every
three years for new and replacement equipment? Interest is 4%.
A. P700,000 B. P7,900,000 C. P6,400,000 D. P10,000,000

14. The maintenance costs associated with a machine are P2,000 per year for the first 10 years, and
P1,000 per year thereafter. The machine has an infinite life. If interest is 10%, what is the present
worth of the annual disbursements?
A. P12,250 B. P16,145 C. P19,678 D. P21,300

15. A Saudi oil refinery developed an oil well which is estimated to contain 5,000,000 barrels of oil at
an initial cost of $50,000,000. What is the depletion charge during the year where it produces
half million barrels?
A. $ 3 M B. $ 4 M C. $ 5 M D. $ 6 M

END OF EXAM