Economic Analysis-Questions

1
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D = (C-S)/N
= (100000-10000) / 8
=11250
Book value at the end of 3rd yr
= 100000 – 3*11250
= 66250
ANS: C 2
3
2/5*(10000-0) = 4000
2/5 *(10000-4000) = 2400
2/5 * (10000 - 6400) = 1440
2/5* (10000-7840) = 864
ANS: B 4
5
1. 2667*(1.1)-1 = 2424.54
2. 14292*(1.1)-2 = 11811.57
3. 19181*(1.1)-3 =14411
4. 13114*(1.1)-4 = 8957.04
P = - 50000
+(2422.54+11811.57+14411+8957.04)
P = - 12397
ANS: D 6
A food processing plant is considering use of new gas-fired ovens with a total capital
of $900,000, useful value of 5 years and a salvage value pf $100,000. Using a net cash
flow of $ 400,000/year for 5 years and a 7 % discount rate, the net present value is
a. $1,640,000
b. $811,000
c. $787,000
d. $740,000
A food processing plant is considering use of new gas-fired ovens with a total capital
of $900,000, useful value of 5 years and a salvage value pf $100,000. Using a net cash
flow of $ 400,000/year for 5 years and a 7 % discount rate, the net present value is
PV = A [ (1+i)n - 1 ]
i(1+i)n
a. $1,640,000
b. $811,000
c. $787,000
d. $740,000
Ans. b
Sol. NPV = 900000 – ( 400000 * [(1.07)5 – 1] / [0.07*(1.07)5 ] ) - 100000*(1.07)-5
= 900000 – 1640072 – 71298 = 811370
A system with an initial cost of $90,000 has an operating cost of $2.50/hr and is operated 16hr/day
for 300 days/year. After 10 years, the system has a salvage value of $10,000. Assuming the interest
rate if constant at 10%, the total annualized cost over the 10-year life is most nearly:
a. $12,000
b. $14,000
c. $20,000
d. $26,000
A system with an initial cost of $90,000 has an operating cost of $2.50/hr and is operated 16hr/day
for 300 days/year. After 10 years, the system has a salvage value of $10,000. Assuming the interest
rate if constant at 10%, the total annualized cost over the 10-year life is most nearly:
A=Fxi A = P i(1+i)n
(1+i)n - 1 (1+i)n – 1
a. $12,000
b. $14,000
c. $20,000
d. $26,000
Ans. d
Sol. P = 90000 F = 10000 i = 10% n = 10
A1 = (90000 * 0.1 * (1.1)10 ) / ((1.1)10 - 1 ) = 14644.72

A2 = (10000 * 0.1 ) / ((1.1)10 - 1 ) = 626.17
A3 = 2.5 * 16 * 300 = 12000
A = A1 + A2 + A3 = 27270
The annual direct production costs for a plant operating at 70% capacity are $350,000. Total
head costs and general expenses are $250,000. If total sales are $700,000 and the product sells
at $50 per unit, the break-even point, in units of production is nearest to
a. 9000
b. 10000
c. 11000
d. 12000
The annual direct production costs for a plant operating at 70% capacity are $350,000. Total
head costs and general expenses are $250,000. If total sales are $700,000 and the product sells
at $50 per unit, the break-even point, in units of production is nearest to
a. 9000
b. 10000
c. 11000
d. 12000
Ans. d
Sol :
Operating cost = 350000 ; Indirect Cost = 250000; Total Cost = 600000
Break even point: Revenue = Total Cost
Let x be the no of unit; Selling price is 50/unit
Then 50x = 600000 x = 12000unit
A newly installed piece of equipment has a value of $50,000. Its useful life is estimated to be
10 years and its salvage value is $8000. Depreciation will be charged as a cost by making
equal yearly payments and the first payment will be made at the end of the first year. The
depreciation fund will be accumulated at an annual interest rate of 8.25%. The yearly
depreciation cost, in $ under these conditions is close to
a. 4125
b. 2865
c. 2376
d. 3200
A newly installed piece of equipment has a value of $50,000. Its useful life is estimated to be
10 years and its salvage value is $8000. Depreciation will be charged as a cost by making
equal yearly payments and the first payment will be made at the end of the first year. The
depreciation fund will be accumulated at an annual interest rate of 8.25%. The yearly
depreciation cost, in $ under these conditions is close to
R=Sx i / (1+i)n - 1
a. 4125
b. 2865
c. 2376
d. 3200
Ans. B
Sol
i = 8.25% P =50000 S=8000
R = Uniform Annual Depreciation Cost that paid yearly = (P-S) * i/(1+i)n - 1
(50000-8000) *0.0825) / ((1.0825)10 -1)) =2865
What would an initial investment of 1 million QR be after 5 years if the
APR=9% accumulated monthly?
a. 1,565,681 QR
b. 1,538,624 QR
c. 1,711,867 QR
d. 1,450,000 QR
What would an initial investment of 1 million QR be after 5 years if the
APR=9% accumulated monthly?
a. 1,565,681 QR
b. 1,538,624 QR
c. 1,711,867 QR
d. 1,450,000 QR
Ans. a
Sol. Monthly means effective interest rate i= (1+(0.09/12))12 - 1 =

9.388%
F = P(1+i)n = 1000000*(1.0938)5 = 1565631
The Initial investment for a project is 2 million QR. A net annual profit of
150,000 QR is anticipated. Using a 10% desired rate of return on the
investment, what is the payback period of the project?
a. 6.84 years
b. 4.55 years
c. 5.36 years
d. 8.89 years
The Initial investment for a project is 2 million QR. A net annual profit of
150,000 QR is anticipated. Using a 10% desired rate of return on the
investment, what is the payback period of the project?
a. 6.84 years
b. 4.55 years
c. 5.36 years
d. 8.89 years
Ans: d
Pay back period is n number of year when Initial investment = Net annual cash
flow at the end of n period
P = A [ ((1+i)n -1) / i)
2000000 = [150000* ((1.1)n – 1 ) / 0.1]
= 1.33333 / ((1.1)n – 1)
((1.1)n – 1) = 1.333
(1.1)n = 2.333 ==> log1.1(2.3333) = n= 8.89 years
19
ANS: B 20
21
ANS: C 22
23
Shutdown point:
40000 = 15000+5000+10X
X = 20000/10
X = 2000 hrs
ANS: B 24
25
Shutdown point:
10X = 6X+600
4X = 600
X = 150
Breakeven point:
10X = 6X+600+1400
4X= 2000
ANS: B X= 500
26

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1

Sol. NPV = 900000 – ( 400000 * [(1.07)5 – 1] / [0.07(1.07)5 ] ) - 100000(1.07)-5

= 900000 – 1640072 – 71298 = 811370

A1 = (90000 * 0.1 * (1.1)10 ) / ((1.1)10 - 1 ) = 14644.72

Sol. Monthly means effective interest rate i= (1+(0.09/12))12 - 1 =

F = P(1+i)n = 1000000*(1.0938)5 = 1565631

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