Engineering Economics — Quiz 4

Questions in this quiz (10)

1. A construction firm has annual fixed costs of $$240000$$ and variable costs equal to $$60%$$ of sales revenue. The break-even sales revenue is most nearly:

   • $$450,365$$
   • $$523,325$$
   • $$600,000$$
   • $$785,350$$

2. A company is evaluating whether to replace its existing equipment with a new automated system. The current equipment has fixed annual costs of $$80,000$$ and variable costs of $$50$$ per unit. The proposed equipment has fixed annual costs of $$140,000$$ and variable costs of $$35$$ per unit. At what production level will the total annual costs of both options be the same?

   • $$5285$$ units
   • $$2327$$ units
   • $$4000$$ units
   • $$3857$$ units

3. A firm can either produce a component internally with fixed costs of $$120,000$$ per year and variable costs of $$18$$ per unit, or purchase it from a supplier at $$30$$ per unit. At what yearly production quantity would the company be indifferent between manufacturing and buying?

   • $$12,598$$ units
   • $$6667$$ units
   • $$10,000$$ units
   • $$8587$$ units

4. A product has fixed costs of $$200,000$$, a selling price of $$100$$ per unit, and variable costs of $$60$$ per unit. If variable costs increase by $$10%$$ while all other factors remain unchanged, by approximately what percentage will the break-even quantity increase?

   • $$27.36%$$
   • $$19.25%$$
   • $$17.65%$$
   • $$15.56%$$

5. A flood mitigation project has total benefits with a present worth of $$3,200,000$$. The initial construction cost is $$1,500,000$$, and annual operation and maintenance expenses are $$80,000$$ over a $$25$$-year period. Using an interest rate of $$6%$$ per year, what is the conventional benefit-cost ratio?

   • $$1.48$$
   • $$1.02$$
   • $$1.27$$
   • $$1.65$$

6. A dam project has a present worth of benefits equal to $$5,000,000$$, environmental disbenefits with a present worth of $$800,000$$, and total costs with a present worth of $$3,500,000$$. Using the conventional benefit-cost ratio approach that includes disbenefits, what is the approximate $$B/C$$ ratio?

   • $$1.57$$
   • $$1.35$$
   • $$1.78$$
   • $$1.20$$

7. A company is evaluating two investment alternatives. Alternative $$A$$ requires an investment of $$250000$$ and has potential revenues of $$520000$$ with probability $$0.65$$ or $$300000$$ with probability $$0.35$$. Alternative $$B$$ requires an investment of $$180000$$ and has potential revenues of $$410000$$ with probability $$0.55$$ or $$220000$$ with probability $$0.45$$. Based on expected profit, which alternative should be selected and what is its expected profit?

   • $$165500$$
   • $$193000$$
   • $$182600$$
   • $$165500$$

8. A firm must choose between two products. Under high demand with probability $$0.45$$, Product $$X$$ yields $$450000$$ and Product $$Y$$ yields $$350000$$. Under low demand with probability $$0.55$$, Product $$X$$ yields $$180000$$ and Product $$Y$$ yields $$240000$$. The expected value of perfect information is most nearly:

   • $$45000$$
   • $$33000$$
   • $$55000$$
   • $$75000$$

9. A project requires an initial investment of $$650000$$ and generates annual cash flows of $$150000$$ for $$8$$ years. Using a base discount rate of $$7\%$$, the NPV is $$122000$$. If a risk premium of $$3\%$$ is added to account for project uncertainty, the risk-adjusted NPV is most nearly:

   • $$52000$$
   • $$68000$$
   • $$150250$$
   • $$98000$$

10. Equipment has the following annual cost scenarios: normal operation costs $$25000$$ with probability $$0.60$$, moderate failure requires $$70000$$ repair with probability $$0.25$$, and major failure requires $$140000$$ repair with probability $$0.15$$. The expected annual cost is most nearly:

    • $$39500$$
    • $$44500$$
    • $$49500$$
    • $$53500$$