ICAR AICE-JRF/SRF Engineering Economics, Project & Business Management: practice questions

1 · Replacement analysis · medium

A defender's marginal cost of keeping it one more year is 140,000 and rising each year. The best challenger has a minimum equivalent annual cost of 150,000 at its economic life. What should be done?

1. Replace the defender now, because its marginal cost is rising every year
2. Keep the defender until it is fully depreciated in the firm's accounts
3. Keep the defender for at least one more year and repeat the comparison next year
4. Replace the defender now, because the challenger is a newer design

2 · Replacement analysis · hard

A processing plant has 500 lamps that fail at random. Replacing a lamp individually after failure costs much more per lamp than replacing all lamps together. Under the standard group-replacement rule, when should all lamps be replaced?

1. Only once more than half the lamps have failed, because replacing a whole group earlier throws away good lamps
2. Never, because replacing lamps that still work cannot reduce the total cost of lighting
3. Every period, because the cost of replacing all lamps together is lower per lamp
4. At the end of period t if individual replacements in period t + 1 would cost more than the average cost per period up to t

3 · Project appraisal and detailed project reports · medium

In the economic (as opposed to financial) analysis of an irrigation project, how is a government subsidy on pump sets treated?

1. It is added to the project's benefits, because it raises the farmers' net income
2. It is deducted from the costs and kept, because it is cash the project receives
3. It is excluded as a transfer, and pump sets are valued at their economic cost
4. It is counted twice, once as a cost to government and once as a farmer benefit

4 · Project appraisal and detailed project reports · medium

Which item is normally part of the 'cost of project' in a detailed project report for a food-processing unit?

1. Raw material bought in the second year of commercial operation to keep the line running
2. Interest paid on the term loan during the fifth year of the loan's repayment schedule
3. Margin money for working capital, the promoter's share of the working capital needed
4. Salaries of production staff in the third year after start-up

5 · Project appraisal and detailed project reports · medium

A project protected by import duties shows a financial IRR of 18 % but an economic IRR of 6 %. What does this most directly suggest?

1. That the financial analysis has an arithmetic error, because the two rates must be equal
2. That the economic analysis is wrong, because it should always give the higher of the rates
3. That protection makes it pay its owner while it uses resources inefficiently for society
4. That the project should be financed at 12 %, the average of its financial and economic rates

6 · CPM and PERT · medium

Activities and durations in days, with predecessors: A 4 (none), B 6 (none), C 5 (after A), D 3 (after A), E 4 (after B and D), F 2 (after C and E). What is the project duration?

1. 24 days
2. 11 days
3. 12 days
4. 13 days

7 · CPM and PERT · medium

An activity has a normal time of 10 days at a cost of 50,000 and a crash time of 6 days at a cost of 70,000. What is its cost slope?

1. 5,000 per day
2. 2,000 per day
3. 7,000 per day
4. 11,667 per day

8 · CPM and PERT · hard

To shorten a project by one day at least cost, which activity should be crashed first: critical activity P (cost slope 4,000 per day), critical activity Q (2,500 per day), critical activity R (6,000 per day) or non-critical activity S (1,000 per day)?

1. S, the activity with the lowest cost slope of all
2. R, the critical activity with the highest cost slope
3. P, the critical activity with the middle cost slope
4. Q, the critical activity with the lowest cost slope

9 · Linear programming · easy

In a transportation problem, total supply from the depots is 900 t and total demand at the markets is 750 t. What is done before solving?

1. Add a dummy market with a demand of 150 t and zero transport cost
2. Add a dummy depot with a supply of 150 t and zero transport cost
3. Reduce every depot's supply in proportion until supply equals 750 t
4. Solve as it is, because the method works with unequal totals

10 · Linear programming · medium

Which method for an initial transportation solution uses penalties, the difference between the two lowest costs in each row and column?

1. Vogel's approximation method
2. The north-west corner rule
3. The modified distribution (MODI) method
4. The stepping-stone method