Nepal Engineering Council Registration Exam Engineering Economics, Project & Business Management: practice questions

1 · Depreciation methods · easy

How does depreciation affect the cash flow of a profitable business?

1. It is not itself a cash flow, but it lowers taxable income and therefore the tax paid
2. It is a cash payment made each year into a fund held for replacing the asset
3. It increases the tax paid, because depreciation is added to income before tax is charged
4. It has no effect on cash at all, either directly or through income tax

2 · Break-even analysis · hard

An electric pump set has annual fixed costs of 60,000 and running cost 15 per hour; a diesel set has fixed costs of 20,000 and running cost 55 per hour. Which statement is correct?

1. The diesel set is cheaper for any use above 1,000 hours of pumping a year
2. The electric set is cheaper for any use above 1,000 hours of pumping a year
3. The electric set is cheaper only above 1,500 hours, where its fixed cost is recovered
4. The two sets cost the same at every level of use because their totals are equal

3 · 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

4 · 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

5 · 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

6 · 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

7 · 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

8 · CPM and PERT · medium

What does resource levelling do in project scheduling?

1. It shortens critical activities by adding resources so the project finishes sooner
2. It assigns every activity the same quantity of labour and machines each day
3. It removes activities that use scarce resources from the project network
4. It uses the float of non-critical activities to smooth daily resource demand

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