Beirut Arab University

Faculty of Engineering
Department of Industrial Engineering and Management

Engineering Economy-INME221
Worksheet#3- MCQ Evaluating a Single Project

1. An investment project costs P. It is expected to have an annual net

cash flow of 0.125P for 20 years. What is the projects payback period?

11 years
6 years
0 years
8 years

2. Find the net present worth of the following cash flow series at an
interest rate of 10%.

$500 < PW(10%) $550

$600 < PW(10%) $650
$550 < PW(10%) $600
$650 < PW(10%) $700
3. You are considering buying an old house that you will convert into an
office building for rental. Assuming that you will own the property for
10 years, how much would you be willing to pay for the old house now
given the following financial data?

$201,205
$218,420
$232,316
$250,100

4. Your R&D group has developed and tested a computer software

package that assists engineers to control the proper chemical mix for
the various process manufacturing industries. If you decide to market
the software, your first year operating net cash flow is estimated to be
$1,000,000. Because of market competition, product life will be about
4 years, and the products market share will decrease by 25% each
year over the previous years share. You are approached by a big
software house which wants to purchase the right to manufacture and
distribute the product. Assuming that your interest rate is 15%, for
what minimum price would you be willing to sell the software?

$2,047,734
$2,766,344
$2,887,776
$2,507,621
5. Find the capitalized equivalent worth for the project cash flow series
at an interest rate of 10%.

CE(10%) = $1,500
CE(10%) = $1,753
CE(10%) = $1,548
CE(10%) = $1,476

6. Consider a project with a first cost (investment) of $250,000, an

annual O&M cost of $50,000, annual revenue of $160,000, and a
salvage value of $40,000 after a 10-year life. Find the annual worth of
the project assuming an interest of 13% per year.
$82,445
$35,867
$66,099
$81,000

7. Find the annual equivalent worth for the following infinite cash flow
series at an interest rate of 10%:

$438.60
$985.40
$445.20
$461.20
8. Colgate Printing Co. (CPC) has the book binding contract for the Ralph
Brown library. The library pays $25 per book to CPC. CPC binds 1,000
books every year for the library. Ralph Brown library is considering
the option of binding the books in-house in the basement of the
library complex. In order to do this, the library would have to invest
in a binding machine and other printing equipment at a cost of
$100,000. The useful life of the machine is 12 years, at the end of
which time, the machine is estimated to have a salvage value of
$12,000. The annual operating and maintenance costs of the machine
are estimated to be $10,000. Assuming an interest rate of 6%, what
is the cost of binding per book for the in house option?

$21.22 per book

$25.15 per book
$17.33 per book
$11.22 per book

9. The City of Greenville has decided to build a softball complex on land

donated by one of the city residents. The city council has already
voted to fund the project at a level of $800,000 (initial capital
investment). The city engineer has collected the following financial
information for the project.
Annual upkeep costs: $120,000
Annual utility costs: $13,000
Renovation costs: $50,000 for every 5 years
Annual team user fees (revenues): $32,000

If the city expects 40,000 visitors to the complex each year, what
should be the minimum ticket price per person, so that the city can
break even? Useful life: Infinite Interest rate: 5%.

$3.50 < price $4.00

$2.50 < price $3.00
$3.00 < price $3.50
$4.00 < price $4.50
10. You are considering an investment that costs $2,000. It is expected to
have a useful life of 3 years. You are very confident about the
revenues during the first and the third year, but you are unsure about
the revenue in year 2. If you hope to make at least a 10% rate of
return on your investment ($2,000), what should be the minimum
revenue in year 2?

$190
$290
$230
$260

11.You are considering an open-pit mining operation. The cash flow

pattern is somewhat unusual since you must invest in some mining
equipment, operate them for 2 years, and restore the sites to their
original condition. You estimate the net cash flows to be as follows:

What is the approximate rate of return of this investment?

25%
42%
38%
62%

12. Consider the investment project with the following net cash flows:

What would be the value of X if the projects IRR is known to be 10%?

$580
$425
$635
$1,045
13. You are considering a CNC machine that costs $150,000. This machine
will have an estimated service life of 10 years with a net after tax
salvage value of $15,000. Its annual after tax operating and
maintenance costs are estimated to be $50,000. To expect an 18%
rate of return on investment after tax, what would be the required
minimum annual after tax revenues?

$92,435
$63,500
$82,740
$94,568