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HU501

Economics for Engineers

GROUP A

Multiple Choice Type Questions

1. Answer all the questions i) Working capital is equal to

a) Current Assets Current Liabilitiesb) Fixed Assets Long term Liabilitiesc) Sundry Debaters - Sundry Creditorsd) None of these

ii) Sunk cost is the money spent as a result ofa) Present decisionb) Past decisionc) Future decisiond) All of these

iii) Which of the following is a current asset?a) Investmentsb) Furniturec) Closing stockd)

Debentures

iv) Value added tax (VAT) is based ona) Percentage of firms profitb) On payrollc) At each stage of the supply chaind) On resource development

v) Inflation is caused due toa) Excessive demandb) Increase in production costc) Due to scarcity of goodsd) All of these

vi) The worthiness of an engineering project is analyzed bya) Gross domestic productb) Capital-output ratioc) Present worth analysisd) Return on capital employed

vii) Depreciation is charged on the original cost of the asset ina) Straight-line methodb) Reducing balance methodc) Sinking-fund methodd) Double declining method

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viii) Stock turnover ratio is equal toa) cost of goods sold

stock

b) PBITInterest

c) current assets

current liabilities d) Fixed AssetsP

Vratio

ix) Capitalised cost is equal toa) Sales cost of goods soldb) EUAW EUACc) Annual disbursement

Interest rate

d) CostUniform annual benefit

GROUP B

Short Answer Type Question

(Answer any three of the following)

2. Define break-even point. Draw a break-even chart and explain its components.3. A bank gives loan to a company to purchase an equipment which is worth of Rs. 5,00,000 at

an interest rate of 18% compounded annually. This amount should be repaid in 25 yearly

equal instalments. Find the instalment amount that the company has to pay to the bank.4. A piece of land may be purchased for Rs. 610,000 to be strip-mined for the underlying coal.

Annual net income will be Rs. 2,00,000 for 10 years. At the end of 10 years, the surface of

the land will be restored as required by a national law on strip-mining. The reclamation will

cost Rs 1.5 million more than the resale value of the land after it is restored. Using a 10%

interest rate, determine whether the project is desirable.

5. What is accounting equation? From the following information calculate i) Gross Profit ratioii) Stock Turnover ratioiii) Debtors Turnover ratioSales Rs. 1,50,000

Cost of Goods Sold Rs. 1,20,000

Opening Stock Rs. 27,000

Debtors Rs. 14,000

Closing stock Rs. 33,000

Bills Receivable Rs. 6,000

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6. A company has purchased a bus for its offices for Rs. 10,00,000. The expected life of the busis 8 years. The salvage value of the bus at the end of its life is Rs. 1,50,000. Find the following

using the sinking fund method

a) Depreciation at the end of third and fifth year.b) Book value at the end of second and sixth year.

GROUP C

Long Answer Type Question

7. a) What is inflation? What are the consequences of inflation?b) A proposal with an initial cost of $2000 is expected to produce net returns of $850 per

year for 3 years. The minimum acceptable rate of return is 15% and rate of inflation is 5%.

Analyse whether the project should be accepted or rejected by

i) without considering inflationii) considering inflation.

8. a) Define the following costs with examples i) Sunk costii) Opportunity costiii) Life-cycle costsb) Krishna Company Ltd. has the following details

Fixed cost = Rs 40,00,000

Variable cost per unit = Rs 300

Selling price per unit = Rs 500

Find

a) Break-even sales quantity,

b) Brean-even sales,

c) If the actual production quantity is 1,20,000 units, find i) Contribution, ii) Margin of safety.

9. Write short notes on i) Replacement Analysisii) Joint Probability Distributionsiii) Incremental Analysis

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10.a) Compute the taxable income for each of the three years, when a firm had the followingresults

Year 1 Year 2 Year 3

Gross Income from

Sales

200 200 200

Purchase of specialtooling (useful life 3

years)

-60 0 0

All other

expenditures

-140 -140 -140

0 60 60

b) Explain the different types of property in the context of depreciation.

11.a) The cash flows for two alternatives are as follows Year A B

0 -1000 -27831 +200 +1200

2 +200 +1200

3 +1200 +1200

4 +1200 +1200

5 +1200 +1200

It is assumed that benefits occur throughout the year. Based on payback period, which

alternative should be selected?

b) Consider the following two mutually exclusive alternatives

A B

Cost Rs 4000 Rs 6000

Uniform Annual Benefit Rs 640 Rs 960

Useful Life (years) 20 20

Using 15% interest rate which alternative should be selected based on future worth method.