1000+ Chemical Engineering Plant Economics MCQ for IIFT [Solved]

1. In an ordinary chemical plant, electrical installation cost may be about
A. 10-15% of purchased equipment cost
B. 3-10% of fixed capital investment
C. Either (A) or (B)
D. Neither (A) nor (B)
Answer : C

2. Break-even point is the point of intersection of
A. Fixed cost and total cost
B. Total cost and sales revenue
C. Fixed cost and sales revenue
D. None of these
Answer : B

3. A shareholder has __________ say in the affairs of company management compared to a debenture holder.
A. More
B. Less
C. Same
D. No
Answer : A

4. Fixed capital investment of a chemical plant is the total amount of money needed to supply the necessary plant and manufacturing facilities plus the working capital for operation of the facilities. Which of the following components of fixed capital investment requires minimum percentage of it?
A. Electrical installation cost
B. Equipment installation cost
C. Cost for piping
D. Equipment insulation cost
Answer : D

5. In a manufacturing industry, breakeven point occurs, when the
A. Total annual rate of production equals the assigned value
B. Total annual product cost equals the total annual sales
C. Annual profit equals the expected value
D. Annual sales equals the fixed cost
Answer : B

6. __________ taxes are based on gross earnings.
A. Property
B. Excise
C. Income
D. Capital gain
Answer : C

7. Relative cost of chemical process plants in India is about __________ percent more than the similar plants in U.S.A.
A. 15
B. 35
C. 55
D. 75
Answer : B

8. If the interest rate of 10% per period is compounded half yearly, the actual annual return on the principal will be __________ percent.
A. 10
B. 20
C. > 20
D. < 20
Answer : C

9. For a typical project, the cumulative cash flow is zero at the
A. End of the project life
B. Breakeven point
C. Start up
D. End of the design stage
Answer : B

10. An investment of Rs. 100 lakhs is to be made for construction of a plant, which will take two years to start production. The annual profit from the operation of the plant is Rs. 20 lakhs. What will be the payback time?
A. 5 years
B. 7 years
C. 12 years
D. 10 years
Answer : B

11. Pick out the wrong statement.
A. Gross revenue is that total amount of capital received as a result of the sale of goods or service
B. Net revenue is the total profit remaining after deducting all costs excluding taxes
C. The ratio of immediately available cash to the total current liabilities is known as the cash ratio
D. Consolidated income statement based on a given time period indicates surplus capital and shows the relationship among total income, costs & profit over the time interval
Answer : B

12. Cost incurred towards __________ in a chemical plant is a component of the utilities cost.
A. Water supply
B. Running a control laboratory
C. Property protection
D. Medical services
Answer : A

13. Purchased cost of equipments for a chemical process plant ranges from __________ percent of the fixed capital investment.
A. 10 to 20
B. 20 to 40
C. 45 to 60
D. 65 to 75
Answer : B

14. Factory manufacturing cost is the sum of the direct production cost
A. Fixed charges and plant overhead cost
B. And plant overhead cost
C. Plant overhead cost and administrative expenses
D. None of these
Answer : A

15. Which of the following elements is not included in the scope of market analysis?
A. Competition from other manufactures
B. Product distribution
C. Opportunities
D. Economics
Answer : D

16. Pick out the wrong statement.
A. Net worth means paid up share capital and reserve & surplus (i.e. shareholders equity)
B. Return on equity = profit after tax/net worth
C. Working capital turnover ratio = sales/net working capital
D. Total cost of production is more than net sales realisation (NSR) at breakeven point
Answer : D

17. Scheduling provides information about the
A. Proper utilisation of machines
B. Means to minimise idle time for machines
C. Time of completion of job
D. Time of starting of job and also about how much work should be completed during a particular period
Answer : D

18. The __________ of a chemical company can be obtained directly from the balance sheet as the difference between current assets and current liabilities.
A. Cash ratio
B. Net working capital
C. Current ratio
D. Liquids assets
Answer : B

19. The ratio of gross annual sales to the fixed capital investment is termed as the __________ ratio.
A. Cash reserve
B. Capital
C. Turnover
D. Investment
Answer : C

20. __________ method for profitability evaluation of a project does not account for investment cost due to land.
A. Net present worth
B. Pay out period
C. Discounted cash flow
D. Rate of return on investment
Answer : B

21. In which of the electric power generation system, the operating cost is minimum?
A. Thermal
B. Nuclear
C. Hydroelectric
D. Fast breeder reactor
Answer : C

22. Which of the following is the cheapest material of construction for the storage of sodium hydroxide upto a concentration of 75%?
A. Stainless steel
B. Plain carbon steel
C. Nickel
D. Copper
Answer : B

23. 'P' is the investment made on an equipment, 'S' is its salvage value and 'n is the life of the equipment in years. The depreciation for Rath year by the sum-of years digit method will be
A. (P - S)/n
B. 1 - (P/S)^1/m
C. (m/n) (P - S)
D. [2 (n - m + 1)/n(n + 1)]. (P - S)
Answer : D

24. According to six-tenths-factor rule, if the cost of a given unit at one capacity is known, then the cost of similar unit with '' times the capacity of the first unit is approximately equal to __________ times the cost of the initial unit.
A. n
B. n0.6
C. n0.4
D. ?n
Answer : B

25. Annual depreciation costs are constant, when the __________ method of depreciation calculation is used.
A. Declining balance
B. Straight line
C. Sum of the years digit
D. None of these
Answer : B

26. Cost of instrumentation in a modern chemical plant ranges from __________ percent of the total plant cost.
A. 5 to 10
B. 20 to 30
C. 40 to 50
D. 60 to 70
Answer : B

27. Which of the following is not a component of the fixed capital for a chemical plant facility?
A. Raw materials inventory
B. Utilities plants
C. Process equipment
D. Emergency facilities
Answer : A

28. The amount of simple interest during 'n' interest period is (where, i = interest rate based on the length of one interest period, p = principal)
A. p.i.n.
B. p(1 + i.n)
C. p(1 + i)n
D. p(1 - i.n)
Answer : A

29. The ratio of working capital to total capital investment for most chemical plants (except for nonseasonal based products) is in the range of __________ percent.
A. 0.1 to 1
B. 1 to 2
C. 10 to 20
D. 50 to 60
Answer : C

30. Annual depreciation cost are not constant when, the __________ method of depreciation calculation is used.
A. Straight line
B. Sinking fund
C. Present worth
D. Declining balance
Answer : D

31. 'Utilities' in a chemical process plant includes compressed air, steam, water, electrical power, oxygen, acetylene, fuel gases etc. Utility costs for ordinary chemical process plants ranges roughly from __________ percent of the total product cost.
A. 1 to 5
B. 10 to 20
C. 25 to 35
D. 35 to 45
Answer : B

32. In financial accounting of a chemical plant, which of the following relationship is invalid?
A. Assets = equities
B. Assets = liabilities + net worth
C. Total income = costs + profits
D. Assets = capital
Answer : D

33. Payback period
A. And economic life of a project are the same
B. Is the length of time over which the earnings on a project equals the investment
C. Is affected by the variation in earnings after the recovery of the investment
D. All (A), (B) and (C)
Answer : B

34. Which of the following is the costliest source of getting hydrogen on commercial scale for the manufacture of nitrogenous fertiliser?
A. Coal gasification
B. Steam reforming of naphtha
C. Electrolysis of water
D. Coke oven gas
Answer : C

35. The depreciation during the year 'n', in diminishing balance method of depreciation calculation, is calculated by multiplying a fixed percentage 'N' to the
A. Initial cost
B. Book value at the end of (n - 1)th year
C. Depreciation during the (n - 1)th year
D. Difference between initial cost and salvage value
Answer : B

36. Which of the following is the costliest material of construction used in pressure vessel construction?
A. Low alloy steel
B. Lead
C. Titanium
D. High alloy steel
Answer : C

37. Optimum number of effects in a multiple effect evaporator is decided by the
A. Cost benefit analysis
B. Floor area availability
C. Terminal parameters
D. Evaporation capacity required
Answer : A

38. The amount of compounded interest during 'n' interest periods is
A. p[(1+i)ⁿ - 1)]
B. p(1 + i)ⁿ
C. p(1 - i)ⁿ
D. p(1 + iⁿ)
Answer : A

39. Utilities cost in the operation of chemical process plant comes under the
A. Plant overhead cost
B. Fixed charges
C. Direct production cost
D. General expenses
Answer : C

40. The payback method for the measurement of return on investment
A. Gives a correct picture of profitability
B. Underemphasises liquidity
C. Does not easure the discounted rate of return
D. Takes into account the cash inflows after the recovery of investments
Answer : C

41. Maximum production start up cost for making a chemical plant operational is about __________ percent of the fixed capital cost.
A. 1
B. 5
C. 10
D. 30
Answer : C

42. Fixed charges for a chemical plant does not include the
A. Interest on borrowed money
B. Rent of land and buildings
C. Property tax, insurance and depreciation
D. Repair and maintenance charges
Answer : D

43. Chemical engineering plant cost index is used for finding the present cost of a particular chemical plant, if the cost of similar plant at some time in the past is known. The present cost of the plant = original cost × (index value at present/ index value at time original cost was obtained). The most major component of this cost index is
A. Fabricated equipment and machinery
B. Process instruments and control
C. Pumps and compressor
D. Electrical equipments and material
Answer : A

44. Depreciation
A. Costs (on annual basis) are constant when the straight line method is used for its determination
B. Is the unavoidable loss in the value of the plant, equipment and materials with lapse in time
C. Does figure in the calculation of income tax liability on cash flows from an investment
D. All (A), (B) and (C)
Answer : D

45. Cost of piping in a fluid processing unit (e.g., distillation) of a chemical process plant is about __________ percent of the fixed capital investment.
A. 4
B. 13
C. 22
D. 34
Answer : B

46. With increase in the discounted cash flow rate of return, the ratio of the total present value to the initial investment of a given project
A. Decreases
B. Increases
C. Increases linearly
D. Remain constant
Answer : A

47. 'Six-tenth factor' rule is used for estimating the
A. Equipment installation cost
B. Equipment cost by scaling
C. Cost of piping
D. Utilities cost
Answer : B

48. If an amount R is paid at the end of every year for 'n' years, then the net present value of the annuity at an interest rate of i is
A. R [{(1 + i)ⁿ - 1}/ i ]
B. R [{(1 + i)ⁿ - 1}/ i (1 + i)ⁿ]
C. R(1 + i)ⁿ
D. R/(1 + i)ⁿ
Answer : B

49. For a given fluid, as the pipe diameter increases, the pumping cost
A. Decreases
B. Increases
C. Remains the same
D. May increase or decrease, depending upon whether the fluid is Newtonian or non-Newtonian
Answer : A

50. If 'S' is the amount available after 'n' interest periods for an initial principal 'P' with the discrete compound interest rate 'i', the present worth is given by
A. (1 + i)ⁿ/S
B. S/(1 + i)ⁿ
C. S/(1 + in)
D. S/(1 + n)ⁱ
Answer : B