1000+ Chemical Engineering Plant Economics Multiple Choice Question Answer [Solved]

1. __________ of depreciation calculation accounts for the interest on investment.
A. Straight line method
B. Declining balance
C. Both (A) and (B)
D. Neither (A) nor (B)
Answer : D

2. 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

3. 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

4. '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

5. 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

6. Profit is equal to revenue minus
A. Book value
B. Total cost
C. Operating cost
D. None of these
Answer : B

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

8. Pick out the correct statement.
A. Difference between income and expense is termed as gross revenue
B. Unamortised cost is the difference between the original cost of a property and all the depreciation charges made to date
C. Sum-of-the-years-digits methods of depreciation calculation accounts for the interest on the investment
D. Scrap value is the net amount of money obtainable from the sale of used property over and above any charges involved in its removal & sale
Answer : B

9. 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

10. __________ 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

11. 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

12. Which of the following is not a component of working capital?
A. Raw materials is stock
B. Finished products in stock
C. Transportation facilities
D. Semi-finished products in the process
Answer : C

13. 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

14. Generally, income taxes are based on the
A. Total income
B. Gross earning
C. Total product cost
D. Fixed cost
Answer : B

15. 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

16. 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

17. 'Lang factor' is defined as the ratio of the capital investment to the delivered cost of major equipments. The value of 'Lang factor' for fixed capital investment, for a solid-fluid processing chemical plant ranges from
A. 1.2 to 1.4
B. 2.5 to 2.7
C. 4.2 to 4.4
D. 6.2 to 6.4
Answer : C

18. Which of the following is a component of working capital investment?
A. Utilities plants
B. Maintenance and repair inventory
C. Process equipments
D. Depreciation
Answer : B

19. Which of the following is not a component of the working capital for a chemical process plant?
A. Product inventory
B. In-process inventory
C. Minimum cash reserve
D. Storage facilities
Answer : D

20. '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

21. An annuity is a series of equal payments occuring at equal time intervals, and this amount includes the sum of all payments plus interest, if allowed to accumulate at a definite rate of interest from the time of initial payment to the end of annuity term. Ordinary annuity is used in the calculation of the
A. Manufacturing cost
B. Depreciation by sinking fund method
C. Discrete compound interest
D. Cash ratio
Answer : B

22. Equipment installation cost in a chemical process plant ranges from __________ percent of the purchased equipment cost.
A. 10 to 20
B. 35 to 45
C. 55 to 65
D. 70 to 80
Answer : B

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. Gantt chart (or Bar chart) is helpful in
A. Efficient utilisation of manpower and machines
B. Preparing production schedule
C. Efficient despatching of products
D. Inventory control
Answer : B

31. '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

32. 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

33. Out of the following, the depreciation calculated by the __________ method is the maximum.
A. Diminishing balance
B. Straight line
C. Sum of the years digit
D. Sinking fund
Answer : A

34. A present sum of Rs. 100 at the end of one year, with half yearly rate of interest at 10%, will be Rs.
A. 121
B. 110
C. 97
D. 91
Answer : A

35. 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

36. In a chemical process plant, the total product cost comprises of manufacturing cost and the
A. General expenses
B. Overhead cost
C. R & D cost
D. None of these
Answer : A

37. Which of the following is not a component of depreciation cost?
A. Repairs and maintenance cost
B. Loss due to obsolescence of the equipment
C. Loss due to decrease in the demand of product
D. Loss due to accident/breakdown in the machinery
Answer : A

38. Most chemical plants use an initial working capital amounting to 10-20% of the total capital investment. But this percentage may increase to __________ percent in case of seasonal products manufacturing plant.
A. 30
B. 50
C. 75
D. 95
Answer : B

39. 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

40. Personnel working in the market research group is respnsible for the job of
A. Equipment selection
B. Product evaluation
C. Equipment design
D. Cost estimation
Answer : B

41. Accumulated sum at the end of 5 years, if Rs. 10000 is invested now at 10% interest per annum on a compound basis is Rs.
A. 15000
B. 16105
C. 18105
D. 12500
Answer : B

42. 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

43. A balance sheet for an industrial concern shows
A. The financial condition at any given time
B. Only current assets
C. Only fixed assets
D. Only current and fixed assets
Answer : A

44. 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

45. Pick out the wrong statement.
A. Debt-equity ratio of a chemical company describes the lenders contribution for each rupee of owner's contribution i.e., debt-equity ratio = total debt/net worth
B. Return on investment (ROI) is the ratio of profit before interest & tax and capital employed (i.e. net worth + total debt)
C. Working capital = current assets + current liability
D. Turn over = opening stock + production closing stock
Answer : C

46. Operating profit of a chemical plant is equal to
A. Profit before interest and tax i.e., net profit + interest + tax
B. Profit after tax plus depreciation
C. Net profit + tax
D. Profit after tax
Answer : A

47. Pick out the wrong statement.
A. Gross margin = net income - net expenditure
B. Net sales realisation (NSR) = Gross sales - selling expenses
C. At breakeven point, NSR is more than the total production cost
D. Net profit = Gross margin - depreciation - interest
Answer : C

48. The economic life of a large chemical process plant as compared to a small chemical plant is
A. Only slightly more
B. Much more
C. Slightly less
D. Almost equal
Answer : B

49. 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

50. Nominal and effective interest rates are equal, when the interest is compounded
A. Quarterly
B. Semi-annually
C. Annually
D. In no case, they are equal
Answer : C