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MIME 310 ENGINEERING ECONOMY QUIZ #2

May 8, 2008 8:30 to 9:15

Short Problems Circle the correct answer on this paper and record it on the computer answer sheet. All questions are worth 1.25 points each for a total of 10. Note: There are no penalties for incorrect answers.
1. A firm with sales of $1 million, a net after-tax income of $30 000, total assets of $1.5 million, total liabilities of $750 000 and no preferred equity has a return on equity of: A) 20 % B) 15 % Shareholders equity: 1 500 000 - 750 000 = 750 000 C) 4 % ROE: 30 000 / 750 000 = 0.04 or 4 % D) 3 % E) None of the choices listed above

Use the following information to answer questions 2 and 3.

The demand and supply functions for a particular product are: QD = 189 - 2.25 P QS = 124 + 1.5 P 2. The market equilibrium price and quantity are, respectively: A) $84.00 and 65 At market equilibrium, B) $82.67 and 150 189 - 2.25 P = 124 + 1.5 P C) $17.33 and 150 0.75 P = 65 D) $150.00 and 313 P=17.33 E) None of the choices listed above Q: 124 + 1.5 (17.33) = 150 At market equilibrium, the price elasticity of supply is: A) -2.25 B) 0.17 For supply, dQ/dP: 1.5 C) 0.26 ES: 1.5 / (150 / 17.33) = 0.17 D) 1.50 E) None of the choices listed above

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The total production cost function of a plant consists of the following: Fixed cost: $120 000 per year Constant variable cost: $50 per unit as long as the annual production does not exceed 5000 units $30 per unit for that part of production that exceeds 5000 units per year The marginal cost at a production rate of 7000 units per year is: A) $30 B) $50 The marginal cost is the slope of the cost function at a rate of 7000 units per year. C) $80 D) 7000 MC=30 E) None of the choices listed above

5.

An asset costs $60 000 and has a salvage value of $10 000 at the end of its 5-year life. Determine the assets accounting book value after two years of use using the sum-of-theyears-digits depreciation method. The corporate income tax rate is 34 %. A) $20 000 SOYD: 1 + 2 + 3 + 4 + 5 = 15 B) $16 000 DC1: (60 000 - 10 000) (5 / 15) = 16 667 C) $16 667 DC2: (60 000 - 10 000 (4 / 15) = 13 333 D) $40 000 BV2: 60 000 - 16 667 - 13 333 = 30 000 E) $30 000

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Use the following information to answer questions 6 to 8.

Cole Eagan Enterprise Inc. BALANCE SHEET December 31, 2002
Current Assets Cash Accounts receivable Inventories Total current assets Fixed Assets at Cost Less accumulated depreciation Net Fixed Assets 4 500 Current Liabilities Accounts payable Notes payable Accrued expenses Total current liabilities Long-term Debt Shareholders Equity Common Shares Retained Earnings Total Shareholders Equity Total Liab. & Shar. Equity 30 764 10 000 1 000

15 000

Total Assets

Information for 2002

Net sales (all credit sales) Gross profit margin* Inventory turnover ratio (360 days per year) Average collection period Current ratio Total asset turnover ratio Debt ratio
* (Net Sales - Cost of Goods Sold) / Net Sales

$110 000 0.25 3.0 65 days 2.4 1.13 0.538

6.

Accounts receivable for CEE Inc, in 2002 were: A) $14 056 B) $14 895 ACP: Accounts receivable (360) / Sales = 65 Receivables: 65 (110 000) / 360 = 19 861 C) $19 861 D) $18 333 Inventories for CEE Inc. in 2002 were: A) $9167 B) $36 667 C) $32 448 D) $27 500 Total assets for CEE Inc. in 2002 were: A) $45 895 B) $124 300 C) $97 345 D) $58 603

7.

Cost of goods sold: 110 000 (1 - 0.25) = 82 500 ITR: Cost of goods sold / Inventory = 3 Inventory: 82 500 / 3 = 27 500

8.

ATR: Sales / Total assets = 1.13 Total assets: 110 000 / 1.13 = 97 345

THIS IS THE LAST PAGE OF THE QUIZ PAPER

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Answer Key for Version 2

1. 2. 3. 4. 5. 6. 7. 8. B B D C B D B B