Engineering Economics

Section 1

This section contains 13 questions of 4 marks each, hence total 52 marks. It

includes three types of questions: multiple choice, correlation, and true/false.

1. Which of the following is not true for an unincorporated business?

a) the individual member that owns the business is ‘personally’ responsible

b) the limit of the responsibility is the sum of money contributed to become a

member of this company

c) the limit of the responsibility is his/her ‘private’ resources

d) usually the day-to-day management is done by the owner him/her-self

answer: (choose the correct letter) ____ [4 marks]

2. What does each the following categories of financial ratios deal with?

(choose the number that best relates to each letter)

a) Profitability ratios 1) the ability of the business to pay dividend

b) Liquidity ratios 2) the degree to which the business has readily available

assets to settle relevant obligations as they fall due

c) Gearing ratios 3) the profit of a business

d) Investment ratios 4) the relationship between internal and external

business funding

answer: (feel in the gap with the correct number) a= __, b=__, c=__, d=__ [4 marks]

3. What does each of the following financial statements deal with?

(choose the number that best relates to each letter)

a. cash-flow statement 1. what the business owns and owes

b. balance-sheet 2. sources of cash and their utilisation

answer: (feel in the gap with the correct number) a= __, b=__ [4 marks]


4. Profitability alone is not enough to guarantee the survival of a business because

‘profit’ does not represent real money as some of the invoiced sales might be on credit

or their payment delayed.

answer: (write ‘true’ or ‘false’) ________

5. Which of the following applies with regards to market structures?

(choose the number that best relates to each letter)

a. perfect competition 1. extremely large number of sellers and buyers

b. oligopoly 2. small number of big firms

answer: (feel in the gap with the correct number) a= __, b=__

6. The three main financial statements of a business are likely to be used by lenders,

suppliers, competitors, and customers, but unlikely to be used by employees /

unions, investors / advisers / analysts, and the Government.

answer: (write ‘true’ or ‘false’) ________

7. A fall in the price of a complementary good may cause the entire demand curve of the

main good ‘shift’ to the right (e.g. developer offering half price in landscaping).

answer: (write ‘true’ or ‘false’) ________

8. For an exchange in the market to take place, which is not one of the three ‘main’

ingredients that need to exist.

a) demand

b) supply

c) communication

d) agreed price

answer: (choose the correct letter) ____

9. In a balance-sheet, ‘equity’ includes the money that the owners of a business put in it

in the form of shares, the annual profits that were retained in the business and not

distributed to the shareholders, as well as the money borrowed from the bank in the form

of long-term loans.

answer: (write ‘true’ or ‘false’) ________

10. Which of the following form(s) part of the main sources of business financing?

a) share capital (= money from the owners)

b) debtors (= money owed to the business)

c) bank borrowing (= money from the banks)

d) ‘a’ and ‘c’ together

answer: (choose the correct letter) ____


11. Demand is the quantity of a good/service a consumer is willing to purchase at a

given price over a given period of time. Demand is not just ‘wanting’ a good/service, it is

a want backed up by the ‘ability to pay’.

answer: (write ‘true’ or ‘false’) ________

12. Which of the following is not a type of an incorporated business?

a) a private LTD company

b) a public PLC company

c) a partnership

d) ‘b’ and ‘c’ together

answer: (choose the correct letter) ____

13. Which is one step that the author of the recent article by the RICS named ‘Managing

your business cash-flow’ suggests as a measure a company can take to ensure that

cash from sales are sooner or later received from customers?

a) the customer’s credit rating should be checked last for big-value credit-sales

b) progress of payments should be checked after three months

c) agree the terms of payment before starting work

d) none of the above

answer: (choose the correct letter) ____


Section 2

This section contains 2 questions of 24 marks each, hence total 48 marks.

1. The accounting department of your client Company Ltd. has produced the following

information during the year 2011. They are asking you to prepare a balance-sheet

showing clearly all necessary headings and sub-headings as well as the totals and

subtotals of each side: cash €45.000, work-in-progress €120.000, property €185.000,

creditors €40.000, estimated taxes €30.000, long-term loans €170.000, share capital

€90.000. Calculate the amount of ‘retained earnings’ that should come from the ‘profit

and loss account’ so that balancing is achieved.


2a. By drawing a set of demand curves, show and explain what the five price-elasticity

possibilities are.

2b.By using the following data, draw a graph and explain how equilibrium in a free

market is achieved.

Price (€): 90 80 70 60 50

Qdem: 20 30 40 50 60

Qsup: 60 50 40 30 20