Multiple Choice Questions

1. In evaluating three mutually exclusive alternatives by the B/C method, the alternatives are ranked A, B, and C, respectively, in terms of increasing cost and the following results are obtained for the overall B/C ratios: 1.1, 0.9, and 1.06. On the basis of these results, you should:

(a) Select A

(b) Select C

(c) Select A and C

(d) Compare A and C incrementally

2. An alternative with an infinite life has a B/C ratio of 1.5. The alternative has benefits of $50,000 per year and annual maintenance costs of $10,000 per year. The first cost of the alternative at an interest rate of 10% per year is closest to:

(a) $23,300

(b) $85,400

(c) $146,100

(d) $233,000

3. Cost-effectiveness analysis (CEA) differs from cost-benefit (B/C) analysis in that:

(a) CEA cannot handle multiple alternatives.

(b) CEA expresses outcomes in natural units rather than in currency units.

(c) CEA cannot handle independent alternatives.

(d) CEA is more time-consuming and resource intensive.

4. Several private colleges claim to have programs that are very effective at teaching enrollees how to become entrepreneurs. Two programs, identified as program X and program Y, have produced 4 and 6 persons per year, respectively, who were recognized as entrepreneurs. If the total cost of the programs is $25,000 and $33,000, respectively, the incremental cost-effectiveness ratio is closest to:

(a) 6250

(b) 5500

(c) 4000

(d) 1333

5. The statements contained in a code of ethics are variously known as all of the following except:

(a) Canons

(b) Laws

(c) Standards

(d) Norms

6. Of the following, the word not related to ethics is:

(a) Virtuous

(b) Honest

(c) Lucrative

(d) Proper

7. All of the following are examples of unethical behavior except:

(a) Offering services at prices lower than the competition

(b) Price fixing

(c) Bait and switch

(d) Selling on the black market

8. An alternative has the following cash flows:

Benefits of $50,000 per year

Disbenefits of $27,000 per year

Initial cost of $250,000

M&O costs of $10,000 per year

If the alternative has an infinite life and the interest rate is 10% per year, the B/C ratio is closest to:

(a) 0.52

(b) 0.66

(c) 0.91

(d) 1.16

9. At the interest rate of 10% per year, an alternative with the following estimates has a modified B/C ratio that is closest to:

Benefits of $60,000 per year

Disbenefits of $29,000 per year

Amortized first cost of $20,000 per year

M&O costs of $15,000 per year

(a) 0.65

(b) 0.72

(c) 0.80

(d) 1.04