CPE CPE Project Management & Engineering Economics 1 — Questions and Answers
Question 1: What does the term 'net present value' (NPV) mean in engineering economics?
- The current worth of all future cash flows discounted at a required rate of return (Correct answer)
- The total undiscounted profits from a project over its lifetime
- The ratio of benefits to costs at current prices
- The book value of assets after depreciation
Correct answer: The current worth of all future cash flows discounted at a required rate of return
NPV discounts all future project cash flows to the present using a required rate of return; a positive NPV indicates the project adds value.
Question 2: In a capital project, what is a 'Work Breakdown Structure' (WBS)?
- A hierarchical decomposition of the project scope into manageable deliverables and work packages (Correct answer)
- A schedule of daily labor assignments for the project team
- A list of all materials and equipment required for the project
- A flowchart of approval authority for project decisions
Correct answer: A hierarchical decomposition of the project scope into manageable deliverables and work packages
A WBS divides total project scope into smaller, controllable components to facilitate planning, cost estimating, and progress tracking.
Question 3: What is the 'critical path' in project scheduling?
- The longest sequence of dependent tasks that determines the minimum project duration (Correct answer)
- The most expensive set of activities in the project
- The list of tasks with the highest risk of delay
- The sequence of milestones approved by senior management
Correct answer: The longest sequence of dependent tasks that determines the minimum project duration
The critical path is the longest chain of dependent activities; any delay on the critical path directly extends the overall project finish date.
Question 4: Which contract type places the greatest financial risk on the contractor?
- Lump-sum (fixed-price) contract (Correct answer)
- Cost-plus-fixed-fee contract
- Time-and-materials contract
- Cost-plus-percentage-of-cost contract
Correct answer: Lump-sum (fixed-price) contract
In a lump-sum contract the contractor agrees to complete the scope for a fixed price, bearing the risk of cost overruns if actual costs exceed the bid.
Question 5: What is 'straight-line depreciation' for a capital asset?
- Distributing the asset's cost evenly over its useful life in equal annual amounts (Correct answer)
- Writing off the full asset cost in the year of purchase
- Accelerating deductions in early years based on usage
- Calculating depreciation based on production output
Correct answer: Distributing the asset's cost evenly over its useful life in equal annual amounts
Straight-line depreciation divides the depreciable cost (purchase price minus salvage value) equally across each year of the asset's expected useful life.
Question 6: A Gantt chart is primarily used in project management to:
- Visualize the project schedule by showing task durations and timelines in bar format (Correct answer)
- Track actual project costs versus the approved budget
- Assign responsibility for each work package to team members
- Document scope changes approved during the project
Correct answer: Visualize the project schedule by showing task durations and timelines in bar format
A Gantt chart displays project activities as horizontal bars on a timeline, making it easy to see task durations, sequences, and overall schedule.
CPE CPE Project Management & Engineering Economics 1
What does the term 'net present value' (NPV) mean in engineering economics?