Engineering Economics & Cost Estimation Flashcards

What is the primary purpose of a benefit-cost ratio (BCR) analysis in engineering projects?

Answer: To compare project benefits to its costs to determine economic viability

A BCR greater than 1.0 indicates that the project's benefits outweigh its costs, signifying economic feasibility.

Which depreciation method allocates equal expense amounts each year over an asset's useful life?

Answer: Straight-line depreciation

Straight-line depreciation divides the asset's depreciable cost evenly across each year of its useful life.

In engineering economics, 'sunk cost' refers to:

Answer: Costs already incurred and unrecoverable regardless of future decisions

Sunk costs are past expenditures that cannot be recovered and should not influence future engineering or business decisions.

What does the term 'payback period' measure in project evaluation?

Answer: The time required for cumulative savings or revenue to recover the initial investment

Payback period calculates how many years it takes for an investment's cash inflows to equal its initial cost.

Which cost estimation method relies on historical data from similar completed projects to predict new project costs?

Answer: Analogous estimating

Analogous estimating uses actual costs from prior similar projects as a basis for estimating the current project's cost.

Net Present Value (NPV) discounts future cash flows back to the present using which rate?

Answer: Required rate of return (discount rate)

NPV uses the required rate of return as the discount rate to express all future cash flows in today's dollars.