Fundamentals of Engineering Engineering Economics 3

Question 1

Which economic analysis method converts all costs and benefits to an equivalent annual amount?

Accepted Answer

Annual Worth (AW) method

Answer

Present Worth (PW) method

Answer

Future Worth (FW) method

Answer

Internal Rate of Return (IRR)

Question 2

What is sunk cost in engineering economics?

Accepted Answer

A past expenditure that cannot be recovered and should be ignored in future decisions

Answer

A future cost that is uncertain

Answer

The residual value of an asset

Answer

A cost that varies with output

Question 3

What is the capital recovery (CR) cost of an asset?

Accepted Answer

The equivalent annual cost of owning and financing the asset

Answer

The total depreciation over the asset's life

Answer

The salvage value at end of life

Answer

The initial purchase price divided by useful life

Question 4

In a sensitivity analysis, which variable is being tested when project NPV is recalculated for a range of that variable's values?

Accepted Answer

A critical uncertain parameter

Answer

The discount rate only

Answer

The project duration only

Answer

The sunk cost

Question 5

What is the Modified Accelerated Cost Recovery System (MACRS) used for?

Accepted Answer

Tax depreciation of business assets in the United States

Answer

Calculating salvage values

Answer

Determining maintenance costs

Answer

Computing inflation adjustments

Question 6

When comparing two mutually exclusive alternatives using IRR, which approach is correct?

Accepted Answer

Calculate the IRR on the incremental cash flow between alternatives

Answer

Select the alternative with the higher IRR

Answer

Select the alternative with the lower initial cost

Answer

Calculate IRR independently for each and pick the highest