Engineering Economics Flashcards
6 cards from real Fundamentals of Engineering practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Engineering Economics flashcards as text
Which economic analysis method converts all costs and benefits to an equivalent annual amount?
Answer: Annual Worth (AW) method
The Annual Worth method expresses all cash flows as an equivalent uniform annual series for comparison.
What is sunk cost in engineering economics?
Answer: A past expenditure that cannot be recovered and should be ignored in future decisions
Sunk costs are past, irrecoverable expenditures that should not influence current or future economic decisions.
What is the capital recovery (CR) cost of an asset?
Answer: The equivalent annual cost of owning and financing the asset
Capital recovery cost is the equivalent annual amount to recover the initial investment and opportunity cost of capital.
In a sensitivity analysis, which variable is being tested when project NPV is recalculated for a range of that variable's values?
Answer: A critical uncertain parameter
Sensitivity analysis tests how NPV responds to changes in uncertain parameters to identify which variables most affect the outcome.
What is the Modified Accelerated Cost Recovery System (MACRS) used for?
Answer: Tax depreciation of business assets in the United States
MACRS is the IRS-prescribed depreciation method for tax purposes in the United States.
When comparing two mutually exclusive alternatives using IRR, which approach is correct?
Answer: Calculate the IRR on the incremental cash flow between alternatives
The incremental IRR approach evaluates whether the additional investment in the higher-cost alternative earns a return above the MARR.