BSE Engineering Economics and Financial Management 2 — Questions and Answers
Question 1: Which financial statement shows a company's assets, liabilities, and shareholders' equity at a specific point in time?
- Income Statement
- Cash Flow Statement
- Balance Sheet (Correct answer)
- Statement of Retained Earnings
Correct answer: Balance Sheet
The balance sheet provides a snapshot of a company's financial position, listing what it owns (assets) and owes (liabilities) along with equity.
Question 2: What is the break-even point in production?
- The output level where total revenue equals total variable cost
- The output level where total revenue equals total cost (Correct answer)
- The output level where fixed costs are fully recovered
- The output level where profit is maximized
Correct answer: The output level where total revenue equals total cost
The break-even point is the production quantity at which total revenue equals total costs, resulting in zero profit or loss.
Question 3: Which ratio measures a company's ability to pay short-term obligations using its most liquid assets?
- Debt-to-Equity Ratio
- Quick Ratio (Correct answer)
- Return on Assets
- Price-Earnings Ratio
Correct answer: Quick Ratio
The quick ratio (also called the acid-test ratio) measures liquidity by comparing liquid assets (excluding inventory) to current liabilities.
Question 4: What does a positive Net Present Value (NPV) indicate about a project?
- The project will break even
- The project is expected to add value to the firm (Correct answer)
- The project has zero risk
- The project's cash flows equal the initial investment
Correct answer: The project is expected to add value to the firm
A positive NPV means the project's discounted cash inflows exceed its costs, indicating it is expected to increase the firm's value.
Question 5: In life-cycle costing, which phase typically incurs the highest cumulative costs for an engineered system?
- Design and development
- Manufacturing and production
- Operations and maintenance (Correct answer)
- Disposal and decommissioning
Correct answer: Operations and maintenance
Operations and maintenance costs typically dominate the total life-cycle cost of an engineered system, often far exceeding initial acquisition costs.
Question 6: Which cost estimation technique uses the relationship between a new project's parameters and historical data from completed similar projects?
- Bottom-up estimating
- Parametric estimating (Correct answer)
- Expert judgment
- Three-point estimating
Correct answer: Parametric estimating
Parametric estimating uses statistical relationships between historical data and project variables (like cost per unit) to calculate estimates.
BSE Engineering Economics and Financial Management 2
Which financial statement shows a company's assets, liabilities, and shareholders' equity at a specific point in time?