BSE Engineering Economics and Financial Management 3

Question 1

What is the primary purpose of a sensitivity analysis in engineering economic decisions?

Accepted Answer

To determine how changes in input variables affect the outcome

Answer

To calculate the exact profit of a project

Answer

To find the optimal discount rate

Answer

To compare two mutually exclusive projects

Question 2

A company is comparing two mutually exclusive projects. Project A has a higher NPV but lower IRR than Project B. Which should be chosen?

Accepted Answer

Project A, because NPV is the superior decision criterion

Answer

Project B, because higher IRR always wins

Answer

Either project, since both are acceptable

Answer

Neither, because conflicting results mean both should be rejected

Question 3

Which type of cost does NOT change with the level of production output?

Accepted Answer

Fixed cost

Answer

Variable cost

Answer

Marginal cost

Answer

Direct material cost

Question 4

What is working capital in financial management?

Accepted Answer

Current assets minus current liabilities

Answer

Total assets minus total liabilities

Answer

Long-term debt minus equity

Answer

Revenue minus operating expenses

Question 5

Which amortization method front-loads higher depreciation charges in the early years of an asset's life?

Accepted Answer

Double Declining Balance Method

Answer

Straight-Line Method

Answer

Units of Production Method

Answer

FIFO Depreciation

Question 6

In engineering project financing, what is the primary advantage of debt financing over equity financing?

Accepted Answer

Interest payments are tax-deductible

Answer

Debt never needs to be repaid

Answer

Debt financing avoids all financial risk

Answer

Equity holders receive no return