BSE Engineering Economics and Financial Management

Question 1

What does the term 'time value of money' mean in engineering economics?

Accepted Answer

Money available now is worth more than the same amount in the future

Answer

The time value of money reflects that a dollar today can be invested to earn returns, making it worth more than a dollar received in the future.

Question 2

Which capital budgeting method calculates the discount rate at which an investment's NPV equals zero?

Accepted Answer

Internal Rate of Return (IRR)

Answer

The Internal Rate of Return (IRR) is the discount rate that makes the net present value of all cash flows from an investment equal to zero.

Question 3

A machine costs $50,000 and saves $12,000 per year. What is the simple payback period?

Accepted Answer

4.17 years

Answer

Simple payback period = Initial Cost / Annual Savings = $50,000 / $12,000 ≈ 4.17 years.

Question 4

Which depreciation method allocates an equal amount of cost each year over the asset's useful life?

Accepted Answer

Straight-Line Depreciation

Answer

Straight-line depreciation spreads the cost evenly by dividing (cost minus salvage value) by the useful life.

Question 5

In engineering economics, what is the 'MARR'?

Accepted Answer

Minimum Attractive Rate of Return

Answer

The Minimum Attractive Rate of Return (MARR) is the lowest rate of return a company will accept before undertaking an investment.

BSE - Mgt Bachelor of Science in Engineering Management Practice Test