BSEM Engineering Economics & Cost Estimation 3

Question 1

Time value of money states that a dollar today is worth more than a dollar in the future because:

Accepted Answer

Money available now can be invested to earn returns

Answer

Inflation always reduces purchasing power at a fixed rate

Answer

Future dollars are taxed at higher rates

Answer

Currency exchange rates always favor present transactions

Question 2

What is contingency reserve in project cost management?

Accepted Answer

Funds set aside to cover identified risks and known unknowns

Answer

The portion of profit withheld until project completion

Answer

Tax reserves required by federal regulations

Answer

Capital allocated for equipment replacement at end of project life

Question 3

Which economic analysis compares the annual costs of two or more alternatives over their useful lives?

Accepted Answer

Annual worth analysis

Answer

Present worth analysis

Answer

Future worth analysis

Answer

Incremental rate of return analysis

Question 4

In a make-or-buy decision, which factor most strongly favors the 'buy' option?

Accepted Answer

A vendor can supply the item at lower cost than internal production

Answer

The company has excess manufacturing capacity

Answer

Proprietary technology must be protected

Answer

Quality control is critical and difficult to monitor externally

Question 5

Cost-volume-profit (CVP) analysis is most useful for:

Accepted Answer

Understanding how changes in cost and volume affect profitability

Answer

Tracking historical project expenditures

Answer

Calculating equipment depreciation schedules

Answer

Estimating project durations using network diagrams

Question 6

The Modified Accelerated Cost Recovery System (MACRS) is the U.S. tax depreciation method that:

Accepted Answer

Allows larger depreciation deductions in early years of asset ownership

Answer

Spreads depreciation equally over an asset's physical life

Answer

Bases depreciation on actual units produced each year

Answer

Applies only to real property and excludes equipment