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

A dollar available today can be invested immediately to generate additional returns, making it more valuable than a future dollar.

Question 2

What is contingency reserve in project cost management?

Accepted Answer

Funds set aside to cover identified risks and known unknowns

Answer

Contingency reserve is budgeted to address identified risks whose outcomes are uncertain but foreseeable.

Question 3

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

Accepted Answer

Annual worth analysis

Answer

Annual worth analysis converts all costs and benefits to a uniform annual equivalent for direct comparison of alternatives.

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

When an external supplier can deliver the item at a lower total cost, the economic case favors purchasing over in-house manufacturing.

Question 5

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

Accepted Answer

Understanding how changes in cost and volume affect profitability

Answer

CVP analysis reveals how varying production levels, selling prices, or costs shift a project's or business's profitability.

BSEM - Bachelor of Science in Engineering Management Practice Test