CCE CCE Financial Analysis & Economic Evaluation 3

Question 1

In a sensitivity analysis for a capital investment, which variable is typically tested first?

Accepted Answer

The variable to which NPV or IRR is most sensitive

Answer

Sensitivity analysis begins by testing the variable that has the greatest impact on the economic measure (NPV or IRR) to identify the most critical assumptions.

Question 2

The 'break-even analysis' in cost engineering determines the point at which:

Accepted Answer

Total revenue equals total costs, resulting in zero profit or loss

Answer

Break-even analysis finds the production level or price at which total revenue equals total cost, meaning neither profit nor loss is generated.

Question 3

Which term describes the cost that remains constant regardless of the level of production or activity?

Accepted Answer

Fixed cost

Answer

Fixed costs, such as rent, insurance, and depreciation, do not change with the volume of production within a relevant range of activity.

Question 4

What does the Capital Recovery Factor (CRF) calculate?

Accepted Answer

The equivalent annual payment needed to recover a present investment at a given interest rate

Answer

The Capital Recovery Factor converts a present sum into an equivalent series of equal annual payments that recover both principal and interest over a specified period.

Question 5

In economic evaluation of public projects in the US, which discount rate is typically required by the Office of Management and Budget (OMB)?

Accepted Answer

OMB Circular A-94 specified real discount rates

Answer

OMB Circular A-94 prescribes the discount rates to be used in benefit-cost analyses of federal programs and projects.

CCE - Certified Cost Engineer Practice Test

CCE - Certified Cost Engineer Practice Test

CCE CCE Financial Analysis & Economic Evaluation 3