CCP Economic Analysis and Engineering Economics 3

Question 1

Life Cycle Cost (LCC) analysis in engineering economics encompasses:

Accepted Answer

All costs from acquisition through disposal over the asset's entire life

Answer

Only the initial capital acquisition cost of an asset

Answer

Annual operating and maintenance costs discounted to present value

Answer

Capital and labor costs during the construction phase only

Question 2

The 'sunk cost' principle in engineering economics states that sunk costs should be:

Accepted Answer

Ignored when making future economic decisions because they are unrecoverable

Answer

Included in future project cash flows to ensure full cost recovery

Answer

Depreciated over the remaining useful life of the project

Answer

Subtracted from the MARR to reflect past losses

Question 3

In economic analysis, 'opportunity cost' is best defined as:

Accepted Answer

The value of the best foregone alternative when a resource allocation decision is made

Answer

The transaction cost of missing a business opportunity

Answer

The additional incremental cost of pursuing one project over a base alternative

Answer

The cost of capital tied up in idle equipment

Question 4

Break-even analysis identifies the point at which:

Accepted Answer

Total revenues exactly equal total costs, yielding neither profit nor loss

Answer

The project achieves its maximum net present value

Answer

The project reaches its simple payback period

Answer

Marginal revenue equals the MARR

Question 5

According to the Fisher equation, how does inflation affect the relationship between nominal and real rates of return?

Accepted Answer

The real rate of return is lower than the nominal rate when inflation is positive

Answer

Inflation increases the real rate of return above the nominal rate

Answer

Inflation has no effect on real rates of return

Answer

Nominal and real rates of return are identical under stable inflation

Question 6

A 'Uniform Annual Series' (annuity) in engineering economics is characterized by:

Accepted Answer

Equal cash flow payments occurring at regular intervals over a specified number of periods

Answer

A single lump-sum payment received at the end of a project

Answer

Cash flows that increase by a fixed gradient amount each period

Answer

Irregular, variable cash flows distributed across a project's life

Question 7

In replacement analysis, when should a challenger (new asset) replace a defender (existing asset)?

Accepted Answer

When the challenger's annual worth is greater than the defender's annual worth

Answer

When the defender's book value is less than the challenger's purchase cost

Answer

When the defender has exceeded its original design service life

Answer

Whenever the challenger has lower initial capital cost than the defender