Fundamentals of Engineering Engineering Economics 3

Question 1

Which economic analysis method converts all costs and benefits to an equivalent annual amount?

Accepted Answer

Annual Worth (AW) method

Answer

The Annual Worth method expresses all cash flows as an equivalent uniform annual series for comparison.

Question 2

What is sunk cost in engineering economics?

Accepted Answer

A past expenditure that cannot be recovered and should be ignored in future decisions

Answer

Sunk costs are past, irrecoverable expenditures that should not influence current or future economic decisions.

Question 3

What is the capital recovery (CR) cost of an asset?

Accepted Answer

The equivalent annual cost of owning and financing the asset

Answer

Capital recovery cost is the equivalent annual amount to recover the initial investment and opportunity cost of capital.

Question 4

In a sensitivity analysis, which variable is being tested when project NPV is recalculated for a range of that variable's values?

Accepted Answer

A critical uncertain parameter

Answer

Sensitivity analysis tests how NPV responds to changes in uncertain parameters to identify which variables most affect the outcome.

Question 5

What is the Modified Accelerated Cost Recovery System (MACRS) used for?

Accepted Answer

Tax depreciation of business assets in the United States

Answer

MACRS is the IRS-prescribed depreciation method for tax purposes in the United States.

Fundamentals of Engineering Practice Test