MEM Financial Management for Engineers 3

Question 1

What is the 'time value of money' principle in engineering financial management?

Accepted Answer

A dollar today is worth more than a dollar in the future

Answer

The time value of money states that a dollar available today can be invested to earn returns, making present money worth more than the same amount in the future.

Question 2

Which metric represents the annual rate of return at which a project's NPV equals zero?

Accepted Answer

Internal rate of return (IRR)

Answer

The IRR is the discount rate that makes the net present value of all cash flows from a project equal to zero.

Question 3

When constructing a business case for a new engineering initiative, which financial document best demonstrates how cash will flow in and out monthly?

Accepted Answer

Cash flow forecast

Answer

A cash flow forecast details projected cash inflows and outflows over time, essential for ensuring a project remains solvent during execution.

Question 4

What is the primary distinction between a capital expenditure (CapEx) and an operating expenditure (OpEx)?

Accepted Answer

CapEx acquires long-term assets; OpEx covers day-to-day operations

Answer

CapEx involves purchasing or upgrading long-term assets (equipment, facilities), while OpEx covers recurring costs needed to run daily operations.

Question 5

In break-even analysis, what happens to the break-even point if fixed costs increase while variable cost per unit and selling price remain constant?

Accepted Answer

Break-even point increases

Answer

Higher fixed costs mean more units must be sold to cover total costs, so the break-even point (in units) rises proportionally.

MEM - Master of Engineering Management Practice Test

MEM - Master of Engineering Management Practice Test

MEM Financial Management for Engineers 3