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Engineering Economics and Cost Analysis

Description: This quiz covers the fundamental concepts of Engineering Economics and Cost Analysis, including time value of money, cash flow analysis, and project evaluation techniques.
Number of Questions: 15
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Tags: engineering economics cost analysis time value of money cash flow analysis project evaluation
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Which of the following is NOT a component of cash flow analysis?

  1. Initial investment

  2. Operating costs

  3. Depreciation

  4. Sunk costs

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Correct Option: D
Explanation:

Sunk costs are costs that have already been incurred and cannot be recovered, therefore they are not considered in cash flow analysis.

The time value of money concept states that:

  1. Money has the same value at all times

  2. Money today is worth more than money in the future

  3. Money in the future is worth more than money today

  4. The value of money is independent of time

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Correct Option: B
Explanation:

The time value of money concept recognizes that money today can be invested and earn interest, making it more valuable than the same amount of money in the future.

Which of the following is NOT a project evaluation technique?

  1. Net present value (NPV)

  2. Internal rate of return (IRR)

  3. Payback period

  4. Modified internal rate of return (MIRR)

Show answer
Correct Option: D
Explanation:

Modified internal rate of return (MIRR) is not a commonly used project evaluation technique, unlike the other options.

The payback period of a project is the:

  1. Time it takes to recover the initial investment

  2. Time it takes to generate a positive net cash flow

  3. Time it takes to reach the break-even point

  4. Time it takes to achieve the project's objectives

Show answer
Correct Option: A
Explanation:

The payback period is the amount of time it takes for a project to generate enough cash flow to cover the initial investment.

Which of the following is NOT a factor that affects the cost of capital?

  1. Risk

  2. Inflation

  3. Taxes

  4. Depreciation

Show answer
Correct Option: D
Explanation:

Depreciation is a non-cash expense that does not affect the cost of capital.

The net present value (NPV) of a project is calculated by:

  1. Discounting all future cash flows back to the present

  2. Adding all future cash flows together

  3. Subtracting all future cash flows from the initial investment

  4. Dividing all future cash flows by the initial investment

Show answer
Correct Option: A
Explanation:

The net present value (NPV) is calculated by discounting all future cash flows back to the present using a discount rate.

The internal rate of return (IRR) of a project is the:

  1. Discount rate that makes the net present value (NPV) equal to zero

  2. Discount rate that makes the payback period equal to the project's life

  3. Discount rate that makes the project's net cash flow equal to zero

  4. Discount rate that makes the project's profit equal to zero

Show answer
Correct Option: A
Explanation:

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of a project equal to zero.

Which of the following is NOT a type of cost associated with a project?

  1. Direct costs

  2. Indirect costs

  3. Fixed costs

  4. Variable costs

Show answer
Correct Option: B
Explanation:

Indirect costs are not directly related to the production of goods or services, therefore they are not considered project costs.

The break-even point of a project is the:

  1. Point at which the project's total revenue equals its total costs

  2. Point at which the project's net present value (NPV) is equal to zero

  3. Point at which the project's internal rate of return (IRR) is equal to the cost of capital

  4. Point at which the project's payback period is equal to its life

Show answer
Correct Option: A
Explanation:

The break-even point is the point at which the project's total revenue equals its total costs.

Which of the following is NOT a benefit of using engineering economics principles in project evaluation?

  1. Improved decision-making

  2. Increased project profitability

  3. Reduced project risk

  4. Simplified project management

Show answer
Correct Option: D
Explanation:

Engineering economics principles help in making informed decisions, increasing profitability, and reducing risk, but they do not simplify project management.

The cost-benefit analysis of a project involves:

  1. Comparing the project's costs and benefits

  2. Estimating the project's cash flows

  3. Calculating the project's net present value (NPV)

  4. Determining the project's payback period

Show answer
Correct Option: A
Explanation:

Cost-benefit analysis involves comparing the project's costs and benefits to determine its overall economic viability.

Which of the following is NOT a type of depreciation method?

  1. Straight-line depreciation

  2. Declining-balance depreciation

  3. Units-of-production depreciation

  4. Sunk cost depreciation

Show answer
Correct Option: D
Explanation:

Sunk cost depreciation is not a recognized depreciation method.

The concept of opportunity cost in engineering economics refers to:

  1. The cost of the next best alternative that is given up when a decision is made

  2. The cost of the resources used in a project

  3. The cost of the project's initial investment

  4. The cost of the project's operating expenses

Show answer
Correct Option: A
Explanation:

Opportunity cost is the cost of the next best alternative that is given up when a decision is made.

Which of the following is NOT a type of project risk?

  1. Technical risk

  2. Financial risk

  3. Market risk

  4. Political risk

Show answer
Correct Option: D
Explanation:

Political risk is not a commonly recognized type of project risk.

The sensitivity analysis of a project involves:

  1. Analyzing how changes in input parameters affect the project's outcomes

  2. Estimating the project's cash flows

  3. Calculating the project's net present value (NPV)

  4. Determining the project's payback period

Show answer
Correct Option: A
Explanation:

Sensitivity analysis involves analyzing how changes in input parameters, such as costs, revenues, and discount rates, affect the project's outcomes.

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