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Engineering Economy Concepts and Analysis

This document contains sample questions and answers from an engineering economics chapter that covers topics like time value of money, equivalence, cash flows, cost analysis, and weighted average cost of capital. It includes multiple choice questions testing understanding of concepts like compound interest, sensitivity analysis, and types of financing. The overall document provides an example of the type of material one might find in an introductory engineering economics course.

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402 views2 pages

Engineering Economy Concepts and Analysis

This document contains sample questions and answers from an engineering economics chapter that covers topics like time value of money, equivalence, cash flows, cost analysis, and weighted average cost of capital. It includes multiple choice questions testing understanding of concepts like compound interest, sensitivity analysis, and types of financing. The overall document provides an example of the type of material one might find in an introductory engineering economics course.

Uploaded by

Aizen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

CHAPTER 1 Lower Limit = (10,700-8,900)/10,700 = 16.

82%

1.47 The concept that different sums of money at ~Both are nearest to 17%. (C)
different
points in time can be said to be equal to each
other is known as: 1.52 At an interest rate of 10% per year, the equivalent
(a) Evaluation criterion amount of $10,000 one year ago is closest to:
(b) Equivalence ( a ) $8264 ( b ) $9091 ( c ) $11,000 ( d ) $12,000
(c) Cash fl ow
(d ) Intangible factors Ans:
Ans: B 1
𝑃 = (10,000) (1+0.1)1 = 9090.91 ≈ 9091 (B)

1.48 The evaluation criterion that is usually used in an


economic analysis is: 1.53 Assume that you and your best friend each have
(a) Time to completion $1000 to invest. You invest your money in a fund that
(b) Technical feasibility pays 10% per year compound interest. Your friend
(c) Sustainability invests her money at a bank that pays 10% per year
(d ) Financial units (dollars or other currency) simple interest. At the end of 1 year, the difference in
the total amount for each of you is:
Ans: D (a) You have $10 more than she does
(b) You have $100 more than she does
(c) You both have the same amount of money
(d ) She has $10 more than you do
1.49 All of the following are examples of cash
outflows, except : Ans: (C) ~Because compound rate is one year as well.
(a) Asset salvage value
(b) Income taxes
(c) Operating cost of asset
(d ) First cost of asset 1.54 The time it would take for a given sum of money
to double at 4% per year simple interest is closest to:
Ans: B ( a ) 30 years ( b ) 25 years
( c ) 20 years ( d ) 10 years

Ans:
1.50 In most engineering economy studies, the best
alternative is the one that: 2𝑃 = 𝑃 + 𝑛𝑃(0.04)
(a) Will last the longest time 2𝑃 = 𝑃(1 + 0.04𝑛)
(b) Is most politically correct 𝑛 = 25 𝑦𝑒𝑎𝑟𝑠 (B)
(c) Is easiest to implement
(d ) Has the lowest cost

Ans: D 1.55 All of the following are examples of equity fi


nancing,
except :
1.51 The following annual maintenance and operation (a) Mortgage
(M&O) costs for a piece of equipment were collected (b) Money from savings
over a 5-year period: $12,300, $8900, $9200, $11,000, (c) Cash on hand
and $12,100. The average is $10,700. In conducting a (d ) Retained earnings
sensitivity analysis, the most reasonable range of costs
Ans: (A)
to use (i.e., percent from the average) is:
( a ) _5% ( b ) _11% ( c ) _17% ( d ) _25%

Ans:

Upper Limit = (12,300-10,700)/(10,700) = 14.95%


1.56 To finance a new project costing $30 million, a
company borrowed $21 million at 16% per year
interest and used retained earnings valued at 12% per
year for the remainder of the investment. The
company’s weighted average cost of capital for the
project was closest to:
( a ) 12.5% ( b ) 13.6% ( c ) 14.8% ( d ) 15.6%

Ans:

Debt: $21M (70%), Equity: $9M (30%)

𝑊𝐴𝐶𝐶 = (70%)(16%) + (30%)(12%) = 14.8%


(C)

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