Engineering Economics MCQs December 15, 2025June 28, 2024 by u930973931_answers 24 min Score: 0 Attempted: 0/24 Subscribe 1. Engineering economics is concerned primarily with: (A) Maximizing profits (B) Minimizing costs (C) Evaluating economic alternatives (D) Forecasting future trends 2. The time value of money concept is based on the idea that: (A) Money depreciates over time (B) Money is always worth more in the future (C) Money has different values at different times (D) Money is a constant value 3. Which of the following is not a characteristic of a good economic decision? (A) Considers only initial costs (B) Considers all relevant costs and benefits (C) Considers the time value of money (D) Considers risk and uncertainty 4. Net Present Value (NPV) is used to: (A) Evaluate the profitability of a project (B) Compare projects of different sizes (C) Calculate the payback period (D) Assess project risks 5. The payback period method: (A) Considers only profitability (B) Always selects the project with the highest NPV (C) Ignores the time value of money (D) Requires complex calculations 6. The Internal Rate of Return (IRR) is: (A) The discount rate that makes NPV zero (B) The same as the return on investment (ROI) (C) Used only for small projects (D) Always higher than the cost of capital 7. In capital budgeting, the term ‘sunk costs’ refers to costs that: (A) Are used to finance the project (B) Are incurred in the future (C) Are not recoverable (D) Are variable in nature 8. Which of the following is a disadvantage of the payback period method? (A) Ignores cash flows after payback (B) Requires complex calculations (C) Accounts for time value of money (D) Suitable for all types of projects 9. Economic life of an asset is the: (A) Maximum period until the asset is fully depreciated (B) Minimum period required for payback (C) Period after which the asset becomes obsolete (D) Time period over which the asset generates revenue 10. Which of the following factors affect the interest rate in a market economy? (A) Inflation and risk (B) Government regulations only (C) International trade policies (D) Capital budgeting decisions 11. In the context of engineering economics, depreciation is: (A) An expense that decreases taxable income (B) An increase in the value of assets over time (C) Only applicable to tangible assets (D) A non-cash expense 12. Which method of depreciation allocates an equal amount of depreciation expense to each year of an asset’s useful life? (A) Double-declining balance method (B) Straight-line method (C) Units of production method (D) Sum-of-the-years’-digits method 13. The salvage value of an asset is: (A) The initial cost of the asset (B) The amount received when the asset is sold or disposed of (C) The book value at the end of its useful life (D) The annual depreciation expense 14. Which of the following is not considered a cash flow in capital budgeting analysis? (A) Initial investment (B) Salvage value (C) Depreciation expense (D) Operating expenses 15. A project with a positive Net Present Value (NPV) indicates that: (A) The project should be rejected (B) The project’s benefits exceed its costs (C) The payback period is short (D) The Internal Rate of Return (IRR) is low 16. Which of the following is a characteristic of the Modified Internal Rate of Return (MIRR)? (A) It assumes reinvestment at the project’s cost of capital (B) It is always lower than the Internal Rate of Return (IRR) (C) It considers only cash flows up to the payback period (D) It is suitable for projects with equal cash flows 17. An annuity is: (A) A one-time lump sum payment (B) A variable payment based on profits (C) A series of equal periodic payments (D) An irregular cash flow pattern 18. The Present Worth (PW) method: (A) Calculates the future value of cash flows (B) Discounts future cash flows to the present (C) Ignores the time value of money (D) Compounds interest over time 19. Which of the following is a limitation of the Payback Period method? (A) Suitable for all types of projects (B) Requires complex calculations (C) Considers all cash flows (D) Ignores time value of money 20. The Economic Order Quantity (EOQ) model is used to determine: (A) The optimal production rate (B) The minimum order quantity that minimizes total inventory costs (C) The maximum inventory level (D) The average demand rate 21. Sensitivity analysis in engineering economics is used to: (A) Evaluate cash flow patterns (B) Calculate the Payback Period (C) Determine the impact of uncertain variables on project outcomes (D) Measure project profitability 22. In discounted cash flow analysis, the discount rate represents: (A) The inflation rate (B) The cost of capital (C) The project’s return on investment (D) The market interest rate 23. Which of the following is a method for comparing investment alternatives by converting cash flows to an equivalent annual amount? (A) Net Present Value (NPV) (B) Equivalent Annual Cost (EAC) (C) Internal Rate of Return (IRR) (D) Payback Period 24. Which depreciation method allocates a higher depreciation expense in the earlier years of an asset’s life? (A) Double-declining balance method (B) Sum-of-the-years’-digits method (C) Straight-line method (D) Units of production method