1. Engineering economics is concerned primarily with:
A) Maximizing profits
B) Minimizing costs
C) Evaluating economic alternatives
D) Forecasting future trends
Answer: C) Evaluating economic alternatives
2. The time value of money concept is based on the idea that:
A) Money depreciates over time
B) Money has different values at different times
C) Money is always worth more in the future
D) Money is a constant value
Answer: B) Money has different values at different times
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
Answer: A) Considers only initial costs
4. Net Present Value (NPV) is used to:
A) Compare projects of different sizes
B) Evaluate the profitability of a project
C) Calculate the payback period
D) Assess project risks
Answer: B) Evaluate the profitability of a project
5. The payback period method:
A) Ignores the time value of money
B) Always selects the project with the highest NPV
C) Considers only profitability
D) Requires complex calculations
Answer: A) Ignores the time value of money
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
Answer: A) The discount rate that makes NPV zero
7. In capital budgeting, the term ‘sunk costs’ refers to costs that:
A) Are not recoverable
B) Are incurred in the future
C) Are used to finance the project
D) Are variable in nature
Answer: A) Are not recoverable
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
Answer: A) Ignores cash flows after payback
9. Economic life of an asset is the:
A) Maximum period until the asset is fully depreciated
B) Minimum period required for payback
C) Time period over which the asset generates revenue
D) Period after which the asset becomes obsolete
Answer: C) Time period over which the asset generates revenue
10. Which of the following factors affect the interest rate in a market economy?
A) Government regulations only
B) Inflation and risk
C) International trade policies
D) Capital budgeting decisions
Answer: B) Inflation and risk
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
Answer: A) An expense that decreases taxable income
12. Which method of depreciation allocates an equal amount of depreciation expense to each year of an asset’s useful life?
A) Straight-line method
B) Double-declining balance method
C) Units of production method
D) Sum-of-the-years’-digits method
Answer: A) Straight-line method
13. The salvage value of an asset is:
A) The initial cost of the asset
B) The book value at the end of its useful life
C) The amount received when the asset is sold or disposed of
D) The annual depreciation expense
Answer: C) The amount received when the asset is sold or disposed of
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
Answer: C) Depreciation expense
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
Answer: B) The project’s benefits exceed its costs
16. Which of the following is a characteristic of the Modified Internal Rate of Return (MIRR)?
A) It considers only cash flows up to the payback period
B) It is always lower than the Internal Rate of Return (IRR)
C) It assumes reinvestment at the project’s cost of capital
D) It is suitable for projects with equal cash flows
Answer: C) It assumes reinvestment at the project’s cost of capital
17. An annuity is:
A) A one-time lump sum payment
B) A series of equal periodic payments
C) A variable payment based on profits
D) An irregular cash flow pattern
Answer: B) A series of equal periodic payments
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
Answer: B) Discounts future cash flows to the present
19. Which of the following is a limitation of the Payback Period method?
A) Ignores time value of money
B) Requires complex calculations
C) Considers all cash flows
D) Suitable for all types of projects
Answer: A) Ignores time value of money
20. The Economic Order Quantity (EOQ) model is used to determine:
A) The optimal production rate
B) The maximum inventory level
C) The minimum order quantity that minimizes total inventory costs
D) The average demand rate
Answer: C) The minimum order quantity that minimizes total inventory costs
21. Sensitivity analysis in engineering economics is used to:
A) Determine the impact of uncertain variables on project outcomes
B) Calculate the Payback Period
C) Evaluate cash flow patterns
D) Measure project profitability
Answer: A) Determine the impact of uncertain variables on project outcomes
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
Answer: B) The cost of capital
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) Internal Rate of Return (IRR)
C) Equivalent Annual Cost (EAC)
D) Payback Period
Answer: C) Equivalent Annual Cost (EAC)
24. Which depreciation method allocates a higher depreciation expense in the earlier years of an asset’s life?
A) Straight-line method
B) Sum-of-the-years’-digits method
C) Double-declining balance method
D) Units of production method
Answer: C) Double-declining balance method
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