Project Evaluation and Selection: Master Engineering Economics

Question 1

In project evaluation, which of the following is a qualitative technique used to assess project feasibility?

Accepted Answer

Multi-Criteria Decision Making (MCDM)

Answer

Internal Rate of Return (IRR) Analysis

Answer

Payback Period Analysis

Answer

Scenario Analysis

Question 2

When evaluating projects using the Net Present Value (NPV) method, which factor is **not** directly incorporated into the calculation?

Accepted Answer

Potential risks and uncertainties associated with the project

Answer

Initial capital investment

Answer

Projected cash flows throughout the project's duration

Answer

Applicable discount rate

Question 3

Which method does NOT take into account the time value of money when evaluating projects?

Accepted Answer

Payback Period

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Benefit-Cost Analysis

Question 4

Which of these project evaluation techniques is primarily qualitative rather than quantitative?

Accepted Answer

Risk Analysis

Answer

Net Present Value (NPV)

Answer

Payback Period

Answer

Internal Rate of Return (IRR)

Question 5

Which of the following is not a primary economic criterion used to assess engineering projects?

Accepted Answer

Return on Investment (ROI)

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Benefit-Cost Ratio (BCR)

Question 6

In project evaluation, which method considers the time value of money by adjusting future cash flows to their present value?

Accepted Answer

Discounted Cash Flow Analysis (DCF)

Answer

Simple Payback Period

Answer

Equivalent Annual Cost (EAC)

Answer

Benefit-Cost Ratio

Question 7

In project evaluation, which method calculates the discount rate that makes the net present value of a project zero?

Accepted Answer

Internal Rate of Return

Answer

Discounted Cash Flow Analysis

Answer

Payback Period

Answer

Benefit-Cost Analysis

Question 8

Which of the following is a limitation of using a multi-criteria decision analysis (MCDA) approach for project selection?

Accepted Answer

Requires subjective judgments in the evaluation process.

Answer

Provides a more comprehensive evaluation by considering multiple criteria.

Answer

Facilitates trade-offs between conflicting criteria.

Answer

Enhances transparency and accountability in the decision-making process.

Question 9

Which project evaluation technique provides the most thorough assessment of a project's financial viability by considering the time value of money and all cash flows?

Accepted Answer

Discounted Cash Flow Analysis (DCF)

Answer

Payback Period

Answer

Benefit-Cost Analysis

Answer

Sensitivity Analysis

Question 10

Which limitation is associated with using Discounted Cash Flow (DCF) analysis in engineering project evaluation?

Accepted Answer

It does not inherently account for risk and uncertainty

Answer

It considers the time value of money

Answer

It provides a single metric for comparing projects

Answer

It explicitly accounts for inflation

Question 11

In evaluating an engineering project's economic viability, which factor is of least significance?

Accepted Answer

Project aesthetic appeal

Answer

Project scope and complexity

Answer

Market demand and competition

Answer

Cost of materials and labor

Question 12

In assessing the economic viability of an engineering project, which of these factors is generally disregarded?

Accepted Answer

Political and regulatory environment

Answer

Initial capital investment

Answer

Projected revenue streams

Answer

Ongoing operational expenses

Question 13

Which technique is used to evaluate projects based on qualitative factors?

Accepted Answer

Expert Judgment

Answer

Net Present Value (NPV)

Answer

Payback Period

Answer

Internal Rate of Return (IRR)

Question 14

Which technique evaluates projects based on multiple criteria, including non-economic factors?

Accepted Answer

Multi-Criteria Decision Analysis

Answer

Net Present Value (NPV)

Answer

Benefit-Cost Analysis

Answer

Payback Period

Question 15

Which of the following is not a criterion used to evaluate capital budgeting projects?

Accepted Answer

Return on Assets

Answer

Net Present Value

Answer

Payback Period

Answer

Internal Rate of Return

Question 16

Which economic project evaluation technique is used to calculate the minimum acceptable rate of return for a project to be considered financially viable?

Accepted Answer

Internal Rate of Return (IRR)

Answer

Net Present Value (NPV)

Answer

Cost-Benefit Analysis

Answer

Break-Even Analysis

Question 17

In project evaluation, which of the following is NOT a commonly used quantitative criterion for assessing project viability and profitability?

Accepted Answer

Project Manager's Subjective Opinion

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Payback Period

Question 18

Which of the following is a disadvantage of using discounted cash flow analysis (DCF) for project evaluation?

Accepted Answer

It is a complex and time-consuming process.

Answer

It considers the time value of money.

Answer

It allows for the comparison of projects with different cash flows.

Answer

It helps identify the most profitable project.

Question 19

Which of the following is NOT a primary technique used to assess the financial feasibility of an engineering project?

Accepted Answer

Risk Assessment

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Benefit-to-Cost Ratio

Question 20

Which technique allows you to assess how changes in project factors affect its outcome without using specific numbers?

Accepted Answer

Sensitivity Analysis

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Payback Period

Question 21

Which is the main limitation of using the payback period method for project evaluation?

Accepted Answer

It ignores differences in cash flow patterns over the project's duration.

Answer

It cannot be used to compare projects with different lifespans.

Answer

It assumes that cash inflows are consistent throughout the project.

Answer

It can only be used for projects with positive cash flows.

Question 22

Which of the following is a qualitative method used to evaluate engineering projects?

Accepted Answer

SWOT Analysis

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Payback Period

Question 23

In a cost-benefit analysis for an engineering project, what is crucial for calculating the project's net present value (NPV)?

Accepted Answer

Both initial investment and future cash flows, discounted to the present

Answer

Initial investment cost only

Answer

Future cash flows only

Answer

Future cash flows, inflated for inflation

Question 24

In project selection, we use quantitative measures to assess a project's economic performance. Which of the following is NOT a commonly used quantitative measure for project evaluation?

Accepted Answer

Project Risk

Answer

Net Present Value (NPV)

Answer

Benefit-Cost Ratio (BCR)

Answer

Internal Rate of Return (IRR)

Question 25

What is the central principle that underpins engineering economics?

Accepted Answer

Optimizing resource allocation for maximum value

Answer

Prioritizing revenue generation

Answer

Minimizing project expenditure

Answer

Balancing stakeholder interests

Question 26

Which factor is **not** typically considered when evaluating engineering projects?

Accepted Answer

Project team enthusiasm

Answer

Cost-benefit analysis

Answer

Return on investment

Answer

Environmental impact assessment

Question 27

Regarding Net Present Value (NPV), which statement is accurate?

Accepted Answer

A positive NPV suggests the project will yield a return on investment exceeding the capital cost.

Answer

NPV only accounts for the present value of future cash inflows.

Answer

Time value of money is irrelevant in NPV calculations.

Question 28

In a project's Net Present Value (NPV) Profile, what does a negative NPV at a particular discount rate suggest about the project's financial viability at that rate?

Accepted Answer

The project is financially not viable at that discount rate.

Answer

The project is financially viable at that discount rate.

Answer

The project has a positive NPV at all discount rates.

Question 29

In project evaluation, which capital budgeting method is most appropriate for comparing the profitability of mutually exclusive projects, considering the time value of money?

Accepted Answer

Net Present Value Method

Answer

Payback Period Method

Answer

Internal Rate of Return Method

Question 30

In engineering project evaluation, which quantitative risk analysis technique involves calculating the probability and impact of identified risks?

Accepted Answer

Monte Carlo Simulation

Answer

Sensitivity Analysis

Answer

Scenario Analysis

Answer

Expert Judgment

Question 31

In capital budgeting, which technique assesses a project's profitability by comparing its incremental cash flows to a scenario where no action is taken?

Accepted Answer

Incremental Cash Flow Analysis

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Question 32

In project evaluation, Sensitivity Analysis primarily serves which purpose?

Accepted Answer

Assessing the impact of variable changes on project outcomes without precise estimates

Answer

Identifying influential project variables without numerical values

Answer

Determining the likelihood of project success or failure

Answer

Applying only to projects with significant uncertainty

Question 33

When evaluating a project's economic feasibility, which of the following is **not** a direct factor to consider?

Accepted Answer

Environmental Impact Assessment

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Return on Investment (ROI)

Question 34

In project evaluation, which of the following is a qualitative approach used to assess risks?

Accepted Answer

Expert judgment

Answer

Monte Carlo simulation

Answer

Sensitivity analysis

Answer

Data analysis

Question 35

Which of the following is NOT a primary economic factor considered when evaluating and selecting engineering projects?

Accepted Answer

Environmental impact

Answer

Initial investment cost

Answer

Expected cash flows

Answer

Expected return on investment

Question 36

In project evaluation, the presence of risk and uncertainty can significantly impact decision-making. Explain how risk and uncertainty influence the choice of appropriate evaluation methods.

Accepted Answer

Risk and uncertainty necessitate the use of more complex and sophisticated evaluation methods.

Answer

Risk and uncertainty do not affect the selection of evaluation methods.

Answer

Risk and uncertainty warrant the exclusion of uncertain cash flows from project evaluation.

Answer

Risk and uncertainty justify the use of qualitative, non-financial evaluation methods.

Question 37

In project evaluation, what is the primary purpose of conducting sensitivity analysis?

Accepted Answer

To determine which project assumptions have the greatest influence on project outcomes.

Answer

To ensure that only the most conservative project assumptions are used in project evaluation.

Answer

To eliminate the need for comprehensive scenario analysis in project evaluation.

Answer

To limit its application to small-scale projects with minimal uncertainties.

Question 38

In project evaluation and selection, what is the primary ethical responsibility of engineers?

Accepted Answer

To consider the values of the community and stakeholders in project selection

Answer

To solely focus on maximizing the project's NPV

Answer

To prioritize economic benefits, regardless of social or environmental impacts

Question 39

Among the following investment evaluation criteria, which one measures the average rate of return over the project's life?

Accepted Answer

Internal rate of return (IRR)

Answer

Net present value (NPV)

Answer

Payback period

Answer

Benefit-cost ratio

Question 40

A project with an NPV of £10,000 and an IRR of 15% can be considered as:

Accepted Answer

Economically viable

Answer

Economically unviable

Answer

Financially risky

Answer

Environmentally unsustainable

Question 41

Capital budgeting is a technique primarily used for:

Accepted Answer

Selecting projects when resources are limited

Answer

Assessing the technical feasibility of projects

Answer

Evaluating the environmental impact of projects

Answer

Determining the payback period of projects

Question 42

A project with a high sensitivity to changes in interest rates would be considered:

Accepted Answer

High-risk

Answer

Low-risk

Answer

Unaffordable

Answer

Sustainable

Question 43

A project with a shorter payback period is generally considered to be:

Accepted Answer

Less risky

Answer

More risky

Answer

Equally risky

Answer

Not related to risk

Question 44

A potential limitation of engineering economic analysis for project evaluation is that it:

Accepted Answer

Does not account for qualitative factors

Answer

Is too complex for practical use

Answer

Assumes perfect information

Answer

Is only applicable to small projects

Question 45

Which of the following is the primary objective of project evaluation and selection?

Accepted Answer

To determine the economic feasibility and viability of potential projects

Answer

To ensure that projects align with company goals

Answer

To identify and mitigate potential project risks

Answer

To optimize the allocation of resources

Question 46

The method that takes into account the time value of money is:

Accepted Answer

Net present value

Answer

Payback period

Answer

Equivalent annual cost

Answer

Internal rate of return

Question 47

Which project selection criterion prioritizes projects with the highest rate of return?

Accepted Answer

Internal rate of return

Answer

Benefit-cost ratio

Answer

Net present value

Answer

Equivalent annual cost

Question 48

What is the formula for calculating the Net Present Value (NPV)?

Accepted Answer

NPV = Present Value of Future Benefits - Initial Investment

Answer

NPV = Initial Investment + Present Value of Future Benefits

Answer

NPV = Initial Investment - Present Value of Future Benefits

Answer

NPV = Future Benefits - Initial Investment

Question 49

Which of the following is a qualitative factor considered in project evaluation?

Accepted Answer

Environmental impact

Answer

Net present value

Answer

Internal rate of return

Answer

Equivalent annual cost

Question 50

What is the purpose of a sensitivity analysis?

Accepted Answer

To determine how changing assumptions affect project outcomes

Answer

To optimize project parameters

Answer

To predict future project performance

Answer

To identify the most profitable project

Question 51

What is the role of engineering economics in project evaluation and selection?

Accepted Answer

To provide a structured framework for comparing and selecting projects based on economic criteria

Answer

To ensure that projects are technically feasible

Answer

To optimize project design

Answer

To estimate project costs

Question 52

When evaluating engineering projects, which of these factors should **NOT** be considered?

Accepted Answer

Political environment

Answer

Initial investment cost

Answer

Annual operating cost

Answer

Environmental impact

Question 53

Which analysis method determines the project with the highest rate of return?

Accepted Answer

Internal Rate of Return

Answer

Net Present Value

Answer

Payback Period

Answer

Equivalent Annual Cost

Question 54

The time value of money principle states that:

Accepted Answer

A sum of money today is worth more than the same sum in the future

Answer

Only applies to large amounts of money

Answer

Can be disregarded for projects with short lifespans

Answer

Is irrelevant to financial decision-making

Question 55

The payback period refers to the time it takes for a project to:

Accepted Answer

Generate sufficient cash flow to cover the initial investment

Answer

Reach its break-even point

Answer

Maximize its net present value

Answer

Fully depreciate its assets

Question 56

What is a primary advantage of using discounted cash flow analysis?

Accepted Answer

It incorporates the time value of money

Answer

It is easy to apply and interpret

Answer

It can account for inflation

Answer

It is universally accepted by financial institutions

Question 57

The equivalent annual cost (EAC) of a project represents:

Accepted Answer

The uniform annual cost of the project over its lifetime

Answer

The total cost of the project at the end of its life

Answer

The average cash flow per year

Answer

The present value of the project's future cash flows divided by its life

Question 58

Advanced capital budgeting techniques provide several advantages over traditional methods. Which of the following is a primary benefit of using advanced techniques?

Accepted Answer

Enhanced precision in estimating project cash flows

Answer

Reduced time and effort required for project assessment

Answer

Elimination of the need for sensitivity analysis

Answer

Guaranteed positive net present value (NPV) for all projects

Question 59

When evaluating engineering projects, how should ethical considerations be incorporated?

Accepted Answer

Establish clear ethical criteria and integrate them throughout the evaluation process.

Answer

Exclude ethical considerations from the evaluation process.

Answer

Consider ethical factors only after economic criteria have been assessed.

Answer

Rely on subjective judgments to determine the ethical implications of projects.

Question 60

What is the primary purpose of a cash flow diagram?

Accepted Answer

To illustrate the timing and amount of cash inflows and outflows over the project's life cycle

Answer

To calculate the project's net present value

Answer

To determine the project's payback period

Answer

To assess the project's overall risk

Question 61

Which project evaluation technique is most appropriate for comparing projects with different cash flow patterns?

Accepted Answer

Net present value (NPV)

Answer

Payback period

Answer

Benefit-cost ratio

Answer

Internal rate of return (IRR)

Question 62

Which limitation is associated with using the internal rate of return (IRR) method in project evaluation?

Accepted Answer

It may not be unique when there are multiple cash flow reversals

Answer

It does not consider the time value of money

Answer

It can only be applied to mutually exclusive projects

Answer

It assumes constant cash flows over the project's life

Question 63

Which project evaluation methods are most suitable for assessing the financial viability of a new product launch? Justify your selection.

Accepted Answer

Net Present Value (NPV) and Internal Rate of Return (IRR)

Answer

Payback Period and Return on Investment (ROI)

Answer

Qualitative methods, such as customer surveys and focus groups

Answer

Sensitivity analysis and scenario analysis

Question 64

In engineering project evaluation, which of these is NOT a commonly used economic criterion?

Accepted Answer

Return on Investment (ROI)

Answer

Net Present Value (NPV)

Answer

Internal Rate of Return (IRR)

Answer

Payback Period