Time Value of Money: Interactive Learning Quizzes for Engineering Economics

Question 1

A project has a net present value of £0. This means that:

Accepted Answer

The project is economically viable, and the investor will break even.

Answer

The project is not economically viable.

Answer

The project is economically viable, but the investor will not make a profit.

Answer

The project is economically viable, and the investor will make a profit.

Question 2

Which of the following factors does NOT influence the time value of money?

Accepted Answer

Risk

Answer

Interest rate

Answer

Inflation rate

Question 3

What is the fundamental concept of time value of money?

Accepted Answer

Money received or spent today is worth more than the same amount in the future.

Answer

Money has equal value at all times.

Answer

Money loses value over time due to inflation.

Question 4

Which of the following formulas accurately calculates the present worth (P) of a uniform cash flow series with an annual cash flow (A), interest rate (i), and duration (n)?

Accepted Answer

P = A * (P/A, i%, n)

Answer

F = A * (F/A, i%, n)

Answer

A = P * (A/P, i%, n)

Answer

P = F * (P/F, i%, n)

Question 5

To calculate the future worth (F) of a single amount, which formula should be used?

Accepted Answer

F = P * (F/P, i%, n)

Answer

P = F * (P/F, i%, n)

Answer

A = F * (A/F, i%, n)

Answer

F = A * (F/A, i%, n)

Question 6

The time value of money equation serves the primary function of:

Accepted Answer

Comparing cash flows at different points in time

Answer

Determining interest rates on loans

Answer

Forecasting inflation rates

Answer

Calculating return on investments

Question 7

Which of the following is a factor that does NOT affect the time value of money?

Accepted Answer

Uncertainty

Answer

Inflation

Answer

Interest rates

Answer

Time horizon

Question 8

Which of the following is the most appropriate measure of economic viability for a project that has periodic cash flows?

Accepted Answer

Net present value

Answer

Payback period

Answer

Internal rate of return

Answer

Benefit-cost ratio

Question 9

An investment opportunity has a net present value of £5,000 and an internal rate of return of 8%. What can be concluded?

Accepted Answer

The project is viable if the cost of capital is less than 8%.

Answer

The project is viable if the cost of capital is more than 8%.

Answer

The project is always viable.

Answer

The project is never viable.

Question 10

Which of the following is a key assumption of the time value of money concept?

Accepted Answer

Money can be earned and invested at a constant interest rate.

Answer

Money has the same value at all times.

Answer

Inflation is not a factor.

Answer

Risk is not a factor.

Question 11

Which of the following does NOT affect the time value of money?

Accepted Answer

Personal risk tolerance

Answer

Interest rate

Answer

Inflation rate

Answer

Time horizon

Question 12

Which formula calculates the future worth of a single amount?

Accepted Answer

FW = PV * (1 + i)^n

Answer

FW = PV * (1 - i)^n

Answer

PV = FW / (1 + i)^n

Answer

PV = FW / (1 - i)^n

Question 13

Calculate the payback period of a project with an initial cost of £10,000 and annual net cash flow of £2,000.

Accepted Answer

5 years

Answer

6 years

Answer

7 years

Answer

8 years

Question 14

Determine the break-even point for a project with a fixed cost of £5,000 and a variable cost of £2 per unit.

Accepted Answer

2,500 units

Answer

5,000 units

Answer

7,500 units

Answer

10,000 units

Question 15

Which of the following factors is essential for evaluating the economic viability of engineering projects, considering the time value of money?

Accepted Answer

Time value of money

Answer

Initial investment cost

Answer

Operating expenses

Answer

Depreciation

Question 16

The present worth of a series of cash flows represents the value of all cash flows:

Accepted Answer

Discounted back to the present

Answer

Occurred in the past

Answer

Expected to occur in the future

Answer

Happening at the present time

Question 17

Annual worth is calculated as:

Accepted Answer

Present worth divided by the annuity factor

Answer

Present worth multiplied by the interest rate

Answer

Future worth divided by the number of years

Answer

Future worth multiplied by the annuity factor

Question 18

Which of the following is NOT a factor that influences the time value of money?

Accepted Answer

Government regulations

Answer

Inflation

Answer

Interest rates

Answer

Risk

Question 19

The sensitivity of a project's NPV to variations in the discount rate is:

Accepted Answer

Positive

Answer

Negative

Answer

Zero

Answer

Cannot be determined

Question 20

Which of the following criteria is used to evaluate the economic viability of a project using annual worth (AW)?

Accepted Answer

AW > 0

Answer

AW < 0

Answer

AW = 0

Answer

AW > r

Question 21

Which of the following factors does NOT affect the time value of money?

Accepted Answer

Risk

Answer

Inflation

Answer

Interest rates

Answer

Time horizons

Question 22

Define an annuity.

Accepted Answer

A series of equal cash flows occurring at equal intervals

Answer

A series of equal cash flows occurring at unequal intervals

Answer

A series of unequal cash flows occurring at equal intervals

Answer

A single cash flow occurring at a specific point in time

Question 23

Which of the following is NOT an advantage of using the time value of money in financial analysis?

Accepted Answer

It eliminates the need for considering risk and uncertainty in investment decisions

Answer

It allows for a more accurate comparison of cash flows occurring at different points in time

Answer

It helps determine the appropriate interest rate for a specific investment

Answer

It can be used to evaluate the impact of inflation on future cash flows

Question 24

A loan of £10,000 is to be repaid in equal annual installments of £2,500 for 5 years. What is the annual equivalent (AE) of the loan? (Round your answer to the nearest pound.)

Accepted Answer

£2,315

Answer

£2,000

Answer

£2,500

Answer

£2,815

Question 25

Which of the following is the formula for calculating the present worth of a single cash flow occurring at the end of a specified period?

Accepted Answer

PW = FV / (1 + r)^n

Answer

PW = FV * (1 + r)^n

Answer

PW = FV / n * r

Answer

PW = FV + n * r

Question 26

Which factor would increase the annual worth (AW) of a project?

Accepted Answer

Longer project life

Answer

Higher initial investment

Answer

Lower annual cash flows

Answer

Higher discount rate

Question 27

Which is NOT an advantage of using the time value of money in engineering economics?

Accepted Answer

Eliminates the need for sensitivity analysis

Answer

Provides a common basis for comparing projects with different cash flows

Answer

Considers the time value of money

Answer

Enhances decision-making