Economic Decision-Making for Engineers: Master Engineering Economics

Question 1

Which of the following is a quantitative factor to consider when making engineering decisions?

Accepted Answer

Cost

Answer

Environmental impact

Answer

Safety

Question 2

When engineers evaluate economic decisions, which factor is generally excluded from consideration?

Accepted Answer

Environmental impact

Answer

Initial investment cost

Answer

Ongoing operating costs

Answer

Return on investment

Question 3

When evaluating economic decisions, which factors should engineers primarily consider?

Accepted Answer

Both the costs and potential benefits of the project

Answer

Only the initial investment cost of the project

Answer

Only the potential revenue of the project

Answer

Neither the costs nor the benefits of the project

Question 4

Which factor is not relevant when conducting an economic analysis?

Accepted Answer

Personal preferences

Answer

Initial investment cost

Answer

Operating expenses

Answer

Expected revenue

Question 5

What is a constraint of economic analysis in engineering decision-making?

Accepted Answer

Can be costly and time-consuming to conduct

Answer

Eliminates uncertainty

Answer

Offers a comprehensive view of all pertinent factors

Answer

Always results in the optimal decision

Question 6

Which factor is typically NOT taken into account when making engineering economic decisions?

Accepted Answer

Personal preferences

Answer

Capital cost of the project

Answer

Projected cash inflows and outflows

Answer

Environmental impact

Question 7

What is a primary advantage of employing economic analysis in engineering decision-making?

Accepted Answer

Enhanced project selection

Answer

Lower project costs

Answer

Elevated project risks

Question 8

Which of the following is a core principle of engineering economics?

Accepted Answer

Economic decisions should be based on logical analysis and objective data.

Answer

The time value of money should be ignored in economic evaluations.

Answer

Engineering decisions should prioritize economic factors over social and environmental considerations.

Answer

The main goal of engineering economics is to maximize profit at any cost.

Question 9

Which fundamental principle of engineering economics emphasizes considering both tangible and intangible costs and benefits in decision-making?

Accepted Answer

Decisions should be based on a comprehensive analysis of both tangible and intangible costs and benefits.

Answer

Only costs and benefits that can be easily quantified should be included in economic analyses.

Answer

The time value of money should not be considered in economic analyses.

Answer

Risk and uncertainty should be ignored in economic analyses.

Question 10

What is a core principle of engineering economics?

Accepted Answer

Prioritizing economic efficiency

Answer

Considering stakeholder distribution of project benefits

Answer

Integrating environmental sustainability into economic analysis

Question 11

What is the main advantage of using a risk-adjusted discount rate in capital budgeting?

Accepted Answer

It accounts for project uncertainty

Answer

It simplifies the analysis process

Answer

It guarantees a positive return

Answer

It eliminates the need for sensitivity analysis

Question 12

What is the key difference between a deterministic and a probabilistic economic analysis?

Accepted Answer

Certainty

Answer

Time frame

Answer

Accuracy

Answer

Complexity

Question 13

What is the primary goal of sensitivity analysis in engineering economics?

Accepted Answer

Assess the impact of input parameter changes

Answer

Identify critical project variables

Answer

Reduce project uncertainty

Answer

Validate the economic model

Question 14

What is the ethical responsibility of engineers in economic decision-making?

Accepted Answer

Consider the long-term social and environmental impacts

Answer

Maximize shareholder value

Answer

Follow industry best practices

Answer

Minimize project costs

Question 15

Which of the following is a limitation of benefit-cost analysis?

Accepted Answer

Difficulty in quantifying all benefits and costs

Answer

Disregard for the time value of money

Answer

Exclusivity to public sector projects

Answer

High level of expertise required for execution

Question 16

Which of the following measures the sensitivity of a decision to variations in input parameters?

Accepted Answer

Sensitivity analysis

Answer

Risk analysis

Answer

Uncertainty analysis

Answer

Monte Carlo simulation

Question 17

In engineering economics, define the term 'opportunity cost':

Accepted Answer

The value of the forfeited alternative when making a decision

Answer

The total cost of the selected option

Answer

The present worth of future cash flows

Answer

The payback period of the investment

Question 18

Define the distinction between a sunk cost and a prospective cost in engineering economics:

Accepted Answer

Sunk costs are irreversible past costs, while prospective costs are future costs.

Answer

Prospective costs are irreversible past costs, while sunk costs are future costs.

Answer

Sunk costs are one-time expenses, while prospective costs are recurring expenses.

Answer

Prospective costs are one-time expenses, while sunk costs are recurring expenses.

Question 19

What is the primary purpose of conducting economic analysis in engineering?

Accepted Answer

To assess project profitability and efficiency

Answer

To predict economic trends

Answer

To comply with legal requirements

Answer

To determine production capacity

Question 20

What is the primary objective of capital budgeting?

Accepted Answer

Allocating funds for long-term projects

Answer

Maximizing shareholder value

Answer

Minimizing risk

Answer

Forecasting future cash flows

Question 21

Which of the following is NOT a primary objective of economic decision-making for engineers?

Accepted Answer

Enhancing safety

Answer

Maximizing profits

Answer

Minimizing costs

Answer

Promoting social welfare

Question 22

What is the meaning of the term 'economic life' in the context of an engineering asset?

Accepted Answer

The period over which the asset is expected to remain in service

Answer

The period over which the asset can be used to generate revenue

Answer

The period over which the asset is depreciated for accounting purposes

Answer

The period over which the asset is covered by a warranty

Question 23

What is the primary advantage of using sensitivity analysis in engineering economic decision-making?

Accepted Answer

It allows for the evaluation of the impact of changing variables on the project's outcome.

Answer

It provides a complete guarantee against financial losses.

Answer

It eliminates the need for making assumptions or estimates.

Answer

It simplifies the decision-making process by eliminating uncertainty.

Question 24

What is the main purpose of risk analysis in economic decision-making?

Accepted Answer

To identify and quantify the potential risks associated with a particular investment or project.

Answer

To eliminate all risks associated with a particular investment or project.

Answer

To predict the exact outcome of a particular investment or project.

Answer

To provide a guarantee against financial losses.

Question 25

What is the primary difference between qualitative and quantitative factors in engineering economic decision-making?

Accepted Answer

Qualitative factors are subjective, while quantitative factors are objective.

Answer

Qualitative factors are quantifiable, while quantitative factors are not.

Answer

Qualitative factors are more important than quantitative factors in engineering economic decision-making.

Question 26

What is a potential disadvantage of using economic analysis in engineering decision-making?

Accepted Answer

Increased project complexity

Answer

Improved decision-making

Answer

Reduced project costs

Answer

Enhanced stakeholder satisfaction

Question 27

When making engineering economic decisions, which of the following should NOT be considered?

Accepted Answer

Personal bias

Answer

Technical feasibility

Answer

Economic feasibility

Answer

Social impact

Question 28

Distinguish between an investment cost and an operating cost.

Accepted Answer

Investment costs are one-time expenses, while operating costs are recurring expenses

Answer

Operating costs are one-time expenses, while investment costs are recurring expenses

Answer

Both investment and operating costs are one-time expenses

Answer

Both investment and operating costs are recurring expenses

Question 29

What is the fundamental difference between an annuity and a perpetuity?

Accepted Answer

An annuity has a finite number of payments, while a perpetuity has an infinite number of payments

Answer

A perpetuity has a finite number of payments, while an annuity has an infinite number of payments

Answer

Both annuities and perpetuities have a finite number of payments

Answer

Both annuities and perpetuities have an infinite number of payments

Question 30

In engineering economics, what is the primary goal when making decisions?

Accepted Answer

Maximize profit

Answer

Maximize revenue

Answer

Minimize expenses

Answer

Prioritize customer satisfaction

Question 31

Which of the following is a limitation of economic analysis in engineering decision-making?

Accepted Answer

It does not guarantee the selection of the best decision in all cases.

Answer

It helps identify and evaluate the costs and benefits of different options.

Answer

It helps make decisions that align with the organization's goals.

Answer

It helps identify and mitigate risks.

Question 32

Which of the following is not a fundamental principle of engineering economics?

Accepted Answer

Risk tolerance

Answer

Scarcity of resources

Answer

Opportunity cost

Question 33

In engineering economic decision-making, why is it crucial to identify and assess the economic implications of viable alternatives?

Accepted Answer

It provides a comprehensive understanding of the problem and potential solutions.

Answer

It eliminates the need to consider the time value of money.

Answer

It ensures the decision is based solely on quantitative data.

Answer

It guarantees the selection of the most profitable alternative.

Question 34

Which of the following methods is used to compare the economic viability of two or more alternatives over different periods, considering the time value of money?

Accepted Answer

Net present value

Answer

Payback period

Answer

Internal rate of return

Answer

Time-value of money

Question 35

Which of the following is a risk management technique that involves identifying and assessing potential risks and developing strategies to minimize their impact?

Accepted Answer

Risk assessment

Answer

Sensitivity analysis

Answer

Scenario planning

Answer

Contingency planning

Question 36

In the context of engineering economics, what are 'sunk costs'?

Accepted Answer

Costs that have been incurred and cannot be recovered in the future

Answer

Costs that have been fully depreciated

Answer

Costs that are expected to occur in the future

Answer

Costs that are avoidable

Question 37

Which of the following methods is used to determine the minimum acceptable rate of return for engineering projects, considering the firm's capital structure and risk?

Accepted Answer

Weighted average cost of capital

Answer

Return on assets

Answer

Return on equity

Answer

Risk-free rate

Question 38

A project has an initial investment of £50,000 and is expected to generate annual cash flows of £15,000 for 10 years. If the company's cost of capital is 7%, what is the project's net present value?

Accepted Answer

£32,700

Answer

£22,700

Answer

£42,700

Answer

£52,700

Question 39

What is a potential disadvantage of using capital budgeting methods?

Accepted Answer

Increased project complexity

Answer

Enhanced decision-making

Answer

Lowered risk

Question 40

Which of the following is NOT a crucial element in economic decision-making for engineers?

Accepted Answer

Disregarding the potential impact on stakeholders

Answer

Identifying relevant economic factors

Answer

Evaluating associated costs and benefits

Answer

Considering environmental implications

Question 41

In the context of engineering economics, what is the significance of the time value of money?

Accepted Answer

The value of money fluctuates over time due to inflation, which necessitates its consideration in economic evaluations.

Answer

The value of money remains constant irrespective of the time of its receipt.

Answer

The value of money changes only when technological advancements occur.

Answer

The time value of money has no relevance in engineering economics.

Question 42

What is the purpose of conducting sensitivity analysis in economic decision-making?

Accepted Answer

To examine the impact of changes in input variables on the economic outcome of a project.

Answer

To identify the optimal solution to an economic problem with certainty.

Answer

To predict the future economic performance of a project accurately.

Answer

To eliminate uncertainty from an economic analysis entirely.

Question 43

Can you differentiate between sunk costs and opportunity costs?

Accepted Answer

Sunk costs represent expenses already incurred, while opportunity costs represent the benefits forfeited due to a particular decision.

Answer

Sunk costs are fixed and unchangeable, whereas opportunity costs are subject to change based on decisions.

Answer

Sunk costs are included in economic analysis, unlike opportunity costs.

Answer

Sunk costs and opportunity costs are essentially the same concept.

Question 44

In economic decision-making, what is the role of risk analysis?

Accepted Answer

To identify and evaluate potential risks that may impact a project's economic outcome.

Answer

To completely eliminate all risks associated with a project.

Answer

To precisely predict the future economic performance of a project.

Answer

Risk analysis is not applicable in economic decision-making.

Question 45

Which technique is most suitable for comparing multiple investment options that cannot coexist?

Accepted Answer

Net Present Value (NPV) analysis

Answer

Internal Rate of Return (IRR) analysis

Answer

Payback period analysis

Answer

Return on Investment (ROI) analysis

Question 46

What is the break-even point?

Accepted Answer

When total revenue equals total cost

Answer

When marginal revenue equals marginal cost

Answer

When profit is maximized

Answer

When loss is minimized

Question 47

What does the concept of sustainability entail in engineering decision-making?

Accepted Answer

Meeting present needs without jeopardizing future generations' ability to meet their own

Answer

Minimizing resource use to cut costs

Answer

Maximizing production to fulfill current demand

Answer

Ignoring environmental impacts

Question 48

What is the primary role of engineers in economic decision-making?

Accepted Answer

Offering technical expertise and evaluating economic implications

Answer

Making final investment choices

Answer

Conducting market research

Answer

Managing financial transactions

Question 49

In engineering economic analysis, which of the following best describes a sunk cost?

Accepted Answer

Cost already incurred that cannot be recovered

Answer

Cost of new equipment

Answer

Cost of salvage value

Answer

Cost of maintenance and repairs

Question 50

Which of the following methods is primarily used to compare cash flows occurring at different points in time?

Accepted Answer

Net present value (NPV)

Answer

Internal rate of return (IRR)

Answer

Equivalent annual cost (EAC)

Answer

Payback period

Question 51

In engineering economic analysis, the concept of 'least-cost alternative' refers to:

Accepted Answer

Choosing the option with the lowest life-cycle cost

Answer

Choosing the option with the lowest initial investment cost

Answer

Choosing the option with the shortest payback period

Answer

Choosing the option with the highest return on investment

Question 52

The Internal Rate of Return (IRR) is best defined as:

Accepted Answer

The discount rate that makes the NPV of a project equal to zero

Answer

The percentage return on investment

Answer

The payback period of a project

Answer

The equivalent annual cost of a project

Question 53

In a sensitivity analysis for engineering economic decisions, what is typically varied to assess its impact on project outcomes?

Accepted Answer

Input variables

Answer

Output variables

Answer

Assumptions

Answer

Constraints

Question 54

Identify a critical aspect of economic decision-making for engineers.

Accepted Answer

Evaluating economic factors

Answer

Relying solely on intuition

Answer

Disregarding financial repercussions

Answer

Prioritizing subjective preferences

Question 55

What is the primary purpose of a cost-benefit analysis?

Accepted Answer

Comparing costs and benefits of alternative engineering solutions

Answer

Determining the optimal outcome, regardless of cost

Answer

Justifying preconceived decisions

Answer

Avoiding decision-making altogether

Question 56

Which element is NOT relevant for consideration in an economic analysis?

Accepted Answer

Political factors

Answer

Initial investment cost

Answer

Operating expenses

Answer

Salvage value

Question 57

Optimal replacement time for an asset experiencing increasing annual operating costs and decreasing salvage value occurs when:

Accepted Answer

Annual operating cost minus annual salvage value equals annual capital cost

Answer

Annual operating cost equals annual capital cost

Answer

Annual salvage value equals annual operating cost

Answer

Replacement is never optimal

Question 58

Which measure quantifies risk quantitatively?

Accepted Answer

Standard deviation

Answer

Correlation coefficient

Answer

Risk tolerance

Answer

Probability of failure

Question 59

Which step is excluded from the engineering economic decision-making process?

Accepted Answer

Assessing feasibility

Answer

Defining the problem

Answer

Developing and evaluating alternatives

Answer

Making a decision

Question 60

In assessing the financial viability of an engineering project, which of the following is a key consideration?

Accepted Answer

Initial investment and ongoing operational costs

Answer

Social impact on the community

Answer

Environmental impact on the ecosystem

Question 61

In engineering economic decision-making, which of these is considered a qualitative factor?

Accepted Answer

Environmental impact

Answer

Initial investment cost

Answer

Project payback period

Answer

Net present value

Question 62

In an economic analysis for an engineering project, which factor is usually not a top priority?

Accepted Answer

The project's social impact

Answer

Initial investment cost

Answer

Expected operating and maintenance costs

Answer

Potential revenue streams

Question 63

What is a potential drawback of using life-cycle costing in engineering economic decision-making?

Accepted Answer

It can be challenging and time-consuming to put into practice.

Answer

It offers a complete analysis of costs related to an asset throughout its lifespan.

Answer

It aids in finding ways to save money and improve efficiency.

Answer

It allows for fair comparisons of different investment options.

Question 64

Which of the following is a disadvantage of using economic analysis in engineering decision-making?

Accepted Answer

Increased project risks

Answer

Improved project selection and prioritisation

Answer

Reduced project costs

Answer

Improved project efficiency and resource utilisation