Engineering Economy Quiz

Engineering economy analyzes and evaluates economic factors that impact engineering projects, aiming to recommend the best use of capital for success.

Simple interest is calculated solely on the principal amount, common for short-term loans.

Interest is calculated based on the principal amount and the number of interest periods.

Ordinary simple interest uses a 360-day year, with 12 months of 30 days each.

Exact simple interest uses the actual number of days in a year, accounting for leap years.

Discount is the interest deducted from the principal upfront, resulting in a smaller present value.

The rate of discount is the percentage of interest deducted from one unit of principal for one unit of time.

Discount is the difference between the future worth and the present worth.

The interest earned on the principal and previously accumulated interest. It's like interest on top of interest.

A visual representation of cash flows over time. Arrows indicate the direction of money (in or out).

The future amount of money to be received or paid out.

The present worth or principal amount of money.

The cost of borrowing money or the return earned on a principal per unit time.

The basic annual rate of interest. It includes both the interest rate and the number of compounding periods per year.

The exact interest rate earned on a principal over a one-year period. Considers the compounding effect.

Interest calculated continuously throughout the year rather than at discrete periods.

The present worth of perpetual operation and maintenance costs for an asset.

The present worth of an infinite series of replacements, assuming no operation or maintenance costs.

A sequence of cash flows that increase or decrease by a constant amount in each period.

A long-term debt security issued to raise funds for a project or business.

The process of using a sinking fund, issuing new bonds, or other methods to ensure funds are available to retire bonds at maturity.

A series of equal payments made at regular intervals over time.

An annuity where payments are made at the end of each period, starting with the first period.

An annuity where the first payment is made several periods after the beginning of the annuity.

An annuity where payments continue indefinitely.

The sum of the first cost and the present worth of all future costs (replacement, operation, and maintenance) for a long period or forever.

The process of setting the sum of values of one set of obligations equal to the sum of values of another set of obligations at a specific date.

The future worth (F) of an annuity can be calculated using the formula: F = A{[(1+i) ⁿ - 1] / i}, where A is the periodic payment, i is the interest rate, and n is the number of periods.

The present worth (P) of an ordinary annuity can be calculated using the formula: P = A{[1 - (1+i)^-n] / i}, where A is the periodic payment, i is the interest rate, and n is the number of periods.

A depreciation method where the asset's value decreases by a constant percentage each year. The decline rate (k) is less than 1 and the salvage value must be non-zero.

A depreciation method similar to Declining Balance, but the decline rate is doubled (2/L, where L is the asset's life). The asset's value quickly decreases in the early years.

A depreciation method where the depreciation cost is calculated based on the asset's total units of output and the units produced in each year. The depreciation is proportional to the output.

A depreciation method where the depreciation charge is a fixed percentage of the gross income generated by the asset.

A depletion method where the depletion cost is calculated based on the initial cost of the resource and the amount of resource extracted (units sold) during the year.

The reduction in the value of a natural resource such as mines, oil, or quarries due to the extraction of its contents during production.

A financial method used to evaluate investments by calculating the rate of return on an investment. This rate is compared to a required rate of return to determine profitability.

A common depreciation method that allocates depreciation expense based on a fraction (a declining year's digit divided by the sum of all year's digits). This method depreciates the asset at a decreasing rate over its life.

A method used to evaluate an investment's profitability based on the annual cash flows it generates, including interest on the initial investment. If the annual cash inflows exceed the annual cash outflows, the investment is considered justified.

The length of time required to recover the initial investment cost from the net cash flows generated by a project. It is calculated by dividing the initial investment cost by the net annual cash flow.

A method for comparing multiple investment alternatives by calculating the rate of return on the additional investment required for one alternative over another. The alternative with a higher rate of return on the additional investment is preferred.

A method for comparing investment alternatives by calculating the annual cost of each alternative, including interest on capital. The alternative with the lowest annual cost is the most economical.

A method for comparing investment alternatives by converting all cash flows to an equivalent uniform annual cost (EUAC). The alternative with the lowest EUAC is preferred. This method is versatile and can be used for diverse selection problems.

A method for comparing investment alternatives by calculating the present worth of net cash outflows for each alternative over the same period. The alternative with the lowest present worth is preferred.

A comparison tool used when the cost of two or more alternatives is influenced by a common variable. It helps determine the value of that variable where the costs of the alternatives become equal.

The specific value of the variable in break-even analysis where the costs of the alternatives are equal. It represents the point where one alternative becomes more cost-effective than the other.