Engineering Economy Terms and Calculations

From the borrower's perspective, what financial term is most closely associated with the cost of borrowing money?

What does 'P' commonly represent in financial calculations?

If revenues for a project are $200,000 and disbursements are $150,000, what is the Net Cash Flow (NCF)?

What is the primary difference between a point estimate and a range estimate in cash flow estimation?

An investor earned $50 in interest on an investment of $1000 over one year. What is the rate of return on the investment?

What does the variable 'A' represent in the context of financial calculations?

What is the 'end-of-period assumption' in financial analysis?

Which of the following provides a better understanding of the variability of economic parameters when making financial decisions?

Which of the following best describes the primary reason engineering economy is crucial for engineers?

What is the MOST important concept in engineering economy?

In the context of engineering economy, what does 'economic equivalence' primarily address?

Which of the listed steps is NOT a part of the general decision-making process in engineering economy?

Which activity is NOT directly included in the scope of Engineering Economy?

An engineer is considering two mutually exclusive projects. Project A has a higher initial cost but promises greater long-term savings. Project B has a lower initial cost but offers less savings. Which of the following steps should the engineer take to make a sound economic decision?

When evaluating different engineering project alternatives, why is sensitivity analysis performed?

A company is deciding whether to invest in new equipment that reduces labor costs. Which of the following factors should be considered in an engineering economic analysis?

Which factor is most critical in establishing economic equivalence between two sums of money at different points in time?

Consider an investment where the future value is economically equivalent to the present value. As the interest rate increases, what happens to the present value required to maintain equivalence?

What distinguishes compound interest from simple interest?

Suppose you have two investment options: one with simple interest and one with compound interest, both at the same annual interest rate. Under what condition would the compound interest investment yield a higher return?

If $5,000 is invested for 5 years at a simple interest rate of 8% per year, what is the total interest earned at the end of the 5 years?

You borrow $10,000 at an annual interest rate of 6% compounded annually. What is the amount of interest accrued after 2 years?

What is the primary purpose of creating a cash flow diagram in economic analysis?

An investor is considering two projects. Project A returns $10,000 in simple interest over 5 years and Project B returns $9,000 in compound interest over the same period. Which project has the higher annual interest rate, assuming the same principal investment?

What is the primary purpose of the Minimum Attractive Rate of Return (MARR) in project evaluation?

Which of the following is NOT a key characteristic of the Minimum Attractive Rate of Return (MARR)?

A company is evaluating a project with a Weighted Average Cost of Capital (WACC) of 8% and a risk premium of 3%. What is the Minimum Attractive Rate of Return (MARR) for this project?

A project has an expected Rate of Return (ROR) of 10%, and the Minimum Attractive Rate of Return (MARR) has been set at 12%. Based on this information, what is the best course of action?

Which type of financing involves using funds from retained earnings or new stock issues?

What is the best definition of 'Opportunity Cost' in the context of investment decisions?

Which of the following actions primarily reflects the application of professional engineering ethics?

An engineer discovers a potential safety flaw in a completed project that, while unlikely to cause harm, does not meet current safety regulations. Applying universal morals, what is the MOST ETHICAL course of action?

A company is funded by 60% equity and 40% debt. The cost of equity is 12%, and the cost of debt is 6%. Calculate the Weighted Average Cost of Capital (WACC).

Which of the following conditions must be met for an economically justified project?

LaserKinetics.com borrows $20,000 with a repayment of $21,400 one year later. Calculate the interest rate paid on the loan.

Stereophonics, Inc., borrows $40,000 at a simple annual interest rate of 8%. If they repay $46,400 at the end of the year, how much MORE than the agreed interest did they pay?

Alpha Technologies invested $500,000 in a new project. After one year, they received a total of $545,000 (principal + interest). What is the rate of return on their investment?

An engineer is offered a substantial gift from a vendor in exchange for specifying the vendor's product in a project. Which aspect of ethics would MOST DIRECTLY address the acceptance of this gift?

A company invests $1,000,000 in a project. After one year, the project yields $1,150,000. Determine the rate of return on this investment.

If $5,000 is borrowed and $5,400 is repaid after one year, calculate the interest rate for the loan.

A company with $200,000 of available capital is evaluating four independent projects. Project W requires $210,000 and has ROR of 16%. Project X requires $180,000 and has a ROR of 14%. Project Y requires $190,000 and a ROR of 15%. Project Z requires $170,000 and a ROR of 13%. Assuming no MARR is set, what is the opportunity cost?

A firm has $500,000 to invest and is considering five projects. Which project's ROR should be used to substitute the firms' MARR, if no MARR is specified?

Which Excel function is used to calculate the number of periods required for an investment to reach a specific future value, given the interest rate, periodic payment, and present value?

An investment of $10,000 is expected to generate the following cash flows over the next three years: $3,000 in Year 1, $4,000 in Year 2, and $5,000 in Year 3. Using an interest rate of 6%, which Excel formula calculates the present value of this series of cash flows?

An engineer is evaluating a project with an initial investment of $25,000. The project is expected to generate uniform annual revenues of $8,000 for 5 years. Using an interest rate of 8%, which Excel function can be used to verify the economic viability, by determining the project's internal rate of return (IRR)?

Why is Engineering Economy Important?

Time Value of Money (TVM)

Engineering Economy Involves:

Steps for Decision Making:

Economics

Interest Rate

Cash Flows

Economic Equivalence

Interest Rate / Rate of Return

Principal

t

P

F

A

n

i

Engineering Economy Study

Universal Morals/Ethics

Personal Morals/Ethics

Professional/Engineering Ethics

Interest

Rate of Return

Total amount due after 1 year

Cash Flow Diagram

Simple Interest

Compound Interest

Simple Interest Formula

Compound Interest Formula

Time Value Adjustment

Minimum Attractive Rate of Return (MARR)

MARR Characteristics

Equity Financing

Debt Financing

Economically Justified Project

Opportunity Cost (in Investment)

Weighted Average Cost of Capital (WACC)

Minimum Attractive Rate of Return (MARR) formula

Opportunity Cost

Project Rejection (Capital)

PV Function in Excel

FV Function in Excel

PMT Function in Excel