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Questions and Answers
What is the term that defines a series of cash flows that covers a certain length of time?
What is the term that defines a series of cash flows that covers a certain length of time?
What is the concept that a dollar received today is worth more than a dollar received tomorrow?
What is the concept that a dollar received today is worth more than a dollar received tomorrow?
What is an example of a producer good?
What is an example of a producer good?
What is the quantity of goods and services that can be purchased with a unit of currency?
What is the quantity of goods and services that can be purchased with a unit of currency?
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What occurs when there are few suppliers and any action taken by one affects the others?
What occurs when there are few suppliers and any action taken by one affects the others?
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What is the product of the selling price per unit and the number of units sold?
What is the product of the selling price per unit and the number of units sold?
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What is an annuity?
What is an annuity?
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What is the term for a unique product or service available from a single supplier?
What is the term for a unique product or service available from a single supplier?
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What is the purpose of discounting in financial calculations?
What is the purpose of discounting in financial calculations?
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What is the end-of-period convention used for?
What is the end-of-period convention used for?
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What is the difference between a linear gradient series and a geometric gradient series?
What is the difference between a linear gradient series and a geometric gradient series?
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What is the term for an increase in the price level of goods and services in an economy over time?
What is the term for an increase in the price level of goods and services in an economy over time?
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What is the nominal value of a cash flow?
What is the nominal value of a cash flow?
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What is the purpose of an annuity?
What is the purpose of an annuity?
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What is a cash flow diagram used for?
What is a cash flow diagram used for?
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What is the total cost composed of?
What is the total cost composed of?
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What is the term for the cost of borrowing money?
What is the term for the cost of borrowing money?
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What is the difference between total revenue and total cost?
What is the difference between total revenue and total cost?
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What is the main role of engineering economics?
What is the main role of engineering economics?
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What type of cost is insurance on facilities?
What type of cost is insurance on facilities?
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What is the purpose of engineering economy?
What is the purpose of engineering economy?
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What is an example of a variable cost?
What is an example of a variable cost?
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What is the purpose of incremental cost?
What is the purpose of incremental cost?
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What is the difference between recurring costs and nonrecurring costs?
What is the difference between recurring costs and nonrecurring costs?
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What is the period of time extending from the date of acquisition to the date of abandonment, demotion in use, or replacement from the primary intended service?
What is the period of time extending from the date of acquisition to the date of abandonment, demotion in use, or replacement from the primary intended service?
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Which type of demand occurs when a decrease in selling price results in a greater than proportionate increase in sales?
Which type of demand occurs when a decrease in selling price results in a greater than proportionate increase in sales?
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What is the term for the period between the original acquisition and final disposal of an asset over the succession of owners?
What is the term for the period between the original acquisition and final disposal of an asset over the succession of owners?
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Which type of products or services are required to support human life and activities?
Which type of products or services are required to support human life and activities?
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What is the Law of Supply and Demand?
What is the Law of Supply and Demand?
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What is the term for the period between the date of acquisition and the date of disposal by a specific owner?
What is the term for the period between the date of acquisition and the date of disposal by a specific owner?
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What is the time period that an asset is kept in productive service?
What is the time period that an asset is kept in productive service?
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Which type of demand occurs when a decrease in selling price produces a less than proportionate increase in sales?
Which type of demand occurs when a decrease in selling price produces a less than proportionate increase in sales?
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What does an upward arrow typically represent in a cash flow diagram?
What does an upward arrow typically represent in a cash flow diagram?
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In a single-cash flow situation, what are the two amounts involved?
In a single-cash flow situation, what are the two amounts involved?
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What type of series involves cash flows that increase or decrease by a fixed percentage?
What type of series involves cash flows that increase or decrease by a fixed percentage?
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What is the term for the exact rate of interest for one year?
What is the term for the exact rate of interest for one year?
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What is the equation of value used for?
What is the equation of value used for?
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What is the difference between the present worth of a negotiable paper and its value sometime in the future?
What is the difference between the present worth of a negotiable paper and its value sometime in the future?
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What is the type of compounding where interest is compounded at the end of each finite-length period?
What is the type of compounding where interest is compounded at the end of each finite-length period?
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What type of series involves cash flows that change with no pattern?
What type of series involves cash flows that change with no pattern?
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Study Notes
Financial Terminology
- Period (N): Length of time a series of cash flows covers.
- Present Value (P): Nominal value of a cash flow at a set “present” date.
- Principal: Amount of money lent/borrowed.
- Purchasing Power: Measure of quantity of goods and services that can be purchased with a unit of currency.
- Time Value of Money (TVM): Concept of a dollar today being worth more than a dollar tomorrow.
Goods and Services
- Consumer Goods and Services: Directly used by people to satisfy wants (e.g., foods, clothing, homes, cars, haircuts, and medical services).
- Producer Goods and Services: Used to produce consumer goods and services (e.g., machine tools, factory buildings, buses, and farm machinery).
Market Concepts
- Demand: Quantity of a certain commodity that is bought at a certain price at a given place and time.
- Supply: Quantity of a certain commodity that is offered for sale at a certain price at a given place and time.
- Perfect Competition: Situation in which a product is supplied by a large number of vendors with no restriction on additional suppliers entering the market.
- Perfect Monopoly: Situation in which a unique product or service is available from a single supplier preventing the entry of all others into the market.
- Oligopoly: Situation in which there are few suppliers and any action taken by one affects the course of action of the others.
Cash Flow and Annuity
- Annuity (A): Equal payment made every period.
- Cash Flow Diagram: Diagram showing the timing and value of cash inflows and outflows.
- Discount Rate: Rate used to “move” cash flows to other time periods to account for the time value of money.
- Discounting: Process of “moving” cash flows to other time periods while retaining economic equivalence.
Engineering Economy
- Engineering: Profession applying mathematical and natural science knowledge to develop ways to utilize materials and forces of nature for the benefit of mankind.
- Engineering Economy: Discipline concerned with the economic aspect of engineering, involving the systematic evaluation of proposed solutions to engineering problems.
- Fixed Costs: Those unaffected by changes in activity level over a feasible range of operations (e.g., insurance, taxes, management salaries, license fees, and interest costs).
- Variable Costs: Those associated with an operation that vary in total with the quantity of output or other measures of activity level (e.g., material and labor costs).
Cost Concepts
- Incremental Cost: Additional cost (or revenue) resulting from increasing the output of a system by one or more units.
- Recurring Costs: Those that are repetitive and occur when an organization produces similar goods or services on a continuing basis.
- Nonrecurring Costs: Those that are not repetitive, even though the total expenditure may become cumulative over a relatively short period of time.
- Direct Costs: Costs that can be reasonably measured and allocated to a specific output or work activity.
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Description
Test your knowledge of key finance terms, including present value, principal, and time value of money.
