FUNDAMENTALS OF ENGINEERING
ECONOMICS ACTUAL TEST PAPER
QUESTIONS AND SOLUTIONS GRADED A+
◉ F / FW / FV.
Answer: Future worth/value: equivalent value at a future time.
◉ A / AW / EUAW / EAC.
Answer: Annual worth/equivalent uniform annual worth/equivalent
annual cost: an equivalent uniform amount each period.
◉ i.
Answer: Interest rate per period. Must match the time period used
for n and cash flows.
◉ n.
Answer: Number of interest periods, such as years, months, or
quarters.
◉ CF.
Answer: Cash flow: money received or paid at a specific time.
,◉ NCF.
Answer: Net cash flow: cash inflows minus cash outflows. NCF = R -
D.
◉ R.
Answer: Receipts, revenues, benefits, savings, or other cash inflows.
◉ D.
Answer: Disbursements, costs, expenses, or other cash outflows. In
benefit-cost analysis D can also mean disbenefits depending on
context.
◉ MARR.
Answer: Minimum Attractive Rate of Return: the minimum
acceptable return used as the decision hurdle.
◉ ROR / IRR.
Answer: Rate of Return/Internal Rate of Return: the interest rate
that makes PW = 0 or AW = 0.
◉ ROI.
Answer: Return on investment. Similar concept to ROR.
,◉ DN.
Answer: Do nothing alternative: maintain the current status quo.
◉ AOC.
Answer: Annual operating cost: recurring yearly operating cost.
◉ M&O.
Answer: Maintenance and operating cost: common cost category,
especially in public-sector projects.
◉ CR.
Answer: Capital recovery: annual equivalent of the first cost after
accounting for salvage.
◉ CC.
Answer: Capitalized cost: present worth for an infinite-life or very
long-life project.
◉ B/C.
Answer: Benefit-cost ratio: public-sector decision measure
comparing benefits to costs.
◉ CER.
, Answer: Cost-effectiveness ratio: cost divided by effectiveness
measure. Used when benefits are not easily converted to dollars.
◉ E.
Answer: Effectiveness measure, such as lives saved, accidents
avoided, tons removed, or patients treated.
◉ PP.
Answer: Payment period: how often payments occur.
◉ CP.
Answer: Compounding period: how often interest compounds.
◉ SL.
Answer: Straight-line depreciation: equal depreciation each year.
◉ DB.
Answer: Declining-balance depreciation: depreciation is a fixed
percentage of book value each year.
◉ DDB.
Answer: Double-declining-balance depreciation: DB with rate d =
2/n.
ECONOMICS ACTUAL TEST PAPER
QUESTIONS AND SOLUTIONS GRADED A+
◉ F / FW / FV.
Answer: Future worth/value: equivalent value at a future time.
◉ A / AW / EUAW / EAC.
Answer: Annual worth/equivalent uniform annual worth/equivalent
annual cost: an equivalent uniform amount each period.
◉ i.
Answer: Interest rate per period. Must match the time period used
for n and cash flows.
◉ n.
Answer: Number of interest periods, such as years, months, or
quarters.
◉ CF.
Answer: Cash flow: money received or paid at a specific time.
,◉ NCF.
Answer: Net cash flow: cash inflows minus cash outflows. NCF = R -
D.
◉ R.
Answer: Receipts, revenues, benefits, savings, or other cash inflows.
◉ D.
Answer: Disbursements, costs, expenses, or other cash outflows. In
benefit-cost analysis D can also mean disbenefits depending on
context.
◉ MARR.
Answer: Minimum Attractive Rate of Return: the minimum
acceptable return used as the decision hurdle.
◉ ROR / IRR.
Answer: Rate of Return/Internal Rate of Return: the interest rate
that makes PW = 0 or AW = 0.
◉ ROI.
Answer: Return on investment. Similar concept to ROR.
,◉ DN.
Answer: Do nothing alternative: maintain the current status quo.
◉ AOC.
Answer: Annual operating cost: recurring yearly operating cost.
◉ M&O.
Answer: Maintenance and operating cost: common cost category,
especially in public-sector projects.
◉ CR.
Answer: Capital recovery: annual equivalent of the first cost after
accounting for salvage.
◉ CC.
Answer: Capitalized cost: present worth for an infinite-life or very
long-life project.
◉ B/C.
Answer: Benefit-cost ratio: public-sector decision measure
comparing benefits to costs.
◉ CER.
, Answer: Cost-effectiveness ratio: cost divided by effectiveness
measure. Used when benefits are not easily converted to dollars.
◉ E.
Answer: Effectiveness measure, such as lives saved, accidents
avoided, tons removed, or patients treated.
◉ PP.
Answer: Payment period: how often payments occur.
◉ CP.
Answer: Compounding period: how often interest compounds.
◉ SL.
Answer: Straight-line depreciation: equal depreciation each year.
◉ DB.
Answer: Declining-balance depreciation: depreciation is a fixed
percentage of book value each year.
◉ DDB.
Answer: Double-declining-balance depreciation: DB with rate d =
2/n.
