FUNDAMENTALS OF ENGINEERING
ECONOMICS FINAL PAPER SOLVED
QUESTIONS WITH COMPLETE ANSWERS
◉ 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.
◉ MACRS.
Answer: Modified Accelerated Cost Recovery System: tax
depreciation system using table percentages.
,◉ BV.
Answer: Book value: remaining undepreciated value of an asset.
◉ MV.
Answer: Market value: actual resale value of an asset.
◉ SV / S.
Answer: Salvage value: estimated value of an asset at the end of its
useful life.
◉ FC.
Answer: Fixed cost or first cost depending on context. In breakeven,
FC usually means fixed cost.
◉ VC / v.
Answer: Variable cost per unit in breakeven analysis.
◉ BE.
Answer: Breakeven point: the value where alternatives are
economically equal or profit equals zero.
◉ PB.
,Answer: Payback period: time needed to recover the initial
investment.
◉ WACC.
Answer: Weighted average cost of capital: weighted average rate
paid to obtain financing from debt and equity sources.
◉ Chapter 1 main idea.
Answer: Engineering economy compares alternatives using cash
flows, time, interest rate, and a measure of worth.
◉ Engineering economy definition.
Answer: Formulating, estimating, and evaluating expected economic
outcomes of alternatives designed to accomplish a defined purpose.
◉ Time value of money.
Answer: Money has different value at different times because money
can earn interest over time.
◉ Measure of worth.
Answer: A criterion used to evaluate alternatives, such as PW, FW,
AW, ROR, B/C, CC, or payback.
, ◉ Cash inflow sign.
Answer: Positive cash flow: revenue, savings, salvage value, loan
proceeds, or benefits.
◉ Cash outflow sign.
Answer: Negative cash flow: first cost, operating cost, maintenance,
taxes, loan payments, or expenses.
◉ Net cash flow formula.
Answer: NCF = cash inflows - cash outflows = R - D.
◉ End-of-period convention.
Answer: All cash flows are assumed to occur at the end of the period
in which they occur.
◉ Cash-flow diagram purpose.
Answer: Shows timing, amount, direction, known values, unknown
values, and interest rate.
◉ Perspective rule for cash flows.
Answer: Choose one viewpoint and keep all signs consistent from
that perspective.
ECONOMICS FINAL PAPER SOLVED
QUESTIONS WITH COMPLETE ANSWERS
◉ 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.
◉ MACRS.
Answer: Modified Accelerated Cost Recovery System: tax
depreciation system using table percentages.
,◉ BV.
Answer: Book value: remaining undepreciated value of an asset.
◉ MV.
Answer: Market value: actual resale value of an asset.
◉ SV / S.
Answer: Salvage value: estimated value of an asset at the end of its
useful life.
◉ FC.
Answer: Fixed cost or first cost depending on context. In breakeven,
FC usually means fixed cost.
◉ VC / v.
Answer: Variable cost per unit in breakeven analysis.
◉ BE.
Answer: Breakeven point: the value where alternatives are
economically equal or profit equals zero.
◉ PB.
,Answer: Payback period: time needed to recover the initial
investment.
◉ WACC.
Answer: Weighted average cost of capital: weighted average rate
paid to obtain financing from debt and equity sources.
◉ Chapter 1 main idea.
Answer: Engineering economy compares alternatives using cash
flows, time, interest rate, and a measure of worth.
◉ Engineering economy definition.
Answer: Formulating, estimating, and evaluating expected economic
outcomes of alternatives designed to accomplish a defined purpose.
◉ Time value of money.
Answer: Money has different value at different times because money
can earn interest over time.
◉ Measure of worth.
Answer: A criterion used to evaluate alternatives, such as PW, FW,
AW, ROR, B/C, CC, or payback.
, ◉ Cash inflow sign.
Answer: Positive cash flow: revenue, savings, salvage value, loan
proceeds, or benefits.
◉ Cash outflow sign.
Answer: Negative cash flow: first cost, operating cost, maintenance,
taxes, loan payments, or expenses.
◉ Net cash flow formula.
Answer: NCF = cash inflows - cash outflows = R - D.
◉ End-of-period convention.
Answer: All cash flows are assumed to occur at the end of the period
in which they occur.
◉ Cash-flow diagram purpose.
Answer: Shows timing, amount, direction, known values, unknown
values, and interest rate.
◉ Perspective rule for cash flows.
Answer: Choose one viewpoint and keep all signs consistent from
that perspective.
