Term
| Sunk costs should be included in an engineering economic analysis. |
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Definition
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Term
| The general Price-Demand relationship can be expressed as a linear function. |
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Definition
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Term
| ________ are costs that are difficult to attribute or allocate to a specific output or work activity. |
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Definition
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Term
Your company must decide what to do with an old pump it purchased 12 years ago. The pump hasn't been used for two years and is now in storage. You have collected the following data;
Purchase price 12 years ago = $7,000
Storage costs to date = $500
Current price for a new pump = $12,000
Amount offered for the pump two years ago = $1,250
Best estimate of what the pump would bring today = $1,000
What is the opportunity cost associated with this pump? |
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Definition
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Term
| Working capital refers to the funds required for current assets that are needed for the start-up and support of operational activities. |
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Definition
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Term
| A license fee is an example of an incremental cost. |
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Definition
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Term
| The arrow in the below figure is pointing to:[image] |
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Definition
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Term
| When alternatives for accomplishing a specific task are being compared over one year or less (time value of money is ignored) they can be referred to as: |
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Definition
| Present economy studies (Q1A2Q4) |
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Term
| Material costs are an example of costs that are typically included in an engineering economy study. |
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Definition
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Term
| An index is a dimensionless number that indicates how a cost or price has changed with time with respect to a base year. |
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Definition
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Term
| ______ are used in the preliminary or conceptual design stage of a project. |
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Definition
| Semi-detailed or budget estimates (Q2A1Q3) |
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Term
| Which technique sums the product of several quantities or components and adds these to any components estimated directly? |
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Definition
| Factor technique (Q2A1Q4) |
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Term
| CERs are excellent predictors of cost if they are correctly developed from good historical data. |
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Definition
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Term
| The WBS is sometimes called a work element structure. |
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Definition
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Term
| The _______ defines a maximum time period and establishes a range of cost and revenue elements that need to be considered in developing cash flows. |
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Definition
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Term
| __________ is the use of historical cost data and statistical techniques to predict future costs. |
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Definition
| Parametric cost estimating (Q2A2Q4) |
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Term
| The conventional approach for computing interest is the compound interest approach. |
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Definition
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Term
| A cash flow diagram summarizes the timing and magnitude of cash flows as they occur over time. |
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Definition
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Term
| Decisional equivalence is a consequence of the __________ on the part of a decision maker among available choices. |
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Definition
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Term
| The base unit of time over which an interest rate is calculated is called the _______. |
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Definition
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Term
| The future worth of an infinitely long uniform series of cash flows is called the capitalized value of the series. |
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Definition
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Term
| The timing of cash flows is always simple and regular. |
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Definition
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Term
| To find the annuity value, A, equivalent to a present amount, P, with a given interest rate, i, and the number of periods over which this annuity will be paid, N, one would use the __________ factor. |
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Definition
| Capital recovery (Q4A1Q3) |
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Term
| The __________ worth of an infinitely long uniform series of cash flows is called the capitalized value of the series. |
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Definition
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Term
| Discrete models are more common and more readily understood by persons of varied backgrounds. |
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Definition
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Term
| An assumption required by the principle of discrete compounding is that the compounding periods are of equal length. |
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Definition
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Term
| Models of cash flows which assume that all cash flows and all compounding of cash flows occur at the ends of conventionally defined periods are called __________. |
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Definition
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Term
| A set of equal disbursements or receipts over a sequence of periods, is referred to as a(n) _______. |
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Definition
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Term
| The present worth of any money invested in the MARR is zero. |
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Definition
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Term
| An independent project is acceptable if the present worth is less than zero. |
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Definition
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Term
| A company evaluating projects will set for itself a lower limit for investment acceptability known as the _______. |
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Definition
| Minimum acceptable rate of return (Q5A1Q3) |
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Term
| The cost of capital for large companies is an average of the costs of borrowing and of selling shares, which is referred to as the ___ average cost of capital. |
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Definition
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Term
| The IRR method cannot be used to determine which of a group of mutually exclusive alternatives to accept. |
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Definition
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Term
| If there are several independent projects, the IRR for each is calculated separately. |
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Definition
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Term
Which of the following are steps for computing the ERR that belong to a more convenient, but approximate procedure than finding a precise ERR?
Take all net receipts forward at the MARR to the times of the last cash flow.
Take all net disbursements forward at an unknown interest rate also to the time of the last cash flow.
Equate the future value of the receipts from the first step of the procedure to the future value of the disbursements for the second step of the procedure and solve for . |
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Definition
| All of the above (Q6A1Q3) |
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Term
| The meaning of multiple roots is seen most easily with the concept of __________. |
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Definition
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Term
| The payback period method will always give results consistent with rate of return or present/annual worth methods. |
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Definition
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Term
| A comparison of rate of return and present/annual worth methods leads to the conclusion that the two sets of methods when properly used give opposing decisions. |
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Definition
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Term
| The IRR is the interest rate at which a project _____. |
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Definition
| Just breaks even (Q6A2Q3) |
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Term
| You should invest in any project that has an IRR equal to or exceeding the ______. |
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Definition
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Term
| The after-tax IRR is simply the IRR calculation on the before-tax cash flows. |
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Definition
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Term
| The effective cost of purchasing an asset is less than its first cost. |
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Definition
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Term
| Personal income taxes usually exhibit a: |
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Definition
| Progressive tax rate (Q7A1Q3) |
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Term
What does ‘d’ stand for in the CSF equation?
CSF=1-td/(i+d) |
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Definition
| CCA rate (not depreciation) (Q7A1Q4) |
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Term
| If an investment yields a profit, the total investment price will be taxed. |
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Definition
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Term
| Savings (reducing expenses) increase the profits of a firm and therefore they are taxed. |
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Definition
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Term
| The CCA system specifies the ______ rate a firm can use to depreciate its assets for tax purposes, known as the CCA Rate. |
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Definition
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Term
| What would the after-tax MARR be on an investment with a before-tax MARR of 16% for a company who pays 30% corporate taxes? |
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Definition
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Term
| Capital cost is incurred by the difference between what is paid for the asset and what the asset could be resold for some time after purchase. |
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Definition
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Term
| In the replacement case where the defender and challenger are identical, it is not necessary to assume that the two options are technologically identical. |
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Definition
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Term
Which of the following is NOT one of the replacement cases discussed in this chapter?
The defender and challenger are identical and the challenger does not repeat.
The defender and challenger are identical and repeat indefinitely.
The challenger is different from the defender and the challenger does not repeat.
The challenger is different from the defender and the challenger repeats indefinitely. |
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Definition
| The defender and challenger are identical and the challenger does not repeat (Q8A1Q3) |
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Term
| The economic life of an asset is found at the point where the rate of increase in operating and maintenance costs per period _______ the rate of decrease in capital costs per period. |
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Definition
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Term
| Sunk costs are irrelevant to any decision to replace the current asset. |
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Definition
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Term
| The lifetime that will maximize the average cost per year of owning and using long lived assets is referred to as the economic life of the asset. |
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Definition
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Term
Purchase of a long-lived asset implies which of the following?
Capital cost
Maintenance cost
Operating cost
Installation cost |
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Definition
| All of the above (Q8A2Q3) |
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Term
| The costs discussed in the chapter on replacement decisions can be related to the more general ideas of _________ and ________ costs. |
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Definition
| Fixed and variable (Q8A2Q4) |
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