Question 1

Which of the following best describes the main purpose of Future Worth (FW) Analysis in engineering economic decisions?

Accepted Answer

To compare alternatives based on their value at a specific future point in time, emphasizing the final outcome.

Question 2

A company is considering two machines. Machine A costs $$10,000 with no salvage value, and Machine B costs 15$$,000 with a $$9,000 salvage value after 5 years. Both generate annual savings of 4$$,000. What is the payback period for Machine B?

Accepted Answer

$$3.75$$ years

Question 3

Given the following cash flows for a project: Initial investment = $$20,000; Year 1 savings = 8$$,000; Year 2 savings = $$6,000; Year 3 savings = 4$$,000; Year 4 savings = $3,000. What is the payback period?

Accepted Answer

$$3.5$$ years

Question 4

Which of the following is a major limitation of the payback period method?

Accepted Answer

It ignores all cash flows after the payback period.

Question 5

A 30-year-old stops spending $$35 per week on lottery tickets and instead deposits this amount into a savings account paying 5% interest compounded semiannually until age 65. What is the future worth at age 65? (Use F = 910(F/A$$,2.5\%,90)$)

Accepted Answer

$$299,572$$

Question 6

In Benefit-Cost Ratio (B/C) analysis, which of the following equations correctly represents the B/C ratio when disbenefits are present?

Accepted Answer

$$B/C = \dfrac{PW(Benefits) - PW(Disbenefits)}{PW(Costs)}$$

Question 7

A road project has the following present worths: Benefits = $$3.8M, Disbenefits = 0.9M$$, Costs = $2M. What is the B/C ratio?

Accepted Answer

$$1.4$$

Question 8

Which of the following scenarios is most appropriate for using the payback period as a decision criterion?

Accepted Answer

A start-up company with very limited capital resources.

Question 9

If a project's B/C ratio is less than 1, what does this indicate?

Accepted Answer

The project's present worth of benefits is less than its present worth of costs.

Question 10

Which of the following is NOT a valid reason to use the payback period method?

Accepted Answer

To evaluate long-term profitability and time value of money.

Question 11

A project has the following present worths: Benefits = $$7,330, Costs = 4$$,000. What is the B/C ratio?

Accepted Answer

$$1.83$$

Question 12

Which of the following statements about Future Worth (FW) analysis is correct?

Accepted Answer

FW analysis emphasizes the final outcome and is easily converted to/from Present Worth (PW) and Equivalent Annual Worth (EAW).

Question 13

In incremental B/C analysis, when comparing two alternatives, which alternative should be chosen?

Accepted Answer

The alternative with the highest incremental B/C ratio greater than 1.

Question 14

A project requires an initial investment of $$5,000 and generates annual savings of 1$$,000. What is the payback period?

Accepted Answer

$$5$$ years

Question 15

Which of the following best describes a 'disbenefit' in Benefit-Cost Ratio analysis?

Accepted Answer

A negative outcome for the public, such as traffic delays during construction.

Question 16

If a project has a B/C ratio of exactly 1, what does this mean?

Accepted Answer

The present worth of benefits equals the present worth of costs.

Question 17

A company is considering two alternatives: Alternative A costs $$2,000 and provides benefits of 4$$,700; Alternative B costs $$4,000 and provides benefits of 7$$,330. What is the incremental B/C ratio for moving from A to B?

Accepted Answer

$$1.32$$

Question 18

Which of the following is a real-world example of a benefit-cost analysis application?

Accepted Answer

Evaluating the construction of a new highway by comparing public benefits and government costs.

Question 19

Which formula would you use to calculate the future worth of a uniform series of payments?

Accepted Answer

$$F = A(F/A,i,n)$$

Question 20

Which of the following is NOT a step in conducting a benefit-cost ratio analysis for multiple alternatives?

Accepted Answer

Select the alternative with the lowest B/C ratio.

Other Analysis Techniques in Engineering Economic Analysis: Future Worth, Benefit-Cost Ratio, and Payback Period

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