Deck 1: Engineering Decision Making

Question 1

If you are asked to choose between $100 today and $150 one year from now, you are being asked to

A)make a guess.
B)reveal your implied interest rate.
C)compare two values which are not comparable in principle.
D)reveal your private financial information.
E)make a choice under uncertainty.

Answer 1

B

Question 2

To resolve uncertainty, engineers apply

A)marginal analysis.
B)cash-flow analysis.
C)sensitivity analysis.
D)risk analysis.
E)economic impact analysis.

Answer 2

C

Question 3

In the context of your textbook, abstraction means

A)a study.
B)a method.
C)a methodology.
D)a model.
E)an approach.

Answer 3

D

Question 4

You decide to buy a car. The following are some questions you have to answer with respect to your purchase. Which question is directly associated with engineering economics?

A)what colour?
B)what size?
C)CD player or tape player?
D)to lease or to own?
E)Ford or Toyota?

Question 5

Joan borrowed $1 000 one year ago. Now she has to repay $1 100. Therefore, the interest rate she pays is

A)$1 000.
B)$1 100.
C)$100.
D)110%.
E)10%.

Question 6

Engineering economics is

A)a body of knowledge to determine which of several alternative is technically best.
B)a collection of techniques for quantitative analysis to select a preferable alternative from several technically viable ones.
C)a set of tools to calculate an engineering project's costs.
D)a set of rules to evaluate an engineering project.
E)a set of methods to determine an engineering project's costs in terms of time value of money.

Question 7

When an engineer prepares a feasibility study, what economic information must she possess in order to do it correctly?

A)engineering specification
B)expert opinion about this project
C)macroeconomic situation in the world
D)potential future costs and benefits of the project
E)the level of uncertainty

Question 8

In which of the following problems do you need engineering economics?

A)to choose a course in your program
B)to chose the right textbook
C)to decide whether to borrow money from parents or from a bank
D)to decide whether or not to buy a car
E)to decide where to spend summer vacation

Question 9

An owner of a small company is deciding to sell her business. She received several options specified bellow. Which one should the company's owner accept?

A)$600 000 in cash
B)$500 000 in government bonds earning a 5% rate of return over 10 years
C)$400 000 in securities earning an 8% rate of return over 8 years
D)15% of the future profits earned by the next owner during first 10 years
E)It is impossible to compare these offers due to uncertainty about basic economic variables over time.

Question 10

All but one of the following are economic criteria to evaluate an engineering project. Which one is the non-economic criterion?

A)maximum profit
B)minimum cost
C)minimum pollution
D)maximum rate of return
E)minimum payback period

Question 11

Susan is evaluating an engineering project. She assumes zero inflation for the duration of the project. With respect to this situation, which statement is consistent with the subject matter of engineering economics?

A)A zero inflation assumption is always a good one.
B)A zero inflation assumption is not realistic but it is better than assuming some uncertain inflation rate.
C)A zero assumption is not a bad one for the base case, but then the project should be evaluated under different values in some range to see how inflation affects the project.
D)Since in Canada inflation is low, it is possible to neglect it.
E)The highest historical inflation rate must be chosen instead.

Question 12

Which of the following statements best describes the moral issues faced by engineers while evaluating projects?

A)moral issues are clearly defined in engineering design
B)moral issues do not matter as long as technical goals are achieved
C)your employer is the only person who can define what is ethical or unethical
D)there are no general answers to moral questions
E)since moral issues are value judgements they must not be taken into consideration

Question 13

Stan borrowed $5 000 one year ago. Now he has to repay $5 100. The interest Stan pays is

A)$5 100.
B)102%.
C)$100.
D)2%.
E)$5 000.

Question 14

The best way to find some answers to difficult moral questions in engineering design and project evaluation is

A)to ask your friends.
B)to consult professional engineering associations.
C)to search the web.
D)to read newspapers.
E)to read professional textbooks.

Question 15

From an economic standpoint, any engineering project can be thought of in terms of

A)its costs and benefits over time.
B)its constraints.
C)its receipts and disbursements.
D)its revenues and profits over time.
E)its investment and costs over time.

Question 16

Analyze the following statement: "There is 50% probability of raining." This statement concerns

A)extrapolation.
B)risk.
C)precise description.
D)abstraction.
E)expected scenario.

Question 17

Based on your intuition and experience, which of the following options has the highest value?

A)$100 government bond earning a 5% annual rate of return
B)$100 invested in a fund with a 10% annual rate of return
C)$200 government bond earning a 5% annual rate of return
D)$200 invested in a fund earning a 10% annual rate of return
E)$150 invested in a fund earning a 7% annual rate of return

Question 18

Which of the following items has negligible maintenance costs?

A)computer
B)building
C)ruler
D)shoes
E)fur hat

Question 19

Evaluation of an engineering project involves the following constraints

A)financial, environmental, social and political constraints.
B)technical and financial constraints.
C)technological and social constraints.
D)time and money constraints.
E)budget and time constraints.

Question 20

Suppose that you are asked to evaluate a project of building a new bridge. Which of the following factors is the least important in terms of engineering economics?

A)service life of the bridge
B)value added by the bridge
C)cost structure
D)vehicle stock in your city
E)current interest rate

Question 21

As a University student, when you look for a new apartment, what economic criteria consistent with the subject matter of engineering economics do you apply?

Question 22

Maintenance costs are an important component of the total costs of many engineering projects. Normally in engineering projects these costs are added to the purchase price of a piece of engineering equipment. For the following items, describe how important the maintenance costs are compared to the item's price:
(i)A tractor
(ii)A desk
(iii)A computer
(iv)An oil pump

Question 23

Briefly describe the structure of a decision-making process as discussed in your textbook.

Question 24

You were notified by an economics expert that the total costs of a project you are about to start are approximately $50 000. In order to justify this project, what additional economic information do you need?

Question 25

List at least three non-economic factors (attributes)that may be used as evaluation criteria in the decision-making process.

Question 26

With sensitivity analysis, usually only one parameter is varied at a time

A)because the appropriate tools are not available to vary parameters simultaneously.
B)because this best emulates "real world" scenarios.
C)so as to simplify the procedure.
D)so that the effect of each can be observed independently of all other parameters.
E)so that the effect can be effectively monitored.

Question 27

Suppose that you are about to start a new business: You will provide consulting services for those who want to launch their own web-sites. What major decisions based on the subject matter of engineering economics should be made before you set up your business activities?

Question 28

When evaluating an engineering project, what types of constraints does a decision maker face?

Question 29

How should engineers address moral questions associated with economic evaluation of engineering projects?

Question 30

What is the subject matter of Engineering Economics?

Question 31

Every year Stan takes a Canada student loan of $5 000 to pay his tuition fees at the University. The loan is interest-free for as long as Stan is a full-time student. After graduation, he will have to start re-paying the loan within 6 months including interest. Is this a good decision? Why?

Question 32

Explain the role of a mathematical model in engineering economics.

Question 33

When we say "let us assume that economic agents are rational," in fact we

A)precisely describe behaviour of economic agents.
B)want economic agents to behave that way.
C)make an assumption to predict the agents' behaviour.
D)impose restrictions on our model.
E)introduce uncertainty into our modelling process.

Question 34

What is the best way to describe a mathematical model?

A)It is an exact copy of the real world.
B)It is a simplification to describe the real world in a reasonable way.
C)It is a set of mathematical relationships with assumptions based on natural laws.
D)It is a relationship that includes all aspects of a modelling situation.
E)It describes all complex processes that occur in the real world.

Question 35

In engineering economics, sensitivity analysis

A)addresses risk in engineering projects.
B)addresses inflation in a country.
C)involves random variables with their probabilities.
D)assesses the effect of uncertainty on a decision.
E)involves cash flows that are known with certainty.

Question 36

If you decide to buy a home, list basic economic and non-economic factors you have to take into account and rank them

Question 37

Engineering economics is important because

A)it is a natural science.
B)it provides answers to all financial questions.
C)it facilitates the establishment of verifiable facts about decisions.
D)it uses mathematical models to address engineering issues.
E)it is based on objective laws.

Question 38

Suppose that in order to finance your studies at the University, three options are available to you: (i)a student loan, (ii)a student line of credit, and (iii)a part-time job at minimum wage. In making your decision, what factors should be taken into account and why?

Question 39

Suppose that a local government decides to build a bridge. In order to justify this project, economists want to ask people directly about their willingness to pay for the bridge. Using the discussion in your textbook, list at least three problems with this economic measure.

Question 40

Most of the economic values we use in our evaluation of engineering projects are

A)precise and very descriptive.
B)approximate.
C)based on robust statistical estimation.
D)derived from natural experiments.
E)results of precise statistical surveys.

Question 41

Suppose that you want to buy a used car for $3 000, but you don't have enough cash. List some of the (legal)strategies that you might consider.

Question 42

Sensitivity Analysis has sometimes been referred to as "what if" analysis. Explain why.