Cash Flow and Life Cycle Cost Analysis Flashcards
Principle 1 of the fundamental principles of engineering economics states that:
A nearby dollar is worth more than a distant dollar.
Which of these is not included in the Life Cycle Cost?
a. Energy Costs
b. Down Time Costs
* c. Accounting Costs
d. Initial Costs
The benefit-cost analysis is commonly used to evaluate ________.
Public Projects
Represents time by a horizontal line marked off with the number of interest periods specified is what?
Cash Flow Diagram
What is commonly used to evaluate public projects?
Benefit-Cost Analysis
Step 1 of the Framework of Benefit-Cost Analysis states you must identify the (blank) and (blank) of the project. Which two words belong in this statement?
Users, sponsers
The benefit cosyt analysis is commonly used to evaluate
public projects
Which of the following is not a basic concept of engineering economy?
a. cash flow
b. interest rate and time value of money
c. equivalence technique
* d. LIFO
According to our notes, all of the following is true concerning difficulties involved in public project analysis
a. Identifying all the benefits and disbenefits of the project
b. Quantifying all benefits and disbenefits in dollars or some other unit of measure
d. Identifying all the users who can benefit from the project
Which dectermines how frequently interest is calculated?
Interest Period
What are the two fundamental costs associated wih the life-cycle cost analysis?
Non-recurring and Recurring Costs
How would you calculate the future value of $20,000 with 4% interest in 5 years.
20000*(1.04)^5
What is the second step in the Benefit-Cost Analysis?
Identifying all the benefits and disbenefits
How many stages are there in the Life Cycle of a product?
5
_____ is for evaluating past performance and _____ is for predicting future needs.
Accounting; Economics engineering
Quantifying all benefits and disbenefits in dollars or some other unit of measure is which step in the benefit-cost analysis?
3rd
How many phases are there in a life cycle?
5
What deals with the concepts and techniques of analysis useful in evaluating the worth of systems, products, and services in relation to their cost?
Engineering Economy
The definition of principle is
the intial amount of money in transactions involving debt or investments
Engineering Economy
Deals with the concepts and techniques of analysis useful in evaluating the worth of system, products, and services in relation to their costs.
Types of Decisions
Service Improvement Equipment and process selection Equipment Replacement New product and product expansion Cost Reduction
Principle 1:
A nearby dollar is worth more than a distant dollar.
Principle 2:
all it counts is the differences amoung alternatives.
Principle 3:
Marginal revenue must exceed marginal cost
Principle 4:
Additional risk is not taken without the expected additional return.
Categories of Cash Flows:
First Cost Operations and Maintenance Salvage Value Revenues Overhaul
Total Interest Earned:
I = (iP)N
Total amount at end of period:
F = P + I = P(1+iN)
Stages of Life Cycle Cost:
Concept refinement and technolody development. System development and demonstration. Production and development. Operating and support. Phasing out operation.
LCC Elements
Initial costs Installation cost Energy Cost Operation Costs Maintenance Cost Down Time Cost Environmental Cost Decommission/Disposal Cost
Benefit-cost Analysis
Benefits of a nonmonetary nature need to be quantified in dolalr terms as much as possible and factored into the analysis.
Framework of Benefit-cost Analysis
Identifying sponsors
Identifying all benefits
Quantifying benefits
Selecting interest rate
If the BC ratio exceeds ___, the project can be justified.
1
______ is interest earned on only the principal amount during each interest period.
Simple interest
Is it more beneficial financially if you can get 5% return on investment?
Receive a lump sum of $167 thousand at one time
Which of the following Benefit-Cost Ratios would justify a public project?
1.2
Which of the following best describes the last step (step 4) in the Framework of Benefit-Cost Analysis?
Selecting an appropriate interest rate at which to discount benefits and costs in future to a present value.
Which of the following is the correct definition of Present Value?
The amount that a future sum of money is worth today, given a specified rate of return
When dealing with categories of cash flows, what best describes “salvage value”?
Receipt at project termination for sale or transfer of the equipment.
Principle 3 of the Fundamental Principles of Engineering Economics states that:
marginal revenue must exceed marginal cost
