#1 (5pts, 1pt each) [circle all that apply, there may be more than one correct answer] The monthly payment of rent in the amount of $800 is a:
a) Fixed cost
b) Variable cost
c) Sunk cost
d) Recurring cost
e) Life-cycle cost
Engineering economic analysis is appropriate when:
a) The amount of money involved is significant
b) The situation is too complex for simple âback of envelopâ calculations
c) Social and environmental impacts are the most significant considerations
d) The problem is economic in nature
e) Quantifying political goals
After a new product or process is put in place the production cost per unit tends to _______as manufacturing methodology improves over time. This is known as the _______.
a) Increase, Ramp up effect
b) Decrease, Start-up effect
c) Decrease, Learning curve
d) Be flat, Opportunity cost
e) Vary widely, Chaos effect
Why is $100 today worth more than a rock solid guarantee to receive $100 in 10 years?
a) Inflation may erode the purchasing power of the $100
b) If you have the money you could put it to use
c) If you have the money you could invest it and collect interest
d) There is always some risk that the future payment may not happen
e) No telling what your circumstances might be in 10 years, i.e. you may not be around
Which of the following activities could be categorized as backward planning?
a) Figuring that you will need $1000 by June 1st to go on vacation and determining how many extra hours you need to work over the next few months.
b) Saving 10% of your salary.
c) Planning a drive that will hit the least amount of traffic, allow you to stop for dinner, and make it to a meeting in Austin by 7pm.
d) Renewing the lease on your apartment because a discount was offered.
e) Focusing on alternate activities while you are waiting for a supplier to provide a quote.
#2 (5 pts) Below is a plot of total cost and revenue versus the quantity made and sold. Fill in the correct answers.
What is the fixed cost? ____________
At what volume will the project break even? ___________
What is the profit (or loss) if 100 units are produced and sold? __________
What is the price charged per unit? ___________
What is the incremental total cost between producing 50 units and producing 100 units? _________
#3 (10 pts) A certain index for the cost of purchasing and installing utility boilers is keyed to 1988, where its baseline value was arbitrarily set at 100. Company XYZ installed a 50,000-lb/hour boiler for $525,000 in 2010 when the index had a value of 468. This same company must install a boiler of the same size in 2017. The index in 2017 is 542. What is the approximate cost of the new boiler?
#4 (10pts) Draw the cash flow diagram reflecting the following car ownership. Please draw neatly with the length of the arrows corresponding to the magnitude of the amounts (but not necessarily fully to scale). Label the amounts different from the standard monthly payments.You purchase the car at time zero for $2000 down plus 24 monthly payments of $200. In month 4 you have an unexpected repair bill of $250. In month 18 you have to purchase new tires for $400. At 30 months you are offered $700 for the car and happily sell it.
