Engineering Economics Quiz

What is depreciation in the context of engineering economics?

• The increase in the value of physical property over time

• The decrease in the value of physical property over time

• The increase in the demand for a property's function

• The decrease in the demand for a property's function

Which of the following is not a type of depreciation?

• Normal depreciation

• Depreciation due to changes in price levels

• Depletion

• Appreciation

What is the economic life of a property?

• The length of time during which it is capable of performing the function for which it was designed and manufactured

• The length of time during which it may be operated at a profit

• The length of time during which it is under warranty

• The length of time during which it is insured

Which depreciation method assumes that the loss in value is directly proportional to the age of the property?

• Straight line method

• Declining balance method

• Sum-of-the-years-digits method

• Double declining balance method

In the straight line method, what is the formula for calculating the annual depreciation cost?

• d = (Co - CL) / L

• d = (Co - CL) / (L + 1)

• d = (Co - CL) / (L - 1)

• d = (Co - CL) / (L * L)

Which depreciation method assumes that a sinking fund is established in which funds will accumulate for replacement?

• Straight line method

• Declining balance method

• Sum-of-the-years-digits method

• Sinking fund method

In the declining balance method, what is the ratio of the depreciation in any year to the book value at the beginning of that year?

• k, the rate of depreciation

• L, the useful life of the property

• Co, the original cost

• CL, the value at the end of the life

What is the double declining balance method?

• A method where the rate of depreciation k is replaced by 2/L

• A method where the rate of depreciation k is replaced by L/2

• A method where the rate of depreciation k is doubled

• A method where the rate of depreciation k is halved

Which of the following is not a requirement of a depreciation method?

• It should be simple

• It should recover capital

• The book value will be reasonably close to the market value at any time

• It should be accepted by the Bureau of Internal Revenue

• It should be applicable to all types of properties

What is the sum-of-the-years-digits method?

• A method where the total depreciation that has taken place is directly proportional to the quantity of output of the property up to that time

• A method where the total depreciation that has taken place is directly proportional to the age of the property

• A method where the total depreciation that has taken place is directly proportional to the remaining useful life of the property

• A method where the total depreciation that has taken place is directly proportional to the book value of the property