ERM exam 2 questions & answers 2024/2025
A project is worth doing if the present worth is
a. less than zero
b. equal to zero
c. greater than zero - ANSWERSc. greater than zero
Which of the following has the lowest current cost?
a. build for all anticipated future needs
b. build only fo...
c. greater than zero - ANSWERSc. greater than zero
Which of the following has the lowest current cost?
a. build for all anticipated future needs
b. build only for current needs
c. build so you can expand later - ANSWERSb. build only for current needs
Maintenance costs for a dam are $500,000 annually, with an interest rate of 5%, what is the present
worth of these maintenance costs - ANSWERSN=infinity
PW= 500K/i = 10M
What is the advantage of a staged construction project?
a. flexibility of design for later expansion
b. flexibility of timing for later expansion
c. Lowest overall cost
d. No disruption of use during later expansion - ANSWERSb. flexibility of timing for later expansion
The rollback procedure for calculating present worth is used when
a. there is a gradient cash flow series
b. the interest rate is unknown
c. the cash flow series is not uniform
d. not all the values in the cash flow series are known - ANSWERSc. the cash flow series is not uniform
, Capitalized cost is
a. present worth of annual costs that occur forever
b. present worth of capital
c. annual cost of maintaining equipment worth of capital at the time it occurs - ANSWERSa. present
worth of annual costs that occur forever
Salvage value is the
a. disposal cost of equipment
b. present worth of disposal cost of equipment
c. Value of equipment at the end of its life
d. value of equipment at the end of its life minus disposal costs - ANSWERSd. value of equipment at the
end of its life minus disposal costs
What is the benefit of assessing projects in terms of present worth? - ANSWERSintuitive understanding
of today's money value
When is it appropriate to apply present worth? - ANSWERSa. When setting a price to buy or sell a project
or alternative
b. When evaluating an investment/project where price to invest or first cost is given
c. When calculating an equivalent value for an irregular series of cash flows
Give an example of a project with a negative salvage value - ANSWERSenvironmental cleanup of a
nuclear energy site
T/F: Present worth = present value = net present value - ANSWERSTrue
Assuming perpetually life means assuming:
a. you're immortal
b. N=infinity
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