isen exam 1
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Last updated 7:59 PM on 2/12/26
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93 Terms
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Engineering Economic Analysis
The process of comparing alternatives using economic criteria to support decision-making.
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Rational Decision-Making Process
A structured 9-step method used to make logical and economically sound decisions.
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Simple Problem
A decision problem that can be solved quickly and usually has one obvious solution.
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Intermediate Problem
A primarily economic decision requiring analysis and comparison of alternatives.
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Complex Problem
A decision involving economic, political, ethical, and social factors.
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Objective
A specific, measurable goal that a decision seeks to achieve.
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Feasible Alternatives
Realistic options available to solve a problem.
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Decision Criterion
The rule or standard used to choose between alternatives (e.g., lowest cost, highest return).
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Model
A simplified representation of a real-world situation used to analyze outcomes.
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Audit (Post-Audit)
Reviewing a decision after implementation to evaluate its performance.
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Fixed Cost
A cost that does not change with production level.
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Variable Cost
A cost that varies directly with production level.
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Marginal Cost
The cost of producing one additional unit.
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Average Cost
Total cost divided by number of units produced.
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Recurring Cost
A cost that occurs repeatedly over time.
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Nonrecurring Cost
A one-time cost.
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Incremental Cost
The difference in cost between two alternatives.
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Sunk Cost
A cost that has already occurred and should not affect current decisions.
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Opportunity Cost
The value of the next best alternative that is given up.
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Life-Cycle Cost
The total cost of owning and operating an asset over its entire life.
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Overhead
Indirect costs allocated across projects or products.
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Market Consequences
Impacts that can be assigned a clear monetary value.
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Extra-Market Consequences
Impacts not directly priced but assigned estimated values.
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Intangible Consequences
Effects that are difficult or impossible to quantify monetarily.
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Ethical Decision-Making
Making economic decisions while considering honesty, fairness, and societal impact.
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Time Value of Money
The principle that money today is worth more than the same amount in the future.
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Equivalence
The concept that different cash flows can have equal value at a given interest rate.
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Interest
The cost of borrowing money or the return on invested money.
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Principal
The original amount of money invested or borrowed.
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Compound Interest
Interest calculated on both principal and accumulated interest.
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Simple Interest
Interest calculated only on the principal.
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Nominal Interest Rate
The stated annual interest rate without accounting for compounding.
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Effective Interest Rate
The actual interest rate after accounting for compounding.
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End-of-Period Convention
The assumption that cash flows occur at the end of each period unless stated otherwise.
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Uniform Series
Equal cash flows occurring at regular intervals.
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Annuity
Another term for a uniform series of payments.
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Shifted Series
A cash flow series that does not begin at time period 1.
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Arithmetic Gradient
A cash flow series that increases or decreases by a constant amount each period.
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Geometric Gradient
A cash flow series that increases or decreases by a constant percentage each period.
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Capital Recovery
The process of recovering an initial investment over time.
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Sinking Fund
A fund where equal payments are made to accumulate a future amount.
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Incremental Analysis
Comparing only the differences between alternatives.
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Independent Alternatives
Alternatives that do not affect each other.
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Mutually Exclusive Alternatives
Alternatives where choosing one eliminates the others.
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Feasibility
The practicality of an alternative given constraints.
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Constraint
A limitation such as budget, time, or resources.
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Economic Efficiency
Achieving the desired outcome with the least cost or maximum benefit.
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Scarcity
Limited resources available relative to wants.
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Trade-Off
Giving up one benefit to gain another.
