QUESTION ANSWER 1 D

2 C 3 B 4 C 5 C 6 A 7 D 8 D 9 C 10 C 11 B 12 B 13 A 14 C 15 D 16 D 17 D 18 A 19 D 20 B 21 C 22 B 23 C 24 B 25 D 26 D

Engineering Economics Total Questions 3-5

A. Time value of money

B. Cost, including incremental, average, sunk, and estimating C. Economic analyses

PART-I

QUESTION 1

A small company borrowed $10,000 to expand its business. The entire principal of $10,000 will be repaid in two years, but quarterly interest of $330 must be paid every three months. The nominal interest (%) the company is paying is nearly:

A. 3.3 B. 5.0 C. 6.6 D. 13.2

QUESTION 2

A deposit of $300 was made one year ago into an account paying monthly interest. If the account now has $320.52, the effective annual interest rate (%) is close to:

A. 7 B. 10 C. 12 D. 15

QUESTION 4.

A store’s policy is to charge 3% interest every two months on the unpaid balance in charge accounts. The effective interest rate (%) is close to:

A. 6 B. 12 C. 15 D. 19

QUESTION 5.

The effective interest rate on a loan is 19.56%. If there are 12 compounding periods per year, the nominal interest rate (%) is close to:

A. 1.5 B. 4.5 C. 9.0 D. 18.0

QUESTION 6.

If 10% nominal annual interest is compounded daily, the effective annual interest rate (%) is nearest to:

A. 10.05 B. 10.38 C. 10.50 D. 10.75

QUESTION 7.

An individual wishes to deposit a certain quantity of money now so that he will have $500 at the end of five years. With interest at 4% per year, compounded semiannually, the amount ($) of the deposit is close to:

A. 340 B. 400 C. 410 D. 416

QUESTION 8.

A retirement fund earns 8% interest compounded quarterly. If $400 is deposited every three months for 25 years, the amount ($) in the fund at the end of 25 years is nearest to:

A. 50,000 B. 75,000 C. 100,000 D. 125,000

QUESTION 10.

An engineer bought a machine with one year’s free maintenance. In the second year the maintenance cost is estimated to be $20. In subsequent years the maintenance costs will increase $20 per year. The amount ($) that must be set aside now at 6% interest to pay the maintenance costs on the machine for the first six years is close to:

A. 101 B. 164 C. 229 D. 284

QUESTION 11.

One thousand dollars is borrowed for one year at an interest of 1% per month. If this same sum of money were borrowed for the same period at an interest rate of 12% per year, the saving ($) in interest charges would be close to:

A. 0 B. 3 C. 5 D. 7

QUESTION 12.

An investor is considering buying a 20-year corporate bond with a face value of $1000 paying 6% interest per year in two semi-annual payments. The purchaser will receive $30 every six months and in addition he will receive $1000 at the end of 20 years along with the last $30 interest payment. If the investor thinks that he should receive 8% interest rate compounded semiannually, the amount ($) he is willing to pay is nearly:

A. 500 B. 600 C. 700 D. 800

QUESTION 13.

Annual maintenance costs for a particular section of highway pavement are $2000. The placement of a new surface would reduce the annual maintenance costs to$500 per year for the first five years and to $1000 per year for the next five years. The annual maintenance after 10 years would again be $2000. If the maintenance costs are the only saving, the maximum investment ($) that can be justified for the new surface, with an interest of 4% is close to:

A. 5500 B. 7170 C. 10,000 D. 10,340 QUESTION 14.

A project has an initial cost of $10,000, uniform annual benefits of $2400 and a salvage value of $3000 at the end of its 10-year useful life. At 12% interest rate, the net present worth ($) of the project is close to:

A. 2500 B. 3500 C. 4500 D. 5500

NPW = A (P/A, i, n) + S (P/F, i,n) - Cost

QUESTION 15.

QUESTION 16.

A machine costing $2000 to buy and $300 per year to operate will save labor expenses of $650 per year for eight years. The machine will be purchased if its salvage value at the end of eight years is sufficiently large to make the investment economically attractive. If an interest rate of 10% is used, the minimum salvage ($) value must be close to:

A. 100 B. 200 C. 300 D. 400 QUESTION 17.

The amount of money deposited 50 years ago at 8% interest that would now provide a perpetual payment ($) of $10,000 per year is close to:

A. 3,000 B. 8,000 C. 50,000 D. 125,000

QUESTION 18.

With an interest rate of 2% per month, money will double (months) in value in:

A. 20 B. 22 C. 24 D. 35

QUESTION 19.

An industrial firm must pay a local jurisdiction the cost to expand its sewage treatment plant. In addition, the firm pays $12,000 annually toward the plant operating costs. The industrial firm will pay sufficient money into a fund that earns 5% per year to pay its share of the plant operating costs for ever. The ($) amount to be paid to the fund is close to:

A. 15,000 B. 30,000 C. 60,000 D. 240,000

QUESTION 20.

An engineer deposited $200 quarterly in her savings account for three years at 6% interest, compounded quarterly. Then for five years, she made no deposits or withdrawals. The amount ($) in the account after eight years is:

A. 1200 B. 1800 C. 2400 D. 3600

QUESTION 22.

The maintenance expense on a piece of machinery is estimated as follows: _________________________________________________________

Year 1 2 3 4

Maintenance ($) 150 300 450 600

_________________________________________________________ If interest is 8%, the equivalent uniform annual maintenance cost is close to:

A. 250 B. 300 C. 350 D. 400

QUESTION 23.

A manufacturer purchased $15,000 worth of equipment with a useful life of six years and a $2000 salvage at the end of the six years. Assuming a 12% interest rate, the equivalent uniform annual cost ($) is close to:

A. 1500 B. 2500 C. 3500 D. 4500

QUESTION 24.

The equivalent uniform cost ($) for the machine based on 10% interest for the following data is nearly:

Initial cost: $80,000 Salvage value: $20,000

Annual operating cost: $18,000 Useful life: 20 years

A. 21,000 B. 23,000 C. 25,000 D. 27,000

QUESTION 25.

Consider the following data: Initial cost: $80,000

Annual operating cost: $18,000 Useful life: 20 years

Interest rate: 10%

The salvage value ($) of the machine at the end of 20 years for the machine to have an equivalent uniform annual cost of $27,000 is close to:

A. 10,000 B. 23,000 C. 30,000 D. 40,000

QUESTION 26.

The rate of return (%) for a $10,000 investment that will yield $1000 per year for 20 years is close to: A. 1 B. 4 C. 8 D. 12 QUESTION 27.

QUESTION 28.

An engineer made 10 annual end of year purchases of $1000 common stock. At the end of the tenth year, just after the last purchase, the engineer sold all the stock for $12,000. The rate of return (%) on the investment is nearly:

A. 2 B. 4 C. 8 D. 10

QUESTION 29.

Consider the following data: Initial cost: $80,000 Salvage value: $20,000

Annual operating costs: $18,000 Useful life: 20 years

The machine will produce an annual savings in material of $25,700. The rate of return (%) is nearly:

A. 6 B. 8 C. 10 D. 15

QUESTION 30.

Two mutually exclusive alternatives are being considered: ___________________________________________ Year A B ___________________________________________ 0 -$2500 -$6000 1 +$746 +$1664 2 +$746 +$1664 3 +$746 +$1664 4 +$746 +$1664 5 +$746 +$1664 ____________________________________________

The rate of return (%) on the difference between the alternatives is close to: A. 6

B. 8 C. 10 D. 12

QUESTION 31.

A project will cost $50,000. The benefits at the end of the first year are estimated to be $10,000, increasing $1000 per year in subsequent years. Assuming a 12% interest rate, no salvage value, and an eight-year analysis period, the benefit-cost ratio is close to:

QUESTION 32.

Two alternatives are being presented below:

_____________________________________________

A B

_____________________________________________

Initial cost $500 $800

Uniform annual benefit $140 $200

Useful life years 8 8

_____________________________________________

The benefit-cost ratio of the difference between the alternatives, based on a 12% interest rate, is close to: A. 0.60 B. 0.80 C. 1.00 D. 1.20 QUESTION 33.

A piece of property is purchased for $10,000 and yields a $1000 yearly profit. If the property is sold after five years, the minimum price to break even, with interest at 6% is close to:

A. 5000 B. 6500 C. 7700 D. 8300

QUESTION 34.

The benefit-cost ratio for the following data: Project cost: $60,000,000

Gross income: $ 20,000,000 per year Operating costs: $5,500,000 per year Salvage value after 10 years: none

The project life is ten years. Using 8% interest rate, the benefit-cost ratio is: A. 0.80

B. 1.00 C. 1.20 D. 1.60

QUESTION 35.