BSIE Bachelor of Science in Industrial Engineering: Engineering Economics 2

Question 1

A machine costs $50,000 and saves $12,000 per year. Using a MARR of 15%, what is the approximate payback period?

Accepted Answer

4.2 years

Answer

Simple payback = $50,000 / $12,000 ≈ 4.2 years (ignoring time value of money).

Question 2

Which depreciation method results in the highest depreciation expense in the first year for a $100,000 asset with a 5-year life?

Accepted Answer

Double-declining balance

Answer

Double-declining balance applies 2/n rate to book value, yielding the largest first-year deduction.

Question 3

The annual worth (AW) of a project is -$3,200. This means the project:

Accepted Answer

Loses $3,200 per year compared to investing at the MARR

Answer

A negative AW means the project fails to recover costs at the MARR and loses that amount annually in equivalent terms.

Question 4

In a lease-vs-buy analysis, which factor is unique to the lease option?

Accepted Answer

Lease payment as a tax-deductible expense

Answer

Lease payments are fully deductible operating expenses, whereas ownership provides depreciation deductions instead.

Question 5

A bond with a face value of $1,000, coupon rate of 8%, and market interest rate of 10% will sell at:

Accepted Answer

A discount (below $1,000)

Answer

When the market rate exceeds the coupon rate, the bond must be discounted to compensate buyers.

BSIE - Bachelor of Science in Industrial Engineering Practice Test