BSIE Bachelor of Science in Industrial Engineering: Engineering Economics 3

Question 1

Two mutually exclusive projects have IRRs of 18% and 22%. The one with 18% IRR has a larger initial investment. At a MARR of 12%, you should:

Accepted Answer

Perform incremental IRR analysis to decide

Answer

Incremental IRR on the additional investment determines whether the larger project's extra cost is justified.

Question 2

Which of the following is a sunk cost that should be EXCLUDED from a replacement analysis?

Accepted Answer

Original purchase price of the defender already paid

Answer

Sunk costs are past expenditures that cannot be recovered and are irrelevant to future decisions.

Question 3

A project generates cash flows of $5,000/yr for 10 years. If MARR = 10%, the present worth factor (P/A,10%,10) = 6.145. What is the PW?

Accepted Answer

$30,725

Answer

PW = $5,000 × 6.145 = $30,725.

Question 4

The Modified Accelerated Cost Recovery System (MACRS) is used in the US primarily for:

Accepted Answer

Tax depreciation

Answer

MACRS is the IRS-mandated system for calculating depreciation deductions on tax returns.

Question 5

In a cost-benefit analysis for a public project, if B/C = 0.85, the project should be:

Accepted Answer

Rejected since benefits do not justify costs

Answer

A B/C ratio below 1.0 means costs exceed benefits, indicating the project is not economically justified.

BSIE - Bachelor of Science in Industrial Engineering Practice Test