CPE Engineering Economics & Contract Management 2

Question 1

A project has a Benefit-Cost Ratio (BCR) of 0.85. What does this indicate?

Accepted Answer

The project returns $0.85 for every $1 invested

Answer

A BCR less than 1.0 means the present value of benefits is less than costs, indicating the project is not economically justified.

Question 2

Under a Cost-Plus-Incentive-Fee (CPIF) contract, the fee increases when:

Accepted Answer

The contractor underruns the target cost

Answer

In a CPIF contract, the contractor earns a higher fee when actual costs fall below the target cost, sharing the savings with the owner.

Question 3

What is the Modified Internal Rate of Return (MIRR) designed to address?

Accepted Answer

Multiple sign changes in cash flows causing multiple IRR values

Answer

MIRR resolves the problem of multiple IRR values that arise when a project's cash flow stream changes sign more than once.

Question 4

In contract law, 'liquidated damages' clauses must be:

Accepted Answer

A genuine pre-estimate of loss, not a penalty

Answer

Liquidated damages must represent a reasonable estimate of the owner's actual loss at the time of contract formation to be enforceable.

Question 5

A machine costs $50,000 and has a salvage value of $5,000 after 9 years. Using straight-line depreciation, the annual depreciation charge is:

Accepted Answer

$5,000

Answer

Annual depreciation = ($50,000 - $5,000) / 9 = $45,000 / 9 = $5,000 per year.

(CPE) Certified Planning Engineer Practice Test