EIT - Engineer In Training Engineering Economics Questions and Answers

Question 1

An engineering project has an initial cost of $150,000, expected annual benefits of $40,000, and annual operating and maintenance costs of $10,000.
The project's useful life is 10 years, and the Minimum Attractive Rate of Return (MARR) is 8%.
What is the conventional Benefit-Cost (B/C) ratio for this project?

Accepted Answer

1.78

Answer

0.89

Answer

1.12

Answer

2.24

Question 2

A piece of equipment is purchased for $250,000 and is expected to have a salvage value of $30,000 after a useful life of 8 years. Using the straight-line method, what is the book value of the equipment at the end of year 5?

Accepted Answer

$112,500

Answer

$137,500

Answer

$92,500

Answer

$155,000

Question 3

Which of the following statements is true when comparing two mutually exclusive projects using the Internal Rate of Return (IRR) method?

Accepted Answer

An incremental analysis (IRR of the difference) must be performed if the initial investments are different.

Answer

The project with the highest IRR should always be selected.

Answer

The IRR is the interest rate that makes the Net Present Worth (NPW) of the project equal to the initial investment.

Answer

If a project's IRR is less than the MARR, it is always a profitable investment.

Question 4

A company is considering investing in a new manufacturing process that costs $500,000. The process is expected to generate a net cash flow of $120,000 per year for 6 years. If the company's Minimum Attractive Rate of Return (MARR) is 12%, what is the Net Present Worth (NPW) of this investment?

Accepted Answer

$491,160

Answer

-$3,560

Answer

$220,000

Answer

-$8,840

Question 5

The breakeven point in engineering economics is defined as the level of production or sales at which:

Accepted Answer

Total revenue equals total costs.

Answer

Marginal cost equals marginal revenue.

Answer

Total revenue equals total fixed costs.

Answer

The project's net present worth is maximized.

Question 6

An investment has a future value of $50,000 in 7 years. If the nominal annual interest rate is 10% compounded quarterly, what is the present value of the investment?

Accepted Answer

$25,127

Answer

$25,658

Answer

$28,224

Answer

$24,873