EIT Engineering Economics 2

Question 1

Which depreciation method results in higher depreciation in early years of asset life?

Accepted Answer

Modified Accelerated Cost Recovery System (MACRS)

Answer

MACRS (used for US tax purposes) accelerates depreciation with higher deductions in early years, reducing tax liability sooner.

Question 2

A benefit-cost ratio (BCR) of 1.5 indicates that:

Accepted Answer

Benefits exceed costs by 50%

Answer

BCR = Benefits/Costs = 1.5 means the project returns $1.50 for every $1.00 invested, a 50% excess of benefits over costs.

Question 3

The concept of 'time value of money' is based on:

Accepted Answer

Money available now is worth more than the same amount in the future

Answer

Time value of money reflects that money available now can be invested to earn returns, making it worth more than the same amount received later.

Question 4

In a make-or-buy analysis, which costs should be included?

Accepted Answer

Incremental (marginal) costs only

Answer

Make-or-buy decisions should consider only incremental costs — those that change with the decision — not sunk or fixed costs unaffected by the choice.

Question 5

What is the future value of $5,000 invested for 10 years at 6% annual compound interest?

Accepted Answer

$8,954

Answer

FV = PV(1+i)ⁿ = 5000(1.06)¹⁰ = 5000 × 1.7908 ≈ $8,954.

EIT - Engineering in Training Practice Test

EIT - Engineering in Training Practice Test

EIT Engineering Economics 2