EIT Engineering Economics 4

Question 1

A firm's after-tax MARR is 12%. Its effective tax rate is 35%. What is the before-tax MARR?

Accepted Answer

18.5%

Answer

Before-tax MARR = After-tax MARR / (1 − tax rate) = 12% / (1 − 0.35) ≈ 18.5%.

Question 2

Which of the following best describes 'sunk cost' in engineering economics?

Accepted Answer

Past expenditure that cannot be recovered

Answer

A sunk cost is a past expenditure that is irrelevant to future decision-making because it cannot be recovered.

Question 3

Two alternatives have the following annual costs: Alt A = $15,000/yr, Alt B = $12,000/yr with an incremental first cost of $20,000 over Alt A's life of 5 years at 10%. Should Alt B be selected?

Accepted Answer

Yes, if the PV of savings exceeds $20,000

Answer

PV of annual savings = 3,000·(P/A,10%,5) = 3,000·3.791 = $11,373 < $20,000, so Alt B is NOT preferred — select Alt A.

Question 4

What is the present value of $5,000 received at the end of each year for 8 years at 6% interest?

Accepted Answer

$31,047

Answer

PV = 5,000·(P/A,6%,8) = 5,000·6.210 = $31,050 ≈ $31,047.

Question 5

In a replacement analysis, the 'defender' is:

Accepted Answer

The currently owned asset

Answer

The defender is the existing asset under consideration for replacement; the challenger is the new alternative.

(EIT) Engineer In Training Certification Practice Test

(EIT) Engineer In Training Certification Practice Test

EIT Engineering Economics 4