# “FREE Master of Engineering Management Engineering Economics Questions and Answers”

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#### True or False: What circumstances cause the market inter-set rate to be less than?

Correct! Wrong!

Yes you are correct, FALSE

#### How long must \$500 be invested for it to grow to \$625 at a 10% simple interest rate each year?

Correct! Wrong!

The right response is 2.5 years.
A 10% simple annual interest rate would be required for the \$500 to increase to \$625 over the course of 2.5 years.

#### If interest is compounded annually at 10%, how long will it take for a \$1,000 investment to grow to \$7,400?

Correct! Wrong!

"PV * (1 + r)t FV Where: \$7,400 = Future Value (\$1,000) Present Value r = Periodic Interest Rate (10% or 0.10) t = Number of cycles (time in years) calculating t:(1 + 0.10) t = 7.4 t * log(1.10) = log; t = 7400 / 1000 (1.10); (7.4) log(7.4) / log (1.10) t ≈ 6.999"

#### Think about the interest rate and the following cash flow.

Correct! Wrong!

Yes you are correct, 20.90%

#### If a sports enthusiast purchases a mortgage to attend USC football games by paying \$130,000 in 10 equal installments starting now, and then pays a fixed price of \$290 per year for 50 years (starting 1 year from now) for through 50 of the season tickets at 8% per year interest?

Correct! Wrong!

The EAC is an estimate of the annual payment that a sports fan would have to make over a 50-year period to cover both their mortgage and their yearly ticket expenses.
In this instance, the sports fan would benefit from the locked-in pricing for the USC football tickets while spending roughly \$7,991.48 yearly to cover the mortgage and the cost of the annual tickets.

#### A small construction business is thinking about spending \$61,000 for a used bulldozer. If the company buys the dozer now, what is the closest company per for the identical future amount in year 4 that the company is paying for the dozer 4% year interest?

Correct! Wrong!

"PV equals FV / (1 + r)t The Future Value is \$61,000.
(4% or 0.04)r = Interest rate per period t = Number of cycles (4 years) replacing the specified values: PV = 61000 / (1 + 0.04)^4 ≈ 53687.84"

#### Which of the following issues lends itself best to investigation through engineering economics?

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Engineering economics involves investing or financing engineering projects.
The time value of money and interest rate differentials affect Barbara's decision to invest her money at a good rate or wait for a greater rate.
Engineering economics applies to this scenario, which evaluates financial outcomes of different decisions. Engineering economics is unrelated to personal relationships, vehicle insurance, and chocolate bar purchases.

#### False or True. Are the following future receipts' present values accurate? \$8,500 In 12 years, at a compound annual interest rate of 12% \$2182

Correct! Wrong!

Yes you are correct, TRUE

#### Which of the following doesn't represent unethical engineering economics practices?

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Responsible engineering involves risk assessment and designing an oil platform for a 100-year hurricane instead of a 500-year hurricane.
Consider environmental harshness and arrange for safety.
Designing for a 100-year hurricane ensures safety, resilience, and economic feasibility.
This choice is ethical engineering economics.

#### Consider that you are the owner of a small engineering company that makes Project A and Project B. If all the firm's resources are devoted to the production, it can create either 50 units of Project A or 100 units of Project B in a single day. How much more expensive would it be to produce an additional Project A?

Correct! Wrong!

"Compare Project A's opportunity cost to Project B's production capacity to calculate the cost of producing an additional unit of Project A.
Project A production costs Project B production. The opportunity cost is 100 Project B units since they can be manufactured in a day.
Thus, manufacturing another Project A unit would mean not producing two Project B units (100 units of Project B - 50 units of Project A)."

#### The advantages of a cooling filtration project for a nuclear power plant along the Ohio River are \$10,000 per year, starting with year 1. \$50,000 is spent in year 0 and \$50,000 is spent at the conclusion of year 2. Determine the B/C ratio at a rate of 10% annually.

Correct! Wrong!

Yes you are correct, 1. 1%

#### False or True. If a home was purchased 12 years ago and is currently being sold for 2.5 times the original price, the average annual rate would be 7.93%.

Correct! Wrong!

CAGR can be used to compute the average yearly growth rate over a period:

#### The British Columbia company Wonderful Cloud Ltd. is thinking about growing its operations in Prince George. The feasibility study was conducted last year and cost \$1,000. For the new operation, the costs for the building and equipment would be \$5,000 and \$6,000, respectively, and the initial investment in net working capital would cost \$500. How much of the sunk cost should not be factored into the operation?

Correct! Wrong!

Whether the project proceeds or not, sunk costs cannot be recovered.
Sunk costs are irrelevant to project costs and benefits, hence they should be ignored while making decisions.
The \$1,000 feasibility study expense is sunk.
Thus, it shouldn't influence the new operation's decision.

#### Which of the following doesn't play a crucial role in making decisions?

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Making decisions is a crucial part of decision-making, as is deciding how a project should be constructed.
A project's scope, objectives, requirements, and other elements that are important to its effective execution are all defined during the design phase.
Making the right design choices is essential since they set the stage for the project's execution and results.
As a result, choosing how to design a project is an essential step in the decision-making process and is very important.

#### By allowing fans to join up to pay a "mortage" for the opportunity to purchase premium seats at football games for several decades with tickets locked in at current pricing, a sports mortgage is an innovative approach to finance cash-strapped sports organizations. The locked-in price duration at Notre Dame is 50 years. What is the equivalent annual cost of the football tickets over the 50-year period at an interest rate of 8% per year if a fan pays a \$130,000 "mortage" fee now (i.e., in year 0), when season tickets are selling for \$290 each?

Correct! Wrong!

The absence of a positive indication means that the EAC is a cost (outgoing money) for the fan.
In order to have the equal value of the \$130,000 mortgage charge and benefit from the fixed ticket prices, the fan would have to spend roughly \$10,923.83 every year for 50 years.

#### Which of the following doesn't involve making a strategic choice for which engineering economics could be helpful?

Correct! Wrong!

Operations management and production scheduling are more important than engineering economics when scheduling jobs on multiple machines.
Scheduling jobs on machines is more about maximizing resource allocation and workflow efficiency than a strategic decision in engineering economics.

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