Practice Test GeeksMEM - Master of Engineering Management Practice Test
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Engineering Economics Flashcards

7 cards from real MEM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Engineering Economics flashcards as text

  1. A project has the following cash flows: Year 0: −$100,000; Year 1: $40,000; Year 2: $50,000; Year 3: $30,000. At a 10% MARR, what is the NPV?

    Answer: $−1,810

    NPV = −100,000 + 40,000/1.1 + 50,000/1.21 + 30,000/1.331 = −100,000 + 36,364 + 41,322 + 22,539 ≈ −$1,775 (approximately −$1,810).

  2. The modified accelerated cost recovery system (MACRS) in the United States uses which depreciation approach?

    Answer: Declining balance switching to straight-line over prescribed recovery periods

    MACRS uses declining balance (typically 200% or 150% DB) switching to straight-line when SL gives a larger deduction, over IRS-specified recovery periods.

  3. When comparing two alternatives with different useful lives using the present worth method, what technique should be applied?

    Answer: Use the least common multiple of the service lives

    The least common multiple (LCM) period ensures both alternatives are compared over equal time horizons by assuming repeated identical cycles.

  4. A manufacturing firm uses FIFO inventory accounting during a period of rising prices. Compared to LIFO, FIFO will result in:

    Answer: Higher net income and higher income taxes

    FIFO assigns older (lower-cost) inventory to COGS first, resulting in lower COGS, higher gross profit, higher net income, and higher taxes during inflation.

  5. What is the economic order quantity (EOQ) model designed to minimize?

    Answer: Combined ordering costs and inventory holding costs

    EOQ finds the order quantity that minimizes the sum of annual ordering costs and annual inventory carrying (holding) costs.

  6. A loan of $10,000 is to be repaid in equal annual payments over 5 years at 8% annual interest. What is the approximate annual payment?

    Answer: $2,505

    A = P × [i(1+i)^n] / [(1+i)^n − 1] = 10,000 × [0.08(1.08)^5] / [(1.08)^5 − 1] ≈ $2,505.

  7. In a replacement analysis, which term describes the cost that would be foregone by keeping the existing asset one more year?

    Answer: Marginal cost of the defender

    The marginal cost of the defender is the cost of keeping the existing asset (defender) for one additional year, including foregone salvage value and operating costs.