Engineering Economics Flashcards

A machine costs $50,000 and has a salvage value of $5,000 after 10 years. Using straight-line depreciation, what is the annual depreciation charge?

Answer: $4,500

Straight-line depreciation = (Cost − Salvage) / Life = ($50,000 − $5,000) / 10 = $4,500/year.

What is the benefit-cost ratio of a project with a present worth of benefits of $120,000 and a present worth of costs of $80,000?

Answer: 1.50

BCR = PW(Benefits) / PW(Costs) = $120,000 / $80,000 = 1.50.

An investment has cash flows of $10,000/year for 5 years. At i = 8%, what is the present worth using the uniform series present worth factor (P/A, 8%, 5) = 3.9927?

Answer: $39,927

PW = A × (P/A, i, n) = $10,000 × 3.9927 = $39,927.

Which depreciation method results in the largest depreciation deduction in the first year for most assets?

Answer: Double declining balance

Double declining balance applies twice the straight-line rate to the book value, producing the largest first-year deduction.

A company borrows $100,000 at 6% annual interest compounded monthly. What is the effective annual interest rate?

Answer: 6.168%

EAR = (1 + 0.06/12)^12 − 1 = (1.005)^12 − 1 ≈ 6.168%.

If a project has a net present value of zero, which of the following is true?

Answer: The project's IRR equals the MARR

NPV = 0 means the project's return exactly equals the discount rate (MARR), making IRR = MARR.

Two mutually exclusive alternatives are compared using present worth analysis. Alternative A has PW = $15,000 and Alternative B has PW = $22,000. What is the correct decision?

Answer: Select Alternative B

In present worth analysis, select the alternative with the highest positive net present worth, which is Alternative B.