NCEES Engineering Economics 2

Question 1

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?

Accepted Answer

$4,500

Answer

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

Question 2

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?

Accepted Answer

1.50

Answer

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

Question 3

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?

Accepted Answer

$39,927

Answer

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

Question 4

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

Accepted Answer

Double declining balance

Answer

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

Question 5

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

Accepted Answer

6.168%

Answer

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

NCEES Practice Test

NCEES Practice Test

NCEES Engineering Economics 2