NCEES Engineering Economics 3

Question 1

A $1,000 bond pays 8% annual interest and matures in 10 years. If the market interest rate is 10%, what is the bond's present value? (P/A,10%,10)=6.1446; (P/F,10%,10)=0.3855

Accepted Answer

$877.11

Answer

PV = 80(6.1446) + 1000(0.3855) = $491.57 + $385.50 = $877.07 ≈ $877.11.

Question 2

The MACRS depreciation system is primarily used for:

Accepted Answer

Federal income tax purposes in the US

Answer

MACRS (Modified Accelerated Cost Recovery System) is mandated by the US tax code for federal income tax depreciation calculations.

Question 3

What is the capitalized cost of a perpetual annual maintenance expense of $5,000 at an interest rate of 5%?

Accepted Answer

$100,000

Answer

Capitalized cost = A / i = $5,000 / 0.05 = $100,000.

Question 4

In replacement analysis, the defender's opportunity cost is best defined as:

Accepted Answer

The current market value of the existing asset

Answer

The opportunity cost of keeping the defender is its current market value—the cash foregone by not selling it.

Question 5

A project has the following cash flows: Year 0 = −$10,000; Year 1 = $4,000; Year 2 = $4,000; Year 3 = $5,000. What is the payback period?

Accepted Answer

2.4 years

Answer

After Year 2, cumulative cash flow = $8,000; remaining $2,000 recovered in Year 3 at $5,000/year → 2 + 2,000/5,000 = 2.4 years.

NCEES Practice Test

NCEES Practice Test

NCEES Engineering Economics 3