12/10/13 Engineering Economy |

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Glossary
Web Links Engineering Economy, 5/e
Solving FE Problems
Leland Blank, Texas A&M University
C hapter 2
Anthony Tarquin, University of Texas - El Paso
Learning Objectives
Chapter Overview Factors: How Time and Interest Affect Money
Spreadsheet Exercise #2
Chapter Review T/F Quiz
Matching Quiz
FE Exam Prep Quiz

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Results Reporter
Out of 20 questions, you answered 19 correctly, for a final grade of 95%.

19 correct (95%)
1 incorrect (5%)
0 unanswered (0%)

How to use this section: This section includes questions and problems like those
on a typical FE exam. For organization purposes only, they are presented in
chapter order of the text Engineering Economy, 5 th edition, by Blank and Tarquin.

It is recommended that you read through each question carefully.

Your Results:
The correct answer for each question is indicated by a .
The equation that is used to calculate a present worth from a
1 CORRECT
single future amount is:
A)P = F (1 + i )n
B)P = F [1 / (1 + i )n ]
C)P = F [1 / (1 + i )n ]- 1) / i((1 + i )n ) ]
D)P = F [(1 + i )n ]- 1) / i]

Cash flow which changes by the same amount each interest

2 CORRECT
period is called a:
A)Uniform cash flow.
B)Geometric series.
C)Uniform gradient.
D)Series cash flow.

The operating cost of a small machine is $800 in year one,

$900 in year two, $1000 in year three, increasing by $100 per
3 CORRECT
year through year ten. At an interest rate of 8% per year, the
equivalent annual worth of the machine is nearest to:
A)$1,187
B)$2,598
C)$1,149
D)$7,966
Feedback: Correct!
A young couple wishing to save money for their child's first
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12/10/13 Engineering Economy |
year in college purchases an insurance policy that will yield
4 CORRECT $10,000 fifteen years from now. The cost of the policy is $500
per year for 15 years, beginning one year from now. The rate
of return on their investment is nearest to:
A)3%
B)4%
C)5 %
D)6%
Feedback: Correct!
The length of time required for money to quadruple in value at
5 CORRECT
an interest rate of 6% per year is nearest to:
A)12 years
B)18 years
C)24 years
D)30 years
Feedback: Correct!
An engineer planning to purchase a new $38,000 pickup truck
wants to have ½ of the cost of the truck as a down payment
before purchasing it. She wants to buy the truck five years
from now and plans to begin saving by depositing $2000 into
6 INCORRECT
a savings account one year from now, and then increasing the
deposit each year by a uniform amount. If the account earns
interest at 6% per year, the amount she must increase her
deposit each year is nearest to:
A)$3,065
B)$6,130
C)$7,682
D)$14,198
Feedback: Amount required in year 5 = 38,000/2 =
$19,000
Equivalent amount in year 0 = 19,000 (P/F, 6%, 5)
=19,000 (0.7473) =14,198.70

14,198.70 = 2000(P/A, 6%, 5) + G(P/G, 6%, 5)

14,198.70 = 2000(4.2124) + G(7.9345)
5,773.90 = G (7.9345)
G = $727.69

The exact, correct answer of G = $728 is not included in

the choices. However, $728 is nearest $3,065, so the
‘best’ answer to choose is (a). (The correct choice was
inadvertently omitted. We apologize for an inconvenience
this may cause you.)
Problems 7 through 10 are based on the following statement:

A cash flow sequence is described by 1000 + 50k, where k is

7 CORRECT in years. The sequence extends from year one through year
eleven. The interest rate is 8% per year.

The value of G is:

A)$50
B)$100
C)$1000
D)$1050
Feedback: Correct!
The cash flow amount in year five is:
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12/10/13 Engineering Economy |
CORRECT
8
A)$250
B)$1,200
C)$1,250
D)$1,300
Feedback: Correct!
The present worth of the cash flow is nearest to:
9 CORRECT

A)$1,513
B)$8,344
C)$8,652
D)$9,009
Feedback: Correct!
The equivalent uniform annual worth through year eleven is
10 CORRECT
nearest to:
A)$541
B)$1,169
C)$1,262
D)$1,351
Feedback: Correct!
A deposit of $10,000 now at 10% per year interest will
11 CORRECT
accumulate to how much twenty years from now?
A)$30,000
B)$46,275
C)$67,275
D)$83,195
Feedback: Correct!
By doing annual updating of a certain production line, a
manufacturing company can avoid spending $100,000 for a
12 CORRECT new system ten years from now. At an interest rate of 10%
per year, the annual amount the company could afford to
spend beginning one year from now is nearest to:
A)$6,270
B)$16,270
C)$24,190
D)$38,550
Feedback: Correct!
At an interest rate of 10% per year, annual deposits of
13 CORRECT $1,000 in years one through ten would accumulate to how
much immediately after the last deposit?

A)$6,145
B)$15,937
C)$19,062
D)$22,819
Feedback: Correct!
If a company wanted to make a single investment now
14 CORRECT instead of spending $20,000 five years from now, how much
would the investment be at an interest rate of 10% per year?

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12/10/13 Engineering Economy |
A)$3,276
B)$5,276
C)$12,418
D)$32,300
Feedback: Correct!
If a company invests $25,000 in new packaging equipment, by
how much must it reduce its annual costs if it expects to
15 CORRECT
recover the investment in seven years at an interest rate of
10% per year?
A)$2,635
B)$5,135
C)$12,830
D)$48,718
Feedback: Correct!
In order to update a production process, a company can
spend money now or four years from now. If the amount now
16 CORRECT would be $20,000, what equivalent amount could the
company spend four years from now at an interest rate of
10% per year?
A)$29,282
B)$35,620
C)$47,690
D)$63,380
Feedback: Correct!
If a small company invests its annual profits of $150,000 in a
17 CORRECT stock fund which earns 18% per year, the amount in the fund
after ten years will be nearest to:
A)$479,000
B)$785,000
C)$2,153,000
D)$3,528,000
Feedback: Correct!
What is the equivalent amount in year ten of an expenditure
of $5,000 in year one, $6,000 in year two, and amounts
18 CORRECT increasing by $1,000 per year through year ten?

Assume the interest rate is 10% per year.

A)$30,723
B)$53,614
C)$92,169
D)$139,060
Feedback: Correct!
A short-haul trucking company purchased a used dump truck
for $12,000. The company paid $5,000 down and financed the
19 CORRECT
balance at an interest rate of 10% per year for five years. The
amount of its annual payment is nearest to:
A)$1,447
B)$1,846
C)$3,166
D)$4,346
Feedback: Correct!
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12/10/13 Engineering Economy |
In order to have money for their son's college education, a
young couple started a savings plan into which they made
intermittent deposits. They started the account with a deposit
20 CORRECT
of $2,000 (in year zero) and then added $3,000 in years two,
five and six. The amount they had in the account in year ten if
they earned interest at 12% per year was nearest to:
A)$15,170
B)$17,320
C)$20,913
D)$23,647
Feedback: Correct!

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