FE Civil Exam Prep

3. Engineering Economics (5-8)

A. Time value of money (e.g., equivalence, present worth, equivalent annual worth, future worth,
rate of return)
1. A company borrows $75,000 today at 6% nominal annual interest. The annual payment for a 10-year loan is
most nearly:
A. $9,700
B. $10,200
C. $11,100
D. $15,300

2. You are buying a new computer system for your company. There are three comparable options and you are
choosing one based on the costs and salvage values given below. Each computer system has a life of 12 years.
Computer System A Computer System B Computer System C
First Cost $15,000 $12,000 $19,000
Annual costs $4,500 $3,750 $2,000
Salvage Value $3,000 $2,500 $5,000

If the discount rate is 8%, which computer system has the lowest present worth and which computer system has
the highest present worth?
A. System A has the lowest present worth and System B has the highest present worth.
B. System B has the lowest present worth and System C has the highest present worth.
C. System C has the lowest present worth and System A has the highest present worth.
D. System B has the lowest present worth and System A has the highest present worth.

3. A 3D printer costs $1,250. Annual maintenance costs are $200. After 8 years, its salvage value is $500. If the
interest rate is 12%, the equivalent uniform annual cost is most nearly:
A. $360
B. $410
C. $520
D. $700

© Josh Graham, EIT

 B. Cost (e.g., fixed, variable, direct and indirect labor, incremental, average, sunk)
4. Which of the following statements about sunk costs is true?
A. Sunk costs are avoidable costs that are incurred only when making specific business decisions
B. Sunk costs can never become relevant costs
C. Sunk costs are costs which do not necessarily involve any cash outflows, but which need to be
considered
D. Sunk costs are not considered in future business decisions

C. Analyses (e.g., breakeven, benefit-cost, life cycle, sustainability, renewable energy)

5. A start-up technology company is debating whether to manufacture devices manually, or to purchase an
automated system for device assembly. If the company chooses to assemble manually, the tools will cost
$12,500, and the manufacturing cost per unit will be $25. Alternatively, an automatic assembly system will cost
$160,000 and will result in a manufacturing cost of $8 per unit. If the anticipated annual volume is 1,500 units
and we neglect interest, the break-even point in years is most nearly:
A. 5.8
B. 6.2
C. 6.5
D. 7.0

D. Uncertainty (e.g., expected value and risk)

6. A construction company bought a new soil-sampling drill rig and is performing a risk analysis about whether
to purchase insurance. The construction company paid $50,000 for the drill rig. The annual cost for the
insurance premium is $1,200, and the deductible is $375. The risk options to purchase or not purchase insurance
are as follows:
 0.92 probability of no accident
 0.07 probability of a small accident at a cost of $400
 0.01 probability of a total loss for the drill rig
The best option and projected cost savings are:
A. purchase insurance and save $650
B. purchase insurance and save $680
C. do not purchase insurance and save $700
D. do not purchase insurance and save $1,100

© Josh Graham, EIT