Sample Final Exam Distributed by the Course Instructors

University of Sharjah Department of Civil Engineering.

0401301 Engineering Economics
Final Exam
Closed Book and Notes (120 Minutes)
Name: ____________________________________ Student#: _____________________

Instructions:
• Write down your name and ID in the above space.
• Return back this exam sheet in addition to your answer sheet.
• Mark your answer using pencil. Use pen only if you will not change your answer later.
• The exam has 40 multiple choice questions.
• Each multiple-choice question has only one correct answer; therefore, shade only one answer per
question. Select the best answer and mark it on the computer sheet.
• Refer to the included formula sheet and interest tables.
• Write down your math work on the provided space. If you need additional paper space, use the back
side of the paper.
• Focus and relax.

1. The fundamental criterion in engineering economic analysis is:

a. Increase data availability
b. Most efficient use of time
= c. Most efficient use of money
d. Enhance cost estimating

2. The reduction of physical assets value over time is defined as:

a. Inflation
b. Appreciation
c. Triangulation
d. Depreciation
>
3. Breakeven occurs when:
a. Revenue is zero
b. Cost is zero
= c. Revenue equals cost
d. Profit is larger than zero

4. Interest which is applied only on the principal amount is called:

- a. Simple interest
b. Add-on interest
c. Effective interest
d. Compound interest

1
5. Companies acceptable return on investment is:
a. Exactly as the minimum attractive rate of return (MARR) no more or no less
= b. Equal or more than the minimum attractive rate of return (MARR)
c. Equal or less than the minimum attractive rate of return (MARR)
d. Any rate of return without any condition
6. Marginal cost is:
a. Cost of missed opportunity
b. Same as average cost
c. Cost of one more unit
- d. Cost difference between two alternatives

7. The present worth of a cash flow of $1,000 that occurs every 10 years forever, with the first one
occurring now with i% per year is:
i %, 10)
a. $1,000 + {$1,000 × (A/F, i%, 10) / i%} 1 000
000 (Alf, + 1
,
,

b. $1,000 + {($1,000 / i%) × 10} after 10 years

↓ o w

c. $1,000 × (A/F, i%, 10) / i%

d. $1,000 + {$1,000 × (A/P, i%, 10) / i%}

8. The following cash flow pattern continues indefinitely as shown. The rate of return is closest to:
40 40 40
30 30 30
2 2
ij
-
-

20 +
30(1 +
i) +
40(1 +

i) =
95 1(1
.
+

20 20 20
=
7 .

964

…∞

95.7 95.7 95.7

>
a. 8%
b. 10%
c. Infinity
d. 6%
9. If a present worth cost of $400 has an equivalent annual worth cost of $48 at an interest rate of 12%
per year, what is the service lifetime?
a. Infinity
b. 8.3 years
> c. 80 years or greater
d. Both A and C
10. If i = 10%, the value of X in the following CFD is nearest to: 400
300
a. 76 200
b. 765 100
c. 219 x =
90 92
.

0 1 2 3 4
d. 91
-
X
2X
3X 2
4X
11. The effective interest rate of a nominal interest rate of 12% per year compounded every two months:
- a. 2% per 2-month period
-

-
-

times
-

6
b. 12.8% per year 12
c. 6% per 6-month period 6
2 %
-
-

d. 3% per quarter

Answer questions 12 through 13 based on the following statement

A repetitive task consists of 10 units. The time needed to complete each unit decreases with repetition
until it reaches a steady time starting at the fifth unit of 30 minutes per unit. In other words, units 5, 6, 7,
8, 9 and 10 require 30 minutes each.
12. If the learning rate is 85%, the time needed for the first unit is:
a. 34.65 minutes
b. 43.75 minutes
c. 74.36 minutes
d. 36.45 minutes
Not included
13. Total time needed to complete the ten units is:
a. 125.5 minutes
b. 255.5 minutes
c. 326.4 minutes
d. 426.4 minutes

Answer questions 14 through 16 based on the following statement

The two alternatives shown below are to be compared using an interest rate of 10% per year.

Machine X Y
Initial Cost, $ 90,000 100,000
Annual Cost, $ per year 20,000 15,000
Salvage Value, $ 10,000 20,000
Useful Life, years 4 8
Both should have the same
n
14. In comparing machines X and Y by the Present Worth Analysis, the values of n (number of years)
that you should use in the (P/A, i%, n) factor for annual costs and benefits of
⑧
a. n = 8 for Machine X and n = 8 for Machine Y U
18, 000
10 , 000

b. n = 4 for Machine X and n = 8 for Machine Y - In

c. n = 4 for Machine X and n = 4 for Machine Y 90 , 000 90 , 000

d. n = 32 for Machine X and n = 32 for Machine Y

15. The relation that represents the present worth of Machine X to compare it to Machine Y in present
worth analysis is:
Oa. – 90,000 – 20,000 (P/A, 10%, 8) – 80,000 (P/F, 10%, 4) + 10,000 (P/F, 10%, 8)
b. – 90,000 – 20,000 (P/A, 10%, 4) + 10,000 (P/F, 10%, 4)
c. – 90,000 – 20,000 (P/A, 10%, 8) – 90,000 (P/F, 10%, 4) + 10,000 (P/F, 10%, 8)
d. – 90,000 – 20,000 (P/A, 10%, 4) + 10,000 (P/F, 10%, 4)

(P17 4) 10 000 (P1f 1000 8)

8)
,
(P(A 000 10 %, ,
90, 000 10 %, -80 , ,
+

20 000 ,
3
-

,
-

,
 - 100 , 000 -
15 ,
000 (P1A ,
10 %,
8)
+

20 , 000 (P1f ,
10% , 8)

16. The equation that represents the present worth of Machine Y to compare it to Machine X in present
worth analysis is:
0a. – 100,000 – 15,000 (P/A, 10%, 8) + 20,000 (P/F, 10%, 8)
b. – 100,000 – 15,000 (P/A, 10%, 4) – 100,000 (P/F, 10%, 4) + 20,000 (P/F, 10%, 8)
c. – 100,000 – 20,000 (P/A, 10%, 8) + 15,000 (P/F, 10%, 8)
d. – 100,000 – 20,000 (P/A, 10%, 4) – 80,000 (P/F, 10%, 4)

Answer questions 17 through 19 based on the following statement

The university is considering two alternatives to develop a small source of renewable energy. The details
of the cash flows of each of these alternatives are summarized below:
Alternative Alpha Beta
Initial cost, $ 20M 26M
Annual operating cost, $ 1.6M 1.2M
Cost of renovation, $ 2.5M every 17 years 3.5M every 20 years
One time upgrading cost, $ 3.2M at the end of Year 22
If the interest rate is 8% per year and based on infinite analysis period: A
p
= -

I
17. The capitalized cost for the Alternative Alpha is closest to
a. $ 39.92M

cott"-
=41 S
> b. $ 41.51M
.

22-
1
c. $ 30.71M
d. $ 42.62M
18. The cost for Alternative Beta is closest to
a. $ 42.65M
b. $ 35.96M
c. $ 34.57M
26 +
+

- =
41 95 .

-> d. $ 41.96M
19. The most economical alternative is
= a. Alternative Alpha
b. Alternative Beta less cost
c. Both
d. None
Answer questions 20 through 23 based on the following statement
A company is planning to purchase a heavy machine which is expected to increase their annual savings
by $95,000. The machine will cost $500,000 and the company believes it can sell for $105,000 at the
end of its 15-year service life. Since the company cannot afford to pay for it fully, it plans to make a
down payment of 20% of the cost and to take a 10-year loan on the remaining cost to be paid annually at
10% interest rate. The maintenance and operating costs are estimated to be $4,500 in the first year but
expected to increase by $1,500 each year after that. The company’s MARR is 12% per year.
20. The down payment value is:
- a. $100,000
b. $87,500 103 , 000
c. $400,000
d. $125,000 95 , 000

-
A =

is 15

100 , 000 A =

65080 4

4) 500 =
1 +
1
,
500 =
G
 21. The annual payment of the loan is closest to:
- a. $65,080
b. $53,920 400 000 (AIP
, , 10 %, 101
c. $50,920
d. $35,940

22. The present worth of all costs is closest to:

- a. $549,231 cast=
15)
b. $552,637 500/PIA 12 %, 15) 500 (P1G 12 %,
65080 (411 12 %, 10)
+
4 ,
+
1 ,
,
,
100 000
c. $401,528
+

d. $452,637
worth = Benefit -
cost =

116997

23. The net present worth is closest to:

> a. $116,997
b. $74,055 105 , 000( P1) , 12%, 15) + 95 ,
000 (PIA , 12 %, 15 (
c. $225,165
d. $101,315 Benefit =
666228

Answer questions 24 through 27 based on the following statement:

A computer engineering firm is considering three different systems (System A, System B, and System C).
Given the following table cash flow showing cost and benefits of the four design options, answer the
following questions. Interest rate is 10%:
Table Cash Flow ($)
n (Years) System A System B System C
0 -20,000 -8,000 -15,500
1 2,000 -10,000 -15,500
2 2,300 2,000 5,800 -

3 2,645 2,500 5,800

4 3,042 3,000 5,800
5 3,498 3,500 5,800
6 4,023 4,000 5,800
7 4,626 4,500 5,800
8 5,320 5,000 5,800
9 6,118 5,500 5,800
10 7,036 6,000 3,000
Single payment
24. Present worth of system (A) is closest to:
- a. $2,390
b. $2,830
c. –$2,390
d. –$2,830

25. Future worth (end of year 10) of system (B) is closest to:

a. $7,896 single ,payment

b. $6,636 x /F1P ,
10 %, 10)
=2208
-
c. $5,727 F
d. $4,970
7 =

5727
5
 p =

A
(]
26. Internal rate of return (IRR) of system (C) is closest to:

a. 7.96%
->
b. 9.76% -

15 ,500 - 18 , 500ltis
/5 , 500
( (wis- 3 , 000 (1+i) =
0

c. 5.4%
d. -3.48%

⑧ 27. The best system from economic prospective is:

a. System A
b. System B
c. System C
d. Do-Nothing

Answer questions 28 through 31 based on the following statement:

The cost of a building is $600,000 and the owner paid additional $200,000 for the land. The building as a
physical asset is expected to depreciate and to have a salvage value of $50,000 at the end of its useful
life of 20 years.
Hint: Land does not depreciate.
Using the Straight Line depreciation method:
28. The 20th year’s depreciation is closest to:
a. $30,000 -50 -

, 000
27 ,500
b. $37,500
=

20
c. $35,000
> d. $27,500
29. The book value of the building after 4 years is closest to:
a. $480,000
- b. $490,000
600 , 000 14 x 27 , 500) =
490 000
,

c. $460,000
-

d. $555,227

Using the Sum of Year Digits (SOYD) method find:

30. The 4th year’s depreciation is closest to:
a. $26,143 &
b. $37,431 NCN+1
> c. $44,524 -

d. $406,191
31. The book value of the building after 5 years equals
-a. $364,286
b. $369,730 52388
da
c. $368,182 49761 (dirdz ds)
d. $362,730 600 , 000
-
...

de

47142
d3

du 44524
6
do 41904

- 364 289 ,
 Mona is an industrial engineer working for car parts manufacturing facility. She collected the following data on
three alternatives of sustainable energy systems to be implemented for energy saving. Mona’s manager requested
her to analyze the alternatives using rate of return analysis and to select the most economical energy system, if
any. IRR
.
S 19 S 64
.
3 . 35

Year System A System B System C

0 -140,000 -122,000 -107,000
1 20,000 17,000 16,000
2 20,000 17,000 14,000
3 20,000 17,000 14,000
4 105,000 95,000 75,000
Using the organization MARR of 5%, answer the following questions:

32. The IRR of System C is closest to:

a. 3.83
b. 5.93
c. 5.06
- d. 3.35

33. The incremental rate of return between System B and Do-Nothing is closest to
a. 3.83
-b. 5.65
c. 5.06
d. 3.60

34. The incremental rate of return between System A and System B is closest to
a. 1.25 A B
A B S -

b. 1.57
-

Arcs
18 000
17925
,

> c. 1.79 31000

31000
d. 1.05
A
3 , 008

10 / 000

35. Which mutually exclusive location option must be selected?

a. System A
- b. System B
c. System C
d. Do-Nothing

7
 Almawared Corporation plans to build a spare parts storage facility. A plant engineer has identified three
different location options (Ajman, Sharjah and Dubai). Initial cost of earthwork and prefabrication of
building, annual benefits and end of useful life resale value are detailed in the following table. The
useful life of the storage facility is 10 years. If none of the options is economical, Almawared will not
continue with the plan and adopt Do-Nothing option. The resale value is considered as a benefit.

Location Option
A B C
Total cost of building (including cost of
land) $750,000 $980,000 $1,770,000
Resale value of land and building at end
of 10 years $150,000 $450,000 $650,000
Annual benefits $82,000 $195,000 $235,000

Use benefit-cost ratio (B/C) analysis and MARR of 8% to answer the following questions.

36. The benefit-cost ratio (B/C) for C option is closest to:

a. 0.83
b. 0.93
c. 1.06
d. 1.60

37. The incremental benefit-cost ratio between Location A and Do-Nothing option is closest to
a. 0.83
b. 0.93
c. 1.06
d. 1.60

38. The incremental benefit-cost ratio between Location C and Location B is closest to
a. 0.25
b. 0.57
c. 0.47
d. 1.05

39. Which mutually exclusive location option must be selected?

a. A
b. B
c. C
d. Do-Nothing

8
40. If these alternatives were independent, the rank from best option to worst option would be:
a. A, B, C, Do-Nothing
b. B, C, A, Do-Nothing
c. B, C, Do-Nothing, A
d. A, C, Do-Nothing, B

END OF EXAM