CE_EE_ME_OD_EngineeringEconomics_1697164019186.pdf

FE Civil Exam Economic

1. © Kaplan, Inc.
© Kaplan, Inc.
Engineering Economics
FE Exam Problem Solving

2. © Kaplan, Inc.
ENGINEERING ECONOMICS
1. The economic order quantity (EOQ) is defined as the order quantity that minimizes
the inventory cost per unit time. Which of the following is NOT an assumption of the
basic EOQ model with no shortages?
(A) The demand rate is constant.
(B) Each unit inventoried has a positive cost.
(C) The entire reorder quantity is delivered instantaneously.
(D) The quantity ordered has an upper bound.
2

3. © Kaplan, Inc.
ENGINEERING ECONOMICS
The economic order quantity is
????????????????????????????????????=
2????????????????????????
ℎ
where
A = cost to place one order
D = number of units used per year
h = holding cost per unit per year
There is no upper bound on the quantity ordered.
INDUSTRIAL ENGINEERING
INVENTORY MODELS
3

4. © Kaplan, Inc.
ENGINEERING ECONOMICS
1. The economic order quantity (EOQ) is defined as the order quantity that minimizes
the inventory cost per unit time. Which of the following is NOT an assumption of the
basic EOQ model with no shortages?
(A) The demand rate is constant.
(B) Each unit inventoried has a positive cost.
(C) The entire reorder quantity is delivered instantaneously.
(D) The quantity ordered has an upper bound.
The answer is (D).
4

5. © Kaplan, Inc.
ENGINEERING ECONOMICS
2. A bank states that it pays 5% interest on savings. This stated interest rate is the
(A) annual effective interest
(B) nominal interest
(C) average interest per compounding period
(D) interest when the compound period is one year
5

6. © Kaplan, Inc.
ENGINEERING ECONOMICS
By convention, when only the interest rate is given without a compounding period, it
is assumed to be the annual effective or simple interest rate.
6

7. © Kaplan, Inc.
ENGINEERING ECONOMICS
2. A bank states that it pays 5% interest on savings. This stated interest rate is the
(A) annual effective interest
(B) nominal interest
(C) average interest per compounding period
(D) interest when the compound period is one year
The answer is (A).
7

8. © Kaplan, Inc.
ENGINEERING ECONOMICS
3. An investment of $350,000 is made, followed by revenue of $200,000/yr for three
years. For this project, what is most nearly the annual rate of return (ROR) on
investment?
(A) 15%
(B) 33%
(C) 42%
(D) 57%
8

9. © Kaplan, Inc.
ENGINEERING ECONOMICS
The problem states that the Present worth, ???????????? , of the investment is $350,000. The revenue
is the annual return, ????????????, on that investment and the problem states that the revenue is for ????????????
= 3 years. In other words, the investment is returned in 3 years and the rate of return, ????????????,
needs to be calculated. Using the equation
????????????
????????????
=
????????????×1+????????????
????????????
1+????????????
????????????
−1
????????????/???????????? can be calculated as
????????????
????????????
=
$200,000 $350,000
=0.5714
Using ???????????? = 3 and different answer options in the preceding equation, by trial and error we
can examine which rate of return gives a ????????????/???????????? value of 0.5714.
For answer option A, ???????????? = 0.15, ????????????/???????????? = 0.438
For answer option B, ???????????? = 0.33, ????????????/???????????? = 0.574
For answer option C, ???????????? = 0.42, ????????????/???????????? = 0.645
For answer option D, ???????????? = 0.57, ????????????/???????????? = 0.769
Refer to the
ENGINEERING ECONOMICS
TABLE (A GIVEN P)
9

10. © Kaplan, Inc.
ENGINEERING ECONOMICS
3. An investment of $350,000 is made, followed by revenue of $200,000/yr for three
years. For this project, what is most nearly the annual rate of return (ROR) on
investment?
(A) 15%
(B) 33%
(C) 42%
(D) 57%
The answer is (B).
10

11. © Kaplan, Inc.
ENGINEERING ECONOMICS
4. The future value of money is the
(A) value of money relative to a specified point in time
(B) present value of money in a future cash allocation after taking interest into
consideration
(C) value of money at some point in the future after taking interest into consideration
(D) future value of money after taking profit and/or loss into consideration
11

12. © Kaplan, Inc.
ENGINEERING ECONOMICS
4. The future value of money is the
(A) value of money relative to a specified point in time
(B) present value of money in a future cash allocation after taking interest into
consideration
(C) value of money at some point in the future after taking interest into consideration
(D) future value of money after taking profit and/or loss into consideration
The answer is (C).
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13. © Kaplan, Inc.
ENGINEERING ECONOMICS
5. On the day a child is born, an amount is deposited into an investment that earns 5%
interest. An equal amount is deposited on each of the child’s subsequent 18 birthdays.
After the final payment is made, the account contains $20,000. What is most nearly
the amount of each payment?
(A) $560
(B) $650
(C) $810
(D) $970
13

14. © Kaplan, Inc.
ENGINEERING ECONOMICS
Future value of investment
F =First day payment????????????×
????????????
????????????
,5%,18 years+
Annual payment????????????×
????????????
????????????
,5%,18 years
Future value of investment, F = $20,000
It is given in the problem statement that the first day payment and annual payment are the
same. Let this be ???????????? .
Using the equation,
$20,000=????????????×1+.05
18
+????????????×
1+0.05
18
−1
0.05
$20,000=2.406????????????+28.132????????????
$20,000=30.538????????????
X=$654.9 ($650)
ENGINEERING ECONOMICS
TABLE (F GIVEN P AND F GIVEN A)
14

15. © Kaplan, Inc.
ENGINEERING ECONOMICS
5. On the day a child is born, an amount is deposited into an investment that earns 5%
interest. An equal amount is deposited on each of the child’s subsequent 18 birthdays.
After the final payment is made, the account contains $20,000. What is most nearly
the amount of each payment?
(A) $560
(B) $650
(C) $810
(D) $970 The answer is (B).
15

16. © Kaplan, Inc.
ENGINEERING ECONOMICS
6. A plant engineer is evaluating the purchase of two possible motors. Both motors are
each rated at 93 kW, but have different efficiencies and purchase costs. The less
expensive motor has an initial purchase cost of $1000 and is 88% efficient. The more
expensive motor has an initial purchase cost of $1500 and is 92% efficient. The plant
pays $0.07/kW∙h, which reflects the cost if the total electricity costs are paid at the
end of year 10. The annual effective interest rate over a 10-year period of life is 10%. If
both options have the same net present worth and the same operating time per year,
what is most nearly the operating time per year?
(A) 250 h/yr
(B) 400 h/yr
(C) 690 h/yr
(D) 720 h/yr
16

17. © Kaplan, Inc.
ENGINEERING ECONOMICS
The problem states that the present worth of both the motors are the same. The present worth of a motor can be
calculated as follows.
Present worth=Initial cost+Present worth of the annual operating costs over 10 years
For Motor A (Less expensive motor):
Initial cost=$1,000
Annual operating cost (????????????)=
Motor rating
Motor efficiency
×Operating time per year×Electricity cost per kW�hr
=
93 kW
0.88
×T
h
yr
×
$0.07
kW�hr
=$7.398T
Present worth of the operating costs over 10 years equals
????????????×
????????????
????????????
,10%,10 years=$7.398T×6.1446=$45.46T
The value of 6.1446 is obtained from the Factor Table.
So the Present worth can be calculated as,
Present worth of Motor A=$1,000+$45.46T
ENGINEERING ECONOMICS
FACTOR TABLE
17

18. © Kaplan, Inc.
ENGINEERING ECONOMICS
For Motor B (More expensive motor):
Initial cost=$1,500
Annual operating cost (????????????)
=
Motor rating
Motor efficiency
×Operating time per year×Electricity cost per kW�hr
=
93 kW
0.92
×T
h
yr
×
$0.07
kW�hr
=$7.076T
Present worth of the operating costs over 10 years equals
????????????×
????????????
????????????
,10%,10 years =$7.076T×6.1446=$43.48T
The value of 6.1446 is obtained from the Factor Table.
So the Present worth can be calculated as,
Present worth of Motor B=$1,500+$43.48T
ENGINEERING ECONOMICS
FACTOR TABLE
18

19. © Kaplan, Inc.
ENGINEERING ECONOMICS
Find the operating time for the Motors:
Since both motors have the same present worth, equate the worth of the two and
solve for operating time T.
$1,000+$45.46T=$1,500+$43.48T
T=252 hours250
h
yr
19

20. © Kaplan, Inc.
ENGINEERING ECONOMICS
6. A plant engineer is evaluating the purchase of two possible motors. Both motors are
each rated at 93 kW, but have different efficiencies and purchase costs. The less
expensive motor has an initial purchase cost of $1000 and is 88% efficient. The more
expensive motor has an initial purchase cost of $1500 and is 92% efficient. The plant
pays $0.07/kW∙h, which reflects the cost if the total electricity costs are paid at the
end of year 10. The annual effective interest rate over a 10-year period of life is 10%. If
both options have the same net present worth and the same operating time per year,
what is most nearly the operating time per year?
(A) 250 h/yr
(B) 400 h/yr
(C) 690 h/yr
(D) 720 h/yr
The answer is (A).
20

21. © Kaplan, Inc.
ENGINEERING ECONOMICS
7. Solar panels are installed on a home for an initial cost of $5000. The expected
energy savings after installing the solar panels is $100/mo. What is most nearly the
payback period of the investment?
(A) 40 months
(B) 45 months
(C) 52 months
(D) 66 months
21

22. © Kaplan, Inc.
ENGINEERING ECONOMICS
The Payback period is the time required for the profit or other benefits of an
investment to equal the cost of the investment. In this problem statement, the cost of
the solar panels is $5000. The profit is the energy savings from installing the solar
panels equaling $100 per month. The payback period can be calculated as,
Payback period in months=
Initial Cost
Savings per month
=
$5000
$100 per month
=50 months
ENGINEERING ECONOMICS
BREAK-EVEN ANALYSIS
22

23. © Kaplan, Inc.
ENGINEERING ECONOMICS
7. Solar panels are installed on a home for an initial cost of $5000. The expected
energy savings after installing the solar panels is $100/mo. What is most nearly the
payback period of the investment?
(A) 40 months
(B) 45 months
(C) 52 months
(D) 66 months
The answer is (C).
23

24. © Kaplan, Inc.
ENGINEERING ECONOMICS
8. When estimating the cost of a project, an engineer must consider
(A) political resistance to the project, labor disputes, and building permits
(B) geotechnical concerns, environmental concerns, and the weather
(C) the time required to complete plans and specifications
(D) all of the above
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25. © Kaplan, Inc.
ENGINEERING ECONOMICS
8. When estimating the cost of a project, an engineer must consider
(A) political resistance to the project, labor disputes, and building permits
(B) geotechnical concerns, environmental concerns, and the weather
(C) the time required to complete plans and specifications
(D) all of the above
The answer is (D).
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26. © Kaplan, Inc.
ENGINEERING ECONOMICS
9. A sum of money is expected to be worth $1000 in 11 years. The interest rate is 5%.
What is most nearly the net present worth of the sum?
(A) $200
(B) $390
(C) $580
(D) $1100
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27. © Kaplan, Inc.
ENGINEERING ECONOMICS
The problem states that the Future worth, ???????????? , will be $1000 in 11 years (???????????? = 11). The
interest rate, ???????????? , is 5%. The present worth, ????????????, can be calculated as
????????????????????????/????????????,????????????%,????????????=????????????1+????????????
−????????????
$1000????????????/????????????,5%,11=$10001+0.05
−11
=584.68
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28. © Kaplan, Inc.
ENGINEERING ECONOMICS
9. A sum of money is expected to be worth $1000 in 11 years. The interest rate is 5%.
What is most nearly the net present worth of the sum?
(A) $200
(B) $390
(C) $580
(D) $1100
The answer is (C).
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29. © Kaplan, Inc.
ENGINEERING ECONOMICS
10. The expected cost of an addition to a house is $30,000. After the addition, the
house’s value is expected to increase by $95,000. Which of the following statements is
true regarding the benefit-cost analysis of the project?
(A) The benefit exceeds the cost by $65,000.
(B) The benefit is equal to the cost.
(C) The cost exceeds the benefit by $5000.
(D) The cost exceeds the benefit by $40,000.
29

30. © Kaplan, Inc.
ENGINEERING ECONOMICS
Where ???????????? = Benefits and ???????????? = Estimated Cost,
????????????−????????????≥0
$95,000−$30,000=$65,000
$65,000≥0
The benefit exceeds the cost by $65,000.
ENGINEERING ECONOMICS
BENEFIT-COST ANALYSIS
30

31. © Kaplan, Inc.
ENGINEERING ECONOMICS
10. The expected cost of an addition to a house is $30,000. After the addition, the
house’s value is expected to increase by $95,000. Which of the following statements is
true regarding the benefit-cost analysis of the project?
(A) The benefit exceeds the cost by $65,000.
(B) The benefit is equal to the cost.
(C) The cost exceeds the benefit by $5000.
(D) The cost exceeds the benefit by $40,000.
The answer is (A).
31

32. © Kaplan, Inc.
ENGINEERING ECONOMICS
11. An investor places $10,000 in a savings account that earns 3% compounded
annually. Most nearly, what is the expected value of the investment at the end of 15
years?
(A) $15,600
(B) $16,000
(C) $19,600
(D) $31,000
32

33. © Kaplan, Inc.
ENGINEERING ECONOMICS
The problem states that the Present Worth, ????????????, of the investment is $10,000. The
compound interest, ????????????, is 3% and the number of years, ????????????, is 15 years.
????????????=????????????×1+????????????
????????????
=$10,000×1+
3
100
15
=$15,580
ENGINEERING ECONOMICS
TABLE (F GIVEN P)
33

34. © Kaplan, Inc.
ENGINEERING ECONOMICS
11. An investor places $10,000 in a savings account that earns 3% compounded
annually. Most nearly, what is the expected value of the investment at the end of 15
years?
(A) $15,600
(B) $16,000
(C) $19,600
(D) $31,000
The answer is (A).
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35. © Kaplan, Inc.
ENGINEERING ECONOMICS
12. On January 1, $7000 is deposited into a savings account that pays 3.5% interest
compounded annually. If all of the money is withdrawn in six equal end-of-year sums
beginning December 31 of the first year, most nearly, how much will each withdrawal
be?
(A)$1100
(B) $1200
(C) $1300
(D) $1400
35

36. © Kaplan, Inc.
ENGINEERING ECONOMICS
Use the uniform series capital recovery factor to solve for disbursements.
????????????=????????????⁄????????????????????????,????????????%,????????????=????????????
????????????1+????????????
????????????
1+????????????
????????????
−1
=$7000
0.0351+0.035
6
1+0.035
6
−1
=$1313.7 $1300
36

37. © Kaplan, Inc.
ENGINEERING ECONOMICS
12. On January 1, $7000 is deposited into a savings account that pays 3.5% interest
compounded annually. If all of the money is withdrawn in six equal end-of-year sums
beginning December 31 of the first year, most nearly, how much will each withdrawal
be?
(A)$1100
(B) $1200
(C) $1300
(D) $1400 The answer is (C).
37

38. © Kaplan, Inc.
ENGINEERING ECONOMICS
13. What is most nearly the starting balance of an investment account that will contain
$1200 at the end of four years with 4.3% interest paid annually?
(A)$1010
(B) $1080
(C) $1130
(D) $1150
38

39. © Kaplan, Inc.
ENGINEERING ECONOMICS
Use the single payment present worth formula.
????????????=????????????⁄????????????????????????,????????????%,????????????=????????????1+????????????
−????????????
=$12001+0.043
−4
=$1014.00$1010
39

40. © Kaplan, Inc.
ENGINEERING ECONOMICS
13. What is most nearly the starting balance of an investment account that will contain
$1200 at the end of four years with 4.3% interest paid annually?
(A)$1010
(B) $1080
(C) $1130
(D) $1150
The answer is (A).
40

41. © Kaplan, Inc.
ENGINEERING ECONOMICS
14. At the beginning of each year for six years, $650 is deposited into a savings
account that pays 6% interest compounded annually. One year after the sixth deposit,
the amount of money in the account is most nearly
(A)$3900
(B) $4130
(C) $4320
(D) $4530
41

42. © Kaplan, Inc.
ENGINEERING ECONOMICS
Use the uniform series compound formula.
????????????=????????????⁄????????????????????????,????????????%,????????????=????????????
1+????????????
????????????
−1
????????????
=$650
1+0.06
6
−1
0.06
=$4533. 96 $4530
42

43. © Kaplan, Inc.
ENGINEERING ECONOMICS
14. At the beginning of each year for six years, $650 is deposited into a savings
account that pays 6% interest compounded annually. One year after the sixth deposit,
the amount of money in the account is most nearly
(A)$3900
(B) $4130
(C) $4320
(D) $4530
The answer is (D).
43