Exam 2025, questions and answers - Engineering Economics, Exams of Engineering

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Exam 2025 ,

questions and

answers -

Engineering

Economics

Engineering Economics (University of Ontario Institute of Technology)

12. A set of cash flows begins at $50,000 and increases at 10% per annum for the next 15 years. If the interest rate is 7%, what is

the present value of the set (to the nearest dollar)?

ANSWER: 856,

13. A daily interest account pays 6%, what is the (closest) effective interest rate? (ANS : 6.2%) 14. A Cost-benefit ratio of more than 1 meant that (ANS: The project will make a profit ) 15. A junk bond is: a high-risk bond, one paying a high interest 16. A company wants to replace a machine in 15 years that will cost $10000. It does this by setting up a sinking fund of $320 per

year. What is the closest IRR? 9.7%

17. A BCR indicating economic desirability has a value > 18. A firm wants to get a price quote for an additional 100 units of a given product. You are asked to prepare a cost estimate.

The number of hours to produce a unit is 4. The average labour rate is $10 an hour. The materials cost is $14 per unit.

Overhead for additional 100 units is estimated at 40% of the direct labour cost. If the company wants to have a 35%

profit margin, what should be the unit price to quote?

Correct answer: c) 94.

19. A new machine comes with 85 free service hours over the first year. Additional time costs $65 per hour. What are the

average and marginal costs per hour for 65 hours?

Your answer : a) Average: $0; Marginal: $

20. A dealer will sell goods to his regular customers for $15 immediately or $18 if the payment is differed one week. What

annual nominal interest rate is the dealer receiving?

Your answer: a) 1040%

21. A company has borrowed $200,000 to purchase equipment. The loan carries an interest rate of 5% per year and is to be

repaid in equal installments over the next 7 years. What is the amount of the annual

installment?

Correct answer: a ) $34,

Feedback: A=200000(A/P, 5%, 7)

A=200000(0.1728)

A=34,

22. A lottery prize pays $500 at the end of first year, $1,500 the second, $2,500 the third, and so on for 15 years. If there is only

one prize in the lottery, 5,000 tickets are sold, and you could invest your money elsewhere at 10% interest, how much is

each ticket worth, on average?

Correct answer : d) $8.

Feedback: P 1

=500(P/A, 10%, 15) P

P

P

=1000(P/G, 10%, 15)

P 2 =1000(40.1520) P 2 =

P=P

+P

P=3803.05+40152=43955.

Average price of each ticket=$43955.05/5000=$8.

23. A country has a nominal GDP of $40,000,000, a total population of 1,000,000, a total employed labour force of 40,000, and a

total real output of $70,000,000,000. Calculate the GDP per capita: (do not round your answer, your answer should be in dollars

per person, with no commas).

Answer

Correct Answer: 70,

Answer range +/- 0 (70000.0 - 70000.0)

24. A student borrows money from OSAP in order to pay their tuition fees. This is an example of equity financing.

ANSWER: False

25. : A lender earns $22 in interest from lending $100. What is the lender's Rate of Return (ROR) as a percentages? (Example: enter

45 for 45%)

ANSWER: 22

26. A lender wishes to loan $100 to a borrower. The load period is for exactly one year. The lender has the option of charging

simple or compound interest. Which method of interest would generate the largest return?

ANSWER: Compound Interest

27. A product whose supply and demand curves exhibit no change in demand as the price for the product's price changes can be

described as perfectly elastic

ANSWER: False

28. A new feed permits cattle to be raised at half the current costs. At the same

time, researchers report that burgers act like Viagra. What will happen to the supply and demand curves of hamburgers?

ANSWER: Demand curve shifts right, supply curve shifts right

29. A program inverts a 40x40 matrix in 1 second. For a 41x41 matrix, it takes 12% longer. Using the Rule-of- 72 ONLY, calculate

how long (in seconds) it will take to invert a 100x100 matrix.

ANSWER: 1,

30. A 6% coupon rate bond has a face value of $1,000, pays interest semi-annually and matures in 10 years. If the current market

rate is 8%, compounded semi-annually, what is the bond’s value today?

ANSWER: 864

31. A machine returns $80 at the end of each year, for 6 years. At the end of every 2 years (including year 6), you must spend $

Year 1 (that is what depreciation can you claim) using CCA Class 43 (30%)?

For CCA year 1; CCA1 = P(d/2) AGAIN B ONLY NOT B-S D =

30%, P = $15,

CCA year 1 = $15,000(0.3/2) = $2,250 REMEMBER HALF-YEAR RULE

36. A machine that is been used for one year currently has a salvage value of $10,000 dollars, which will drop $2000 per year.

Maintenance costs for the next four years are $1250, $1,450, $1,750 and $2,250. What is the marginal cost to extend service for

the second year if the Marr is 8%?

ANSWER: 4050 +/- 200

37. A pump's first cost is $45,000 at a Marr of 10%. The pump's end – of – year salvage values over the next five years are 42,000,

40,000, 38,000, 32,000, and 26,000. Determine the pump's economic service life to the nearest year.

Answer: 3

38. A firm has 60,000 shares whose current price is $45.90. The shareholders expect a return of 14%. The firm has a three-year

loan of $1,900,000 at 7.3%. It has issued 22,000 bonds with a face value of

$1000, 20 years left to maturity at a coupon rate of 7% and a current price of $925. Using market values for its debt and equity,

what is the firm's before-taxes cost of capital? Express the answer as a percentage to one decimal digit. Eg 4.

ANSWER: 7.

MARKET VALUE OF STOCK = 45.9(60000) = 2,754,

MARKET VALUE OF LOAN = 1,900,

MARKET VALUE OF BONDS = 925(22000) = 20,350,

BT COFC = (2.75M X 0.14 + 1.9M X 0.073 + 20.35M X 0.07) = 7.8%

39. A firm has 60,000 shares whose current price is $45.90. The shareholders expect a return of 14%. The firm has a three-year

loan of $1,900,000 at 7.3%. It has issued 22,000 bonds with a face value of

40. $1000, 20 years left to maturity at a coupon rate of 7% and a current price of $925. Using market values for its debt and equity,

what is the firm's before-taxes cost of capital? Express the answer as a percentage to one decimal digit. Eg 4.

ANSWER: 7.

MARKET VALUE OF STOCK = 45.9(60000) = 2,754,

MARKET VALUE OF LOAN = 1,900,

MARKET VALUE OF BONDS = 925(22000) = 20,350,

BT COFC = (2.75M X 0.14 + 1.9M X 0.073 + 20.35M X 0.07) = 7.8%

41. A proposed bridge will cost $4 million to build and $180,000 per year in maintenance. The bridge should last 40 years. Benefits

to the driving public are estimated to be $900,000 a year. Damage to adjacent property owners due to noise is estimated to be

$250,000 per year. Because of the uncertainty about what interest rate should be used to evaluate the project, calculate the

breakeven annual interest rate that results in a B/C ratio of one. Express the interest rate to one decimal (ie 4.4).

ANSWER: 11.

42. A program inverts a 40x40 matrix in 1 second. For a 41x41 matrix, it takes 12% longer. Using the Rule-of- 72 ONLY, calculate

how long (in seconds) it will take to invert a 100x100 matrix.

ANSWER: 1,

43. A loan with compound interest will result in a larger future sum, compared to the same loan with simple interest.

ANSWER: True

44. A company deposits $2,000 in a bank account at the end of every year for 10 years. If the bank pays 8%, how much is the

account worth at the end of 10 years? Use the tables.

ANSWER: 28,

45. A company deposits $2,000 in a bank account at the end of every year for 10 years. If the bank pays 8%, how much is the

account worth at the end of 10 years? Use the tables.

ANSWER: 42,

46. A very well organized engineer wants to be a millionaire by her 60

th

birthday. She believes she can make 15% per annum on her

investments. She wants to deposit a fixed amount starting on her 20

th

birthday and continuing through her 59th. What is that

fixed amount?

ANSWER: 487

47. A student wants to have $30,000 when he graduates 4 years from now.

His grandfather gave him a gift of $10,000. How much must he save each year (to the nearest dollar) if he deposits the $10,

today and can earn 12% on both the $10,000 and his savings?

ANSWER: 2984

48. A debt of $5,000 can be repaid, with interest of 8%, by the following schedule: (year1) $500; (year2) $1,000; (year3) $1,000;

(year4) $2,000; (year5) $X. To the nearest $, what is X?

ANSWER: 1,

49. A set of cash flows begins at $50,000 and increases at 10% per annum for the next 15 years. If the interest rate is 7%, what is

the present value of the set (to the nearest dollar)?

ANSWER: 856,

50. A fire truck will cost $150,000 in 5 years. If our MARR is 10%, how much must we deposit in the bank today so we can buy it

in 5 years?

Answer 93,

51. A firm charges its credit customers 1.75% a month. What is the effective interest rate (nearest integer percentage)?

Answer 23 Answer

range +/- 0

52. A bank pays a nominal annual interest rate of 10%. What is the effective annual rate if it is compounded

continuously (give percentage to 2 decimal places)?

costs are $2,500. At years 4 and 8, it will require major servicing at a cost of $20,000 each. What is the equivalent annual cost of

owning and operating this machine, assuming a MARR of 10%?

[2] DRAW TIMELINE

[2] C1 = - 150 + 30(P/F,10%,10)

[2] C2 = 2.5(P/A,10%,10)

[2] C3 = 20[(P/F,10%,4)+ (P/F,10%,8)

[2] ANS = (138.4+15.4+23)(A/P,10%,10)

60. A break-even analysis is

a. A form of sensitivity analysis

b. The point where costs equal incomes

c. The juncture of 2 money flow curves

All of the above

61. A politico suggests that we should fix gas prices at 50 cents per litre. This would

a. Lead to massive shortages

b. Force governments to make up the tax shortfall by increasing general taxes

c. Add to pollution

d. All of the above

62. A benchmark barrel of oil is equivalent to about

a. 42 Canadian gallons

b. 42 litres

c. 42 pounds

d. 42 US gallons

63. A company wants to replace a machine in 15 years that will cost $10,000. It does this by setting up a sinking fund of

$300 per year. What is the closest interest rate that will make this happen?

a) 10%

b) 10.5%

c) 11.2%

d) 11.6%

64. A BCR indicating economic desirability has a value

a. 1

b. > 1

c. < 1

d. 0

65. A construction company has an option to purchase a certain bulldozer for $61,000 at any time between now and 4 years

from now. If the company plans to purchase the bulldozer 4 years from now, the equivalent present amount that the

company is paying for the dozer at 6% per year interest is closest to

(Use given tables) a.

b. $46,710 c.

d. Over $49,

Answer: c

P = 61,000(P/F,6%,4)

66. A manufacturer of toilet flush valves wants to have $2,800,000 available 10 years from now so that a new product line

can be initiated. If the company plans to deposit money each year, starting 1 year from now, how much will it have to

deposit each year at 6% per year interest in order to have the $2,800,000 available immediately after the last deposit is

made?

(Use given tables)

a. Less than $182,000 b.

c. $191,

d. Over $210,

Answer: d

A = 2,800,000(A/F,6%,10) A =

67. A company that manufactures hydrogen sulphide monitors is planning to make deposits such that each one is

5% larger than the preceding one. How large must the first deposit

be (at the end of year 1) if the deposits extend through year 10 and the fourth deposit is $1250? Use an interest rate of 10% per

year.

a. $1312.50 b.

$1190.48 c.

$1133.79 d.

Answer: d

At t = 4  A1(1+g)3 = 1250

Size of first deposit A1 = 1250/(1 + 0.05)3 = $1079.

68. A municipal bond that was issued 3 years ago has a face value of $5000 and a bond interest rate of 4% per year

payable semi‐annually. The bond has a maturity date of 20 years from the date it was issued. If the interest rate in the

marketplace is 8% per year, compounded quarterly, the value of n that must be used in the P/A equation to calculate

the present worth of the bond is

a. 34

69. A company that manufacturers control valves has a fund for equipment replacement that contains $500,000. If the

company spends $75,000 per year on new equipment, how many years will it take before the fund is less than

$75,000, at an assumed interest rate of 10%?

P = 75000(P/A,10%,n) < 500000 or 500/75 = 6 years, 4 months so 7

70. A lender wishes to loan $100 to a borrower. The load period is for exactly one year. The lender has the option of

charging simple or compound interest. Which method of interest would generate the largest return?

ANS: Compound

Interest

71. A lender earns $22 in interest from lending $100. What is the lender's Rate of Return (ROR) as a percentages?

(Example: enter 45 for 45%)

72. A non-monetary increase in supply will lead to

a) A decrease in the equilibrium price and an increase in the equilibrium quantity

73. A pump has failed and must be replaced. One option is to use a new brass pump at $6,000. However, the company

has a used stainless steel one that could do the job and last as least as long as 3 years. Its initial cost was $13,000 and

22

this order) is:

84. An interest rate expressed as an effective 12% per year, compounded monthly is the same as

a) 12% per year

b) 1% per month

c) 12.7% per year

d) a and b

85. An asset purchased for $50,000 is to be depreciated over 5 years using the straight line method. Salvage value is

$10,000. Its book value after 3 years is

a) 26,

b) 24,

86. An eigenvalue app takes 10 seconds to run on your laptop for a 20x20 matrix. Increasing the size to 21x21 increases

the time to 10.6 seconds. What is your closest estimate for the execution time of the app for a 260x260 matrix?

Estimate using the rule of 72.

a) ~1,400 seconds

b) ~2,400 seconds

c) ~ 2,400 minutes

d) ~ 1/3 of the year

e) ~ 3 years

87. An increase in supply will lead to

a. a decrease in the equilibrium price and an increase in the equilibrium quantity

b. a decrease in the equilibrium price and a decrease in the equilibrium quantity

c. an increase in the equilibrium price and an increase in the equilibrium quantity

d. an increase in the equilibrium price and a decrease in the equilibrium quantity

88. An asset purchased for $50,000 is to be depreciated over 5 years using the straight line method. Salvage value is

$10,000. Its book value after 3 years is

a) 26,

b) 24,

c) 20,

d) 10,

89. An asset purchased for $60,000. Salvage value after 5 years is $10,000. Its book value after 3 years (assume SL)

is

a) 30,

b) 40,

c) 50,

d) 60,

90. An unmarried taxpayer with no dependents has a taxable income of $62,000. His tax credits total

$8,000. What will his federal taxes be? a.

54000x.38 b. 54000x.

c. (37885)x.15 + (54000-37885)x.

d. (37885)x.15 + (54000-37885)x.

91. An interest rate expressed as an effective 12% per year, compounded monthly is the same as

a. 12% per year

b. 1% per month

c. 12.7% per year

d. a and b

92. An example of an intangible factor is

a. Taxes

b. Cost of materials

c. Morale

d. Rent

93. An engineer deposits $1,000 every 6 months into a savings account bearing 24% compounded monthly. He needs to

know how much will be there in 10 years.

a. Draw the Cash Flow diagram

b. Compute the effective interest rate per 6 months

i. I = (1 + 0.12/6) = 1.126 or 12.6% semiannually

c. Write the formula expressing the worth in 10 years. (do NOT solve) FW = 1000(F/A, 12.6%, 20)

94. An economist tried to estimate the economic impact of Tiger Wood’s indiscretions. He took the stock values of all of

the companies that paid him to promote their products at the time of discovery (a few months ago) and the value last

week. It totaled up to a $10 billion dollar loss. Suggest a way of making that number more accurate.

V1 = DOW-JONES ON DAY OF DISCOVERY V2 = DOW-JONES LAST WEEK

10000000000(V2/V1)

95. An annuity has a future worth of $1000, 5 years into the future. The investment is subject to a nominal interest rate

of 10% per year, but with infinite compounding. What is the annual (integer) payment that will result in this future

value?

96. At what stage of the project would you calculate a rough (quick-and-dirty) estimate?

project proposal

end of requirements definition end of

detailed design

end of project

97. At the intersection of Taunton and Harmony, PetroCan is selling gas at 50 cents a litre less than at the Esso station

Salvage 1,000 2,700 5,

Life 5 6 7

ANSWER :

No replacement therefore use present worth analysis A: - 1,000 +

150(P/A, 8%, 5) + 1,000(P/F, 8%, 5)

B: - 2,000 + 150(P/A, 8%, 6) + 2,700(P/F,8%,6)

C: - 3,000 + 5,600(P/F,8%,7)

100. At a MARR of 12%, what is X to make PWa = PWb?

150 + 40(P/A,12%,6) – 100(P/F,12%,6) = X + 65(P/A,12%,6) – 200(P/F,12%,6) X = 150 –

25(P/A,12%,6) + 100(P/F,12%,6)

X = $97.

101. At the end of four years, what is the undepreciated capital cost, the UCC, at that point?

ANSWER: 7,

102. At a compound interest rate of 10% per year, $10,000 one year ago is now equivalent to a. $

b. $

c. $11,000 d.

103. ABC refers to

a. an accounting method for determining indirect costs

b. an accounting method for allocating direct costs

c. Always Buy Canadian

d. a and b

BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB

BBBBBBBBBBBB

104. Betty receives $25,000 as a 21

st

birthday present. She

r

d

d

ecides to make regular deposits of 1,000 on her 22

nd

birthday, adding $200 more each year (1,200 on the 23 etc... What is her future worth on her 56th birthday?

a. 1000(P/A,6%, 34) +200(P/G,6%,34)

b. 1000(P/A,6%, 34) +200(P/G,6%,34) + 25000(F/P,6%,34)

c. 1000(P/A,6%, 34) +200(P/G,6%,34) + 25000(F/P,6%,35)

d. (1000(P/A,6%, 34) +200(P/G,6%,34))(F/P,6%,34) + 25000(F/P,6%,35)

105. BigBox spends $2M in developing a new product. It expects a return stream of $1M after year 1, $2M year 2 and $2M

after year 3 when the project will end. At a MARR of 10%, what is the PW of the project in Ms, to the nearest

$100,000? If it were $1,100,000, you would answer 1.1.

106. Buying land for $100K at 8%, 3 building choices. Lifetime is 20 years

2 Story 5 Story 10 Story

Initial Cost 400K 800K 2100K

Land/Building Resale 200K 300K 400K

Annual Income 70K 105K 256K Use

benefit cost analysis to determine best option

ANSWER:

2 Story

Benefits = 200K(P/F,8%,20) + 70K(P/A,8%,20) = $730,

Costs = $100K(land) + $400K = $500K B/C Ratio

5 Story

Benefits = 300K(P/F,8%,20) + 105K(P/A,8%,20) = $1,095,240 Costs = 100K

+ 800K = 900K

B/C Ratio 1.

10 Story

Benefits = 400K(P/F,8%,20) + 256K(P/A,8%,20) = $2,599,208 Costs = 100K

+ 2100K = 2200K

B/C Ratio 1.

Based on B/C Analysis, 2>10>

107. Barry Hairychest grosses $110,000 with deductions of $12,345. How much federal tax must he pay, to the nearest

dollar?

ANSWER: 20,

d) all of the above

116. Cost Capacity Equations are a type of - power law - sizing model - cost prediction model - all of the above

117. Currently , the world’s hyperinflation record is held by - Hungary - Germany - Iran - Zimbabwe 118. Capitalized cost represents the present worth of service for an infinite time.

True

119. Consider a set of economic alternatives, in which neither the inputs nor the outputs are fixed for each alternative.

The rule defining the economic goal is:

a) Maximize the output

b) Minimize inputs

c) Choose the alternative with the largest difference between inputs and outputs (largest profit margin)

120. Consider a set of project alternatives with 2,3, and 6 year lifetimes. The best analysis period to consider the projects

over is:

a) 2 years

b) 6 years

c) 12 years

DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD

DDDDDDDDD

121. Deflation always has positive effects on the economy. False 122. Danny has hired you to plant trees for 10 days. You are supposed to plant 10 trees per day and you are paid $10 for

each tree planted. After 4 days, you planted 50 trees and you were paid $500. What are the SPI and CPI for the project

(Schedule/Cost Performance Index)?

a) SPI=0.8, CPI=1.25 b)

SPI=1.25, CPI=1.0 c) SPI=0.8,

CPI=1.0 d) SPI=1.25, CPI=0.

123. Depletion methods are used to recover

a) investment in harvesting of natural resources

b) depreciation

c) ware and tear on equipment

d) taxes (not sure could be “a”)

124. Decreased somewhat

Question 2: If we entered into stagflation, then

a) Inflation would increase

b) Investments would dry up

c) Unemployment would increase

d) All of the above

125. Dalton McGuinty (head of the Dalton Gang) is going to raise the Ontario minimum wage to $10/hr.

This will cause

a. the price of hamburgers to rise

b. minimum wage jobs to be lost

c. current workers to become more productive or get fired

d. all of the above

126. Depreciation methods are used to recover

a. Investment in Harvesting Natural Resources

b. Wear and Tear on equipment

c. taxes

d. depletion

127. Depletion methods are used to recover

a. investment in harvesting of natural resources

b. depreciation

c. wear and tear on equipment

d. taxes

128. Danny has hired you to plant trees for 10 days. You are supposed to plant 10 trees per day and you are paid $10 for

each tree planted. After 4 days, you planted 50 trees and you were paid $500. What are the SPI and CPI for the

project (Schedule/Cost Performance Index)?

a. SPI=0.8,

CPI=1.25 b)

SPI=1.25, CPI=1.0 c)

SPI=0.8, CPI=1.0 d)

SPI=1.25, CPI=0.

129. Determine the number of times interest would be compounded in 1 year for the following interest statements: (a) 1%

per month; (b) 2% per quarter; and (c) 8% per year compounded semi‐ annually.

Answer:

(a) 12 (b) 4 (c) 2

130. Due to a significant drought, it becomes difficult to produce oranges. The resulting change to the supply demand

curve of oranges can be best described as:

a) A left shift in supply.

b) A right shift in supply.

c) A left shift in demand.

d) A right shift in demand.

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131. Economic recession can be best defined as:

Answer ; A decline in a country’s real GDP for two or more successive quarters.