Di gnostic Examination

TOPIC XV: ENGINEERING TIME LIMIT: 45 MINUTES ECONOMICS

1. Approximately how many years will it take to double an investment at a 6% e e!tive annual rate" #A$ %& yr #'$ %( yr (C) %) yr #D$ %* yr +(&& per month to a ,&%#k$retirement a!!ount- The a!!ount earns interest at a nominal annual interest rate o .%/ with interest bein0 !redited monthly- 1hat is the value o the a!!ounta ter 2) years" #A$ +26./&&& #'$ +,%,/&&&
(C) $447,000 2. An individual !ontributes

5. +)&&& is put into an empty savin0s a!!ount with a nominal interest rate o )%- :o other !ontributions are made to the a!!ount- 1ith monthly !ompoundin0/ how mu!h interest will have been earned a ter ive years" CA$ +%()& C'$ +%2.& CC$ +%,%& CD$ +%,(& 6. An en0ineer deposits +%&/&&& in a savin0s a!!ount on the day her !hild is born- ;he deposits an additional +%&&& on every birthday a ter that- The a!!ount has a )% nominal interest rate/ !ompounded !ontinuously6ow mu!h money will be in the a!!ount the day a ter the !hild<s (%st birthday" CA$ +26/(&& C'$ +,%/2&& CC$ +6,/.&&

#D$ +,)3/&&& 3. A 0raduatin0 hi0h s!hool student de!ides to take a yearo and work to save money or !olle0e- The student plansto invest all money earned in a savin0s a!!ount earnin06% interest/ !ompounded 4uarterly- The stu= denthopes to have +)&&& by the time s!hool starts in %( months- 6ow mu!h money will the student have to save ea!h month" #A$ +2367mo

CD$ +.,/2&& 7. A ma!hine !osts +%&/&&& and !an be depre!iated over a period o our years/ a ter whi!h its salva0e value will be +(&&&- 1hat is the strai0ht=line depre!iation in year 2" CA$ +(&&& #'$ +()&& #C$ +,&&&

(B) +,&)7mo
#C$ +,&*7mo
(D) +,%%7mo

CD$ +6&&&
8. A 0roundwater treatment system is needed to remediate a solvent=!ontaminated a4ui er- The system !osts +(/)&&/&&&- It is expe!ted to operate a total o %2&/&&& hours over a period o %& years and then have a +()&/&&& salva0e value- Durin0 its irst year in servi!e/ it is operated or 6)&& hours- 1hat is its depre!iation in the irst year usin0 the MAC>; method" #A$ +%%2/&&& #'$ +%()/&&& CC$ +(()/&&& CD$ +()&/&&&

88A 0old mine is pro9e!ted to produ!e +(&/&&& durin0 8%.hrst year o operation/ +%3/&&& the se!ond year/ 8- /&&&the third year/ and so on- If the mine is expe!ted -& produ!e or a total o %& years/ and the e e!tive <lunu 1 . a ll%terest rate is 6%/ what is its present worth" #A$ +%%./&&&
IB) +%()/&&& (C) +%)&/&&& ID) +%**/&&&

DE XV-2

FER

E VIE

MAN

U A L

9. A machine initially costing $25,000 will have a sal3 vage value of $6000 after five years. Using MACR !e"reciation, what will its #oo$ value #e after the thir! year% &A' $5()0 &*' $)200 &C' $+0,000 &,' $+-,600 10. .iven the following cash flow !iagram an! an /0 effective annual interest rate, what is the e1uivalent annual e2"ense over the five3year "erio!%
t= 0 t= 5

the #uil!ing has ha! no !eterioration or !eer 8 utility. 9hat shoul! the warehouse sell for to!a y, e:se ;n &A' $(2),000 &*' $5(0,000 &C' $6)/,000 &,' $64+,000 13. A !elivery com"any is e2"an!ing its fleet #y fiw, vans at a total cost of $)5,00% <"erating an! mainte= nance costs for the new vehicles are "ro7ecte! to 1)<> $20,000>year for the ne2t eight years. After eight years the vans will #e sol! for a total of $+0,000. Annll:i revenues are e2"ecte! to increase #y $(0,000 with th8 e2"an!e! fleet. 9hat is the com"any8s rate of return on the "urchase% &A' +4.)0 &*' 20./0

$100

&C' 2+.)0
$150 $200 $150

&,' 2-.20 14. A com"any is consi!ering re"lacing its air con!i3 tioner. Management has narrowe! the choices to two alternatives that offer com"ara#le "erformance an! con3 si!era#le savings over their "resent system. 5he effec3 tive annual interest rate is /0. 9hat is the #enefit3cost ratio of the #etter alternative%
I II

$500

&A' $204 &*' $2+/ &C' $25+ &,' $26/ 11. 5he construction of a volley#all court for the em"loyees of a highly successful mi!3si6e! "u#lishing com"any in California is e2"ecte! to cost $+200 an! have annual maintenance costs of $-00. At an effective annual interest rate of 50, what is the "ro7ect8s ca"ital3 i6e! cost% &A' $+500 &*' $2)00 &C' $)200 &,' $+/,000 12. A warehouse #uil!ing was "urchase! +0 years ago for $250,000. ince then, the effective annual interest rate has #een /0, inflation has #een stea!y at 2.50, an!
www.ppi2pass.com

initial cost annual savings salvagevalve life &A' +.)-

$7000 $1500 $500 15 yr

$9000 $1900 -$1250 15 yr

&*' +.)6
&C' +./(

&,' +.//
15. A gourmet ice cream store has fi2e! e2"enses &rent, utilities, etc.' of $50,000>yr. ;ts two full3time em"loyees each earn $25,000 "er year. 5here is also a "art3time em"loyee who ma$es $+(,000 "lus $6000 in overtime if sales reach $+20,000 in a year. 5he ice cream costs $(>? to "ro!uce an! sells for $)>?. 9hat is the minimum num#er of liters the store must sell to #rea$ even% &A' -/000 ? &*' -4000 ? &C' (0000 ? &,' (+000 ?

ftDI

..

D I A G NOS

TIC

E X A MIN

A T ION

ENG

I NEE

R I N GEe

0 NOM

I C S

DE XV-3

SOLUTIONS ................................... 1. Determine the number of years for the compound amount factor to e ua! "# F= 2P = P(F/P, i$% n) 2= (F/P,6%,n)
= (1 +

<se the sin=in4 fund factor# A . F(A/ F, i$% n)

= ($5000)(A/ F, '#6$%9)
=

&:6000) &

0#0'6 ) &' + 0#0'6)9 ; '

it

= :'"""

= (1 + 0.06)n

In " = In 1.06n
= n&!n '#0()

'""" 11100:011 uarter month!y sa+in4s . ;;;.;;;; 5 mo uarter

= :903>mo

In" n=-In '#0( = ''#* yr

&'" yr)

Answer

is C.

A!ternati+e!y% use the ($ factor tab!e# n is appro,i; mate!y '" years#

4. This cash f!o? is e ui+a!ent to a :"0%000 annua! series ?ith a ;:'000>year 4radient# <se the factor tab!es# P . ($20,000)(P / A, ($%'0) ; ($1000)(P / G, ($%'0)

The effecti+e rate per month is

i . #/01 m

. 0#02 . 0#00((3
'"

. &:"0%000)&3#5(0') ; &:'000)&"*#(0"5) . :''3%(00 &:''2%000)

AnswerisA.

se the uniform series compound amount factor# F= A(F/A, JO

00
;50 yr

i%,n) 5. The effecti+e annua! interest rate is

compoundin4 is month!y% n is the number of

n= &56 yr)&'"
= 9"0 mo

78)

C' + it- 1)
+ 0#00((3)9"0;
0#00((3 &:96*%000) ')

The tota! future +a!ue is F= P(F/P, i$% n) = P(l

= &:6000)&'

. &:
= is D.

) &&' "00

+ it

:96*%""3

+ 0#06''()6

. :(9'3
The interest a+ai!ab!e is

The effecti+e rate per uarter is interest

i = #/01 = 0#0( = 0#0'6
=F - P = =

:(9'3 ; :6000

:'9'3

&:'9"0)

are four compoundin4 periods durin4 the year# n=4

&This prob!em can a!so be so!+ed by ca!cu!atin4 the effecti+e interest rate per period and compoundin4 for (0 months#)
Answer is D.

DE XV -4

FER

E VIE

MAN

U A L

6. The uniform series compound amount factor does not include a contribution at t = o. Therefore, calculate the future value as the sum of a single payment and an annual series.

10. 4irst, find the present 5orth of all of the cash fl P , $500

o5s.

+ ($50)(P

/ A, "6, 5)

+ ($50)(P
501)

/ 7, "6, !)

F= P(F/ P, r%, n)
=

+ A(F/

A, r%, n)

P(ern)

+ A(e

rn

-1) er -1 e ( e(0.05)
(0.05)(21)
-

+ ($100)(P / F, "6, 5) = $500 + ($50)(%.2223) + ($50)(!. + ($100)(0. "0 )

-

= ($1O,000)e(o.o5)(21)+ ($1000)
= $ !,"0"

1)

= $1000

1 8e9t, find the effective uniform annual e9pense (cost). :/() = ($1000)(A/ P, "6, 5)

($ !,"00)

Answer is C.

7. #ith the straight<line method, depreciation is the same in each year.

Answer is C.

, ,

($1000)(0.2505) $251

- D-< C- Sn D%< n
$10,000 < $2000 !yr = $2000&yr Answer is A. ($2000)

11. 4ind the capitali;ed cost of the annual mainte< nance and add the initial construction cost to it.

+A

= $1200

+ $%00
0.05

, $3200
Answer is C.

8. '()*+ depreciation depends only on the original cost, not on the salvage cost or hours of operation.
Dj = )(factor)

D1 , ($2,500,000)(0.10)
= $250,000 Answer is D.

12. =deally, the current price should be the future 5orth (from 10 years ago) ad0usted for inflation. /se the inflation<ad0usted interest rate, d, together 5ith the single payment compound amount factor. d= i> f

+ if

9. -oo. value is the initial cost less the accumulated depreciation. /se the '()*+ factors for a five<year recovery period.

, 0.0" > 0.025 > (0.0")(0.025) , 0.103

F= P(F/P, d%, n)

BV= C-

ID
j=1

,
j

($250,000)(1

+ 0.103)10
($ 21,000)

= $ 20,202 Answer is D.

C-

I ()(factor0))
j=1

C(1-

1factorj)
J=1

= ($25,000) (1 < (0.20 = $3200

+ 0.%2 + 0.122))

Answer is B.

PPI

www.ppi2pass.com


D I A G NOS TIC E X A MIN A T ION ENG I NEE R IN GEe 0 NOM I C S

DE XV-5

13. Rate of return is the effective annual interest rate that would ma e the investment!s "resent worth #ero$
p

The alternatives cannot 5e com"ared to one another 5ased sim"l4 on their ratios$ Instead+ "erform an incre; mental anal4sis$ Brr - Br Crr ; Cr

% 0 % ;'()*+000,

+ '(-0+000 ; $20,000)(P / A, + ($10,000)(P / F, i.+ /,

()*+000 % '(00+000, ''1

i.+ /,

(1:+0:9 ; (10+/98 (898- ; (:/-0 % 1$9-

+ i,/ 2 1, + i, + '(10+000,'1 + i,;/

i'1 '01$).,$

3ecause the incremental anal4sis ratio is 6reater than one+ alternative II is su"erior$ Answer is A.

34 trial and error+ i%0$01)

Answer is C.

15. Calculate the costs and revenues assumin6 sales of (100+000 are e<ceeded$

14. Com"ute the "resent worth of the 5enefits and costs for each alternative$ Salva6e value should 5e counted as a decrease in cost+ not as a 5enefit$
7or alternative I+ B
= =

costs % (*0+000

+ '0,'(0*+000, + (1-+000 +
'- 2, Q

+
revenues =

(:000

($1500)(P / A, /.+ 1*,

'(1*00,'/$**8*,

') 2,

= (10+/98

At the 5rea ;even "oint+ costs e=ual revenues$ revenues = costs

C = ()000 ; ($500)(P / F, /.+ 1*,

= ()000 ; '(*00,'0$91*0,

% (:/-0

')
Chec

~)Q=$120,000+ Q= -0000 >

'-

~)Q

B = (10+/98 % 1$// C $6842

7or alternative II+ B % ($1900)(P / A, /.+1*, % '(1800, '/$**8*, % (1:+0:9

the assum"tion that sales e<ceed (100+000$

') 2, '-0000 >, % (0/0+000

?o @

C % (8000
% (8000
= (898-

+ ($1250)(P / F, /.+1*, + '(10*0,'0$91*0,

Answer is C.

B % (1:+0:9 % 1$)9 C $9394

51-8

FER

E VIE

MAN

U A L

There are no tables for this interest rate. (PIA 0.579% 360) = (1 + it
,

t= 0

t= 25

-1 i(l + it
(1 + 0.00579)360- 1

Itt t t t t t t t t
+ 0.00579)360
$180,000

"'TtA=$1200

(0.00579)(1
=

151.10

P(steel pipe)

= = =

$150,000 + A(P I A, 8%, ,5) $150,000 + ($5000)(10.67*8) $,03,37* $180,000 + A(P I A, 8%, ,5) $180,000 + ($1,00)(10.67*8) $19,,810

P = A(P I A, 0.579%, 360)

= =

($550)(151.10) $83,105 4('()*.3)

= =

Answer is B.

5sing '()*.3 is less e/pensi+e b#

Problem 6

$,03,37* - $19,,810 = $10,56*

Answer is A.

($10,600)

The designer of the pensto ! for a s"all h#droele tri ogeneration station has the option of $sing steel pipe, %hi h osts $150,000 installed and re&$ires $5000 #earl# for painting and lea!- he !ing "aintenan e, or '()*.3 (hea+#-d$t# plasti ) pipe, %hi h osts $180,000 installed and re&$ires $1,00 #earl# for lea!- he !ing "aintenan e. .oth options ha+e an e/pe ted life of ,5 #ears. If the interest rate is 8%, %hi h hoi e has the lo%er present e&$i+alent ost and ho% "$ h lo%er is it0 (1) '()*.3 osts less b# $10,600. (.) (teel pipe osts less b# $10,600. (2) '()*.3 osts less b# $65,000. (') (teel pipe osts less b# $65,000. Solution The proble" re&$ires a o"parison of the $nifor" series present %orth of ea h alternati+e. 3or steel pipe,
t=0

1. 6f the interest rate on an a o$nt is 11.5% o"po$nded #earl#, appro/i"atel# ho% "an# #ears %ill it ta!e to triple the a"o$nt0 (1) 8 #ears (.) 9 #ears (2) 10 #ears (') 11 #ears 2. 3ifteen #ears ago $1000 %as deposited in a ban! a o$nt, and toda# it is %orth $,370. The ban! pa#s interest se"i-ann$all#. 7hat %as the no"inal ann$al interest rate paid on this a o$nt0 (1) ,.9% (.) *.*% (2) 5.0% (') 5.8%

t t t t t t t t t t ...Tt

t= 25

A = $5000

$150,000

3or '()*.3,

3. 8r. 9ones plans to deposit $500 at the end of ea h "onth for 10 #ears at 1,% ann$al interest, o"po$nded "onthl#. The a"o$nt that %ill be a+ailable in t%o #ears is (1) $13,000 (.) $13,500 (2) $1*,000 (') $1*,500

PPI

www.ppi2pass.com

,..

4. The purchase price of a car is $25,000. Mr. Smith

makes a down payment of $5000 .and borrows the balance from a bank at ! annual interest, compounded monthly for fi"e years. #alculate the nearest "alue of the re$uired monthly payments to payoff the loan. (A) $350

CAS

FLO

WAN

E QUI

VAL

ENe

51-9

8. /ou borrow $6500 for one year from a friend at an

interest rate of +.5! per month instead of takin* a loan from a bank at a rate of +1! per year. #ompare how much money you will sa"e or lose on the transaction. %5' /ou will pay $55 more than if you borrowed from the bank. %&' /ou will pay $ 60 more than if you borrowed from the bank. %#' /ou will pay $ 15 more than if you borrowed from the bank.

%&' $(00
(C) $450 %)' $500

5. A piece of machinery can be bou*ht for $+0,000 cash

or for $2000 down and payments of $,50 per year for 15 years. -hat is the annual interest rate for the time payments.

%)' /ou will sa"e $55 by borrowin*

friend.

from your

9. If you in"est $25,000 at 1! interest compounded

annually, appro7imately how much money will be in the account at the end of 10 years. %5' $6+,000 %&' $( ,000
"#.,

(A) 1.51% %&' (. +! (C) 7.71%

%)' +2.0!

(C) $54,000 %)' $,5,000 10. 5 colle*e student borrows $+0,000 today at +0! interest compounded annually. 8our years later, the student makes the first repayment of $6000. 5ppro7imately how much money will the student still owe on the loan after the first payment.
%5' $,,00 %&' $1600

For the following

problems, use the NCEES Handbook as your only reference. 6. /ou ha"e borrowed $5000 and must pay it off in fi"e e$ual annual payments. /our annual interest rate is +0!. 0ow much interest will you pay in the first two years. (A) $855

(B) $1 1
(C) $875 %)' $2+1 7. A company puts $25,000 down and will pay $5000 e"ery year for the life of a machine %+0 years'. If the sal"a*e "alue is 3ero and the interest rate is +0! com4ounded annually, what is the present "alue of the machine. %5' $55,,00

(0) $++,000 %)' $++,,00 11. 5 (0-year-old consultin* en*ineer wants to set up a retirement fund to be used startin* at a*e 5. $20,000 is in"ested now at ! compounded annually. 5ppro7imately how much money will be in the fund at retirement.
%5' $1(,000 %&' $1 ,000

%&' $ +,(00
(C) $75,500 %)' $12,500

(C) $88,000
%)' $22,000

PPI

www.ppi!pass.com

51-10

FER

E VIE

MAN

U A L

33
16. $ youn1 woman plans to retire in '0 years. 6h intends to contribute the same amount of money ea h year to her retirement fund. The fund earns !0% *oc 7 pounded annually. 6he would li8e to withdraw $!00 .7 each year for 20 years/ startin1 ! year after the 9la t contribution is made. $pproximately how much mon: r should she contribute to her retirement fund each year7
#$% $&90 #(% $5)0

12. The maintenance cost for a car this year is expected to be $500. The cost will increase $50 each year for the subsequent 9 years. The interest is 8% compounded annually. What is the approximate present worth of maintenance for the car o er the full !0 years"
#$% $&'00 #(% $&)00

#*% $5'00
#+% $5500

#*% $5200
#+% $!!/000

13. $ house is expected to ha e a maintenance cost of

$!000 the first year. ,t is belie ed that the maintenance cost will increase $500 per year. The interest rate is -% compounded annually. . er a !03year period/ what will be the approximate effecti e annual maintenance cost" #$% $!900 #(% $'000

17. $ deposit of $!000 is made in a ban8 account that pays 8% interest compounded annually. $ppr.ximately how much money will be in the account after !0 years"
#$% $!890 #(% $2000

#*% $'500
#+% $'800

#*% $2!-0
#+% $22&0

14. 0ou deposited $!0/000 in a sa in1s account fi e years a1o. The account has earned 5.25% interest com3 pounded continuously since then. 4ow much money is in the account today"
#$% $!2/800 #(% $!2/900

18. $ deposit of $!000 is made in a ban8 account that pays 2&% interest per year compounded quarterly. $pproximately how much money will be in the account after !0 years"
#$% $)000 #(% $)200

#*% $!'/000
#+% $!'/-00

#*% $8-00
#+% $!0/000

15. $ youn1 en1ineer wants to surprise her husband with a 5uropean acation for their tenth anni ersary/ which is fi e years away. 6he determines that the trip will cost $5000. $ssumin1 an interest rate of 5.50% compounded daily/ approximately how much money does she need to deposit today for the trip"
#$% $')90 #(% $'800

19. $ machine costs $20/000 today and has an esti3 mated scrap cash alue of $2000 after ei1ht years. ,nfla3 tion is 8% per year. The effecti e annual interest rate earned on money in ested is 8%. 4ow much money needs to be set aside each year to replace the machine with an identical model ei1ht years from now"
#$% $29)0 #(% $'000

#*% $'880
#+% $'9'0

#*% $'290
#+% $'5!0

20. $t what rate of annual interest will an in estment

quadruple itself in !2 years" #$% !0.!% #(% !!.2%

#*% !2.2%
#+% !'.!%

PPI

www.ppi2pass.com

52-4

FER

E VIE

MAN

U A L

Problem 3

Problem &

Referring to the machine described in Prob. 1, what is the book value after five years using the MAORS method of de reciation! "A# $1%,&'' "(# $1),*''
(0) $18,500

A $1''' face<value bond ays dividends of $11' at th end of each year. If the bond matures in %' years, wh 8 is the a ro9imate bond value at an interest rate of 1%4 er year, com ounded annually! "A# $5,' "(# $,3'

"+# $%1,,'' Solution -sing ./. &%.*, (01

&

(0) $1000
"+# $15%' Solution

c< 2:Dj
j=l

3he bond value is the resent value of the sum of annual interest ayments and the resent worth of the future face value of the bond. P 1 ($110)(P / A, 1%4, %'# + ($1000)(P / F, 1%4,%'#

3o com ute the de reciation in the first five years, use the MAORS factors for a 1'<year recovery eriod.
year 1 % factor

"4#

Dj= "factor# C "'.1'#"$&','''# 1 $&''' "'.15# "$&','''# = $,''' "'.1**#"$&','''# 1 $6%'' "'.-&# "$&','''# 1 $&6&' "'.',%#"$&','''# 1 $4600 I.Dj= $31,550

3
* &

1'.' 15.' 1*.* 11.& ,.%

1 "$11'#: " %' + "$1'''#"1 + '.1%r%o "'.1%#"1.1%# 1 "$11'#"6.*),*# + "$1'''#"'.1'36#

"1 1%#%'< 1 #

= $,%&
Answer is B.

"$,3'#

(0

1 $&',''' <

$31,&&' 1 $15,*&'

"$15,&''#

Answer is C.
..................

FESTYLE EXAM PROBLEMS ... .

, "

Problem *

A machine that costs $%',''' has a 1'<year life and a $%''' salvage value. If straight<line de reciation is used, what is the book value of the machine at the end of the second year! "A# $1*,''' "(# $1*,*'' (0) $15,600 "+# $1),*'' Solution -se straight<line de reciation. D.- 7< Sn ]n $%',''' < $%''' 1' years 1 $15'' er year
%

Problem 1 through Prob. 6 refer to the following situation. A com any is considering buying one of the following two com uters.
com uter initial cost salvage value useful life annual maintenance interest rate $3,'' $15'' 1' years $3,' A com uter ( $&&'' $31'' 13 years $%6& "year 1 to 5# $*%& "year , to 13#

6%

6%

1. ;hat is the e/uivalent uniform annual cost of com< uter A! "A# $6*' "(# $65' (0) $820 "+# $5&' er year#

(02= 7< 2:Dj

j=l

= =

$%',''' < "% years#"$15'' $1),*''

Answer is D.

PPI

www.ppi2pass.com

D E PRE

C I A T ION

AND

S PEe

I A L

TOP

I C S

52-5

2. What is the equivalent uniform annual cost of com4 puter ! (A) "##$ (B) "#%$ (C) $850 (D) "&'$
3. If computer A (as to )e purchase* an* +ept forever (ithout an, chan-e in the annual maintenance costs. (hat (oul* )e the present (orth of all e/pen*itures!

For the following problems, use the NCEES Handbook as your only reference

S. An investment proposal calls for a "3$$.$$$ pa,ment no( an* a secon* "3$$.$$$ pa,ment 3$ ,ears from no(: The investment is for a pro;ect (ith a perpetual life: The effective annual interest rate is 8<: What is the appro/4 imate capitali=e* cost! 0A1 "378.$$$ 0 1 "38$.$$$ 0C1 "5$$.$$$ 0D1 "58#.$$$ 9. Depreciation allo(ance is )est *efine* as 0A1 the value that a )u,er (ill -ive a machine>s o(ner at the en* of the machine>s useful life annual strai-ht4line *epreciation for 0 1 the amount a(ar*e* to in*ustries involve* in removin- natural limite* resources from the earth 0C1 the amount use* to recover the cost of an asset so that a replacement can )e purchase* 0D1 a factor (hose use is re-ulate* ), fe*eral la( 10. T(ent, thousan* *ollars is investe* to*a,: If the annual inflation rate is 8< an* the effective annual return on investment is 3$<. (hat (ill )e the appro/4 imate future value of the investment. a*;uste* for infla4 tion. in five ,ears! 0A1 "58.%$$ 0 1 "25.5$$ 0C1 "'5.$$$ 0D1 "'2.3$$

0A1 "2&#$
e

0 1 "#%'$ (C) $10,000 0D1 "3$.'$$

0A1 "53$6,ear (B) "5576,ear

(C) "5856,ear
0D1 "'5$6,ear
5. What is the total strai-ht4line *epreciation value of computerA after the fifth ,ear!

ing
ring

(A) "3$$$
(B) "3$7$ (C) "3357 (D) "357$ 6. What is the )oo+ value of computer B after the

secon*,ear. usin- the 9ACRS metho* of *epreciation an* a 3$4,ear recover, perio*!
(A) "228$ (B) "2#%$

11. An investment currentl, costs "5%.$$$: If the cur4 rent inflation rate is 8< an* the effective annual return on investment is 3$<. appro/imatel, ho( lon- (ill it ta+e for the investment>s future value to reach "'$.$$$! 0A1 3:% ,ears 0 1 5:2 ,ears 0C1 5:8 ,ears

0C1 "2&8$
COl314

0D1 "'35$ What is the present A! (A) "722$ (B) "7##$ 0C1 "88#$
(D) "8##$

(orth

of the

costs for

0D1 2:' ,ears

52-6

FER

E VIE

MAN

U A L

Problem 12 through Prob. 16 refer to the following information. An oil com an! i" lanning to in"tall a new i eline to connect "torage tan#" to a roce""ing lant 1500m awa!. $he connection will be nee%e% for the fore"eeablefuture. Both &0 mm an% 120 mm i e" are being con"i%ere%.
&0 mm i e $1500 12 !ear" $200 $(00 $2.50 600 hour")!ear 120 mm i e $2500 12 !ear" $300 $300 $1.(0 600 hour")!ear

15. 2hat i" the a ro.imate %e reciation allowance for the 120 mm i e in the fir"t !ear0 4"e 5A678 %e reciation a""uming a 109!ear life. (A) $193 (B) $210
(0) $230

(D) $250 16. If the annual effecti'e rate" for inflation an% inter9 e"t ha'e been 5- an% 9-+ re" ecti'el!+ what wa" the uninflate% re"ent worth of the 120 mm i e three !ear" ago0 (A) $1590

initial co"t "er'ice life "al'age 'alue annual maintenance um co"t)hour um o eration

*or thi" anal!"i"+ the com an! will u"e an annual inter9 e"t rate of &-. Annual maintenance an% um ing co"t" ma! be con"i%ere% to be ai% in their entiretie" at the en% of the !ear" in which their co"t" are incurre%. 12. Di"regar%ing the initial an% re lacement i e co"t"+ what i" the a ro.imate ca itali/e% co"t of the maintenance an% um ing co"t" for the &0 mm i e0 (A) $15+100 (B) $20+100
(0) $23,800

(B) $1610

(0) $1710
(D) $11&0 17. Permanent mineral right" on a arcel of lan% are urcha"e% for an initial lum 9"um a!ment of $100+000. Profit" from mining acti'itie" are $12+000each !ear+ an% the"e rofit" are e. ecte% to continue in%efinitel!. 2hat a ro.imate intere"t rate i" being earne% on the initial in'e"tment0 (A) &.33(B) 9.00(0) 10.0%

(D) $21+300 13. 2hat i" the a ro.imate e3ui'alent uniform annual co"t of the &0 mm i e+ con"i%ering all co"t" an% e. en"e"0 (A) $1110 (B) $1&00
(0) $1900

(D) 12.018. *loo% %amage in a t! ical !ear i" gi'en accor%ing to the followingtable.
'alue of floo% %amage $0 $10+000 $20+000 $30+000 robabilit! 0.15 0.20 0.0( 0.01

(D) $2100 14. 2hat i" the a ro.imate e3ui'alent uniform annual co"t of the 120 mm i e+ con"i%ering all co"t" an% e. en"e"0 (A) $1250 (B) $1290
(0) $1380

If the effecti'e annual intere"t rate i" 6-+ what i" the

mo"t li#el! re"ent worth of floo% %amage o'er the ne.t 109!ear erio%0 (A) $3100 (B) $9600 (0) $16,000 (D) $23+000

(D) $1(60

PPI

www.ppi2pass.com

53-4
(A) 2.2, 1.8; snowplow A (B) 2.6, 2.1; snowplow A (C) 1.4, 1.8; snowplow B (D) 1.6, 2.0; snowplow B Solution The benefit-cost method e!"i es the c#sh flows to be con$e ted to p esent wo ths. %o snowplow A, C = &'00,000 + ($45,000)(P / A, 10(, 10)
=

Problem

A comp#n2 p od"ces # 1e# th#t is commonl "s se$e #ll#wnmowe m#n"f#ct" in1 comp#ni 8T sed cost of ope #tion ( ent, "tilities, etc.) is &4)0;e brl.,<;e 2e# . The cost of m#n"f#ct" in1 is &1.') pe . 94 Pf}C these 1e# s # e sold #t &*.') e#ch how m#n 1e:. ;f sold e#ch 2e# to b e#/ e$en<. 8 m"st b=, (A) 6),000 pe 2e# (B) ,0,000 pe 2e# (C) 100,000 pe 2e# (D) 12),000 pe 2e# Solution The b e#/-e$en point fo this p oblem is the point ..t which costs e!"#l e$en"es.
Ll

ll)

&'00,000 + (&4),000)(6.1446)

= &)*6,)0*

B = ($150,OOO)(P / A, 10(, 10)

+ (&1)0,000)(6.1446)
=

costs + &*)0,000 + (&1.'))(no. of 1e# s) e$en"es = (&*.'))(no. of 1e# s) &*)0,000 + (&1.'))(no. of 1e# s) + (&*.'))(no. of no. of 1e# s = & &*)0 000 , *.') - &1.') = 12),000
1e# s)

&,21,6,0

$921,690 C $576,507 = 1.6

%o snowplow B, C = &400,000 + ($35,000)(P / A, 10(, 10) - ($10,000)(P/ F, 10(, 10)

=

Answer is D.

FESTYLE EXAM PROBLEMS 1. >#lc"l#te the #te of et" n fo #n in$estment with the followin1 ch# #cte istics.
initi#l cost p o0ect life s#l$#1e $#l"e #nn"#l eceipts #nn"#l disb" sements $20,000 10 2e# s $5000 $7500 $3000

&400,000 + (&'),000)(6.1446) - (&10,000)(0.'8)))

+ &611,206
B = ($200,000)(P / A, 10(, 10)
= (&200,000)(6.1446) = &1,228,,20 B

$1,228,920 C = ---&-.-61-1-.,2-06= (2.0)

(A) 1,.6( (B) 20.6( (C) 22.9% (D) 24.)(

To #n/ the p o0ects "sin1 the benefit-cost #tio method, "se #n inc ement#l #n#l2sis. % om 3!. )'.1,

42

2 -

4l 1

2- 1 5fo choosin1 #lte n#ti$e 26

&1,228,,20 - &,21,6,0 &611,206 - &)*6,)0* + 8.8)7 1

B2 - Bl C2 - C1

2. ? indin1 mills M #nd N # e bein1 conside ed fo # 12-2e# se $ice in # chemic#l pl#nt. The minim"m #tt #cti$e #te of et" n is 10(. @h#t # e the e!"i$#lent "nifo m #nn"#l costs of mills M #nd N, especti$el2, #nd which is the mo e economic choice<
initi#l cost s#l$#1e $#l"e #nn"#l ope #tin1 cost #nn"#l ep#i cost mill: $7800 $0 $1745 $960

The #ddition#l in$estment is w# #nted. Alte n#ti$e 2 is s"pe io ; choose snowplow B.

Answer is D.

mill A
$14,400 $2700 $1200 $540

PPI

www.ppi2pass.com

COMPARISON

OF

ALTERNATIVES

53-5

(A) $3840, $3620; rrrillN (B) $3850, $3730; rrrillN

(C) $4330, $3960; mill N

(D) $3960, $5000; mill M

unit" p#r (#ar& Dir# *ir# t mat#rial o"t" i"trati)# an* "#llin% $i-#* o)#r!#a* o"t" iation&

t la+or o"t" ar# $0&25 p#r unit, ar# $0&85 p#r unit, )aria+l# a*min8 #-p#n"#" ar# $0&25 p#r unit, an* ar# $200,000, not in lu*in% *#pr#8

6. If apital in)#"tm#nt" 3. You want to pur !a"#

ma !in#"&
ma !in# initial li$# "al)a%# annual annual o"t )alu# r# #ipt" *i"+ur"#m#nt" A ma !in# B

on# o$ t!# $ollowin% millin%

an* r#turn on t!# in)#"tm#nt ar# #- lu*#*, w!at i" t!# num+#r o$ unit" t!at t!# ompan( mu"t manu$a tur# an* "#ll in or*#r to +r#a3 #)#n wit! all ot!#r o"t".

$20,000
'0 (#ar"

$30,000
'0 (#ar"

(A) 86,900 (B) 94,900

(C) 121,200

$2000 $9000 $3500

$5000 $12,000 $4500

(D) '3',000 7& If "trai%!t8lin# *#pr# iation i" u"#*, w!at i" t!# num8 +#r o$ unit" t!at t!# ompan( mu"t manu$a tur# an* "#ll to (i#l* a +#$or#8ta- pro$it o$ 20/. (A) '87,700 (B) 203,000 (C) 225,300
(D) 270,000

,!at ar# t!# appro-imat# A an* B, r#"p# ti)#l(.

rat#" o$ r#turn $or ma !in#"

(A) 22&5/, 28&2/ (B) 23&9/, 27&0/ (C) 24&8/,22&'/ (D) 25&0/, 26&8/ 4. 0on"i*#r t!# two ma !in#" *#" ri+#* in 1ro+& 3& If
ma !in# A i" t!# pr#$#rr#* # onomi !oi #, w!at i" t!# low#"t )alu# t!at t!# minimum attra ti)# rat# o$ r#turn an +#. h (A) '0/ (B) '7/

8. ,!i ! o$ t!# $ollowin% $i)# "ituation" o$ ma3in% mutuall( #- lu"i)# *# i"ion".

1.

ar# #-ampl#"

2!# maint#nan # *#partm#nt !a" r#6u#"t#* a n#w air ompr#""or an* #it!#r a lar%#r paint +oot! or an a**itional air ompr#""or& 2!# ma !in# "!op lo atin% #6uipm#nt& n##*" n#w in"p# tion an*

(0) 22% (D) 25/

99& 999&

2!# "t#no pool n##*" #it!#r a n#w, $a"t#r wor* pro #""or or an a**itional o$$i # a""i"tant& 2!# +u*%#t ommitt## mu"t *# i*# amon% +uil*8 in% an #mplo(##"; on)#ni#n # "tor#, an on8"it# a$#t#ria, an #n lo"#* pool, or an in8!ou"# #-#r i"# room& 2!# n#wl( #l# t#* union r#pr#"#ntati)# r#"i%n *u# to a on$li t o$ int#r#"t& mu"t

S. 2!# annual maint#nan # o"t o$ a ma !in# "!op i" $'0,000& 2!# o"t o$ ma3in% a $or%in% i" $2&00, an* t!# "#llin% pri # i" $3&00& 4ow man( $or%in%" "!oul* +# pro*u #* #a ! (#ar in or*#r to +r#a3 #)#n. (A) 5000 (B) '0,000

9:&

V.

(0) 13,000 (D) '7,000 For the following problems, use the NCEES s !our onl! referen"e#
+l#m 6 an* 1ro+& 7 r#$#r to t!# $ollowin% "ituation& 0ompan( plan" to manu$a tur# a pro*u t an* "#ll it $3&00 p#r unit& 56uipm#nt to manu$a tur# t!# pro*8 will o"t $250,000 an* will !a)# a n#t "al)a%# )alu# $'2,000 at t!# #n* o$ it" #"timat#* # onomi li$# o$ '5 2!# #6uipm#nt an manu$a tur# up to 2,000,000

(A) I, II, an* 9: (B) I, 99, an* : (C) 9, 999, an* N

(D) 99, 999, an* :

------------ ......

53-6

FER

E VIE

MAN

U A L

9. A particular gate valve can be repaired, replaced, or left alone. It will cost $12, !! to repair t"e valve and $2 ,!!! to replace it. #"e cost due to a failure of t"e valve seat is $1$,!!!%for a failure of t"e ste&, $21,!!!% and for a failure of t"e bod', $$ ,!!!. All a&ounts are t"e present values of all e(pected future costs. #"e probabilities of failure of t"e valve are )nown.
valve co&ponent course of action repair valve replace valve no action seat

11. W"at is t"e appro(i&ate present wort" of t"e 12! && pipe over t"e first 12 'ears of operation/ 0A1 $,2!! 031 $1!,2!!
(C) $11,,!!

041 $12,1!! 12. W"at is t"e present wort" of t"e 16! rnm pipe <ver t"e first 12 'ears of operation if operating costs increase b' $!.. 0to $1.. per "our1 beginning in 'ear ./ 0A1 $6.,!
(B) $,!1!

!* $ * + *

ste& -1* 2.*

bod' 21*

,*
-2*

$*

W"at plan of action s"ould be c"osen based on a present wort" econo&ic basis/ 0A1 2epair t"e valve.

(C) $9380 041 $,,$! 13. If t"e annual benefit for t"e 16! mm pipe is $2!!! w"at is t"e benefit7cost ratio/ 8 0A1 1.1!

031 2eplace t"e valve.

(C) Eit"er repair or replace t"e valve. 041 4o not"ing. 10. Instead of pa'ing $1!,!!! in annual rent for office space at t"e beginning of eac" 'ear for t"e ne(t 1!'ears, an engineering fir& "as decided to ta)e out a 1!7'ear, $1!!,!!! loan for a new building at +* interest. #"e fir& will invest $1!,!!!of t"e rent saved and earn 16* annual interest on t"at a&ount. W"at will be t"e dif7 ference between t"e fir&8s annual revenue and e(penses/ 0A1 #"e fir& will need $$$!! e(tra. 031 #"e fir& will need $16!! e(tra. (C) #"e fir& will brea) even. 041 #"e fir& will "ave $1+!! left over. 9roble& 11 t"roug" 9rob. 1$ refer to t"e following infor&ation. An oil co&pan' is planning to install a new pipeline to connect storage tan)s to a processing plant 1 !! & awa'. 3ot" 12! && and 16! && pipes are being considered.
initial cost service life salvage value annual &aintenance pu&p cost:"our pu&p operation 12! && pipe $2 !! 12 'ears $$!! $$!! $1.-! +!! "ours:'ear 16! && pipe $$ !! 12 'ears $-!! $2!! $1.!! +!! "ours:'ear

031 1.$ (C) 1.49 041 1. 14. A &ac"ine "as an initial cost of $-!,!!! and an annual &aintenance cost of $ !!!. Its useful life is 1! 'ears. #"e annual benefit fro& purc"asing t"e &ac"ine is $16,!!!. #"e effective annual interest rate is 1!*. W"at is t"e &ac"ine8s benefit7cost ratio/ 0A1 1. 1 031 1. + 0=1 1..$ 041 2.2-

;or t"is anal'sis, t"e co&pan' will use an annual inter7 est rate of 1!*.Annual &aintenance and pu&ping costs &a' be considered to be paid in t"eir entireties at t"e end of t"e 'ears in w"ic" t"eir costs are incurred.

~P~P~I~.~W~w~w~.~p~p~j~2~p~a~s~s~.~c~o~m~

-------