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Engineering Economy, 5/e

Leland Blank, Texas A&M University
Anthony Tarquin, University of Texas - El Paso

Present Worth Analysis

Sample FE Exam Problems

How to use this section: This section includes questions and problems like those on a typical FE exam. For organization purposes only, they are presented in chapter order of the text Engineering Economy, 5^th edition, by Blank and Tarquin.

It is recommended that you read through each question carefully.

The construction cost of a permanent park is $600,000. Annual maintenance and operation costs are $120,000 per year. At an interest rate of 10% per year, the capitalized cost of the park is nearest to:

$600,000

$720,000

$1,200,000

$1,800,000

At an interest rate of 10% per year, the capitalized cost of an expenditure of $1,000 per year is nearest to:

$1,000

$2,000

$10,000

$12,000

Income from a certain operation is expected to be zero in years one through five, after which it will be $50,000 per year forever. The capitalized cost of the income at 10% per year is nearest to:

$252,300

$282,250

$310,450

$500,000

Expenses for water treatment at a state park are expected to be $60,000 now, $25,000 in year one, and $10,000 per year thereafter forever. At an interest rate of 8% per year, the capitalized cost of the treatment is nearest to:

$198,890

$200,150

$217,320

$254,160

An expenditure for maintaining a bridge occurs in five-year cycles. If the cost is $100,000 now and $100,000 every five years forever, the capitalized cost of this expenditure at 10% per year is nearest to:

$16,380

$163,800

$263,800

$305,800

Problems 6 through 8 are based on the following statement:

The data for new and used machines are shown below:

	Used machine	New machine
Initial cost($)	15,000	40,000
Annual operating cost ($/year)	8,000	2,000
Salvage value ($)	5,000	10,000
Life (years)	3	6

Use an interest rate of 10% per year.

The present worth of the new machine is closest to:

$43,630

$43,066

$45,210

$49,660

To compare the machines on the basis of a present worth analysis, the present worth values to use are:

PW_used = $31,139, PW_new = $43,066

PW_used =$31,139, PW_new = $37,461

PW_used = $54,533, PW_new = $43,066

PW_used = $54,533, PW_new = $37,461

The capitalized cost of the used machine is nearest to:

$12,521

$110,210

$125,210

$179,610

The cost of a small flood control dam is expected to be $40,000 now, $3,000 one year from now, $4,000 two years from now and amounts increasing by $1,000 per year through year ten, after which they will remain constant. At an interest rate of 10% per year, the capitalized cost of the dam is nearest to:

$81,325

$127,585

$147,761

$206,351

A machine that has a five year life has a first cost of $50,000, an operating cost of $4,000 per month and a $10,000 salvage value. At an interest rate of 12% per year compounded monthly, the capitalized cost of the machine is nearest to:

$17,303

$144,188

$297,100

$498,800

For an 8%, $10,000 bond with interest payable quarterly, the amount and frequency of the interest payments is:

$800 paid one time per year

$800 paid every 3 months

$200 paid every 4 months

$200 paid every 3 months

Interest payments on a bond are $300 every six months. If the face value of the bond is $10,000, the bond interest rate is:

3% per year

3% per year compounded semiannually

6% per year compounded semiannually

12% per year compounded quarterly

Interest payments on a certain bond are $500 every three months. If the bond interest rate is 10% per year compounded quarterly, the bond face value is:

$5,000

$10,000

$15,000

$20,000

A 6%, $10,000 bond has interest payable annually. The bond will mature 10 years from now. At what market interest rate will the present worth of the bond be $10,000?

At an interest rate less than 6% per year

6% per year

6% per year compounded semiannually

At an interest rate greater than 7% per year

A $10,000 municipal bond has an interest rate of 6% per year, compounded semiannually. The bond will mature in 10 years. If the market interest rate is 8% per year compounded semiannually, a person purchasing the bond should be willing to pay:

$10,000

An amount less than $10,000

An amount greater than $10,000

The amount cannot be determined from the information that is provided

A $25,000 bond has interest payable at 4% per year compounded quarterly. The bond will mature in ten years. At a market interest rate of 8% per year compounded quarterly, the present worth of the bond is closest to:

$14,235

$18,161

$20,963

$23,610

A $50,000 bond has a maturity date of six years from now. The bond interest rate is 6% per year payable semiannually. At a market interest rate of 4% per year payable semiannually, the present worth of the bond is closest to:

$41,695

$44,291

$52,341

$55,288

Problems 18 and 19 are based on the following statement:


18	A 9%, $10,000 bond with interest payable semiannually was issued three years ago. The bond's maturity date is 10 years after issue. The interest rate in the marketplace is 12% per year compounded semiannually. The amount of interest the bond-holder will receive every six months is:
		A)	$450
		B)	$600
		C)	$900
		D)	$1200


19	The present worth of the bond is closest to:
		A)	$8,279
		B)	$8,606
		C)	$9,245
		D)	$11,675

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