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Engineering Economy, 5/e

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

Benefit/Cost Analysis and Public Sector Economics

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.


1	In evaluating an alternative which has benefits, disbenefits and costs, the conventional B/C ratio is written as:
		A)	Benefits + Disbenefits ------------------------- Costs
		B)	Benefits - Disbenefits ------------------------- -Costs
		C)	Benefits - Disbenefits ------------------------- Costs
		D)	Benefits ------------------------- Costs - Disbenefits


2	The difference between a modified B/C ratio and a conventional B/C ratio is that the modified ratio:
		A)	Subtracts M&O (maintenance and operating) costs from the numerator
		B)	Places M&O costs in the denominator
		C)	Places M&O costs in the numerator and disbenefits in the denominator
		D)	Places disbenefits and M&O costs in the denominator


3	A small flood control dam can be constructed for a cost of $3 million. The annual maintenance cost is expected to be $10,000 per year and damage due to flooding will be reduced from $300,000 per year to $100,000 per year. If the dam is expected to be permanent, the benefit-to-cost ratio at an interest rate of 6% per year is closest to:
		A)	0.55
		B)	1.05
		C)	1.57
		D)	2.02


4	The first cost of a permanent road that will improve access to a rural area is $1,000,000. The annual maintenance cost is expected to be $20,000 per year. Improved accessibility will result in benefits of $70,000 per year. At an interest rate of 6% per year, the conventional B/C ratio is nearest to:
		A)	0.833
		B)	0.875
		C)	1.25
		D)	1.75


5	The following cash flows are associated with a certain government project: Benefits ------ $500,000 per year Disbenefits ----- $200,000 per year M&O Costs ----- $50,000 per year Initial Investment Cost ----- $1,500,000 Project life ------ 10 years At an interest rate of 6% per year, the conventional B/C ratio is closest to:
		A)	0.21
		B)	0.99
		C)	1.81
		D)	2.76


6	The initial cost of a federal highway project is $4 million. The road will require maintenance at a cost of $50,000 per year during its 20 year life. If benefits of $300,000 per year have been identified, the B/C value at an interest rate of 6% per year is closest to:
		A)	0.75
		B)	0.91
		C)	1.00
		D)	1.36


7	Improvements to a national park will have a first cost of $600,000 and an annual maintenance cost of $40,000. If overhauls costing $60,000 are done every five years, the improvements will last indefinitely. If the benefits associated with the improvements are estimated to be $100,000 per year, the B/C ratio at an interest rate of 6% per year is nearest to:
		A)	0.74
		B)	0.95
		C)	1.01
		D)	1.15


8	A federal highway project is expected to have a first cost of $5 million and an annual maintenance cost of $200,000. Shoulder replacement costs of $1,000,000 will be required in 10 years. Benefits to the road-users are expected to be $800,000 per year. If the project will have a 20 year life, the B/C ratio at an interest rate of 6% per year is closest to:
		A)	0.89
		B)	1.01
		C)	1.17
		D)	1.31


9	A water conservation project funded by the federal government will have an initial cost (year 0) of $1 million and an upgrade cost of $300,000 in year five. The annual operating costs are expected to be $100,000. The water saved is valued at $200,000 in years one through four, and $50,000 each year thereafter through the 10 year life of the project. If the water saved is considered to be a benefit to the people, the B/C ratio at an interest rate of 6% per year is closest to:
		A)	0.45
		B)	0.59
		C)	0.93
		D)	1.18


10	A water utility is planning to construct a grease treatment facility so that local haulers will not have to transport grease to a city 550 km away. The facility will cost $400,000 to build and $160,000 per year to operate. Benefits to the haulers and restaurant owners (through reduced costs) are expected to be $250,000 per year. If the facility will have a 10-year life, the B/C ratio at 6% per year is closest to:
		A)	0.63
		B)	0.84
		C)	1.02
		D)	1.17

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