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		The minimum attractive rate of return for company X is 20% per year. If the company assumes the inflation rate is 8% per year, the interest rate it should use to account for inflation in a present worth calculation is nearest to:
			A)	20%
			B)	28%
			C)	29.6%
			D)	32.4%
2		A company negotiates an option contract wherein it has agreed to buy a piece of machinery sometime between now and five years from now. If the company buys the machinery now, the cost will be $50,000. If the company buys the machinery at any time other than now, the cost will be increased by the inflation rate. If the company's minimum attractive rate of return is 12% per year and the inflation rate is 6% per year, the cost of the machinery 4 years from now would be closest to:
			A)	$56,291
			B)	$63,124
			C)	$78,675
			D)	$99,326
3		An analyst conducting an economic analysis used an inflated interest rate of 16% per year in all calculations. If the real interest rate at the time of the calculations was 12% per year, the inflation rate was closest to:
			A)	3.57%
			B)	5.28%
			C)	8.36%
			D)	13.29%
4		An inflated interest rate of 24% per year at a time when the inflation rate is 10% per year implies that the company's real minimum attractive rate of return is closest to:
			A)	6%
			B)	6.28%
			C)	12%
			D)	12.73%
5		An inflated interest rate of 24% per year at a time when the inflation rate is 10% per year implies that the company's real minimum attractive rate of return is closest to:
			A)	10%
			B)	12.7%
			C)	14.8%
			D)	26.3%
6		A company purchased a semi-automatic assembly-line machine for $100,000 five years ago. If the same machine costs $150,000 today, when the market interest rate is 12% per year, the inflation rate over that time period was closest to (assume the cost of the machine increased by only the inflation rate):
			A)	4.6%
			B)	6.3%
			C)	7.1%
			D)	8.4%
7		The ENR Construction Cost Index was 3378.17 in 1980. If the index was 4770.03 in 1990, the annual increase in construction costs over that time period was closest to:
			A)	3.51%
			B)	4.63%
			C)	5.42%
			D)	6.88%
8		The first cost of a certain piece of machinery is $60,000. The machine will be used for five years, after which time it will be salvaged for $10,000. The machine's operating cost is expected to be $20,000 per year. If the inflation rate is 4% per year and the company's minimum attractive real rate of return is 20% per year, the present worth of the machine is closest to:
			A)	$101,370
			B)	$110,700
			C)	$125,900
			D)	$153,420
9		If a person deposits $1,000 now into a savings account for 10 years, the amount of money required in year 10 to account for a 6% per year inflation and earn a real 8% per year interest rate is closest to:
			A)	$1,791
			B)	$2,635
			C)	$3,866
			D)	$4,261
10		A certain machine will cost $50,000 to purchase, will have a six-year life, and $5,000 salvage value. It will be updated in year 4 at a cost of $15,000. Its annual operating cost is expected to be $30,000 per year. At an inflation rate of 5% per year and a real interest rate of 10% per year, the present worth of the machine is closest to:
			A)	$102,630
			B)	$129,300
			C)	$142,720
			D)	$168,350