Practice Test GeeksMEM - Master of Engineering Management Practice Test
← All MEM Flashcard Decks

Engineering Economics Flashcards

7 cards from real MEM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Engineering Economics flashcards as text

  1. A company is evaluating two mutually exclusive projects. Project A has an IRR of 18% and Project B has an IRR of 22%. The MARR is 15%. Which statement is most appropriate?

    Answer: Use incremental IRR analysis to determine the preferred project

    For mutually exclusive projects, incremental IRR analysis is required because the higher-IRR project is not necessarily the one that maximizes value.

  2. A bond with a face value of $1,000, a coupon rate of 6%, and 10 years to maturity is currently priced at $950. What is the approximate current yield?

    Answer: 6.3%

    Current yield = Annual coupon / Current price = $60 / $950 ≈ 6.32%.

  3. Which depreciation method results in the highest tax benefit in the early years of an asset's life?

    Answer: Double-declining balance depreciation

    Double-declining balance is an accelerated method that applies twice the straight-line rate to the book value, producing the largest deductions in early years.

  4. A project requires an initial investment of $500,000 and is expected to generate annual after-tax cash flows of $90,000 for 8 years with no salvage value. What is the payback period?

    Answer: 5.6 years

    Payback period = Initial investment / Annual cash flow = $500,000 / $90,000 ≈ 5.56 years.

  5. In a benefit-cost analysis for a public infrastructure project, which item is correctly classified as a disbenefit?

    Answer: Reduced property values for residents near a new highway

    Disbenefits are negative consequences borne by the public (users or third parties), not the sponsoring agency, such as noise or reduced property values.

  6. An engineering project has fixed costs of $200,000 per year, variable costs of $40 per unit, and sells its product at $90 per unit. What is the break-even volume?

    Answer: 4,000 units

    Break-even volume = Fixed costs / (Price − Variable cost) = $200,000 / ($90 − $40) = 4,000 units.

  7. What does a sensitivity analysis in engineering economics primarily determine?

    Answer: How much a key variable can change before the project decision reverses

    Sensitivity analysis identifies how sensitive the NPV or IRR decision is to changes in individual input variables, revealing which assumptions are most critical.