MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS

INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer

University of Sharjah Department of Civil & Env. Eng.

CE 301 Engineering Economics

Midterm Exam
Closed Book and Notes (90 Minutes)
Name: ___________________________________________ Student ID: __________________________

Instructions:
 Write down your name and ID in the above space.
 Do not forget to return this exam sheet along with your answer sheet.
 Answer all questions using the provided answer sheet.
 Use pencil to select your answer in the answer sheet. Use pen only if you will not change your
answer later.
 The exam has 30 questions. Each question has only one correct answer
 All questions carry the same weight. There is no penalty for a wrong answer. Do not leave any
unanswered question.
 Use equations when possible. Refer to the provided formula sheet if you need an equation.
 When assuming any missing but needed information, use practical and justifiable values.
 Focus and relax.
Choose the best answer for each of the following 30 multiple choice questions:
1. According to their difficulty, the problems can be arranged as simple, intermediate and complex
ones. Engineering economic analysis suitable for:
a. Simple problems
b. Intermediate problems
c. Economic aspects of complex problems
d. Both b and c
e. None of the above

2. There are nine steps in the decision making process: (1) Recognize problem, (2) Define the goal, (3)
Assemble relevant data, (4) Identify feasible alternatives, (5) Select the criterion to determine the
best alternative, (6) Construct a model, (7) Predict each alternative’s outcomes, (8) Choose the best
alternative, and (9) Audit the result. Which of the following statements is correct?
a. The steps can be repeated
b. The steps can be taken out of order
c. The steps can be done simultaneously
d. All of the above are correct

3. Which of the following criterion is selected in engineering decision making?

a. Minimize the expenditure of money
b. Minimize the time to accomplish the goal
c. Maximize profit
d. Maximize the sales at any price
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MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer
4. At some point in the decision process, the various elements must be brought together. The goal,
relevant data, feasible alternatives, and selection criterion must be merged. At which step of the
following are they merged?
a. Construct a model
b. Recognize problem
c. Define the goal
d. Identify feasible alternatives

5. The cost associated with using a resource in one activity or investment instead of another is known
as:
a. Variable cost
b. Sunk cost
c. Opportunity cost
d. Marginal cost

6. Auditing the results in rational decision making process means:

a. Verifying results of feasible alternatives
b. Predicting the future of the alternatives by studying the results
c. Predicting outcomes of alternatives
d. Comparison of what happened against the predictions

7. Interest earned over a time period expressed as a percentage of principal is named as:

a. Discount rate
b. Rate of return
c. Hurdle rate
d. Cut-off rate

8. Assume that you and your best friend each have $5000 to invest. You invest your money in a fund
that pays 10% per year compound interest. Your friend invests his money at a bank that pays 10%
per year simple interest. Which of the followings is correct at the end of year 4:

a. You have $500 more than he does

b. You have $320 more than he does
c. You both have the same amount of money
d. He has $50 more than you do

9. A company expects to spend today $35,000 for buying a certain solar system for energy saving. At
an interest rate of 6% per year, compounded monthly, the uniform annual worth of the system’s cost
over the next 5 years is represented by the following equation:
a. A = 35,000 (A/P, 6%, 5.5)
b. A = 35,000 (A/P, 0.5%, 60)
c. A = 35,000 (A/P, 6.17%, 5)
d. All of the above

10. If $100 is invested at 10% per year simple interest, the amount will triple (become 3 times) in:
a. 20 years
b. 10 years
c. 15 years
d. 9 years

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MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer

11. In cash flow diagrams, the inflow (positive cash flow) is equivalent to the outflow (negative cash
flow). For the cash flows shown below, if the interest rate is 10% per year, the unknown value X is
closest to:
Year Cash Flow,$
0 -1,000
1 -2,000
2 X
3 -3,000
a. $5,611
b. $4,509
c. $6,137
d. $5,585

12. A $7,000 is borrowed from a bank that charges 8% per year, compounded continuously. The amount
to be paid after 25 years is nearest to:
a. $51,723
b. $47,939
c. $47,135
d. $39,673

13. The operating cost of a small machine is $800 in year one, but it increases by 8% per year through
year ten. At an interest rate of 8% per year, the equivalent present worth of the machine’s operating
cost is nearest to:
a. $7,272
b. $7,407
c. $7,966
d. $8,056

14. Which of the following can be used to calculate the value of X in the following CFD:
a. X = 10 (F/A, i%, 8) + 20 (F/A, i%, 4)
X
b. X = 10 (P/A, i%, 8) + 10 (P/A, i%, 4) (F/P, i%, 4)
c. X = 10 (F/A, i%, 4) + 20 (F/A, i%, 4) (P/F, i%, 4)
d. X = 10 (P/A, i%, 4) (F/P, i%, 8) + 20 (F/A, i%, 4)

10 10 10 10
20 20 20 20

15. The value of X in the following CFD can be calculated by the following equation:
10 10 10 10
a. X = 10 + 10 (P/F, i%, 4)
b. X = 10 (P/A, i%, 4)
c. X = 10 + 10 (P/F, i%, 3)
d. X = 10 + 10 (P/A, i%, 3)

X
Answer questions 16 through 19 based on the following statement:
Star Construction Company received $60,000, which must be repaid in 6 years with 8% annual interest rate.
If the company pays $10,000 at end of each year pay plus interest due in the year:
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MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer
16. Interest accumulated by the end of the first year:
a. 4000
b. 4800
c. 3200
d. 3150

17. Payment at the end of year 2 is closest to:

a. $14,000
b. $13,500
c. $13,200
d. $10,000

18. Amount owed at the beginning of year 4 is closest to:

a. $ 13,200
b. $ 20,000
c. $ 32,000
d. $ 30,000

19. Total summation of payments over 6 years is closest to:

a. $66,200
b. $70,000
c. $ 76,800
d. $ 80,200

Answer questions 20 through 21 based on the following statement:

Given the following two cash flow diagrams (CFD1 and CFD2) and interest rate is 10%, answer the
following questions:

=
CFD1 CFD 2

20. The present worth of CFD1 at time 0 is closest to:

a. 192.64
b. 205.26
c. 282.04
d. 300.5

21. The value of A in CFD2 that makes both cash flow diagrams equivalent is:
a. 60.78
b. 85.21
c. 479.09
d. 120.84

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MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer
Answer questions 22 through 25 based on the following statement:
Each of the following cash flow diagrams is balanced, i.e. the single equivalent value for inflows
(positive cash flows) is equivalent to the single equivalent value for outflows (negative cash flows) at
any year. The one-period interest rate is 10%. Find the unknown X value which makes this CFD true.

22. For the following CFD, the value of X is nearest to: 60 70

60
a. 127.6 50
40
b. 198.9
c. 176.3 20

d. 189.0 10

800 800 800

23. For following CFD, the value of X is nearest to:
a. 695.02
b. 63.43
c. 1017.57 0 1 2 3 4
d. 764.56
X X
1.5X

10,000

24. For the following CFD, the value of X is nearest to:

a. 993.6
b. 1,553.3
c. 2,020.5 X X X

d. 2,183.0 X+100
X+200
X+300
X+400
X+500
X+600

200
25. For the following CFD, the value of X is nearest to: 200
a. 101.0 150 150
b. 110.9
c. 190.1 100 100
d. 139.5 0 1 2 3 4 5

X X X X X

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MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer
Answer questions 26 through 28 based on the following statement:
A manufacturing company produces solar panels. The variable costs are $20 per unit and fixed costs are
$10,875. The price demand relationship for this product is P= ̶ 0.25Q + 250, where P is the unit sales
price of the product and Q is the demand of solar panels. Given the following:
 Total cost = Fixed cost + Variable cost
 Revenue = Demand × Price
 Profit = Revenue ̶ Total cost

26. The equation that represent the total cost is:

a. ($10,875 + $20) Q
b. $10,875 ̶ $20 Q
c. $10,875 × $20 Q
d. $10,875 + $20 Q

27. The equation that represent the total revenue is:

a. $0.25Q2 + $250Q
b. ̶ $0.25Q2 + $250Q
c. ̶ $0.25Q2 ̶ $250Q
d. $0.25Q2 ̶ $250Q

28. The breakeven point(s) for the product:

a. 20
b. 50
c. 870
d. Both 50 and 870

Answer questions 29 through 30 based on the following statement:

University of Sharjah bought a 250-hp motor in 2008 for $12,500 when the cost index had a value of
1062. If the power-sizing exponent of this machine is 0.5 and the cost index value was 1449 in 2019:

29. The approximate cost of a 500-hp motor in 2008 is closest to

a. $15,604
b. $27,705
c. $20,306
d. $17,678

30. The approximate cost of the 500-hp motor in 2019 is closest to

a. $27,706
b. $24,120
c. $25,055
d. $23,270

GOOD LUCK

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 MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer

Formula Sheet and Tables

 IndexNew  1  1  g n 1  i n 
Cost New  CostOld 

 IndexOld  i  g : P  A1    P / A, g , i, n
 ig 

i  g : P  A1  n  1  i 1  P / A, g, i, n
x
 Size of equipment A 
Cost of equipment A  Cost of equipment B   
 Size of equipment B 
m
 r 
i a  1    1  1  i   1
m
loglearningcurve rate as decimal 
log2.0
 m
TN  Tinitial N
F  P  e rn  F / P, i, 
P  F  e rn  P / F , i, 

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MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer

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MIDTERM EXAM WITH SOLUTION TO BE SHARED WITH STUDENTS
INSTRUCTORS: DR. SALEH, DR. KHALED DR. MOHSIN AND DR. Muamer