Engineering Economics Practice Exam
Questions and Correct Answers
(Verified Answers) Plus Rationales 2026
Q&A | Instant Download Pdf
1. The primary objective of engineering economics is to
A. Maximize production regardless of cost
B. Eliminate financial risk entirely
C. Evaluate economic alternatives to support engineering decisions
D. Calculate only project profits
Answer: C
Rationale: Engineering economics provides systematic methods for comparing
costs and benefits of engineering alternatives so informed financial decisions can
be made.
2. The concept that money available today is worth more than the same amount
in the future is known as
A. Capital budgeting
B. Opportunity cost
C. Cost recovery
D. Time value of money
Answer: D
Rationale: The time value of money recognizes that funds available today can earn
interest, making them more valuable than the same amount received later.
3. Simple interest is calculated based on
,A. Principal plus accumulated interest
B. Future value only
C. Original principal only
D. Annual payment amount
Answer: C
Rationale: Simple interest is earned only on the initial principal and does not
include previously earned interest.
4. Compound interest differs from simple interest because it is earned on
A. Principal only
B. Taxes only
C. Inflation only
D. Principal and previously earned interest
Answer: D
Rationale: Compound interest allows interest to accumulate on both the original
principal and prior interest earnings.
5. Which variable is commonly represented by the symbol PPP in engineering
economics?
A. Annual payment
B. Interest rate
C. Present worth
D. Future worth
Answer: C
Rationale: The symbol P represents the present value or present worth of money.
6. Which symbol commonly represents future worth?
,A. A
B. F
C. i
D. n
Answer: B
Rationale: F denotes the future value of a present amount after interest has been
applied.
7. The symbol iii usually represents
A. Inflation rate only
B. Investment value
C. Initial payment
D. Interest rate per period
Answer: D
Rationale: The variable i represents the effective interest rate for each
compounding period.
8. The variable nnn typically represents
A. Net income
B. Number of projects
C. Number of interest periods
D. Nominal rate
Answer: C
Rationale: The symbol n indicates the total number of compounding or payment
periods.
9. If the interest rate increases while other variables remain constant, the future
value of an investment generally
, A. Decreases
B. Remains unchanged
C. Becomes zero
D. Increases
Answer: D
Rationale: A higher interest rate produces greater growth of invested funds over
time.
10. Present worth analysis converts future cash flows into
A. Annual payments only
B. Taxable income
C. Equivalent current values
D. Inflation-adjusted values only
Answer: C
Rationale: Present worth analysis discounts future amounts to their value at the
present time.
11. Discounting refers to
A. Increasing future values
B. Estimating taxes
C. Converting future money into present value
D. Calculating depreciation
Answer: C
Rationale: Discounting accounts for the time value of money by determining
today's equivalent value of future cash flows.
12. The primary purpose of a cash flow diagram is to
Questions and Correct Answers
(Verified Answers) Plus Rationales 2026
Q&A | Instant Download Pdf
1. The primary objective of engineering economics is to
A. Maximize production regardless of cost
B. Eliminate financial risk entirely
C. Evaluate economic alternatives to support engineering decisions
D. Calculate only project profits
Answer: C
Rationale: Engineering economics provides systematic methods for comparing
costs and benefits of engineering alternatives so informed financial decisions can
be made.
2. The concept that money available today is worth more than the same amount
in the future is known as
A. Capital budgeting
B. Opportunity cost
C. Cost recovery
D. Time value of money
Answer: D
Rationale: The time value of money recognizes that funds available today can earn
interest, making them more valuable than the same amount received later.
3. Simple interest is calculated based on
,A. Principal plus accumulated interest
B. Future value only
C. Original principal only
D. Annual payment amount
Answer: C
Rationale: Simple interest is earned only on the initial principal and does not
include previously earned interest.
4. Compound interest differs from simple interest because it is earned on
A. Principal only
B. Taxes only
C. Inflation only
D. Principal and previously earned interest
Answer: D
Rationale: Compound interest allows interest to accumulate on both the original
principal and prior interest earnings.
5. Which variable is commonly represented by the symbol PPP in engineering
economics?
A. Annual payment
B. Interest rate
C. Present worth
D. Future worth
Answer: C
Rationale: The symbol P represents the present value or present worth of money.
6. Which symbol commonly represents future worth?
,A. A
B. F
C. i
D. n
Answer: B
Rationale: F denotes the future value of a present amount after interest has been
applied.
7. The symbol iii usually represents
A. Inflation rate only
B. Investment value
C. Initial payment
D. Interest rate per period
Answer: D
Rationale: The variable i represents the effective interest rate for each
compounding period.
8. The variable nnn typically represents
A. Net income
B. Number of projects
C. Number of interest periods
D. Nominal rate
Answer: C
Rationale: The symbol n indicates the total number of compounding or payment
periods.
9. If the interest rate increases while other variables remain constant, the future
value of an investment generally
, A. Decreases
B. Remains unchanged
C. Becomes zero
D. Increases
Answer: D
Rationale: A higher interest rate produces greater growth of invested funds over
time.
10. Present worth analysis converts future cash flows into
A. Annual payments only
B. Taxable income
C. Equivalent current values
D. Inflation-adjusted values only
Answer: C
Rationale: Present worth analysis discounts future amounts to their value at the
present time.
11. Discounting refers to
A. Increasing future values
B. Estimating taxes
C. Converting future money into present value
D. Calculating depreciation
Answer: C
Rationale: Discounting accounts for the time value of money by determining
today's equivalent value of future cash flows.
12. The primary purpose of a cash flow diagram is to
