Engineering Economics Practice Exam 2026
Engineering Economics Practice Exam 2026: 100
Questions on Time Value of Money, Cost Analysis
& Financial Decision Models
Question 1
Which statement best explains the time value of money?
A. Money loses value every year
B. A dollar today is worth more than a dollar in the future
C. Interest rates never change
D. Inflation always decreases value
Correct Answer: B
Rationale:
The time value of money states that funds available today can be invested to earn
returns, making them more valuable than the same amount received later.
Question 2
What financial factor converts present money to a future amount?
A. Present worth factor
B. Compound amount factor
C. Capital recovery factor
D. Gradient factor
Correct Answer: B
Rationale:
The compound amount factor calculates future value from a present value using
compounding interest.
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,Engineering Economics Practice Exam 2026
Question 3
The compound interest relationship is:
F=P(1+i)nF = P(1+i)^nF=P(1+i)n
What does n represent?
A. Present value
B. Number of periods
C. Interest rate
D. Future value
Correct Answer: B
Rationale:
The variable n indicates the number of compounding periods.
Question 4
Which cost remains constant regardless of production level?
A. Fixed cost
B. Variable cost
C. Incremental cost
D. Opportunity cost
Correct Answer: A
Rationale:
Fixed costs such as rent or salaries remain unchanged regardless of production
output.
Question 5
Which cost changes proportionally with production output?
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,Engineering Economics Practice Exam 2026
A. Fixed cost
B. Variable cost
C. Sunk cost
D. Capital cost
Correct Answer: B
Rationale:
Variable costs fluctuate with production, such as materials or energy
consumption.
Question 6
Opportunity cost refers to:
A. The cost already spent
B. The cost of the next best alternative not chosen
C. Fixed operating expenses
D. Interest paid on loans
Correct Answer: B
Rationale:
Opportunity cost represents the benefit forgone when selecting one alternative
over another.
Question 7
A cost that cannot be recovered once spent is called:
A. Fixed cost
B. Opportunity cost
C. Sunk cost
D. Marginal cost
Correct Answer: C
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, Engineering Economics Practice Exam 2026
Rationale:
Sunk costs are past expenses that cannot be recovered and should not affect
future decisions.
Question 8
Break-even analysis determines:
A. Profit margin
B. The production level where revenue equals costs
C. Maximum profit
D. Investment return
Correct Answer: B
Rationale:
Break-even occurs when total revenue equals total costs, resulting in zero profit.
Question 9
Which method spreads depreciation evenly over an asset’s life?
A. Double declining balance
B. Straight-line depreciation
C. Sum-of-the-years digits
D. Accelerated depreciation
Correct Answer: B
Rationale:
Straight-line depreciation divides the depreciable value equally across the asset’s
useful life.
Question 10
Page 4 of 34
Engineering Economics Practice Exam 2026: 100
Questions on Time Value of Money, Cost Analysis
& Financial Decision Models
Question 1
Which statement best explains the time value of money?
A. Money loses value every year
B. A dollar today is worth more than a dollar in the future
C. Interest rates never change
D. Inflation always decreases value
Correct Answer: B
Rationale:
The time value of money states that funds available today can be invested to earn
returns, making them more valuable than the same amount received later.
Question 2
What financial factor converts present money to a future amount?
A. Present worth factor
B. Compound amount factor
C. Capital recovery factor
D. Gradient factor
Correct Answer: B
Rationale:
The compound amount factor calculates future value from a present value using
compounding interest.
Page 1 of 34
,Engineering Economics Practice Exam 2026
Question 3
The compound interest relationship is:
F=P(1+i)nF = P(1+i)^nF=P(1+i)n
What does n represent?
A. Present value
B. Number of periods
C. Interest rate
D. Future value
Correct Answer: B
Rationale:
The variable n indicates the number of compounding periods.
Question 4
Which cost remains constant regardless of production level?
A. Fixed cost
B. Variable cost
C. Incremental cost
D. Opportunity cost
Correct Answer: A
Rationale:
Fixed costs such as rent or salaries remain unchanged regardless of production
output.
Question 5
Which cost changes proportionally with production output?
Page 2 of 34
,Engineering Economics Practice Exam 2026
A. Fixed cost
B. Variable cost
C. Sunk cost
D. Capital cost
Correct Answer: B
Rationale:
Variable costs fluctuate with production, such as materials or energy
consumption.
Question 6
Opportunity cost refers to:
A. The cost already spent
B. The cost of the next best alternative not chosen
C. Fixed operating expenses
D. Interest paid on loans
Correct Answer: B
Rationale:
Opportunity cost represents the benefit forgone when selecting one alternative
over another.
Question 7
A cost that cannot be recovered once spent is called:
A. Fixed cost
B. Opportunity cost
C. Sunk cost
D. Marginal cost
Correct Answer: C
Page 3 of 34
, Engineering Economics Practice Exam 2026
Rationale:
Sunk costs are past expenses that cannot be recovered and should not affect
future decisions.
Question 8
Break-even analysis determines:
A. Profit margin
B. The production level where revenue equals costs
C. Maximum profit
D. Investment return
Correct Answer: B
Rationale:
Break-even occurs when total revenue equals total costs, resulting in zero profit.
Question 9
Which method spreads depreciation evenly over an asset’s life?
A. Double declining balance
B. Straight-line depreciation
C. Sum-of-the-years digits
D. Accelerated depreciation
Correct Answer: B
Rationale:
Straight-line depreciation divides the depreciable value equally across the asset’s
useful life.
Question 10
Page 4 of 34
