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FE · 9% of the exam

Engineering Economics practice questions

10 free Engineering Economics questions for the FE Industrial and Systems Exam (FE) exam, each with the correct answer and an explanation for every option.

Start the questionsFree 10-question FE quiz

What this domain covers

Comparing alternatives in money terms: time value of money, cost concepts, accounting basics, depreciation, taxes and capital budgeting.

Exam weight
9%
On a real exam
≈ 10 questions
In our bank
54 questions

Topics that come up most

  • Present, future and annual worth and rate of return
  • Breakeven and fixed, variable and sunk costs
  • Benefit-cost and life-cycle cost analysis
  • Depreciation methods and after-tax cash flows
  • Overhead allocation and cost estimation

How to study it

Practise turning each problem into a cash-flow diagram before you touch the interest factor tables; once the timing is right, the factor choice is straightforward.

Sample Engineering Economics questions

Try each one before opening the answer. Original questions written to the official exam objectives.

  1. Question 1

    At 8%, with (A/F, 8%, 5) = 0.1705, the equal annual deposit to accumulate $50,000 in 5 years is about:

    • A$10,000, ignoring interest
    • B$8,525
    • C$12,523, capital recovery
    • D$293,255, dividing
    Show answer and explanation

    Answer: B) $8,525

    • AIncorrect. Interest reduces the deposits.
    • BCorrect. 50,000 × 0.1705.
    • CIncorrect. That's for a present amount.
    • DIncorrect. Multiply.

  2. Question 2

    A nominal 12% annual rate is compounded quarterly. The effective annual rate is about:

    • A12.68%
    • B12.00%
    • C3.00%
    • D12.55%
    Show answer and explanation

    Answer: D) 12.55%

    • AIncorrect. That's monthly compounding.
    • BIncorrect. That's nominal.
    • CIncorrect. That's the quarterly rate.
    • DCorrect. (1.03)⁴ − 1.

  3. Question 3

    A machine costs $50,000, has an estimated salvage value of $5,000, and has a 9-year useful life. What is its annual straight-line depreciation?

    • A$5,000 per year
    • B$5,556 per year
    • C$4,500 per year
    • D$6,111 per year
    Show answer and explanation

    Answer: A) $5,000 per year

    Straight-line depreciation spreads (cost − salvage) evenly over the useful life: ($50,000 − $5,000) / 9 = $5,000 per year.

    • ACorrect. (Cost − salvage) / life = ($50,000 − $5,000) / 9 = $5,000 per year.
    • BIncorrect. This is $50,000 / 9. It does not subtract the salvage value from the cost first.
    • CIncorrect. This divides the depreciable amount ($45,000) by 10 years instead of the 9-year life.
    • DIncorrect. This adds the salvage value to the cost ($55,000 / 9) instead of subtracting it.

  4. Question 4

    Raising the MARR used to evaluate a project with future benefits makes its present worth:

    • ALower
    • BHigher
    • CUnchanged
    • DEqual to the first cost
    Show answer and explanation

    Answer: A) Lower

    • ACorrect. Future amounts are discounted more heavily.
    • BIncorrect. Higher rates shrink future values.
    • CIncorrect. PW depends on the rate.
    • DIncorrect. That isn't implied.

  5. Question 5

    A loan charges interest of 1.5% per month, compounded monthly. What is the loan's nominal annual interest rate?

    • A19.6%
    • B18.0%
    • C1.5%
    • D0.125%
    Show answer and explanation

    Answer: B) 18.0%

    The nominal annual rate is the period rate times the number of periods per year: 1.5% × 12 = 18%. The effective rate (≈19.6%) includes compounding.

    • AIncorrect. (1.015)^12 − 1 ≈ 19.6% is the effective annual rate, which includes monthly compounding. The nominal rate does not include compounding.
    • BCorrect. The nominal annual rate r = i × m = 1.5% × 12 = 18%.
    • CIncorrect. This is the rate per compounding period (one month), not an annual rate.
    • DIncorrect. This divides the monthly rate by 12 instead of multiplying, and confuses the period rate with the annual rate.

  6. Question 6

    In incremental analysis of two alternatives, the more expensive one is preferred if the incremental rate of return:

    • AIs negative
    • BIs below the MARR
    • CExceeds the MARR
    • DEquals zero
    Show answer and explanation

    Answer: C) Exceeds the MARR

    • AIncorrect. That rejects the extra investment.
    • BIncorrect. Then choose the cheaper one.
    • CCorrect. The extra investment then earns enough.
    • DIncorrect. That doesn't justify the extra cost.

  7. Question 7

    Operating costs start at $1,000 in year 1 and rise by $200 per year. The year-4 cost is:

    • A$1,800
    • B$1,600
    • C$1,200
    • D$4,800
    Show answer and explanation

    Answer: B) $1,600

    • AIncorrect. That uses 4 increments.
    • BCorrect. 1,000 + 3 × 200.
    • CIncorrect. That's year 2.
    • DIncorrect. That isn't the year-4 cost.

  8. Question 8

    In replacement analysis, a defender's economic service life is the number of years that:

    • AMaximizes its total cost
    • BMinimizes its equivalent uniform annual cost
    • CEquals its depreciation life always
    • DEquals its warranty period
    Show answer and explanation

    Answer: B) Minimizes its equivalent uniform annual cost

    • AIncorrect. It minimizes EUAC.
    • BCorrect. It's compared with the challenger's minimum EUAC.
    • CIncorrect. It's the minimum-EUAC life.
    • DIncorrect. It's the minimum-EUAC life.

  9. Question 9

    To compare alternatives with unequal lives, a common approach is to:

    • APick the longer-lived option
    • BCompare first costs only
    • CCompare total undiscounted costs
    • DCompare equivalent annual worths
    Show answer and explanation

    Answer: D) Compare equivalent annual worths

    • AIncorrect. Life alone doesn't decide.
    • BIncorrect. That ignores operating costs.
    • CIncorrect. That ignores timing and lives.
    • DCorrect. It assumes repeatability.

  10. Question 10

    Before-tax cash flow is $100,000, depreciation is $20,000 and the tax rate is 25%. The after-tax cash flow is:

    • A$60,000
    • B$75,000
    • C$80,000
    • D$100,000
    Show answer and explanation

    Answer: C) $80,000

    • AIncorrect. Depreciation isn't a cash outflow.
    • BIncorrect. Depreciation reduces taxable income.
    • CCorrect. Tax = 0.25(100,000 − 20,000) = 20,000.
    • DIncorrect. Taxes must be subtracted.

Engineering Economics: FAQs

How much of the FE exam is Engineering Economics?

Engineering Economics is 9% of the FE exam by the official exam guide's weighting, which on a 110-question form works out to roughly 10 questions. The real exam's exact split varies by form.

What does the Engineering Economics domain cover?

Comparing alternatives in money terms: time value of money, cost concepts, accounting basics, depreciation, taxes and capital budgeting.

How should I study Engineering Economics for FE?

Practise turning each problem into a cash-flow diagram before you touch the interest factor tables; once the timing is right, the factor choice is straightforward.

Where can I practise more Engineering Economics questions?

This page has 10 free Engineering Economics questions with answers. The ExamWize FE question bank has 54 questions in this domain. Every practice exam result breaks your score down by domain, and Review Mode re-drills the questions you missed.

Other FE topics

Also: 15 free questions across all topics, the FE cheat sheet and the study guide.

Get Engineering Economics exam-ready

The full FE bank has 54 Engineering Economics questions. Timed practice exams match the real exam's length and domain weights, every result shows your score per domain, and Review Mode re-drills the questions you missed.

See the full FE practice examsTake the free diagnostic

Not affiliated with NCEES; questions are original, written from the official exam outline, and never copied from the real exam.