MSTE 3: Engg Economy, Probability, & Statistics

Name: Date:

1. What is most nearly the present worth of a $100 7. What is the book value of equipment purchased
annuity over a 10 yr period if the interest rate is 3 years ago for $15,000 if it is depreciated using
8%? the sum of years’ digits (SOYD) method? The ex-
A. $450 C. $670 pected life is 5 years.
B. $530 D. $700 A. $3000 C. $5000
B. $4000 D. $6000
2. With a 12% interest rate, approximately how
much money must be invested today in order to 8. The maintenance on a machine is expected to be
withdraw $1000 per year at the end of each year $155 at the end of the first year and increasing
for 10 years? $35 each year for the following seven years.
A. $4800 C. $5800 What present sum of money must be set aside
B. $5650 D. $6150 now to pay the maintenance for the eight-year
period? Assume 6% interest.
3. $1000 is deposited into a 9% account today. At Present worth factor (P/A, 6%, 8) = 6.2098
the end of year 2, another $3000 will be depos- Sinking fund factor (A/F, 6%, 8) = 0.1010
ited. In Year 5, a $4000 purchase will be made. Compound amount factor (F/A, 6%, 8) = 9.8975
Approximately how much will be left in the ac- Uniform gradient series factor (P/G, 6%, 8) =
count 1 year after the purchase? 19.8416
A. $1552 C. $1690 A. $1548.32 C. $1740.77
B. $1230 D. $1420 B. $1656.98 D. $1800.00

4. A student needs $4000/yr for 4 years to attend 9. Data over the last 5 years indicate that for each
college. Her father invested $5000 in a 7% ac- fatality, there are 40 nonfatal injury accidents
count for her education when she was born. If ($15,000 present cost each) and 300 property
the student withdraws $4000 at the end of her damage accidents ($2000 present cost each).
17th, 18th, 19th, and 20th year, how much money What is the breakeven value of a statistical life
will be left in the account at the end of her 21st (VSL) needed to justify a highway project if i is
year? 8%?
A. $1547.77 C. $1233.00 The death rate on a particular three-lane road is
B. $1699.86 D. $1480.53 8 per 100 million vehicle-miles. Adding a lane
would reduce this to 5 per 100 million, and other
5. $10,000 is invested at the beginning of a year in accidents would be reduced proportionately.
15% security and held for 5 years. During that The lane would cost $1.5M per mile to build, and
time, the average annual inflation is 6%. Ap- annual maintenance would be 3% of the first
proximately how much, in terms of year-zero cost. Assume that the lane would last 40 years.
dollars, will be in the account at maturity? The road carries 10,000 vehicles per day. (Nov
A. $16,948.11 C. $14,548.77 2022)
B. $14,007.30 D. $15,030.03 A. $255.9K C. $295.1K
B. $387.4K D. $359.8K
6. A replacement electric motor is being consid-
ered for purchase. It is capable of providing 200 10. Many bridges are built of steel-reinforced con-
hp. The pertinent data are as follows. crete. As long as the steel is protected from cor-
Cost $3,200 rosion, the bridge lives are very long. The cost
Electrical Efficiency 0.85 difference between proper maintenance and
Maintenance cost per year $50 early replacement is also very large. For exam-
Life expectancy 14 years ple, a particular bridge would cost $200,000
Salvage value after year 14 $0 now to repair or $1.8M in 10 years to replace.
The motor is used for 400 hr/yr and the cost of The state highway department claims it uses an
electricity is $0.04/kW-h (1 hp = 0.746 kW). interest rate of 8%, but it has decided to replace
What is most nearly the effective annual cost us- the bridge later due to a current shortage of
ing an interest rate of 10%? funds. The stage agency also anticipates some
A. $3153.97 C. $3292.86 federal funding for the replacement bridge.
B. $3481.10 D. $3333.33 What is the implied interest rate for choosing to
replace later rather than to repair now?

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 A. 24.57% C. 25.50% C. New Freeway, EAC is $1.1M less than Light
B. 26.85% D. 23.31% Rail
D. New Freeway, EAC is $2.5M less than Light
11. Calculate the benefit/cost ratio for a highway Rail
project with the following benefits and costs.
The project’s life is 40 years, the interest rate is 13. Machine X has an initial cost of $10,000, an an-
10%, and the project’s right-of-way is worth nual maintenance cost of $500 per year, and no
$5M in 40 years. (Nov 2022) salvage value at the end of its 4-year useful life.
Machine Y costs $20,000 and in the first year,
$20M Construction cost (includes ac- there is no maintenance cost. Maintenance is
quiring right-of-way) $100 the second year, and it increases $100 per
350K Annual maintenance year thereafter. The machine has an anticipated
3M Repaving every 8 years $5000 salvage value at the end of its 12-year
1M Annual value of lives saved (1 per useful life. If the minimum attractive rate of re-
year) turn (MARR) is 8 percent, which machine should
1.25M Time savings for commercial traf- be selected?
fic A. Machine X C. Both Machine X $
$20 . 25ℎ𝑜𝑢𝑟𝑠 250,000𝑡𝑟𝑖𝑝𝑠 Y
[ 𝑥 𝑥 ] B. Machine Y D. Neither of them
ℎ𝑜𝑢𝑟 𝑡𝑟𝑖𝑝 𝑦𝑒𝑎𝑟
1M Time savings for commuter and
14. MoreTech Drilling may buy a patent with 14
recreational traffic
years of life left. MoreTech spends ₱1.5M to im-
$5 . 25ℎ𝑜𝑢𝑟𝑠 800,000 𝑡𝑟𝑖𝑝𝑠
[ 𝑥 𝑥 ] plement the technology. An accurate model of
ℎ𝑜𝑢𝑟 𝑡𝑟𝑖𝑝 𝑦𝑒𝑎𝑟 net revenues is that they begin at ₱300,000 per
A. 1.03 C. 1.35 year and increase by ₱100,000 per year for the
B. 1.23 D. 0.89 14 years. Suppose that a price of ₱3M has been
set for the patent. At a discount rate of 10%, is
12. MidCity has severe rush-hour traffic jams in a this an attractive project?
congested valley that connects to its main indus- A. Yes, because PW = +₱1.39M
trial area. The transportation planning depart- B. Yes, because PW = +₱4.39M
ment’s engineers have identified two plans. The C. No, because PW = –₱1.39M
first involves a light-rail system (LR), and the D. No, because PW = –₱4.39M
second is a new freeway (NF).
Both alternatives have expected lives of 50 15. A state historic park has maintenance costs of
years, when their rights-of-way will have com- $40k for the first year. Due to increased use,
parable values. MidCity uses an interest rate of these costs increase by $2K per year. Assuming
10%. an interest rate of 5% and perpetual life, what is
The federal government subsidizes freeway the capitalized cost?
construction by paying 90% of the costs. It also A. 2.5M C. 1.6M
provides 70% of the costs for light-rail construc- B. 3.7M D. 4.0M
tion. It provides no funds for the operation of ei-
ther system. The benefits of each system are be- 16. A state historic park has maintenance costs of
ing debated, but the air-pollution benefits of the $40k for the first year. Due to increased use,
rail system about equal the extra user benefits these costs increase by 4% per year. Assuming
for the larger number of freeway users. The total an interest rate of 5% and perpetual life, what is
benefits for each system are about $15 million. the capitalized cost?
Factor Light Rail New Free- A. 2.5M C. 1.6M
way B. 3.7M D. 4.0M
First cost $40 M $70 M
Annual operating $8 M $6 M 17. A new landfill site is being considered. It would
cost save the citizens of Shady Acres $250,000 per
Which is better from a systems or overall per- year in the fees they pay a private firm for gar-
spective? bage pickup. The citizens who live near the road
A. Light Rail, EAC is $1.1M less than New to the landfill site, and especially those who live
Freeway closest to the site, are not supportive. A local
B. Light Rail, EAC is $2.5M less than New university economist has estimated the di
Freeway benefits of truck traffic, noise, and odor to be
$120,000 per year. The new landfill will cost

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 $2.4 million, and it will last 40 years. Shady new city hall is expected to have a life of 40
Acres uses an interest rate of 6%. Calculate the years. Using EAC, which alternative is better?
benefit/cost ratio using equivalent annual Standard Energy-Efficient
measures. Construction Construction
A. 0.815, attractive C. 1.222, attractive FC: Building $2.45M $2.50M
B. 0.815, unattrac- D. 1.222, unattrac- FC: Furnace 100k 85k
tive tive Annual heating 10,000 6,000
cost
18. By replacing its assembly line conveyor with an A. SC because EEC is smaller by 0.421k
asynchronous conveyor, Golden Valley Manu- B. SC because EEC is larger by 0.421k
facturing will save $50,000 per year in rework, C. EEC because SC is smaller by 0.421k
inspection, and labor costs. The asynchronous D. EEC because SC is larger by 0.421k
conveyor will cost $275,000, and its life is 15
years. There is no salvage value. If Golden Valley 22. Six people are on a sinking yacht. There are four
uses a 10% interest rate, should the asynchro- life jackets. How many combinations of survi-
nous conveyor be installed? vors are there?
A. Yes C. Sometimes A. 10 C. 15
B. No D. Not enough data B. 12 D. 20

19. Heavy Metal Stamping is evaluating a project 23. A pianist knows four pieces but will have
with a first cost of $500,000, which is split enough stage time to play only three of them.
evenly between period 0 and period 1. Annual Pieces played in a different order constitute a
revenues of $120,000 and O&M costs of $30,000 different program. How many different pro-
begin at the end of year 2 and continue for 10 grams can be arranged?
years. There is no salvage value at the end of 11 A. 12 C. 14
years. Using an interest rate of 10%, calculate B. 24 D. 28
both PW indexes.
A. 1.102, 1.040 C. 1.109, 1.111 24. In how many different ways can a union local
B. 0.981, 0.944 D. 0.970, 1.115 with a membership of 25 choose a vice president
and a president?
20. During a 3-year period, a firm had the following A. 480 C. 600
results (in millions of dollars): B. 520 D. 640

Year 1 Year 2 Year 3 25. If the probabilities are 0.87, 0.36, and 0.29 that,
Gross income $200 $200 $200 while under warranty, a new car will require re-
from sales pairs on the engine, drive train, or both, what is
Purchase of –60 0 0 the probability that a car will require one or the
special tool- other or both kinds of repairs under the war-
ing (useful ranty?
life: 3 years) A. 0.94 C. 0.91
All other ex- –140 –140 –140 B. 0.85 D. 0.80
penditures
Cash results $0 $ 60 $ 60 26. The probability that a construction company
for the year will get the tender for constructing a flyover is
Compute the taxable income for each of the 3 0.33, the probability that it will get the tender
years. Use straight-line method for depreciation. for constructing an underpass is 0.28, and the
A. $ 30M C. $ 50M probability that it will get both tenders is 0.13.
B. $ 40M D. $ 60M What is the probability that it will get at least
one tender?
21. The city of Northern Lights is building a new city A. 0.48 C. 0.40
hall. The civil engineer for the walls and ceiling B. 0.52 D. 0.60
and the mechanical engineer for the heating sys-
tem are evaluating two plans for insulating and 27. Suppose that in the maintenance of a large med-
heating the building. They have identified stand- ical records file for insurance purposes the
ard construction (SC) and energy-efficient con- probability of an error in processing is 0.0010,
struction (EEC) as the two alternatives. North- the probability of an error in filing is 0.0009, the
ern Lights uses an interest rate of 10%, and the probability of an error in retrieving is 0.0012,
the probability of an error in processing as well

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 as filing is 0.0002, the probability of an error in 32. If the probability is 0.05 that a certain kind of
processing as well as retrieving is 0.0003, the measuring device will show excessive drift,
probability of an error in filing as well as retriev- what is the probability that the sixth measuring
ing is 0.0003, and the probability of an error in device tested will be the first to show excessive
processing and filing as well as retrieving is drift?
0.0001. What is the probability of making at A. 0.0498 C. 0.0311
least one of these errors? B. 0.0450 D. 0.0387
A. 0.0040 C. 0.0025
B. 0.0004 D. 0.0024 33. If a fair die is to be tossed 12 times, the probabil-
ity of getting 1, 2, 3, 4, 5 and 6 points exactly
28. It has been claimed that in 60% of all solar-heat twice each is:
installations the utility bill is reduced by at least A. 0.00344 C. 0.00398
one-third. Accordingly, what are the probabili- B. 0.00458 D. 0.00401
ties that the utility bill will be reduced by at least
one-third in at least four of five installations? 34. The mean inside diameter of a sample of 200
A. 0.412 C. 0.574 washers produced by a machine is 0.502 inches
B. 0.337 D. 0.460 and the standard deviation is 0.005 inches. The
purpose for which these washers are intended
29. Sport stories and financial reports, written by al- allows a maximum tolerance in the diameter of
gorithms based on artificial intelligence, have 0.496 to 0.508 inches, otherwise the washers
become common place. One company fed its al- are considered defective. Determine the per-
gorithm with box scores and play-by-play infor- centage of defective washers produced by the
mation and created over one million on-line re- machine, assuming the diameters are normally
ports of little league games in 2011. They now distributed.
write many stories on the Big Ten Network site. A. 25.777% C. 74.223%
Suppose that the algorithm, or robot reporter, B. 23.014% D. 76.986%
typically writes proportion 0.65 of the stories on
the site. If 15 new stories are scheduled to ap- 35. An experiment is performed in which the de-
pear on a web site next weekend, find the prob- pendent variable, y, is measured against the in-
ability that between 8 and 11 inclusive will be dependent variable, x. The results are as follows.
written by the algorithm. x y
A. 0.6668 C. 0.7141 1.2 0.602
B. 0.7645 D. 0.6001 4.7 5.107
8.3 6.984
30. An Internet-based company that sells discount 20.9 10.031
accessories for cell phones often ships an exces- What is the least squares straight line equation
sive number of defective products. The company that best represents this data? What is the cor-
needs better control of quality. Suppose it has 20 relation coefficient i.e., the goodness of fit?
identical car chargers on hand but that 5 are de- A. y = 1.99 + 0.42x, r = 0.914
fective. If the company decides to randomly se- B. y = 1.99 – 0.42x, r = 0.914
lect 10 of these items, what is the probability C. y = –1.99 + 0.42x, r = 0.914
that 2 of the 10 will be defective? D. y = –1.99 – 0.42x, r = 0.914
A. 0.451 C. 0.348
B. 0.388 D. 0.433 36. The time taken by a toll taker to collect the toll
from vehicles crossing a bridge is an exponential
31. For health reasons, homes need to be inspected distribution with a mean of 23 sec. The probabil-
for radon gas which decays and produces alpha ity that a random vehicle will be processes in 25
particles. One device counts the number of alpha sec or more (i.e., will take longer than 25 sec) is
particles that hit its detector. To a good approx- most likely:
imation, in one area, the count for the next week A. 0.17 C. 0.34
follows a Poisson distribution with mean 1.3. B. 0.25 D. 0.52
Determine the probability of exactly one particle
next week and the probability of at least two but 37. A survey field crew measures one leg of a trav-
no more than four particles next week. erse four times. The following results are ob-
A. 0.354, 0.363 C. 0.394, 0.333 tained:
B. 0.411, 0.428 D. 0.471, 0.444 Repetition Measurement Direction
1 1249.529 Forward
2 1249.494 Backward

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 3 1249.384 Forward • For women who have breast cancer, the prob-
4 1249.348 Backward ability of a negative mammogram is 0.03.
The crew chief is under orders to obtain read- • For women who don’t have breast cancer, the
ings with confidence limits of 90%. How many probability of a positive mammogram is 0.06.
readings are acceptable? Hint: A randomly selected woman aged 40 or over
Confidence level Two-tail limit, z from this region tests positive for breast cancer
90% 1.645 in a mammogram. Find the probability that she
95% 1.96 actually has breast cancer.
97.5% 2.24 A. 0.140 C. 0.206
99% 2.575 B. 0.245 D. 0.177
99.5% 2.81
99.75% 3.00
A. No readings are acceptable.
B. Two readings are acceptable.
C. Three readings are acceptable.
D. All four readings are acceptable.

38. An engineering company prepares an estimate

for a job. The cost of preparing the estimate is
$10,000. The amount of the profit over and
above the $10,000 is $25,000. If their estimate is
accepted, the probability that their estimate will
be accepted is 0.70 and the probability that their
estimate will not be accepted is 0.30. What is the
expected cost?
A. $17,500 C. $15,500
B. $16,500 D. $14,500

39. Students in a college statistics class wanted to

find out how common it is for young adults to
have their ears pierced. They recorded data on
two variables – gender and whether the student
had a pierced ear–for all 178 people in the class.
The two-way table below displays the data.
Pierced Ears?
Gender Yes No Total
Male 19 71 90
Female 84 4 88
Total 103 75 178
If we know that a randomly selected student has
pierced ears, what is the probability that the stu-
dent is male?
A. 0.254 C. 0.211
B. 0.184 D. 0.147

40. Many women choose to have annual mammo-

grams to screen for breast cancer after age 40. A
mammogram isn’t foolproof. Sometimes, the
test suggests that a woman has breast cancer
when she really doesn’t (a “false positive”).
Other times, the test says that a woman doesn’t
have breast cancer when she actually does (a
“false negative”). Suppose that we know the fol-
lowing information about breast cancer and
mammograms in a particular region:
• One percent of the women aged 40 or over in
this region have breast cancer.

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