Engineering Economics & Finance: Bonds, Interest Rates, and Project Analysis

What is the coupon interest rate used for in bond payments?

To determine the amount of interest paid out semi-annually on a bond.

Can arithmetic gradients start with an initial value of $0?

Yes.

What is the nominal interest rate?

An annual rate that does not account for any sub-annual compounding.

What is the payback period for a loan at 0% interest?

It would be the same amount of time as the loan payments.

Why is present worth analysis preferred over equivalent uniform annual worth (EUAW)?

It does not require consideration of the lifetime of projects.

What must be considered if the book value of an asset is smaller than its salvage value?

Depreciation recapture for the company's taxes.

What does a real discount rate greater than zero imply about future damages?

We value future damages less than present damages.

What is the annual revenue needed to cover costs of a water treatment plant with a present worth of -$328 million at a 4% discount rate?

$15.3 million.

How much interest does a 20-year bond with a face value of $5,000 and a 4% coupon rate pay every 6 months?

$100.

What is the per period interest rate for a bond if the annual market interest rate is 10.25%?

5%.

What is the monthly payment for a car costing $20,164 with a $2,000 down payment and a 60-month loan at 4% interest?

$335.

What is the interest rate per compounding period for a 5% nominal interest rate compounded monthly?

0.42%.

What is the effective annual interest rate for an investment with a 5% nominal interest rate compounded monthly?

5.12%.

What is the maintenance geometric gradient needed to lower Net Present Worth to -$160 million?

1.6.

What is the depreciation for year 1 of a backhoe purchased for $35,000 with a salvage value of $5,000?

$7,000.

What is the book value at the end of year 1 for the backhoe?

$28,000.

What is the outcome of architectural exclusion?

It can result from actions of private developers, local governments, or the federal government.

What does a flat rate tariff do in the South Africa water tariff example?

Charges the same rate per unit of water consumed.

What does a cap and trade policy allow industries to do?

Buy credits from other industries that find it hard to reduce pollution.

What must an engineer do if they have a conflict of interest due to advisory board membership?

Withdraw from either the firm or the advisory board.

What does condemnation involve?

Taking private property for public use, without compensation to the property owner.

Is it true that if something is lawful, it is also ethical?

No.

Who are stakeholders in the Hawaii Energy grid?

Poor and middle class residents, wealthy residents without solar panels, shipping companies, Ormat, and wealthy residents with solar panels.

What is the effective annual interest rate for an 8% effective annual interest rate compounded monthly?

0.64% per compounding period.

What is the nominal annual interest rate for an 8% effective annual interest rate compounded monthly?

7.72%.

What is the maximum price you can expect to obtain if you sell a bond issued 10 years ago with a face value of $5,000?

$3,641.

What is the maximum profit point for selling excavators and dump trucks given the objective function?

(3,7).

What is a conflict of interest for an engineer?

An engineer has a conflict of interest if they are reviewing bids for a job and their spouse works for one of the firms bidding.

What does the flat rate tariff in South Africa do?

It charges the same rate per unit of water consumed.

What is an example of architectural exclusion?

Installing a low bridge overpass to limit public bus travel.

What level of stakeholder engagement involves considering preferences in decision making?

Involving.

Why was a bridge built at 11' 8" in Durham, NC?

It was measured based on the fire truck at the time.

What must you do to apply for your PE license after working under a licensed PE?

Wait 4 years and pass the PE exam.

What are other terms for eminent domain?

Land Acquisition, Expropriation, Compulsory purchase.

What are potential downsides of a flat tariff for water consumption?

Low income households pay a higher share of their income for water and it does not incentivize water conservation.

What is the effective annual interest rate compared to the nominal interest rate?

It is always larger or equal because it accounts for sub-annual compounding.

Can geometric gradients start with an initial value of $0?

False.

When is the payback period for a loan the same as the loan payments?

If the interest rate is 0%.

What does a real discount rate greater than zero imply?

We value future damages less than present damages.

What methods are used to compare multiple infrastructure projects?

Present Worth analysis, Equivalent Uniform Annual Worth, Benefit-Cost Analysis.

What is the depreciation for year 1 using SOYD for a $70,000 asset with a $10,000 salvage value?

$20,000.

What is the book value at the end of year 1 for the computers?

$50,000.

What annual revenue from water tariffs is needed to cover costs of a water treatment plant with a PW of -$381 million?

$20.9 million.

What is the effective annual interest rate for a 5% nominal interest rate compounded monthly?

5.12%.

How much interest does a $5,000 bond with a 4% coupon rate pay in a 6-month period?

$100.

What is the per period interest rate for a bond if the annual market interest rate is 6.09%?

3%.

What is the maximum price you can expect to obtain if you sell a bond issued 10 years ago?

$4,256.

What percent must the geometric gradient increase for present worth of both series to be equal?

11.3%.

What does the absence of infrastructure meet the definition of?

Architectural exclusion.

What entities can use eminent domain to obtain land?

City municipalities and NC Dept of Transportation (DOT).

Is it true that if something is ethical, it is also legal?

False.

What level of stakeholder engagement is represented by including only favorable details in public meetings?

This does not meet the criteria for any level of stakeholder engagement.

Is it acceptable for an engineer to continue reviewing bids if they have a conflict of interest?

False.

Can you use a TI-84 graphing calculator on the FE exam?

False.

What level of stakeholder engagement is represented by providing information through public meetings?

This does not meet the criteria for any level of stakeholder engagement.

What is the benefit of using Equivalent Uniform Annual Worth (EUAW) analysis?

You do not need to worry about matching up the lifetimes of projects.

What is the payback period for a loan with a 0% interest rate?

The same amount of time as the loan payments.

Is the effective annual interest rate always larger than the nominal interest rate?

No, it can be smaller.

Does straight line depreciation lead to more rapid depreciation in the early years compared to MACRS?

No.

What must be done to geometric gradients before analysis?

They must be converted to present worth values.

What is the initial arithmetic value for both series to have the same present worth value if the geometric series remains unchanged?

1329

What annual revenue from water tariffs is needed to cover costs of a water treatment plant with a present worth of -$389 million at a 4% discount rate?

18.1 million.

What is the monthly payment for a car costing $18,387 with a $2,000 down payment and a 4% interest rate over 60 months?

302.

How much interest does a 20-year bond with a face value of $5,000 and a 6% coupon rate pay in a single 6-month period?

150.

What is the depreciation of computers purchased for $70,000 with a salvage value of $10,000 at the end of 5 years for year 1 using MACRS?

14000.

What is the book value at the end of year 1 of computers purchased for $70,000?

56000.

What is the interest rate per compounding period for an investment with an 8% effective annual interest rate compounded monthly?

0.64.

What is the nominal annual interest rate for an investment with an 8% effective annual interest rate compounded monthly?

7.72.

What is the interest payment in a single 6-month period for a 20-year bond with a face value of $5,000 and an 8% coupon interest rate?

200.

What is the effective annual interest rate for a nominal interest rate of 5% compounded monthly?

5.12.

What is the annual revenue from water tariffs needed to cover costs of a water treatment plant with a present worth of -$322 million at a 3% discount rate?

12.5 million.

What does the 'Zero Block' tariff do in the South Africa water tariff example?

Ensures all residents receive a basic quantity of water regardless of income.

Does an engineer have a conflict of interest if their spouse works for a bidding firm?

Yes.

Are the Jordan lake rules designed to set fair rules for landowners because nitrogen is not a conservative pollutant?

True.

What was the main issue with the Mobile River bridge project discussed in class?

An online bot created the perception of strong opposition.

What level of stakeholder engagement does the 'design and defend' approach resemble?

Informing.

Does the absence of infrastructure meet the definition of architectural exclusion?

True.

Does condemnation involve taking private property for public use without compensation?

False.

Which source typically has the highest total damage costs from CO2, SO2, and NOx emissions?

Coal-fire generation.