Engineering Economy, Project Management, and Professional Ethics
Domain scope
This domain tests time value of money, present worth, annual worth, rate of return, payback, depreciation, CPM/PERT scheduling, and professional ethics. Numerical questions often ask whether a project is acceptable at a stated minimum attractive rate of return.
Core rules
- NPV discounts all cash flows to present at the MARR; accept independent projects with NPV > 0.
- P/A factor: (1+i)^n − 1 divided by i(1+i)^n.
- IRR is the discount rate making NPV zero; it can be unreliable when cash-flow signs change more than once.
- Simple payback ignores the time value of money.
- Sunk costs are not relevant to a forward-looking decision.
- CPM critical path has zero total float; delaying it delays the project.
- Ethics requires disclosure of conflicts of interest, competence limits, and risks to public safety.
Worked example
A project costs 100,000 now and returns 30,000 per year for 5 years. At i = 10%, P/A = [(1.10)^5 − 1]/[0.10(1.10)^5] = 3.7908. Present worth of returns = 30,000×3.7908 = 113,724. NPV = 113,724 − 100,000 = 13,724, so the project is acceptable at a 10% MARR.
Traps
- Discounting at a rate that already includes financing costs.
- Including sunk costs in an incremental analysis.
- Treating accounting profit as cash flow.
- Assuming IRR is unique for every cash-flow pattern.
- Failing to disclose a conflict of interest or signing off outside your competence.