Fundamentals of Engineering Exam (FE) Engineering Economics, Ethics and Professional Practice Syllabus

Engineering Economics, Ethics and Professional Practice syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Engineering Economics, Ethics and Professional Practice in Fundamentals of Engineering Exam (FE), not a summary of it.

1. 1

   Time Value of Money

   3 topics

   • Cash Flow Fundamentals
     • Cash flow diagrams
     • Simple and compound interest
   • Equivalence and Factors
     • Present worth, future worth and annuities
     • Interest factor formulas and tables
     • Gradient series
   • Inflation and Effective Rates
     • Nominal vs effective interest rates
     • Real vs market rates and inflation adjustment
2. 2

   Engineering Economic Analysis

   3 topics

   • Alternative Comparison Methods
     • Present and annual worth comparison
     • Rate of return and benefit-cost ratio
     • Payback period
   • Cost Concepts
     • Fixed, variable and marginal costs
     • Break-even and sensitivity analysis
   • Depreciation and Taxes
     • Straight-line and MACRS depreciation
     • After-tax cash flow analysis
3. 3

   Ethics and Professional Responsibility

   3 topics

   • Codes of Ethics
     • NCEES Model Rules
     • Engineer's obligation to public safety
   • Professional Licensure
     • Licensure process and EIT designation
     • Roles, responsibilities and liability
   • Legal and Societal Considerations
     • Intellectual property and contracts
     • Conflicts of interest and whistleblowing
     • Sustainability and societal impact
4. 4

   Safety, Quality and Project Management

   3 topics

   • Workplace and Process Safety
     • Hazard identification and risk assessment
     • OSHA and material safety data
   • Quality Management
     • Statistical process control
     • Control charts and Six Sigma basics
   • Project Planning
     • Critical path method and Gantt charts
     • PERT and scheduling
     • Resource allocation

Engineering Economics, Ethics and Professional Practice flashcards for Fundamentals of Engineering Exam (FE)

18 of 51 cards from the Engineering Economics, Ethics and Professional Practice deck — real questions with worked answers.

1. In an engineering economics cash flow diagram, what do upward and downward arrows represent, and where does the present (time 0) sit?

   Upward arrows represent cash inflows (receipts/positive); downward arrows represent cash outflows (disbursements/negative). Time 0 (the present) is the beginning of the timeline, with end-of-period convention placing cash flows at the end of each period.

2. State the FE convention for the difference between simple interest and compound interest, with formulas for total amount.

   Simple interest: interest only on principal, $F = P(1 + iN)$. Compound interest: interest on principal plus accumulated interest, $F = P(1 + i)^{N}$.

3. What is the single-payment compound amount factor (F/P) and how is F found from P?

   $F = P(F/P, i, N) = P(1 + i)^{N}$. It moves a single present amount forward $N$ periods at rate $i$.

4. Write the single-payment present worth factor (P/F) used to discount a future single amount.

   $P = F(P/F, i, N) = F(1 + i)^{-N} = \dfrac{F}{(1+i)^{N}}$.

5. Give the uniform series (annuity) present worth factor (P/A) formula.

   $P = A(P/A, i, N) = A\,\dfrac{(1+i)^{N} - 1}{i(1+i)^{N}}$, valid for equal end-of-period payments $A$.

6. Give the capital recovery factor (A/P), which converts a present amount into a uniform series.

   $A = P(A/P, i, N) = P\,\dfrac{i(1+i)^{N}}{(1+i)^{N} - 1}$.

7. Give the uniform series compound amount factor (F/A) and sinking fund factor (A/F).

   $F = A\,\dfrac{(1+i)^{N} - 1}{i}$ (F/A); inversely $A = F\,\dfrac{i}{(1+i)^{N} - 1}$ (A/F, sinking fund).

8. What is a uniform (arithmetic) gradient series, and what does the gradient-to-uniform factor (A/G) accomplish?

   A gradient series increases by a constant amount $G$ each period (0, G, 2G, ...). The A/G factor converts the gradient into an equivalent uniform annuity: $A = G\,\left[\dfrac{1}{i} - \dfrac{N}{(1+i)^{N} - 1}\right]$.

9. Define economic equivalence in engineering economics.

   Two or more cash flows are equivalent when they have the same value at a given point in time at a specified interest rate—i.e., one can be exchanged for the other given the time value of money.

10. What is the nominal annual interest rate versus the effective annual interest rate?

    Nominal rate $r$ is a stated annual rate ignoring intra-year compounding. Effective annual rate accounts for compounding: $i_{eff} = \left(1 + \dfrac{r}{m}\right)^{m} - 1$, where $m$ = compounding periods per year.

11. Compute the effective annual rate for 12% nominal compounded monthly.

    $i_{eff} = \left(1 + \dfrac{0.12}{12}\right)^{12} - 1 = (1.01)^{12} - 1 \approx 0.1268 = 12.68\%$.

12. What is the effective interest rate for continuous compounding at nominal rate r?

    $i_{eff} = e^{r} - 1$. For continuous compounding, $F = P\,e^{rN}$.

13. Distinguish real (inflation-free) interest rate from market (combined/nominal) interest rate including inflation.

    The market rate $i$ includes inflation; the real rate $i'$ removes it. Relationship: $i = i' + f + i' f$, where $f$ = inflation rate. Thus $i' = \dfrac{i - f}{1 + f}$.

14. How do you convert a future amount in actual (then-current) dollars to present-worth constant dollars given inflation rate f?

    Deflate to constant dollars then discount, or equivalently use the real rate. Constant-dollar amount $= \dfrac{\text{actual dollars}}{(1+f)^{N}}$; then discount at the real interest rate $i'$.

15. In present worth (PW) analysis comparing mutually exclusive alternatives, what decision rule applies and what must be equal?

    Choose the alternative with the highest PW (for revenue projects) or least-cost PW (for cost projects). Alternatives must be compared over an equal study period (equal lives or use least common multiple / a fixed study period).

16. What is the annual worth (AW) method, and what is its key advantage over present worth for unequal lives?

    AW converts all cash flows to an equivalent uniform annual amount: $AW = -P(A/P,i,N) + \text{annual revenues} - \text{annual costs} + S(A/F,i,N)$. Advantage: alternatives with unequal lives can be compared directly without taking a least common multiple, since AW is per-year.

17. How is the internal rate of return (IRR / ROR) defined for a project?

    IRR is the interest rate $i^{*}$ at which present worth equals zero (PW of benefits = PW of costs): $\sum \dfrac{\text{cash flow}_t}{(1+i^{*})^{t}} = 0$. Accept if $i^{*} \geq$ MARR.

18. Why must IRR comparisons of mutually exclusive alternatives use incremental analysis?

    The alternative with the highest individual IRR is not necessarily best. You must analyze the incremental cash flow (defender vs. challenger); accept the larger investment only if the incremental IRR ($\Delta$IRR) $\geq$ MARR.

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