Engineering Economy

Quiz 2- Take Home

Solve the following…No Solution…No Credit

1. A P110000 chemical plant had an estimated life of 6 years and a projected scrap value of P10000.
After 3 years of operation an explosion made it a total loss. How much money would have to be raised
to put up a new plant costing P150000, if a depreciation reserve was maintained during its 3 years
operation by :

 Straight-line Method
 Sinking-Fund Method at 6% interest

2. A certain company makes it the policy that for any new piece of equipment the annual depreciation
cost should not exceed 10% of the original cost at any time with no salvage value. Determine the length
of service life necessary if the depreciation method is used is:

 Straight-line Method
 Sinking-Fund Method at 8% interest
 Sum of the Year Depreciation

3. An existing machine in a factory has an annual maintenance cost of P40000. A new and more
efficient machine will require an investment of P90000 and is estimated to have a salvage value of
P30000 at the end of 8 years. Its annual expenses for maintenance and upkeep, etc. total P22000. If the
company expects to earn 12% on its investment, will it be worthwhile to purchase the new machine
using the (a) present worth method? (b) rate-of-return method?

4. A project capitalized for P50000 invested in depreciable assets will earn a uniform, annual income of
P19849 in 10 years. The costs for operation and maintenance total P9000 a year and taxes and
insurance will cost 4% of the first cost each year. If the company expects its capital to earn 12% before
income taxes, is the investment worthwhile?