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ENGINEERING ECONOMY
EQUIVALENT INTEREST RATES

SIMPLE INTEREST
10. Find the effective rate of 8% compounded
continuously
1. An investment of P 200,000 for 36 days earned P
a. 8.42 % c. 8.33 %
3,588.00 after deducting 20% withholding tax. Find
b. 8.11 % d. 8.24 %
the annual rate of simple interest.
11. Which of the following has the least effective
a. 21.36 % c. 23.16 %
annual rate of interest?
b. 22.42 % d. 24.22 %
a. 12.30% compounded annually
2. A certain commodity is payable in 90 days but if paid
b. 11.95% compounded semi-annually
in 15 days there will be a 10% discount. Find the
c. 11.75% compounded quarterly
annual rate of interest.
d. 11.68% compounded monthly
a. 58.89 % c. 53.33 %
12. Find the equivalent of 6% compounded semi-annually
b. 51.11 % d. 56.67 %
in a rate compounded quarterly.
a. 5.56 % c. 6.21 %
COMPOUND INTEREST
b. 5.96 % d. 6.05 %

3. How long (in years) will it take money to double if it

ANNUITIES
earns 4% per annum compounded annually?
a. 17.76 c. 16.67
13. A man paid 10% down payment of P 200,000 and
b. 16.77 d. 17.67
agreed to pay the balance of monthly installment for
5 years at an interest rate of 15% compounded
SITUATION 1: Compute the interest for an amount of P
monthly. What was the monthly installment?
200,000 for a period of 8 years
a. P 40,389.82 c. P 36,490.32
4. If it was made at a simple interest rate of 16%.
b. P 38,105.76 d. P 42,821.87
a. P 184,360 c. P149,200
14. A man deposited P 100,000 annually for 10 years at
b. P 256,000 d. P242,400
an interest rate of 8% compounded annually. How
5. If it was made at 16% compounded bi-monthly
much will his money be after another 10 years?
a. P 384,186.30 c. P 298,316.42
a. P 1,856,288.05 c. P 2,300,319.54
b. P 494,312.42 d. P 507,367.94
b. P 3 127 540.18 d. P 1,490,296.28
6. If it was made at 16% compounded continuously.
a. P 498,348.62 c. P 519,328.58
SITUATION 2: The purchase of a new car requires P
b. P 384,941.68 d. P 298,498.62
100,000 down payment and the balance to be paid at P
300,000 after 2 years and P 600,000 after five years. The
CASH FLOW DIAGRAM
rate of interest is 18% compounded monthly.
7. A car costing P 1 million was bought at a down
15. Find the present worth of the car
payment of P 200,000. P 150,000 is paid after 2
a. P 455,440.99 c. P 555,440.99
years and the remaining balance is paid after 5
b. P 629,589.71 d. P 729,589.71
years. How much was the payment after 5 years if
16. Find the lump sum if the car is paid after 5 years.
the interest rate is 12% compounded annually.
a. P 1,538,224.93 c. P 1,782,546.73
a. P 1,999,134.15 c. P 1,349,134.15
b. P 1,357,063.44 d. P 1,112,741.64
b. P 1,199,134.15 d. P 1,749,134.15
17. With the down payment of P 100,000, find the
8. A house and lot costing P 2 million was bought at a
monthly amortization for 5 years.
down payment of P 500,000. He paid P 1 million after
a. P 15,460.00 c. P 11,565.21
1 year and the remaining balance after 3 years. How
b. P 14,104.55 d. P 13,328.31
much was the payment after 3 years if the interest
rate is 24 % compounded semi-annually?
18. The maintenance cost of newly acquired equipment is
a. P 1,387,214.67 c. P 1,224,287.44
P 40,000 per year for the first 5 years and P 60,000
b. P 1,516,210.47 d. P 1,465,971.03
per year for the next 5 years and the cost of
9. A man borrowed P 120,000 and promised to pay
overhaul at the end of 5th and 8th year is P 140,000.
annually for 5 years. The payment starts at “X”
Find the equivalent uniform annual cost (EUAC) if
pesos. The man intends to increase his payment by P
money is worth 6% compounded annually.
5000 at the end of each successive year. If the
a. P 74,701.81 c. P 77,811.43
interest rate is 8% compounded annually, how much
b. P 70,779.36 d. P 79,228.09
will the first payment be?
19. Find the present value of perpetuity of P 15,000
a. P 20,228.42 c. P 22,028.42
payable semi-annually if money is worth 8%
b. P 20,882.42 d. P 22,208.42
compounded quarterly.

JOHN REY M. PACTURANAN, CE, MP

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a. P 358,106.35 c. P 375,442.59 expected that the equipment will retire after 10 years. Using
b. P 371,287.13 d. P 362,187.40 the sum of the years’ digit method of depreciation:
20. Find the present worth of perpetuity of P 10,000 30. What is the book value of the equipment after 6
payable quarterly if money is worth 10% compounded years?
monthly. a. P 167 300 c. P 171 500
a. P 396,683.72 c. P 390,186.79 b. P 175 200 d. P 168 000
b. P 385,256.10 d. P 400,000.00 31. What is the total depreciation of the equipment
after 5 years?
COMPOUND AMOUNT FACTORS a. P 351 000 c. P 363 000
b. P 384 000 d. P 375 000
SITUATION 3: For a nominal rate of 6 % compounded semi 32. What is the 4th year depreciation of the equipment?
– quarterly for 8 years, compute the following: a. P 59 700 c. P 63 000
21. Present worth factor of a single payment (P/F). b. P 65 200 d. P 67 200
a. 0.765321 c. 0.592308
b. 0.619893 d. 0.532741 SITUATION 6 (Declining Balance Method): A heavy
22. Future worth factor of a single payment (F/P). equipment costs P 500 000.00 and its installation cost is P 60
a. 1.613183 c. 1.762397 000.00. Other miscellaneous cost of the equipment (taxes,
b. 1.562193 d. 1.892546 delivery fees insurance, etc.) is P 40 000.00. The salvage
23. Present worth factor of an annual payment (P/A). value of the equipment is 12 % of its first cost and it’s
a. 39.424630 c. 48.320643 expected that the equipment will retire after 10 years. Using
b. 42.316481 d. 50.680979 the declining balance method of depreciation:
24. Future worth factor of an annual payment (F/A). 33. What is the book value of the equipment after 6
a. 75.667321 c. 84.520941 years?
b. 81.757670 d. 91.256137 a. P 168 136 c. P 176 329
25. Capital recovery factor (A/P). b. P 172 673 d. P 165 320
a. 0.023631 c. 0.025500 34. What is the total depreciation of the equipment
b. 0.020695 d. 0.019731 after 5 years?
26. Sinking fund factor (A/F). a. P 350 765 c. P 392 154
a. 0.027518 c. 0.012231 b. P 376 869 d. P 381 921
th
b. 0.017192 d. 0.023283 35. What is the 4 year depreciation of the equipment?
a. P 70 453 c. P 60 683
DEPRECIATION b. P 67 404 d. P 64 012
36. What is the constant rate of depreciation?
SITUATION 4 (Straight Line Method): A heavy equipment a. 18.25 % c. 19.75 %
costs P 500 000.00 and its installation cost is P 60 000.00. b. 19.11 % d. 20.00 %
Other miscellaneous cost of the equipment (taxes, delivery
fees insurance, etc.) is P 40 000.00. The salvage value of the SITUATION 7 (Double Declining Balance Method): A
equipment is 12 % of its first cost and it’s expected that the heavy equipment costs P 500 000.00 and its installation cost
equipment will retire after 10 years. Using the straight line is P 60 000.00. Other miscellaneous cost of the equipment
method of depreciation: (taxes, delivery fees insurance, etc.) is P 40 000.00. The
27. What is the book value of the equipment after 6 salvage value of the equipment is 12 % of its first cost and
years? it’s expected that the equipment will retire after 10 years.
a. P287 400 c. P 283 200 Using the double declining balance method of depreciation:
b. P 291 300 d. P 275 000 37. What is the book value of the equipment after 6
28. What is the total depreciation of the equipment years?
after 5 years? a. P 167 286 c. P 177 286
a. P 264 000 c. P 268 500 b. P 157 286 d. P 147 286
b. P 271 300 d. P 262 800 38. What is the total depreciation of the equipment
29. What is the 4th year depreciation of the equipment? after 5 years?
a. P 51 600 c. P 54 000 a. P 403 392 c. P 423 392
b. P 52 800 d. P 55 200 b. P 413 392 d. P 433 392
39. What is the 4th year depreciation of the equipment?
SITUATION 5 (Sum of the Years’ Digit Method): A heavy a. P 55 440 c. P 59 440
equipment costs P 500 000.00 and its installation cost is P 60 b. P 57 440 d. P 61 440
000.00. Other miscellaneous cost of the equipment (taxes,
delivery fees insurance, etc.) is P 40 000.00. The salvage SITUATION 8 (Sinking Fund Method): A heavy equipment
value of the equipment is 12 % of its first cost and it’s costs P 500 000.00 and its installation cost is P 60 000.00.
Other miscellaneous cost of the equipment (taxes, delivery

JOHN REY M. PACTURANAN, CE, MP

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fees insurance, etc.) is P 40 000.00. The salvage value of the the end of 6 years from now. If it is sold now, what
equipment is 12 % of its first cost and it’s expected that the should be the selling price to yield 8 %.
equipment will retire after 10 years. Using the sinking fund a. P 1 067.03 c. P 1 098.54
method of depreciation with money is worth 5 %: b. P 1 077.74 d. P 1 046.23
40. What is the annual depreciation? 49. A bond with a par value of P 1 000 and with bond
a. P 43 978 c. P 39 978 rate of 10 % payable annually is sold now for P 1 080.
b. P 41 978 d. P 37 978 If the yield is to be 12 %, how much should the
41. What is the book value of the equipment after 6 redemption price be at the end of 8 years?
years? a. P 1 003.53 c. P 1 444.07
a. P 334 466 c. P 314 366 b. P 1 235.70 d. P 942.77
b. P 324 466 d. P 304 366
42. What is the total depreciation of the equipment BREAK –EVEN ANALYSIS
after 5 years?
a. P 211 957 c. P 251 957 50. Determine the break-even point in terms of number
b. P 231 957 d. P 271 957 of units produced per month using the following
43. What is the 4th year depreciation of the equipment? data:
a. P 48 595 c. P 48 995 Selling price: P 600.00/unit
b. P 48 395 d. P 48 195 Total Overhead Expenses: P 428 000/month
Labor Cost: P 115.00/unit
CAPITALIZIED AND ANNUAL COST Cost of Material: P 76.00/unit
Other variable costs: P 2.32/unit
44. A new equipment worth P 500 000 with a salvage a. 1 036 units c. 1 053 units
value of P 50 000 must be replaced at the end of b. 1 044 units d. 1 025 units
each 10 years. If the annual maintenance required is 51. A manufacturer produces certain items at a labor
P 10 000, find the capitalized cost if money yields cost of P 315.00 each, material cost of P 100.00
5%. each and variable cost of P 3.00 each. If the item
a. P 779 505.80 c. P 4 514 123.52 has a unit price of P 995.00, how many units must be
b. P 1 415 541.18 d. P 915 541.36 produced each month for the manufacturer to
45. A company uses a type of motor truck whose costs P break-even if the money overhead is P 461 600.00?
2.20M with life of 3 years and a final salvage value a. 900 units c. 750 units
of P 280 000. How much could the company afford b. 800 units d. 800 units
to pay for another type of truck for the same
purpose whose life is 4 years with a final salvage
value of P 360 000 if money is worth 4 %?
a. P 2.86 M c. P 2.95 M
b. P 2.68 M d. P 2.59 M
46. Determine the annual cost of a structure that
requires P 15M to build with a salvage value of P 2M
after 12 years if the interest rate is 6 %
compounded annually.
a. P 1 977 286.33 c. P 1 284 936.06
b. P 1 410 242.87 d. P 1 670 601.38
47. A contractor can buy trucks for P 800 000 each or
rent them for P 1 200 per truck per day. The truck
has a salvage value of P 100 000 at the end of its
useful life of 5 years. The annual maintenance cost is
P 20 000 per truck. Using the annual cost method
and 14 % interest rate, determine the minimum
number of days per year that each truck must be
used to warrant its purchase.
a. 200 c. 198
b. 201 d. 199

BONDS

48. A bond has a par value of P 1 000 with a bond rate of

9% payable annually is to be redeemed at P 1 050 at

JOHN REY M. PACTURANAN, CE, MP