Set A

1. a) Engineering Economy is the analysis and evaluation of the factors that will affect the
economic success of engineering projects to the end that a recommendation can be
made which will insure the best use of capital.
b) Inelastic demand occurs when a decrease in the selling price produces a less than
proportionate increase in sales.
c) An interest rate is the rate at which interest is paid by a borrower for the use of
money that they borrow from a lender. Specifically, the interest rate (I/m) is a percent
of principal (I) paid at some rate (m). For example, a small company borrows capital
from a bank to buy new assets for their business, and in return the lender receives
interest at a predetermined interest rate for deferring the use of funds and instead
lending it to the borrower. Interest rates are normally expressed as a percentage of
the principal for a period of one year
d) Compound interest is the sum of the capital plus the total amount of interest
accumulated in previous periods. Thus compound interest means interest on top of
interest.  A bank account, for example, may have its interest compounded every year: in
this case, an account with P1000 initial principal and 20% interest per year would have a
balance of P1200 at the end of the first year, P1440 at the end of the second year, and
so on.
e) Discount on a negotiable paper is the difference between the present worth( the
amount received for the paper in cash) and the worth of the paper at some time in the
future (the face value of the paper or principal). Discount is interest paid in advance.
Example is that when you borrowed P5000 from a bank and agreed to pay the loan at
the end of 9 months and the bank discounted the loan and gave you P4000 in cash.
Present worth - the worth of money or commodity at present time. Money may
worth higher or lower depending on the economic stability of nation. The amount of
commodities or services changes due to the supply and demand.

2. compounded quarterly

I = 4%/4 = 1% n = 5(4) = 20
P = 13000 / (1 + 0.01 )^20 =P10654.08

3. = 10000 ( (1+0.14)^9-1)/0.14)=P160853.4658
 = (160,853.47)(0.14)/(1-(1+0.14)^-8) = P34675.19

4.
Q=the present worth of cost of perpetual operation

Q = 100000(P/A,9%,5) + 120000/0.09 (P/F,9%,5)

= 100000((1-(1+0.09)^-5)/0.09) + 120000/0.09 ((1-(1+0.09)^-5)/(1+0.09)^5 - 1)
= 100000(3.88965) + 120000/0.09 (0.64993)
= P1255538.33
X = the present worth of cost of perpetual replacement
= S/ ((1+i)^k +1) = 250000 / ((1+0.09)^6 -1)) = P369221.62

Capitalized cost = 4500000 + 1255538.33 + 369221.62 = P6124759.95

Set B

1. a) Perfect competition occurs in a situation where a commodity or service is supplied by

a number of vendors and there is nothing to prevent additional vendors entering the
market.
Monopoly is the opposite of perfect competition. A perfect monopoly exists when a
unique product or service is available from a single vendor and that vendor can prevent
the entry of all others into the market.
Oligopoly exists when there are so few suppliers of a product or service that action by
one will almost inevitably result in similar action by others.

b) The law of supply and demand may be stated as follows: Under conditions of perfect
competition the price at which a given product will be supplied and purchased is the
price that will result in the supply and demand being equal.
c) Ordinary annuity is one where the payments are made at the end of each period.
d) the capitalized cost of any property is the sum of the first cost and the present worth
of all costs of replacement, operation and maintenance for a long time or forever.
e) Amortization is any method of repaying a debt, the principal and interest included,
usually by a series of equal payments at equal interval of time. Example : Pensioner

2. = 1000/5000=0.20=20%

= 1000/ (4000)(8/12)=0.375=37.5%

=900(((1+0.067)^420 – 1)/0.067)=P2089872.05

=(2089832.05*0.0667)/(1-(1+0.067)^-120)=P25339.3385

4 = 5000(0.055)/(1-(1+0.055)^-4= 5000/3.5052 = 1426.4521