SET A

a.) SCIENCE, a term derived from Latin word “scientia”, is a systematized body of knowledge based
on facts and events of life arranged according to order. It is a system of gaining knowledge
based on a scientific method which has the following steps: unbiased observations, formulation
of hypothesis, gathering of data, systematic experimentation, analysis of data and conclusion. It
aims to give better understanding of current phenomena and a better ability to infer future
events. It expresses general truths and principles to explain how things work.

b.) ENGINEERING is an applied science. It aims to solve problems to improve the status quo. It can
also be defined as the optimal conversion of the natural resources to products that will make for
optimum and safe utilizations of humans. It solves problems not just by explaining but by
actually designing and manufacturing products, engines and devices which will last for a long
time and under a specification of safety.

c.) PRESENT ECONOMY PROBLEMS

There are many cases in engineering economy studies where interest is not a
factor, these studies are frequently called present economy problems. Such studies usually
involve the selection between alternative designs, materials, or methods.

d.) RATE OF RETURN (ROR) METHOD

The rate of return on the capital invested is given by the formula,

Rate of return is a measure of effectiveness of an investment of capital. It is a financial

efficiency. When this method is used, it is necessary to decide whether the computed rate of return is
sufficient to justify the investment. The advantage of this method is that it is easily understood by
management and investors. The applications of the rate of return method is controlled by the
following conditions. A single investment of capital at the beginning of the first year of the project life
and identical revenue and cost data for each year. The capital invested is the total amount of capital
investment required to finance the project, whether equity or borrowed.

e.) PRESENT WORTH (PW) METHOD

This pattern for economy studies is based on the concept of present worth. If the present worth. If the
present worth of the net cash flows is equal to, or greater than, zero, the project is justified
economically. The present worth method is flexible and can be used for any type of economy study. It
is used extensively in making economy studies in the public works field, where long-lived structures
are involved.
SET B

f.) SCIENCE, a term derived from Latin word “scientia”, is a systematized body of knowledge based
on facts and events of life arranged according to order. It is a system of gaining knowledge
based on a scientific method which has the following steps: unbiased observations, formulation
of hypothesis, gathering of data, systematic experimentation, analysis of data and conclusion. It
aims to give better understanding of current phenomena and a better ability to infer future
events. It expresses general truths and principles to explain how things work.

g.) ENGINEERING is an applied science. It aims to solve problems to improve the status quo. It can
also be defined as the optimal conversion of the natural resources to products that will make for
optimum and safe utilizations of humans. It solves problems not just by explaining but by
actually designing and manufacturing products, engines and devices which will last for a long
time and under a specification of safety.

h.) ANNUAL WORTH. In this method, interest on the original investment (sometimes called
minimum required profit) is included as the cost. If the excess of annual cash inflows over
annual cash out flows is not less than zero the proposed investment is justified – is valid. This
method is covered by the same limitations as the rate of return pattern a single initial
investment of capital and uniform revenue and cost throughout the life of investment.

i.) FUTURE WORTH. The future worth method for economy studies is exactly comparable to the
present worth method except that all cash inflows and outflows are compounded forward to a
reference point in time called the future. If the future worth of the net cash flows is equal to, or
greater than, zero, the project is justified economically.

j.) PAYBACK PERIOD. The payback period is commonly defined as the length of time required to
recover the first cost of an investment from the net cash flow produced by that investment for
an interest rate of zero

Investment – salvage value

Payout period (years) =
Net annual cash flow

h.) ECONOMICS is the social science that deals with the production, distribution, and consumption
of goods and services and with the theory and management of economies or economic systems. It is
also the theories, principles, and models that deal with how the market process works. It attempts to
explain how wealth is created and distributed in communities, how people allocate resources that are
scarce and have many alternative uses, and other such matters that arise in dealing with
human wants and their satisfaction.