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Engineering Economics by J Tiong PDFPDF PDF Free
Engineering Economics by J Tiong PDFPDF PDF Free
Engineering Economics by J Tiong PDFPDF PDF Free
Ques tion
Question Bank .l present
Economy
1-24
Question Bank2 Simple lnterest and
Discount
25_40
Question Bank 3
Compound lnterest
41 _ 102
Question Bank 4
Annuity
103 _ 194 A bookstore
Question Bank 5 should this b
Uniform Gradient
195 _ 212
Question Bank 6
Bonds
A. P 2o0.oo
213 _ 220
B. P 3oo.oo
Question Bank 7 c. P 4oo.oo
Depreciation and
Depletion D. P 5oo.o0
221 _240
Question Bank g
and AnnualCost _260
241
Question Bank g
Letx=sellingprice
sis
261 _ 280
Question Bank 10 Objective Note: The profit of
euestions 30o/
281 _ 302 th"-r!'rri"g;.t""'"^ffi
Theories and Formulas ::t#:Tf X?i#^"";1;innor#"or,n"capitaror3oyoor
303 - 323
Profit = 0.30x _+ Eq. 1
Glossary
Also,
324 - 337
5ffi :1'[%']3?;"*,'*r-
=
discount
F'rotrt = 0.90x _
200 _+ Eq.
2
and 2;
;:1f i%:'#lo;111
200 = g.5x
x=400
; The selting price
of the book is p 400.00
A businessma
tncome from a
what minimum
to be justified?
A. B.o2 %
B. 12.07
c. 10.89 %%
D. 11 .08 0/o
2 Question Bank - Engineering Economics by Jaime R. 'l'iong Present Economy 3
,%*-
Let x = capital Dalisay Corporation's gross margin is 45o/o of sales. Operating expenses such as
y - gross income sales and administration are 15oh of sales. Dalisay Corporation is in 40% tax
bracket. What percent of sales is their profit after taxes?
Projected earnings = 0.07x
A. 21%
Taxableincome=y-x B. 20 o/o
c. 19%
tax = 0.42 (y - x) D. 18 o/o
\r-_ 0.65x Since tax is 40%, net profit after taxes will be:
'-
o.s8
Y =1.1207x Net profit = 0.60(0.30x)
Net profit = 0.18x
.'. Rate of return before payment of taxes = 0.1207 or 12.07o/o of the capital
.'. Net profit is 18% of the sales
lf the liquidated damages is P 5000 per day of delay, and the men
are paid P150
p"r OrV, how much m6ney would he sa re with the additional workers?
By selling balut at P 5 per dozen, a vendor gains 20%. The cost of the eggs rises
by 12.Soh.lf he sells at the same price as before, find his new gain in %. A. P 43,450
B. P 43,750
A. 6.89 % c. P 44.250
B. 6.67 %
C. 6.58 o/o
D. 6.12 o/o
S/.k"o...
,c/7,.l,t,,..
With 50 men only:
Let x = original cost of a dozen of balut No. of days delaYed = 50 - 40 = 10 days
Cost per dozen of balut = P4.17 With 65 men (an additional of 15 men):
Let y = new cost of dozen of balut Solving for the man-day to finish the job' N:
PROPERTY TAG
21432 n
DO NOT REMOVE
6 Quest,ion lllrnk It)rrgirrct,rirrg l,l,orrornir:s by Jainro Ii,. 'l'iong Present Econorny 7
ln a eertain department store, the monthly salary of a saleslady is parfly constant Jojo bought a second-hand Betamax VCR and then sold it to Rudy at a profit of
and partly varies as the value of her sales for the month. When the value of her 40%. Rudy then sold the VCR to Noel at a profit ol20%. lf Noel paid P 2,856
sales for the month is P 10,000.00, her salary for the month is P g00.00. When more than it cost Jojo, how much did Jojo pay for the unit?
her monthly sales go up to P 12,000.00, her monthly salary goes up to
P1,000.00. What must be the value of her sales for the month so that her salary A. P 4,100
for the month will be P 2,000.00? B. P 3,900
c. P 4,000
A. P 30,000 D. P 4,200
B. P 31,000
c. P 32,000 ' / /,/,t,,, .
D. P 33,000
Let x=fixedsalary I
k = constant of proportionality of salesgirl's variable salary Amount Rudy paid for the VCR unit = x + 0.40x = 1.40x
z = sales for salesgirl to earn P2,000.00
Amount Noel paid for the VCR unit = ( .+Ox)(t .20)= 1 .68x -+ Eq. 2
x + k(10000) = 900 -+ Eq. 1
x + k(12000) = 1 000 --> Eq. 2 Equating equations 1 and2'.
The selling price of a TV set is double that of its net cost. lf the W set is sold to a
x + 0.05(1 0000) = 900 customer at a profit of 25Yo of the net cost, how much discount was given to the
x=400 customer?
B. 37.9 o/o
x+y(z)=2000 c. 38.2%
400+0.052=2000 D. 38.5 %
z=32000
Let x=netcost
Selling price = 2x
Profit = 0.25x
Profit = Selling price - net cost - discount
(,lrrt,sl i.lr llrrrrk l,),grrrr,r,ri,g l,l.rrr.r.r,.:, lr1,,lr1rrrrr, lf 'l'iorrg I)rcsent Economy 9
0.25x 2x x disr:ounl
O.25x -. x discount
discount = 0.75x The quarrying cost of marble and granite blocks plus delivery cost to the
processing plant each is P 2,400.00 per cubic meter. Processing cost of marble
Discount is75% of the net cost. lnto tile is P 200.00 per square meter and that of granite into tiles also is P 600.00
per square meter.
Solving for discount in terms of percent of selling price;
discount -
o'75x lf marble has a net yield of 40 square meters of tiles per cubic meter of block and
2x eells at P 400 per square meter, and granite gives a net yield of 50 square meters
discount = 0.375 of tiles per cubic meter of block and sells at P 1000 per square meter, Considering
all other costs to be the same, the granite is more profitable than the marble by
discount = 375%
how much?
The discount given to the customer is 3T.S %.
.'.
A. P 12,000 per cubic meter
B. P 13,000 per cubic meter
C. P 14,000 per cubic meter
D. P 15,000 per cubic meter
A Mechanical Engineer who was awarded a p 450,000 contract
to install the
machineries of an oil mill failed to finish the work on time. As nrovirtecr far in rho '
/ /./,t.,
contract, hE ha enalty t to on er
day for the first % per e next t For Marble (Per cubic meter):
per day for eve lf the t ty was
days was the completion of the contract ? Quarrying cost & delivery cost to processing plant = 2400
A. 26 days processing cost into tit"" = 200
[( sq.m ]1+o ,q. *1= aooo
B. 27 days J'
G. 28 days Total production cost =2400 + 8000 = 10400
Daily penatty for the first 1 0 days = (O.OrX+SOOO0) = 12s Profit = Total income - Total production cost
I 1
Profit=16000-10400
Total penalty for the first 1 O days = 1125(10) = 1 12SO Profit = 5600
Daily penalty for the next 10 days = (O.OO5X45OO00) 2259
= For Granite (Per cubic meter):
Total penalty for the next 10 days 22SO(1O) = 22SOO
= Quarrying cost & delivery cost to processing plant = 2400
Daily penalty for the succeeding days = (0.01)(450,000)
= 45gO
processins cost into tir" = sq. m)= soooo
solving for the number of days (x) beyond 20 days from end of contract [!99)@o
that
would amount the penalty to 60750.0b
Total production cost = 2400 + 30000 = 32400
4500x + 22500 +11250 :60750
x=6 Total income = 50(1000) = 50000
.'. The completion of the contract was delayed for 26 days. Profit = Total income - Total production cost
Profit=50000-32400
Profit = 17600
10 (luestion Br.ruJt_ l,)rrgirroor.rrrg lrlcononrir:s by
Jairrro Il 'l'iong I)resent Economy 11
A. P 800
B. P 820
A man would like to invest p 50,000 in government bonds and stocks
that will
c. P 840
give an overall annual return of about 5%. The money to be invested
in
D. P 860
government bonds will give an annual return of 4.5o/o and the
stocks of about 6%.
The investments are in units of p 100.00 each. lf he desires to klep r,isito"t
investment to minimum in order to reduce his rrsk, determine now riany
stocts
should be purchased.
Solving for the input power of motor:
A. 165
outDut
B. 166
' =Linput
Eftrclencv
c. 167
D. 168
o.8o
2
=input
input = 2.5 hP
Let x = number of government bonds
y = number ofstocks
input=rttr[,ffit)
'100x+100y=5gggg input = 1.865 kw
x+y=500 -+ Eq '1
Let P = total power consumption for 7 days
0.0a5(1 00x) + 0.06(1 00y) : 0.os(so0oo)
4.5x+6Y=2500 -+ Eq.2
p=(1 865**Xro*.{{$t)
P = 313.32 kw - hr
Multiply Eq. 1 by 6:
Table of Power Cost:
6x+6Y=3000 + Eq. 1a
333.33{y=SOO
Y = 166'67 Total Power Cost = P 860.00
since there was a desire to keep stock investment minimum, y must be ,'. lt will cost P 860 to run the motor continuously for 7 days'
166 instead ot 167.
TIP ABLEEUILIBBARY
12 Quest,ion tsank , l,)ngirrccrirrg lrl<:onomics by Jairno lt. Tiong Present, Economy 13
Assume the following data: - en etectric utility purchases 2,300,000 kw-hr per month of electric energy from
National Power Cbrporation at P 2.OO per kw-hr and sells all this to consumers
4 Sand fill, including rolling and watering = p 100 per cubic meter per kw-hr should
a-fteiJeOucting distribution loss es of 2OYo. At what average rate
B. concrete pavement, 10 inches thick (iabor and materials) including currng
tnii be-sold to break even if the following are other monthly expenses in
= P 220 per sq. meter "n"rgy
Ite operation:
C. Curbs and gutters = p 12 per linear meter
Taxes 2.5Yo of qross revenue
How much will the project cost allowing 15yo for contingency? P 750,000
Salaries
lleoreciation P 2.250.000
A. P 1,207,000
lnterest P 700,000
B. P 1,207,500
P 300,000
c. P 1,208,000 Maintenance
P 200.000
Miscellaneous
A. P 4.90
"V.ur.r- B. P 5.20
c. P 5.90
Let Cr = cost of sand filling, rolling and watering D. P 6.30
Cz = cost of curbs and gutter (both sides)
Co = cost of concrete pavement
,'/,/nt n.
P1 -nr;
.,=[T)(soomtz) AmountpaidtoNPc=[, )1r.ooooo**
1kw - hr /'
Cz = P120,000 = 4600000
p6,5oo
Rentat _
r\errrdr =f l( l montn ),^^ weeks)
{.
'"'th 14 *""k.J(32
= 52000
A. P 949,645
c. P 956,807 .'. Site B is more expensive than site
B. P 962,10.1 A by p 949,645.
D. P 974,090
A fixed capital
For Site A: manufacturing
depreciationE al
the rate ofretu ne
cost of hauting
(z.stm[zr<m)
A. 28.33%
= 12252450
B. 29.34%
c. 30.12%
Cost of installing & dismanfling D.30.78%
of machine = 20000
16 ()trr,sliorr llirrrk l,)ngrrr,r,r'rtr1i l,l.onorrrr,.., lrt,lrrrrrr,, l( 'l'iorrg
Present Economy 17
Profit
Rate of return 5ooo
Total capitalinvested '50-
Number of oost + 1
2500000 = 101
iooooooo , 2oooooo
_- 0 2833
.,=lffi)(rorno,,,)
The rate of return is 28.33 %.
Cr = 505000
",=[H)(a+oays[s)
Cz = 30600
..=(H)(s+oays)(+)
A. P 745,890.23 c. P 789,120.80 Cs = 34000
B P 817,692.00 D. P 829,592.50
..=[H)(s+aavs)
Let Cr = cost of posts C4 = salary of foreman Cr = 13600
C2 = salary of 5 laborers Cs = Cost of wire
C3 = salary of 4 electricians (pa\.
cs = m)
Solving for the number of posts: [-J(soss
Cs =20140
Hydro-electric
Power station
Total directcost=Cr +C2+ C3 +Ca +C5
. = 505000 + 30600 + 34000 + 1 3600 + 20140
.-,]
= 603340
50m 50 nt 50m
ContingencY = 0. 1 0(603340)
5035 m
= 60334
Pr ofit = 0.25(663674)
Pr ofit : 16591 8.50
is_3200
The monthly demand for ice cans being manufactured by Mr. Alarde
Total cost of Project = 663674 + 165918.50 nlcces With a manual ooerated quillotine, the unit cutting cost is P 25'00' An
Total cost of Project = P 829,592.50 ne was offered
the unit cutting t
.'. The estimated cost of the project is P 829,592.50 Alarde be able
A. 10 months
Upon her retirement after 44 years in government service, Mrs. Safud Arao-
B. 11 months
arao wa lump sum of P 2,300,000. As a hedge against
C. 12 months
inflation rt of it invested in real estate at pagadian City
D. 13 months
and the as follows:
/r,/,/,;.r"
A. 30% in T-bills earning 12% interest
B. 35% in money market placement earning 14o/o For manuallY operated guillotine:
C. 35% in blue chip stock earning 13%
lf her annual earnings from the t-bills, money market and stock is p 50,000 how Monthty expenses = units)
much did she invests in real estate? [ffi),.r.O
= P 80,000
A. P 2,091,639.12
B. P 1,916,858.24 For electrically operated hydraulic guillotine:
c. P 1,856,120.53
D. P 1,790,274.78 Cost Per unit = 0.70(25)
= 17.50
A. Processing method A
B. Processing method B
C. Processing method C
D. Either of the processing methods B or C
,%zn*
For Processing Method A:
A. P 670 Per engine C. P 650 Per engine
D. P 610 Per engine
B. P 630 Per engine
+ooo'][ to ounces)fo.got
lncome per ton - [p
\ ounce /( ton )'
= P 36,000 lf shipped in container:
p +ooo t o ounces
rncome per ton -[ )[
\ ounce /\ ton )')ro.aot
= P 32,000
= 20 engines
Net income = 32000 - 2500
= P 29,500 . cost of freight
cost per englne =
nr-m0", of ensine"
For Processing Method C:
'n20000
1
+ooo'1( t o ounces
lncome per ton - [p
\ ounce /\ ton )(o.zot
)' , = P 6,000
= P 28000
lf shiPPed in crates:
so szo kg
cost of freight per ensine - [eg ][t )
\ t(g /\ engrne ,
Totat cost =
l.ks \ru
[t,'oo
)'
*n)
= 5320 = 5000
= 1 080000
A paint manufacturing company uses a sand mill for fine grinding of paint with an
output of 100 liters per hour using glass beads as grinding media. Media load in rotat cost = [',090']eo *nl
the mill is 25 kg costing P 200.00 per kg and is fully replenished in 2 months time i
Iks )'
at 8 hours per day operation, 25 days a month. A ceramic grinding media is = 12000
offered to this paint company, costing P 400 per kg and needs 30 kg load in the
sand mill, but guarantees an output of 120 liters per hour and full replenishment Profit = Total income - total cost
of media in 3 months. lf profit on paint production is P 15 per liter how much is
=1080000-12000
the difference in profit between the two media?
= 1 068000
A. P 436,900 The ceramic is more economical as a grinding media with a difference
B. P 462,000 in profit of P1,068,000 - P 595,000 = P 473,000
c. P 473,000
D. P 498,200
,9"2',2,*.
It P1000 accumulates to P15P0 when invested at a simple interest for three years,
what is the rate of interest?
A. 14.12%
B. 15.89%
c. 16.67 %
D. 16.97 %
t(r*t ',,
F = P(1+ in)
15oo=tooo[t+i(s)]
i= 0.1667
i =16 67%
You loan from a loan firm an amount of P 100,000 with a rate of simple interest of
2g7o but the interest was deducted from the loan at the time the money was
5fiowed. lf at the end of one year, you have to pay the full amount oiP 100,000,
what is the actual rate of interest?
A. 23.5Yo
B. 24 7 nto
c. 25.0%
D. 25.8%
,'/n7)zrn.'
l= Pin
20,000 = 80,000(i)(1) J. Reyes borrowed money from the bank. He received from the bank P 1,842
i = 0.025 promised to repay P 2,000 at the end of 10 months. Determine the rate of
i=25%
o/". 12.19%
.'. The actual rate of interest is 25
12.030h
11.54%
10.29%
A loan of P 5,000 is made for a period of 15 months, at a simple interest rate of
'1
5%, what future amount is due at the end of the loan period?
F = P(1+ in)
A. P 5,937.50
B. P 5,873.20 2ooo = n+zlt.'l'19)l
c. P 5,712.40 L \12i1
D. P 5,690.12
i= 0.1029
i=10.29%
,9urr*"
The simple interest rate is 10.29 %.
F = P(1+ in)
'r --""1'
= sooolr.0.',u[E)l
"'"[tz)] rborrowed P 10,000 from a bank with 18% interest per annum, what is the
----
F = 5,937.50
amount to be repaid at the end of one year?
P 10,900
.'. The future amount at the end of the loan period is P 5,937.50.
P 11;200
P 11,800
P 12,000
lf you borrowed money from your friend with simple interest ol 12o/o, find the
present worth of P 50,000, which is due at the end of 7 months.
F = P(1+ in)
A. P 46,728.97
F=1O,ooo(+0.1S)
B. P 47,098.12
c. P 47,890.12 F = 11,800
D. P 48,090.21
The total amount to be repaid at the end of one year. is P 11 ,800.
c'*r"rn
F=P(1 +in)
tag of P 1,200 is payable in 60 days but if paid within 30 days it will have a
so,ooo=P[1 ..,r(#)] discount. Find the rate of interest.
P = 46,728.97
/,/,,/,i,,,.. h,,,
Discount = 0.03(1,200) Solving for rate of discount, d
Discount = 36 i
.80
o=-
2,000
Amount payable in 30 days = 1,200 - 36
d = 0.04
Amount payable in 30 days = 1,164
d = 4o/o
l= Pin
Solving for the rate of interest, i
36=1,164(i)[#) .d
1-d
i= 0.3711 . 0.04
i = 37.11o/o 1- 0.04
The rate of interest is 37.11 %. I = 0.0417
t= 4.17%
A man borrowed P 2,000 from a bank and promised to pay the amount for one
year. He received only the amount of P 1,920 after the bank collected an advance
interest of P 80.00. What was the rate of discount?
tIVhrl wlll be the future worth of money after 12 months, if the sum of p 2s,ooo is
A. 3.67 % lltvoatcd today at simple interest rate of 1o/o pet leat?
B. 4.OO o/o
c. 4.15 0/o
A, P 25,168
D. 4.25 o/o
3, P 2s,175
c. P 25,18e
D, P 25,250
A man borrowed P 2,000 from a bank and promised to pay the amount for one
year. He received only the amount of P 1,920 after the bank collected an advance
interest of P 80.00. What was the rate of interest that the bank collected in lltlrtwitt be the future worth of money after 12 months, if the sum of p 25,000 is
advance? lnYrcteo today at simple interest rate of 1%o per month?
- ,)L
30 Questiorr llrrrrk l,)rrgirrorrringltrconornir:s lrv.Jrrirno lt.'l'iong Sirnple lntcrest & Discount 31
( rt/,,,,.
l= Pin
F = P(1+ in)
11,2oo = 68,800(i)(1)
i= 0.1628 r = s,ooolr. (0.16)f=.)l
',(360/l
i=16.28% L
F = 5,166.67
.'. The effective rate of interest is 16.28 %. ,'. The amount due at the end of 75 days is P 5,166.67.
A deposit of P 110,000 was made for 31 days. The net interest after deducting A bueinessman wishes to earn 7% on his capital after payment of taxes. lf the
20% withholding tax is P 890.36. Find the rate of return annually. lnoome from an available investment will be tafed at an average rate of 42Yo,
what minimum rate of return, before payment of taxes, must the investment offer
A. 11.50 o/o
lo be justified?
B. 11.75%
c. 11.95% A. 12.07 %
D. 12.32 o/o
B. 12.34%
c, 12.67 0/o
D. 12.87 0h
,%dz,*.
32 (lrrcst,irrrr llrrrrk l,)rrgrru,r,t'ittg I!<:ottoutit's lry.lairne It. Tiong Simple Interest & Discount 33
Agntr Abanilla was granted a loan of P 20,000 by her employer CPM lndustrial
A mgn borrowed P 20,000 from a local commercial bank which has a simple lfbrlcator and Construction Corporation with an interest bf 6 % for 180 days on
interest of 16% but the interest is to be deducted from the loan at the time that ho prlncipal collected in advance. The corporation would accept a promissory
the money was borrowed and the loan is payable at the end of one year. How iOh for P20,000 non-interest for 180 days. lf discounted at once, find the
much is the actual rate of interest. pDoreds of the note.
A. 19.05 % A, P 18,800
B. 19.34 0/o l, P 18,900
c. 19.67 % C. P 19,ooo
D. 19.87 % D, P 19,100
"V;/'r.o,, ,'L.*
r= 0.16(20,000) lnterest = 0.06 (20,000) = 1,200
I = 3,200
Proceeds on the note = 20,000 - 12OO
Proceeds on the note = 18,800
{
34 Qucsl,iorr Ilrrrrk I,)rtgirtrrrring Econottrics by Jaimtr Il..'lliong Simple Interest & Discount 35
lf you borrow money from your friend with simple interest of 12%, find the present Mr, Danilo conde borrowed money from a bank. He receives from the bank
worth of P 20,000, which is due at the end of nine months. P1,340.00 and promised to pay P 1,5oo.oo at the end of 9 months. Determine
Tala of simple interest
A. P 18,992.08
B. P 18,782.18 A. 15.92o/o
c. P 18,348.62 B. 15.75%
D. P 18,'t20.45 c. 15.45%
D. 15.08 %
(*h,t
F = P(1+ in)
F = P(1+ in)
20 ooo = p[r
-' L'* 0.1 2f3zq).l
" '-(aooJl 1,500 = t.scol t.,r?29)l
P = 18,348.62
L (360/l
'
o.11g4 -270
The presentwo;th is P 18,348.52. 360
i.= 0.1592
i =15.92o/o
A man borrowed from a bank under a promissory note that he signed in the ,', The rate of simple interest is 15.92 %.
aniount of P 25,000.00 for a period of one year. He receives only the amount of
P21 ,915.00 after the bank collected the advance interest and an additional of P
85.00 for notarial and inspection fees. What was the rate of interest that the bank
collected in advance? Ml, J, Dela Cruz borrowed money rec€ive
P1,340.00 and promised to pay P nd of g ine
A. 13.05% lh! corresponding discount rate or as the nt,,.
B. 13.22%
C. 13.46 o/o A, 13.15 0/o
D. 13.64 % B, 13.32 o/o
C, 13.46 o/o
.7;7)a-,,-. D, 13.73Yo
l= Pin 1,500=1,340[1+(#)]
3,000 = (22,000xi)(1)
i= 0.1364 0.1194 -27o i
i=13.64% 360
i= 0.1592
.'. The rate of interest the bank collected in advance is 13.64 %. i=15.92%
36 li:l*l'1""1,,*
9::'tu' lly! Ecr)norrrir:s tr.y Jairne R. Tiong
Simple Interest & Discount
Solving for the discount, d
lnterest = 1,500.00 _1,342.00
.t
d=1- | '
lnterest = 15g.00
i+i Also,
d=1- 1
1 + 0.1 592
l= Pin
d = 0.1373
d =13.73% rsa = r,s+z1nf!)
\4)
.'. The discount rate is 1S.gZ%. i = 0.'1569
i= 15.69%
F = p(1+ in)
l= Pin +Eq.1
1,250 = pL.o oa[jq)l
1( soo/]
Solving for the total number
P = 1,233.55 of days money was invested,
d
t= s,ooo(o.1s,("1\
. 1366 /
l= 666.39
u^*
Sinrplc lnt,erotrl, & l)iscourlt' 39
38 (,lut'strorr llrrrrk l,)rtgtttocriltg [lconottticr lrv ,lrtirtto lt. Tiong
' 1995 to
The exact simple interest of P 5,000 invested from June 21 December was invested' d
Solving for the total number of days the money
25, 1995 is P '100. What is the rate of interest?
A. 3.90 %
- 30 = $
April 22
B. o/o
May = 31
c.
3 92 June = 30
D.
3.95 % July = 31
3.98 % August = 31
September = 30
.'/./ot;,, October = 31
November = 30
l= Pin -+ Eq. 1 December 1-25 =E-
247 daYs
June21-30 =$
July =31 1o,ooo=P[1.(oro)(#)]
August = 31
September = 30
P = 8,807.92
October = 31
November = 30 her mother on her birthday is P
Decemberl-25=25 ,', The amount Nicole received from
187 dayt 8,807.92.
Substitute values:
1oo : s.ooo(i)f]!Zl
' "t365/ 182 days at 5'2%?
t rhat it the ordinary interest on P 1,500'50 for
i= 0.0390
P 39.01
i= 3.90% P 39.45
P 39.82
.'. The rate of interest is 3.90 %. P 39.99
On her recent birthday, April 22,2001, Nicole was given by her mother a certain ,'&,an'
sum of money a Present. t on
20% exact simp lf-the ac an l= Pin
amount of P 10, w much her
birthday? I = (1,500, 50)(o.o5r)[#)
A. P 8,807.92 l= 39.45
B. P 8,827.56
c. P 8,832.17
D. P 8,845.78
40 Quest iorr llrrrrk lrltrgrrroorirrg lj<:onorrrrr.x lry ,Inirno R. Tiong
Question Bank 3
Nicole has P 20,400 in cash. She invested ll alTo/o from March 1, 2006 to
November 1, 2006 at 7% interest. How much is the interest using the Banker's
Rule?
A. P 972.12
B. P 970.78
c. P 973.',t2
D. P 971.83
Tho amount of P 20,000 was deposited in a bank earning an interest of 6.5% per
1rrl,,2*. tnnum. Determine the total amount at the end of 7 years if the principal and
htlrrcet were not withdrawn during this period.
ln Banker's Rule, use exact number of days the money invested and 360
days for the total days in a year.
A. P 30,890.22
t, P 30,980.22
c, P 31,079.73
Solving for the exact number of days:
0, P 31,179.37
Marchl-31=30
April= 30
MaY = 31
r=e(t+i)n
June = 30
July = 31 F = 20,OOO(1+ 0.065r
August = 31 F = 31,079.73
September:30
October = 31
,'. The total amount at the end of 7 years is P 31,079.73.
November 1 = 1
Total = 246
A Joan for P 50,000 is to be paid in 3 years.at the amount of P 65,000. What is the
l= Pln dhcrtive rate of money?
t= (2o.4oo)(o
\ ' /\ 07)r?€)
,[360/ A. 9.O1%
B. 9.14 o/o
I = 971.83 c. 9.31Yo
D. 9.41%
r=e(+i)n
65,000=SO,OOO(1+i)3
t.a=(t+i)3
1.0914 = 1+ i
i = 0.0914
47 Quost,ion llank lr)rrginooring Econorrrir.r by.Jaime R. Tiong ( )ortrpottrttl I rrl,t,rtttl nnd Cont.iuuous C<lnrpounding 43
Since nothing was mentioned about how the interest was compounded, it lg the effective rate corresponding to 18% compounded daily? Take 1 year
presumed that the mode of compounding is annually.
is
$flut
aqu.l to 360 daYs.
.'. The effed.t rate is 9.14 %.
A 19,61 0/o
I 19,440h
c, 1s.31%
D 19.72%
The amount of P 50,000 was deposited in the bank eaming an interest ol7.So/o
annum. Determine the total arnount at the end of S years, if the principal and (**-
interest were not withdrawn during the period.
ER=(1+if-t
A. P 71,78',t.47
0.18)360 _1
B. P 71,187.47 en =[r+ 360/
c. P71,817.47 \
D. P 71,718.47 ER =19.72%
(tzz. ,', The effective rate corresponding to 18% compounded daily is 19.72o/o.
F = P(1+ i)n
F= 5o,o0o(1+o.o75f \Mltt nominal rate,.compounded semi-annually, yields the same amount as 16%
F =71,781.47 Slnpounded quarterly? a
c, 16.45%
D, '16.78%
Find the present worth of a future payment of P 80,000 to be made in six (6)
with an interest of 12Yo compounded annually.
12,h.
A. P 40,540.49 ER,
24
= EP,
B. P 40,450.49
c. P 40,350.49
D. P 40,530.49
[,.T)'-,=(,.0i)'-,
o'ro)o
.7"2*.* l..,*!B)'-
( 2/ [.,* ( 4)
[., * rB)' ='r.16e8556
\ 2)
NR
1* = 1.0816
2
36 ()ucstiorr llrruk llrrgirrrrorirrg [!<:orrorrrir.* lrv.lrrirrro It. Tiong
Simple Interest & Discount
37
Solving for the discount, d .
lnlerest 1,500 00 - .t,342.00
lnterest = 158.00
d=1_1
1+i Also,
d=1-
1 + 0.1592 l= Pin
d = 0.1373
d=13.73% 158 = 1,342({;)
F=P(1+in)
l= Pin -+ Eq. 1
1,250 =p[r. o.oa[i9)l
1 (s60i.l Solving for the total number
of days money was invested,
P = 1,233.55 d
January 1S-31 = 16
.'. The cash price of the television set is p 1,233.55. February 29 (since 19g6 is a leap
= year)
March =31
April
=30
May = 31
man.bollory"-d June = 30
Iamount rgney from a roan shark. He receives from the roan shark and
of p 1,u2.00 and^promised p July = 3.1
What is the simple interest rate?
to repay 1,500.00
"i
tn" Lna otl quarters. August = 31
September =30
A. 15.47 o/o October 1 - 12 =12
B. 15.69 % 271 days
C. 15.80 o/o
D. 15.96 % Substitute values in Eq. 1
r = s,ooo(o.18,{!1\
' '\366'
.V;z*--
t= 666.39
38 (1)ucstrorr llrrrrlr lr)rrgrrrrrr.rirrg l,lt:ortorrricx by ,lnime R. Tiong Simplc lnt,ereel, & Discoupt 39
The exact simple interest of P 5,000 invested from June 21, 1995 to.December
25, 1995 is P 100. What is the rate of interest? Solving for the total number of days the money was invested, d
A. 3.90 % April22-3O =$
B. 3.92% May = 31
c. 3.95 % June = 30
D. 3.98 % July = 31
August = 31
September = 30
October = 31
November = 30
l= Pin -+ Eq. 1 Decemberl-25=25
247 days
Solving for the total number of days, d
Substitute in Eq. 1
June21-30 =g
JulY = 31
1o,ooo=P[1.rr.,(#)]
August = 31
September = 30
October = 31 P = 8,807.92
November = 30
December 1-25 =.25 The amount Nicole received from her mother on her birthday is P
187 day$ 8,807.92.
Substitute values:
1oo = s,ooo(i)fEz)
"\ 365 / What is the ordindry interest on P 1 ,500.50 for 182 days at 5.2 %?
i= 0.0390
i= 3.90% A. P 39.01
B. P 39.45
.'. The rate of interest is 3.90 %. c. P 39.82
D. P 39.99
On her recent birthday, April 22,2001, Nicole was given by her mother a certain ,ttdlL/,an
sum of money as birthday present. She decided to invest the said amount on
20o/o exact simple, interest. lf-the account will mature on Christmas day at an
l= Pin
amount of P 10,000.00, how much did Nicole receive from her mother on her
birthday? r 5oo, 50) (o.o5r)(ffi)
= (1,
A. P 8,807.92 t= 39.45
B. P 8,827.56
c. P 8,832.17
D. P 8,845.78
--,.It,.
40 llrrrk l')rrgrrroorirrg l!)<xrrtorttu x lry JaiIno R. 'liong
Question Bank 3
Quesliorr
Nicole has P 20,400 in cash. She invested rl al7% from March 1, 2006 to
November 1, 2006 at 7% interest. How much is the interest using the Banker's
Rule?
A. P 972.12
B. P 970.78
c. P 973.12
D. P 971.83
Thc amount of P 20,000 was deposited in a bank earning an interest of 6.5% per
annum. Determine the total amount at the end of 7 years if the principal and
,'/;Zr,- lntcrest were not withdrawn during this period.
ln Banker's Rule, use exact number of days the money invested and 360 A. P 30,890.22
days for the total days in a year. B. P 30,980.22
c, P 31,079.73
Solving for the exact number of days: D. P 31,179.37
Marchl-31=30
April= 30
MaY = 31
r=e(t+if
June = 30
JulY = 31
F = 2o,ooo(1+ o.o65f
F = 31,079.73
August = 31
September:30
October = 31 ,'. The total amount at the end of 7 years is P 31,079.73.
November 1= 1
Iotal=246
A loan for P 50,000 is to be paid in 3 years.at the amount of P 65,000. What is the
l= Pln dlbaive rate of money?
t= (2o.4oo)(0.07)f?€)
.",/[360J A. 9.01 o/o
B. 9.14 o/o
I = 971.83 c. 9.31%
D. 9.41%
r=e(t+i)n
65,000=so,ooo(t+i)3
1.3=(1+i)3
1.0914 = 1+ i ......_ 61rr0lw
50,000
i= 0.0914
11]lrr_oil1,1,11r,k. _U,,rinooring Economics by Jaime R. Tiong
t.s = 1r+i;
1.0914 = 1+ i tfre pres"nt worth is p 40,530.49.
i= 0.091a
F = so,ooo(1+o.o7s)s
F:71,781.47 Wtll nominai r"t",
ompounded qr"rt"1y?pounded "o.no1ilffi,a,,..
semi-annually, ._:_,
yields the same amount
as 16%
.'. The total amount at the end of
71,781.47. A, 16.09 %
!, 16.32%
c, 16.45 %
D, 16.78 %
Find the present worth of a rrtrr" pryrr,"r,t
of p g0,000 to be made ln six yea)
with an interest of 12o/o compounded'"nnrrlfy. 1o;
A. P 40,540.49
B. P 40,450.49 ER, =5P,
c. P 40,350.49
D. P 40,530.49
(,.T)'-,=[,.T)'-,
o-
E
|
[,.T)'=(,.T)'
(1+i)n
_ 80,000 [,.T)'=116e8s56
P
(1+ 0.12)6 1.T = 1.0816
P = 40,530.49
44 ()trcstiorr llrrrk l,lrrgirrr,r.r'irrg l,lr:rrrrorrrir:s by .Jaime R. Tiong
( lorrtltottttrl l rtl.t'r'rl rrtrtl ( lrttl itttttttts ()orrtpotrnding 45
A. 8.07 o/o
. Ths nominal rate's 11.83%'
B. 8.12 0/o
C. 8.16 o/o
D. 8.24%
interest?
ffil-O,, of tn".e gives the lowest effective rate of
.V;Z*r-".
ER' =EP' A, 12.35% comPounded annuallY
a 11.90 % compounded semi-annually
(1+i)1- t=(t*IB)o -',
C, 12.20% comPounded quarterlY
[4,l D, monthll
11.60 % comPounded
(1+i)=11+
( . o.o8
.)4
'(,J*-,
\ 4,
1+i=1.0824 Solving for the effective rates:
i= 0.0824
i = 8.24 Yo
A. ER = 12.35 % (if compounded annually, NR = ER
A '|.1.93 0/o
u 11.09 % rn=[r,.9J??)'-r
(: 11,85 %
I) 11.26 0/ ER=0.1277
ER = 12.77o/o
A. P 3,864.95
,', The nominal rate is 12"/o.
B. P 3,846.59
c. P 3,889.95
D. P 3,844.95
r=n(t+if A, P 6,080.40
.15 utol !, P 6,020 40
F = 2'5oo(1* !'oe c. P 6,040 20
\ 4) D, P 6,060.20
F = 3,864.95 2,s00
i....................
""'> F l*oth',,
l-J2z
, -/../t//rn 18% compounded semi-quarterly?
W-nrt i" the corresponding effective rate of
r=e(+i)n A. 19.24%
1,608.44= 1,s66(1 * ;)+to) B. 19.48 o/o
c. 19.84%
1.AOAI+* =t+i D. 19.92%
1.02 = 1+i
i=o.o2 f k)*,,.
gp = (r+i)m._1
__l-.
f
48_ ,,),::Il iorr llrrrk -, lr)nginocring li)conornir:x by Jaime R. Tiong ()ornllotttrtl I ttlrrrtrrl, nnrl Continuoue Compounding 4!)
t---
F=P(1 +i)2n
rn=lr*o,rtlt
( 8, , ol'l'"
2ooo + 3ooo = 2ooo(1* 2)
ER = 0.1948 [
ER = 19.48 % 2.5 = (1.06)2n
.
.'. The corresponding effective rate is 19.4go/o.
Take log on both sides:
log2.5 = tog(t.oo)2^
)present worth of a future payment of p 100,000 to be
made in 1 0 years log2.5 = 2nlog1.06
interest of 12o/o compounded quarterly.
n = 7.86 years
o_ F
(1 + i)n
P 215,U4.40
100,000 P 213,il4.40
^
P=
o.rz'14(10) P 2Uj53.40
f, * P 255.43.10
l
( 4/
P = 30,655.68
tb
.'. The present worth is p 30,655.6g.
r=e(t+if
F = 1 50, OOO (1 + 0.075)s
F =215,344.4O
ln how many years is required for p 2,000 to increase by p 3,000 if interest
at 12%
compounded semi-annually?
,'. The total amount at the end of 5 years is P 215'344'40'
A. 7.86 years
B. 7.65 years
C.7.23years
D. 8.12 years HOn, tong will it take money to double itself if invested at 5% compounded
f,lnuallY?
A. 13.7 Years
B. 14.2 years
C. 14.7 years
D. 15.3 years
,%*^
__..L
r -!tF'
50 Quesl,iurr llntrk I,)rrginooring l,lt:onuurit:x by Jairne Il,. Ti<lng ()ontJxrurrtl Ittit'rr,xl rrntl (lont,inuorrs Oompounding 51
r=n(t+if
To double the money, F = 2P
,;-
.'. The money if invested at 5% compounded annually will double in 14.2 Aan lnterest rate of 10% compounded annually, how much will a deposit of
yeats. ll,tOO be in 15 Years?
P 6,265.87
P 6.256.78
what is the corresponding effective interest rate of 1g% compounded semi- P 6,526.87
monthly? P 6,652.78
,/
A. 19.35%
B. 19.84%
,'fu'
c. 19.48% r=P(1+i)"
D. 19.64%
F = 1,500 (1 + 0.10)15
F = 6,265.87
ER=(1+i)'-r
,.. The amount of P 1,500 will become P 6,265.87 after 15 years'
en=[r+0.18)24_1
\ 24)
ER :0.1964
ER = 19.64% fiman expects to receive P 25,000 in 8 years. How much is that money worth
i[r considering interest at 8% compounded quarterly?
.'. The corresponding effective rate is 19.64 %.
lA. P 13,256.83
'iB. P 13,655.28
,l c. P 13,625.83
What is the effective rate of 14% compounded semi-annually?
fl o. P 13,205.83
A. 14.49%
B. 14.59%
c. 14.690A
D. 14.79 o/o
52 ()uort,iorr llrrrk l{ltrgirxrorilrg lii:onornir:r bv Jairne lt. Tiong
()orrrporurrl Inlorr,nt rrnd (lontinuous Compounding 53
0r23 'b*
ERquarterty = ERsemi -annually
o.oo
( * 2 ))2(8)
1.,
'' P-n"""""' [,nl)o -t=(t+o06)2-1
P ='13,265.83 \ 4) 2 \ )
i= 0.0596.
.'. The present worth is P 13,265.83. i= 5.96%
About how many years will P 100,000 earn a compound interest of p 50,000 if
the interest rate is g% compounded quarterly?
t{hfl lr the amount of P 12,800 in 4 years at 5 % compounded quarterly?
A. 4 years
B. 5 years A, P 15,461.59
C. 6 years t, P 15,146.e5
D. 7 years 0, P 15,641.59
0, P'15,614.59
9"2*,
r=e(r+if
loo,ooo + 50,000 = 1oo,ooof1+ o.oe)4N F=P(1 +i)n
\. 4) o'05
1.5 = (1.0225)4N
F = 12.Boo(( 't* 4) )4(4)
F = 15,614.59
Take log on both sides
,', The amount after 4 years will be P 15,614.59.
log1.5 = 4N1o91.0225
N=
-']991'5
4(1o91.0225)
N = 4.56 years ly he condition of a will, the sum of P 20,000 is left to a girl to be held in trust
fund Oy her guardian until it amounts to P 50,000. When willthe girl receive the
.'. The money will double in 4.56 yearsi or about 5 years. lltollcy if the fund is invested at 8 % compounded quarterly?
A. 11.23 years
!. 11.46 years
C. 11.57 years
compute the equivalent rate of 6% compounded semi-annually to a rate D. 11.87 years
compounded quarterly.
A. 5.12%
B. 5.96 %
c. 5.78%
D. 6.12%
F
54 Qucst,ir-rn lltnk l,)rrgirxroring Iimnomics by Jaime R. Tiong Oornglounrl lrrlr,r'oni nnd Continuous Compounding 55
.-
(
50,ooo = zo,ooo Ir + 9]?8
\4n
4-.J
b.
2.5 = (1 .o2)4"
01
Take log on both sides:
20,000 ...'...- 50,000
log 2.5 = log(1.02)an 1,000 :
.'. The girl will receive the money in 11.57 years. 1- 1,477.46
A sum of P 1,000 is invested now and left for eight years, at which time the
principal is withdrawn. The interest has accrued is left for another eight years. lf
the effective annual interest rate is 5 %, what will be the withdrawal amount at
the end of the 16th year?
t4-
56 (|uost,iorr Ilirrrh lr)ngiruror.rrrg l,lr:orrorrrir.s by Jainre Il. Tiong Oorrrporrrrrl lnlr,r'r'sl rrrtrl ( ionl,irruorrs Oompounding 57
1.0175 = 'l+ i
l1**
i= 0.0175
m
ER = 0.1255
0.0175 = !E ER = 12.55 %
2
NR = 0.035
Thc effective rate is 12.55 %.
NR = 3.5%
A man borrowed P 100,000 at the interest rate of 12Yo per annum, compounded A. 9 years
quarterly. What is the effective rate? B. 1o years
C. 11 years
A. ',t2.750/o D. 12years
B. 12.55o/o
C. 12.45 olo
D. 12.35%
58 Quost,ion llank - Cngineering ltrconornir:s by Jaime R. Tiong ( lotttllottttrl I ttl lrt,xl rurrl (lorttLinuotrs Oompounding 59
F2 3,ooo(1 + o 1o)a
F = P(1+ i)n
F2 = 4,392.30
3P:P(+0.1156)n
3=1.1156n Fs = 5,000(1+ 0.1)1
.'. The amount will triple in 10 years. ,', The amount of money left in the bank 1 year after withdrawal is
P1,549.64.
A student plan to deposit P 1,500 in the bank now and another p 3,OOO for the
next 2 years. lf he plans to withdraw P 5,000 three years from after his last l{CrV much must be invested on January 1 , 1998 in order to accumulate P 2,000
deposit for the purpose of buying shoes, what will be the amount of money left in dl Jrnuary 1,2003? MoneY is worth 6%?
the bank after one year of his withdrawal? Effective annual interest rate is 10%.
A, P 1,509.34
A. P 1,549.64 !, P 1,249.64
B. P 1,459.64 c, P 1,378.98
c. P 1,345.98 0, P 1,494.52
D. P 1,945.64
)
98 99 00 01 02 03
5,000---.- Ft
P,<.'.."..'-.'.-.-.-.-.--...-....- 2,000
I
1 =2,657.34
t_
60 (lrrcsl iorr llirrrk l,,) rr gr rrr,r, rin g l,)rrrrronr rr.s by .la rrnc tt. Tiong (lorttgrorrnrl Itrlr,roxl rrrrrl Oonlirtrrous Oompoundilrg 61
F = Pe(NR)N
o _ 10,000
F:'10,000e(o 03)10 ' (1+ 0OElo
3 P = 4,631.93
F = 10,000e0
F = 13,498.59
', The initial amount that must be deposited is P 4,631.93.
.'. The accumulated amount is P 13,498.59.
0.1125)s3 \
P= F ---'---(,
F = 5oO,OO0[1+
12 ) I
(1 + i)n F = 1,190,848.73
^ 10.000
( . o.04 \10(4)
lnterest=F-P
lnterest = 1,190,848.73 - 500,000
[.'. o J Jaterest = 690,848.73
P:6,716.53
,', The compound interest alf'ar 7 years and 9 months is p 690,848.73.
The initial deposit should be P 6,716.53.
&t lnterest rate is quoted as being 7.5% compounded quarterly. What is the
Funds are deposited in a saving account at an interest of 8% per annum. what is lfrcilve annual interest rate?
the initial amount that must be deposited to yield a total of p 1o,ooo in 10 years?
A, 7.91%
A. P 4,196.30 B. 7.51 o/o
c. P 4,796.03 D. 7.31%
D. P 4,631.93
'l/.*
,'y'.at*.
fn= (1+i)m_r
F
P= o
[r. Tu)' -,
(1 + i)n rn =
L--b-
62 Question Bank - Engineering Econornit:n lly Jaiuro It 'l'rortg ( lrrrrpouurl Irrlr,rr,nl rrnrl Oontinuous Cornpounding 63
ER = 0.0771 0 I 2 3 -_... l0
ER=7.71 o/o r = P(1+ i)"
F= 1, oo0 (1 + 0.08)10
.'. The effective interest is7.71 %.
F =2.158.92
o/o per
3,500.00 from a friend at an interest rate of 1'5 The money in the acdount after 10 years will be P 2,158.92.
of taking a bank at a rate of 18o/o per year' How much
pay bY b moneY from the bank?
A. 7.91% flllocn years ago P 1,000.00 was deposited in a bank account, and today it is
B. 7.51 o/o
Worth P 2,370.OO. The bank pays interest semi-annually. What was the interest
C. 7.71 o/o
tala peid in this account?
D. 7.31%
A, 5.72%
9"2*r;. B, 5.78%
C, 5.84 o/o
a. Borrow money from a friend D, 5.90 %
F=P(1 +i)n
r=s,boo(i +0.015)12
F = 4,184.66
F = P(1+ i)"
b. Borrow money from a bank
F=P(1 +i)n 2,970 =1000 (1 + i)2(15)
r=9,'5oO(i +0.018)1
F = 4,130.00 2.37 =(t+1)3o
1 .02918 = 'l + i 7,000'"""""""""""'-""> 2,370
Solving for the difference:
i = 0.02918
o.o2e18 = IE
2
.NR = 0.05836
A deposit of P 1,000 is made in a bank account that pays 8 7o interest
comiounaed annually. Approximately how much money will be in the account NR = 5.836%
after 10 years?
The interest rate paid on the account is 5.84 %.
A. P 2,187.39
B. P 2,145.78
c. P 2,176.45
D. P 2,158.92
V.e*-.
Eiii
64 Questi<lD Bauk - .liuginocring li)<:()nor||r(.3 lrv ,lttttttt, ll 'l'rorrg
'-'----= oolttlxluntl Irrl,rrroxl, nrrrl Conl,irruous Compounding 65
7"/-s,* :(,..*
90 91
is the present worth of two P 100 payments at the end of the third
year and
what
A flrm borrows P 2,000 for 6 years alg o/o. At the end of 6 years, it renews the
fourth year? The annual interest rate is 8%.
lorn for the amount due plus p 2,000 more for 2 years ata %. what isthe lump
A. P 150.56 lUm due?
B. P 152.88
A. P 3,260.34
c. P 153.89
B, P 3,280.34
D. P 151.09
c. P 3,270.34
D, P 3,250.34
9"2;:
r=e(t+if
10.0 t00
Fr = 2,000(1+ o.Oa)B
Pt Fr = 3,701.86
Pz F2 =2,ooo(1+o.o8r
F2 =2,332.80 F2
Present worth = Pr + Pz Ft
present worth = 79.38 + 73.50 Total future worth = Ft + Fz
Total future worth = 6,034.66
Present worth = 152.88
The present worth of two P 100 payments is P 1 52'8&'
ComJrounrl lrrloroxl rrntl Oontirruous Compounding 67
66 Question llank l,)ngirrccrirtg lt)trrtttttltirs lrv .laime Il. Tiong
With inflation,
Solving for its present worth:
01 Capitalto accumulate = 16,000(1 r 0.03)5
F
P= Capital to accumulate = 18,548.38
(1 + i)n
_ 6,034.66
-=(*oo8)3 '. The capital that must be accumulated is P 18,548.38.
6,034.66
P --3,260.34 i
P <'.."""""
Whd le the effective rate corresponding to 16% compounding daily? Take 1 year
r 360 days.
, i 4-,n or.,'/lZz,i*.
A, 17.35 %
E, ',17.4s%
c, 17.55%
D, 17.65%
2,000 2 000
'lth.
en=(t+i)r-t
Present lumP sum due = 2,000 + P rn=[r+0.16)360_1
Present lump sum due = 2,000 + 1,260.34
\ 360/
Present lumP sum due = 3,260.34 ER = 0.1735
ER = 17.35%
.'. The present lump sum due is P 3,260.34
,'. The effective rate is 17.35o/o.
By the condition of a will, the sum of P 25,OOO is left to a girl to Oe nJO in a trust
fund by her guardian until it amounts to P 45,000. When will the girl ieceive the
money if the fund is invested at 8% compounded quarterly?
A. 7.42years
accumulated? B. 7.67 years
C. 7.85 years
A. P 18,854.38 D. 7.98 years
B. P 18,548.38
c. P 18,458.38
D. P 18,845.38
,V"zz>-.
r=e(t+if
he machin cate 5 Years from now' the o'08
ll need the 8,000' Since there will be a 45.000 = 25.OOO( 1+
-urvvv-4vrvvv[\r-
4
)4n
)
of 2,000, t d the amount of P 16'000 only'
1.8 =1.024^
Without inflation,
Capital to accumulate = 16,000
Itl!
." The girl will receive the money after 7.42 years.
Let P = present worth of the account due to inflation:
o-
E
| 0l234
P 2O0,OOO was deposited at an interest rate of 24o/o compounded semi-annually (1 + i)n
After how many years will the sum be P 621 ,170? where: i = rate of inflation
A. 4 years o _ 20,113.57
B. 5 years P ("".'...................... 20,1 13.57
C. 6 years (r + o.oo)5
D. 7 years P = 15,030.03
o= 2oo,ooo[1 -
621,1 7
ry)'^ A Empany invests p 1 o,ooo today to be rgpaid
in 5 years in one rump sum
T Gmpounded annuary. no* -rcn protrii'n-pl."nt day pesos is rearized?at 12
3.10585 = 1 .122n
A, P 7,563.29
Take log on both sides t, P 7,4e8.20
C, P 7,340.12
log 3. 1 0585 -- Znlog1.12 D, P 7,623.42
loo 3.10585
21o91.12
n = 5 years
r=e(r+i)^
.'. The amount wil! become P 621,170 after 5 years'
F=10,000(1+0.12)5
F =17,623.42
ln year zero, you invest P 10,000.00 in a 15Yo security for 5 years. During that Profit=F-P
time, the average annual inflation is 6 9/o. How much, in terms of year zero pesos Profit = 17,623.42 -1 0, 000
will be in the account at maturitY? Profit = 7,623.42
A. P 15,030.03 ,'. The profit in present day pesos is p 1,623.42.
B. P 20,113.57
c. P 18,289.05
D. P 16,892.34
ll'
70 Question lJank - Engineering Economicc by Jaime lt. 'l'iong ,-'__ Oo-urllounrl lrrlrrorl tn<l (jont.inuous Compounding 71
I
How long (in nearest years) will it take money to quadruple if it earns 7 0zo A mrn expects to receive P-2-0,000 in 10 years. How much is that money worth
compounded semi-annually? tlovv conqidering interest at 6% compounded quarterly?
A. 20 years A, P',t1,042.89
B. 18 years !, P 11,035.12
C. 21 years c. P 11,025.25
D. 19 years D, P 11,012.52
J;**-.
F=p(1 +i)2n E
o- |
A, P 2,000,033.33
!, P 2!000,166.28
How much should you put into a 10% savings account in order to have c, P 2,001 ,450.23
P10,000.00 in five years? D, P 2,002,820.12
A. P 6,216.21
B. P 6,212.12 20,1 5 years
c. P 6,218.21
F=P(1 +i)n
D. P 6,209.21
r = soo,ooo(,*o:,)"'
.V"zrz-
E F = 2,000,166.28 500,000 ,
P =---l-
(1 + i)n
10,000
." The sum of themoney now is p 2,000,166.2g.
-
(1 + 0.1 0)5
P =6,209.21
.'. You should put into a 10o/o savings account an amount of P 6,209.21.
72 Qur:sl,ion Ilrrrrk Ir)rrgirror,rirrg Iijrrrrronr ir:r by .laime R Tiong
A. 4.06% (r+i)-r=f,-g)'_,
B. 4.12% \ 2)
C. 4.16 o/o i= o.dsoo
D, 4.28%
D- F
(1 + i)n
rn= (1+i)m_r
Pl _ 25,000
sp = (r+o.or4 _1
- (1+ 0.0506)
ER = 0.0406 P, :23,795.93 F
ER = 4.06 %
Flndthedifferenceo-
depos itP H il; ;. i;"i.,;Hf
"i
A. P 1,510
JT1"",.i il:
25,000 B. P 1,530
c. P 1,550
75,000 D. P 1,570
L L,
74 Question Bank - Engineoring Economics by Jaime R. Tiong Compound Intereet and Continuous Compounding 75
l= Pin
r= 50,000(0.10x3)
I ='15,000
P1+Pr=P, -+Eq. 1
For a loan acquired six years ago, a man paid out the amount of P 75'000.00.
F
The interest was computed al18% compounded annually. How much was the
D_
(1 + i)n
_ 150.000 A. P 27,367.28
'r
P-=
(.
',
B. P 27,278.36
o.o5\4(1)
c. P 27,782.36
['* , J D. P 27,872.63
Pt =142,728.64
280,000
F
I P=
('l+ i)n
be born to them theY will Place a
birthday, the child will receive the
_ 10.000
an interest of 18% comPounded' (r + o.o+)5 ie
e to make on the birth of a child to P = 5,552.64
I
them?
,F
li r,Il
The value of the inheritance as of the boy,s 6th birthday is p 5,552.64. lLr I
A.
x
P 15,367.18 lriill
i
B. P 15,249.13
I
I
c. P 15,722.16 ,.
rl
D. P 15,482.64
A man who won P 300,000 in a lottery decided to place so% of his winning in a
I
;l I
trust fund for the college education of his son. lf the money will earn M% per
il .72r,*- year compounded quarterly, how much will the man have at the end of 10 years
when his son will be starting his college education? iN
Solving for the deposit on the child's birth, P ::.t
A. P 593.12012
,,\
D_ F
(1 + i)n
B.
c.
P 593,452.12
P 592,739.96 il
t.
Lr<
-
9:_L
300.000 D. P s93,888.96
(1 + 0.1 8)18
P =15,249.13 I l,z,zn
.'. The couple will deposit the amount ol P 15,249'13' F : P(1+ i)n
o'14l4(10)
F = 1so.ooof1-
( 4)
On his 6,h birthday a boy is inheritance will be paid in a F:593,888 96
lump sum of p t O,OOO on n the present value of the
inheritance as of the boy's st is compounded annually? The man will have P 593,888.96 at the end of 10 years.
Assume i = 4oh.
A. P 5,552.64
B. P 5,549.10
c. P 5,522.12
D. P 5,582.63
78 (lrrt'sri,. Il:r.k l,)rrgrrrr,r'r'r.g ri<:...lrrir:s rry Jairne R. Tio.g ( lorrrporrrrrl lrrlr,rrrst and
Continuous Compounding 79
I
l,
1l r l)rl
lf the sum of P 15,000 is deposited in an account earning 4o/o plt
annum ,,(x),000
compounded quarterly, what will be the deposited amount at the end of 5 years./
(l r {) 20)5
A. P 18,302.85 I' ,r0,. t /5 51
B. P 18,450.89
c. P 18,512.83 Itrrrnrrl wrlrth = 300,000 + g0,375.51
D. P 18,638.29 f
rtornrrl worth = 3g0,375.51
.'/n/r.z,r*.
o'9t
25( 1*
ER=(1+i)m_1
45 =
t 4/)o'
ER = (1 + 0.01 5)12 - 1 1.8 = (1.02)4"
ER = 0.1956
ER = 19.56% Take ln on both siqes 25 M -...-.-.........-.............,, 15 M
.'. The effective interest rate per year is 19.56%.
|n1.8=4nln1.02
n=- |n1.8
" 4ln1.O2
A man expects to receive P 20,000 in 10 years. lf interest is computed at 6% n =7.4zyeas
compounded quarterly, how much is it worth today? F
;. The child wil! receive the money in7.42 years.
A. P 11,025.25
B. P 11,035.25 fi
c. P 11,045.25
D. P 11,055.25 at the
lill
Flnd the present value of installment payments of P 1,000 nbw, P 2,000 I
the end ofthe second year, P 4,000 at the end of
inO oftnl first year, P 3,000 at
ltrittriro year and P s,ogo at the end of the fourth year, if money is worth 10% i
@mpounded annuallY.
A. P 11,411.10 :l
B. P 11,530.98 ,ll
c. P 11,621.67 ik
D. P 11,717.85
ilI
p
". The worth of the money today is 11,025.25.
Microsoft CEO, billionaire Bill Gates willed that a sum of g 25 million be given to
a child but will be held in trust by the child's mother until it amounts to g 45
million. lf the amount is invested and earns 8% compounded quarterly, when will
the child receive the money?
A. 8.1 1 years
B. 7.90 years
C. 7.42 years
D. 7.24 years
F = P(1+ i)n
\ L
82 Question Bank - Ii)ngintruriug llconorrrics by Jaime R. Ti<lng
Oompound lnl,orost. and Continuous Compounding 83
P =11,717.85
.'. The value of the account today is P 4,838,949.58.
.'. The present value of the installment payments is P 11,717.85.
How long will it take money to triple itself if invested at 8% compounded ,Whet is the present worth of a future payment of P 200,000 to be rnade in 10
annually? y.rrs with an interest of 1Oo/o compounded annually?
;:
A. 14.27 years A. P 76.901.21
B. 14.56 years B. P 77,108.66 fr
a.
D.
14.78
14.98
years
years
c,
D,
P 78,109.32
P79,667.32
t:
f,t
rt! I
E :l
D- t
,1f
F = P(1+ i)^
(1 + i)n ,,1 I
3P = P(1+ 0.08)n
3 = 1.08n
--=tr*orlo
200,000 ,,, J
1l:l
P : 77,108.66
Take ln (or log) on both sides:
ln3=nIn1.08
;. The present worth is P 77,108.66.
ln3
ll
-
1n1.08
n = 14.27 years
- A deposit of P 1,000.00 is made in a bank account that pays 8% interest
.'. The money will triple itself in 14.27 years. @mpounded annually. How much money will be in the account after '10 years?
A. P 2,374.21
B. P 2,158.92
c. P 2,734.12
Two hundred years ago, your great, great, great grandfather deposited P 1 in a D. P 2,400.12
saving account. Today, the bank notified you that you are the sole heir to this
account. How much is the account today if it earns 8% per annum?
A. P 4,002,450.78
B. P 4j02305.90 P = P(1+ i)n
c. P 4,838,949.58
F = 1,000(1+ 0.08)10
D. P 4,909.289.45
F =2,158.92
A. 41.42% A. 10.12%
B. 40.81% B. 10.00 %
c.41.790h c. 10.92%
D. 40.45 o/o
D. 10.32 o/o
,t/Zrz,,.
F = P(1+ i)n
F = P(1+ i)"
100,000 + 21,000 = 100,000(1+ i)2
4P = P(1+ i)a
(1+i)2 =1'21
4 = (1+l)a
1.i =(.1T.21f
1+i=Ta F
1+i = 1.21
i= 0.4142
i= 0.1 Itrl
i = 41.42%
i=10% ,tl
.'. The nomina! rate is 41.42%. .'. The rate of interest is 10%. ,lt
Ir
lt
Five years ago, you paid P 34,000 for a residential lot. Today you sell it at
An investment of P 20,000 will be required at the end of the year. The project
P50,000. What is your annual rate of appreciation?
\fould terminate at the end of the 5'n year and the assets are estimated to have a
atlvage value of P 25,000 at that time. What is the rate of interest for this projecl
A. 8.12%
to break even?
B. 8.00 %
C. 7 .92 o/o
A. 5.74%
D. 8.320/,
B. 5.43%
c. 5.91%
D. 5.67 %
F = P(1+ i)n
25,000
5O,OO0 = 34,000(1+ i)5
,*,=u@
1134,ooo
34,000
i= 0.08
i = 8o/o 20,000
:
Equating:
20,000 _ 25,000
boirowed a certain amount on June 1990 from Romeo. Two years later'
1+i (1+i)s borrowed again from Romeo an amount of P 5,000. Sonny paid P 1'000
June 1993 and discharged his balance by paying P 7'500 on June 1995'
-^,:-
2.5
|at was the amount borrowed by Sonny on June 1990 if the interest rate is 8%
(1+i)a
(1+i)a = 1.25
1+i = {1,25
A, P 1,511.61
B. P 1,611.51
1+i =1.0574 c, P 1,711.41
D. P 1,811.31
i= 0.0574
i=5.74%
The rate of interest for this project to brcakeven is 5.74o/o. P+P,=P2+P3 -+Eq. 1
E
o- |
(1 + i)n
Frank Medina possesses a promissory note, due in 2 years hence, whose
'' _ 1t*0.08;2
D 5'000
maturity value is P 3,200, What is the discount value of this note, based on an
interest rale ol 7o/o?
P1 :4,286.69
A. P 2,795.00
B. P 2,975.00
P
c. P 2,579.00 1,000
%
' = (1+ 0.08)' 5,000
_
D. P 2,759.00
P1
Pz = 793.83
,72;*-..
7'5oo
" =(1+ 0.08)3
The discgunt value is the same as the present worth. P" =
Solving for the present worth, P
Pa = 5,104'37
o_ F
(1 + i)n Substituting values in Eq. 1
D _
l--------
3'200
P + 4;286.69 = 793.83 + 5,104.37
(1+ 0.07)z P = 1,611.51
P = 2,795.00
The amount borrowed by Sonny on June 1990 is P 1,611.51.
The discount value of this note is P 2,795.00.
88 Question Ilank - Unginr,r.ring l,)urnonricH by.lairne R. Tiong ()olttpourtrl IrrIr,n,rl rrrrrl (lrnl,irrrrous Oornpounding 89
F = P(1+ i)n
Dr. Leopold Lucero invests P 50,000 in a time deposit that yields 10% for his F = 1OO,OO0(1+ 0.12)s
retirement 30 years from now. lf the inflation rate is 5%, what will be the value of l
F =176,234.17
the account at maturity in terms of today's peso?
A. P 20'1,689.91 Solving for the equivalent future amount in today's peso due to inflation
(rate = 4ok) tP
B. P201,571.91
c. P 201,U5.91 D_ F
D. P 201,869.91 (1 + i)n
176,234.17
,V.2,*r*. ^
l--
(1+ 0.04)5
F 2002. The new machine to replace the existing one will have an estimated cost of
P= P400,000. This expense will be partially defrayed by sale of the old machine as I
(1 + i)n
acrap for P30,000. To accumulate the balance of the required capital, the firm will ,i ,:l
872,47l.',t1 ,t(
^ depos[t the following sum in an account earning interest at 5% compounded
(1+ 0.05)30 quarterly:
P = 201,869.91
;i:l ,
First Benchmark Publisher, lnc. invests P 100,000 today to be repaid in five A. P 155,890.12
years in one lump sum at 12o/o compounded annually. lf the rate of inflation is 4% B. P 153,085.56
compounded annually, how much profit, in today's pesos, is realized over the c. P 154,200.12
five-year period? D. P 156,930.38
A. P 44,512.89 ,Vzzr-
B. P 44,672.10
P+ + F2 +F3 + 30,000 = 400,000 -+ Eq. 1
c. P 44,851.64
F1
D. P 44,901.23
Note that SV = 30,000
-V"Zr*-
F1 =oo,ooo(r.T)'"' I
I
Fr = 4,400(1+ i)l
F1 =69,645.27
1 999 2000 2001 2002
F2 = 4,400(1+ t)2 1 999 2000
.14(2)
o'05 30,004
F, = 60.00011*
\. 4, 60,000 60,000 Fs = 4,200(1+ i)s
F2 =66,269.17 80,000
0
F+ = 144,000(1+ i)a ::t
;il
P
F. = 8o.ooof1 +
o.o5 :il
::l
\ 4,)4(1) ', .Ft Substituting values in Eq. 1: :tt
152,000
F3 = 81000.00
1................r.r..),
F2 144, OOO(1 + i)a = 4, 999 * 1 52, OOO
i :
+ 4,400(1+ i)
'"'t F'
i................-
Substituting values in Eq. 1 F3
+ 4,400(1+ i)2 F2
P + 69,645.27 + 66,269.1 7 + 81,000 + 30,000 = 400,000 + 4,200(1+ i)3 .. Ft
P = 153,085.56
By trial and error:
,'. The cash disbursement necessary at the end of 2002 is p 153,095.56. i= 0.0426
i = 4.260/o (semi - annual)
NR = 4.26(2)
NR = 8.52%
on June 1 , 1998, Mrs. Emelie Roe purchased stock of San Miguel corporation
a total cost of P144,000. she then received the following semiannual dividends: The interest is 4.26% per semiannual period or 8.52Yo compounded
seminannually.
P 4,200 on December 1, 1998
P 4,400 on June 1, 1999
P 4,4OO on December 1, 1999
P 4,000 on June 1, 2000
Engr. Altarejos has P 13,760 in cash and he would like to invest it in business.
After receiving the last dividend, Mrs. Roe sold her stock, receiving p152,000 after His estimates of the year-by-year receipts and disbursements for all purposes
deduction of brokerage fees: what semiannual rate did thie dividend realize on are shown in the tabulation below:
investment? Year Receipts Disbursements
00 - P 13,760
A. '4.26% 4 P 5,000 + P 1,000
B. 4.54 o/o
5 P 6,200 + P 1,200
C. 4.87 o/o
6 P 7,500 + P 1,500
D. 4.91 o/o 7 P 8,800 + P 1,800
.l/"a*r- He estimates that his equipment will have a salvage value of P 2,000 at the end of
useful life. Find the rate of return of the prospective investment.
Fr = 4,000 + 152,000 +F.1+F2 + F3 -+ Eq. 1
A. 10.11o/o c.11.10%
B. 11.80% D.10.51 o/o
E*ttF
9t {unlf|lllrlndneering Econornir:n by Jaime R. Tiong Compound Interesf. and Continuous Compounding 93
4*eq
.13.760_ 4'000 +9'=0q+ 6'009 9'009
' +
(1ri)* -(1+i)5 (1+i)o (1+i)'
ItltJt?low Equivalent (Reduced) Cash Flow
'l- 'rl,2A0
i=
i
0.1011
= 10j1%
.
A. 9.45%
8.9.26o/o
c. 9.65 %
8,800 9,000
D. 9.56 %
fA
P3 dq
tI
,ll
o.1o = (1+ i)12 - 1
ifffilng tolqulvalent cash flow:
1.10=(1+i)12
1.00797 = 1+
tlltsrPr +Pz +P3 +Pa -+ Eq.
i
..-L (l + l)n
i= 0.00797
Excel Flrct Rcvlew & Training Center, lnc. plans to purchase a piece of land Mr. Ramos owes Mr. Alarde the following amounts:
and to bulld a school building on this land. However, since the sehgol building is
not an lmmedlate requirement, the inetitute is considering whether it should P 40,000 due 2 years hence
purchaae th6 land and build the building now or defer this acti'on for 3 years. The P 60,000 due 3 years hence
current costs are as follows: P 72,000 due 4 years hence
Land : P 800,000 Building : P 12,000,000 Having won the loftery, Mr. Ramos decided to liquidate the debts at the present
tlme. lf the two parties agree on a 5% interest rate, what sum must Mr. Ramos
The purchase price of the land and the cost of the school building are expected to
Pay?
appreciate at the rate of 15% and 4o/o per annum, respectively. What will be the
total cost ofthe land and structure 3 years hence? A. P 147,520.20
B. P 147,U6.O2
A. P 14,520.120 c. P 147,902.89
B. P 14,715,068 D. P 147,021.81
c. P 14,902,189
D. P 15,021,781
,_y';Z;.,r.
Let A = Amount Mr. Ramos pay
at present time I'u'
Solving for total cost 3 year hence:
I'
A=Pt+Pz+Ps -+ Eq. 1
Total cost = F,r + Fz -+ Eq. 1
F
,lh
D_ I frl
Fl =8oo,0oo(1+0.15)3
_ 60.000
1=1,216,700 P^ :
' z ----------:--
(1+ o.o5)3
F2 = 8o,ooof 1-
qpl"
Mr lllnr I ubay working in the United States planned of returning to the
\.2)
I l,rlrlrlrtrrrr al lho end of 2001 . He established a fund starting in 1,995 with the Fz = 91,910's+
I'rll'rwltU rerordod deposits and withdrawals:
Fs=12,ooof1.oPul'
lirlity I ltm5 Deposit of P 40,000 [ 2)
lrrrllty I l(X)7 Deposit of P 80,000 Fs = 13,549.46
lrtly I lUtl/ Withdrawal of P 12,000
lrrly I lUUlt Deposit of P 64,000
ltrlrrV I llX)g Withdrawal of P 48,000 Note that starting 1998, the interest rate was augmented to 4%
compounded semiannually.
Irrr lrrrrl rrrnorl lnlerest at the rate of 3.54/o compounded semiannually until the
,.,',1,'l lltlt, nt lltat date, the interest was augmentedlo 4o/o compounded 0'04)5 ir.tt
F" =64.00011+
- iilrrilililtrlly What will be the principal in the fund at the end of 2001?
I 2)
l. ltn, tr3,08 c. P '146,846 92
F3 = 70,661.17 ';,r
il^ l, l{n utt2 09
;';t
D. P 146,02282 I
o'04)4 I
I
F, = 48.ooof1+
\ 2) I
I
Ft F+ = 51'956.74 I
I
F2 Substitute values in Eq. 1 I
,,,1
0 The principal in the fund at the end of 2001 is P 146,323.08. 'l
-
000
JRT Publishers is contemplating of installing a labor-saving printing equi
It has a choice between two different models. Model A will cost 1,460,000 while
T,'I nlodel B will cost 1,452;000. The anticipated repair costs for each model are as
follows:
t;t
Model A: P 60,000 at the end of Sth year
P 80,OOO at the end of 1Oth Year
I rl t - l']rlncipalat end of 2001
Model B: P 152,OOO at the end of 9th year
| .lr I Fr+Fs-F+-Fs -) Eq1 The two models are alike in all other respects. lf this publisher is earning a 7%
return of its capltal, which model should be purchased? How much savings will be
t_1,1trl)n accrued if the publisher will purchase the more economical model?
rr - ro,ooo(r *
e'912 5)" A. P 8,769.18
B. P 8,918.23
rt - 19,257.57
c. P 9,012.53
D. P 9,341.11
98 Engineering Economics by Jaime R' Tiong Compound Interest and Continuous Compounding 99
Question Bank -
,7"f-*r.".
What is the future amount of P 50,000 if the single payment compound amount
Analyzing model A: factor of this invegtment is 1.23?
ffiffi
ffi r=p(i+i)n
But (1 + i)n = single payment compound amount factor
F = 50,000(1.23)
F = 61,500
B = 1,452,000 + P3 -+ Eq. 2
-P^=:
'r
152.000
(1+ o.o7)e
Ps =82,677 '93
(1 + i)n = single amount factor
1 .0473n = 1.32
B = 1,452,000 + 82,677.93
B = 1,534,677.93
Take log on both sides
Difference=A-B
n log .0473 = log 1 .32
Difference = 1,543,447.11 - 1,534,677,9C 1
Mru, Tambangan invests P 50,000 today. Several years later it becomes Money is deposited in a certain account for which the interest is compounded
P6O,OOO, Wnit is the single payment present worth factor of this investment?
lf continuously. lf the balance doubles in 6 years, what is the annual percentage
rlale?
lhl amount was invested for 5 years, what is the rate of interest?
A. 3.1 o/o A. 11 .55 0/o
B, 3.3% B. 11.66%'
c. 3.5% c. 11.77 %
D. 3.7 o/o D. 11.88 o/o
/, /r/rr'.n
tr 2P = Pso(NR)
o- t
(1 + i)n 2 = s6(Nn1
1
But - = single payment present worth factor Take ln on both sides:
(1 + i)"
In2 = Ine6(NR)
60'00-0
5q000 -
(1 + i)"
1 ln2 = 6(NR)lne
= 0.833 ln2 = 6(NR)
(1 + i)n
i= 0.037
i=3.7Yo On January 1 , 1999, Mrs. Jocelyn De Gala opened an account at Bank of
Philippine lslands with an initial deposit of P 1,000,000.00. On March 1, 2000,
The rate of interest is 3.7 %. she opened an additional P 1 ,000,000.00. lf the bank pays 12% interest
compounded monthly, how much will be in the account on April 1,2OOO?
A. P 2,180,968.95
B. P 2,190,968.95
c. P 2,160,968.95
D. P 2,170,968.95
,9"2r--
?)1,7.
102 Question Bank - .Engineering Economics by Jaime R. Tiong
r = e(t+ if
Question Bank 4
15 months
Fr = 1,160,968.95
F2 :1,ooo,ooo(,.r#)' I,000,000
F2 = 1,010,000.00 What is the present worth of a P500 annuity starting at the end of the third year
and continuing to the end of the fourth year, if the annual interest rate is 10%?
A. P 727.17
Total amount =1 +Fz B. P 717.1V nlit
Total amount ='1, 1 60,968.95 + 1,01 0,000 c. P 714.71 ,,F.
t
I
5oo[(1+ o.r)'z - r] I
^r=-;@ , t
'],
\ = 867.77 t,ra
E
;:lra
P= ' .
(1 + i)n
o
t1
o-
(1 + i)"
P =717.17
J&,,-a.7;Zt*..
0
Present worth = Pr + Pz -+ Eq. 1
D_ F
..
' - (1 +'r)n
I
D_ 500
lr
''-{r*o.r;' Pt.'"""""""""" 500 500
tr
ri, a = 375.66 t" "" "" """""""""""";
I, .Pr',i,
f{
li
(
/
104 Quection Bank - l,]nginooring Economics by Jaime R. Tiong Annuit,y 105
^ 500
' (1+ 0.1)a
of
ty is required over 12 years to equate with a future amount
P2 = 341.51 i= 6% annually.
Assume
B. P 17,404.12
A = 1,185.54
tiil
c. P 17,5U.13 I
D. P 17,604.34 a
A = 2,@0
FindtheannualpaymenttoextinguishadebtofPl0,000payablefor6yearsat
Amount borrowed = P 12% interest annuallY.
-+ Eq. 1
A. P 2,324.62
B. P 2,234.26
'i(t+i)' c. P 2,432.26
D. P 2,342.26
zoool(u9l!)" _,1
P- L( 4'l .J
(T)(,.T)' AAAAAAAAAA
P =17,504.13
_ - \-
106 Quosl,iorr lla,k I').girrooring Ecorr.rrrics by Jair,e It. 'l'i,rrg Annuity 107
D_ F
'z -,n;y
A manufacturer desires to set aside a certain sum of money to provide funds
cover the yearly operating expenses and the cost of replacing every year the _
p-- 100
dyes of a stamping machine used in making radio chassis aimooet changes for
a period of 10 years.
' (t + o.oof o
P2 -- 55.84
A. P 2,500.57 ,rl
'l
c. P 2,540.56 ll
A = 1,200
l= 500
11t11ltltt
0246810
D. P 2,504.57 l,l
,,.1
[''
lrl
Q= 600
rt[
LetD=A+B-C AAAAAAAAAA tt
prl
D=1,200+500-600
D = 1,100
ilililtilt
BBBBBBBBBB
But P = 10,000
i(1 + i)"
*tl
I
10
A =2,504.57
P 1,800,000
42.0346A : 1,800,000
A man paid 10% downpayment of p 200,000 for a house and lot and agreed to
pay the 90% balance on monthly installment for 60 months at an intereit A: 42,821.86
rate of
15% compounded monthry. compute the amount of the monthry payment.
.'. The monthly payment is P 42'821.86'
A. P 42,821.86
B. P 42,128.67
c. P 42,218.57
D. P 42,812.68 what is the present worth of a 3 year annuity paying P 3,000.00 at the end of
year, with interest at 8% compounded annually?
A. P 7,654.04
B. P 7,731.29
Bdruce c. P 7,420.89 p-
D. P 7,590.12
il!
l;il
iii,l
D-
nltr*if-r]
L r a
i(1 + i)n I
r AAA I
AL44444444L4AL4444L44AL4 AAA4AL4444L4 3,0001 (1 + 0.08,
tt -t'l
I
^ .l
0.08(1+ 0.08)3 .l
,P -.'"""""""''"""': t,a
:,
P. = 7,731 .29 llrt
Downpayment = 0.1O(Total Cost)
200,000 = 0.1 0(Totat Cost)
Total cost = 2,000,000
.'. The present worth is P 7,731.29. ,i u
'.'ra
Balance = Total Cost - Downpayment J
Balance = 2,000,000 is the accumulated amount of five-year annuity paying P 6,000 at the end
of
- 200,000 what
Balance = 1,800,000 each year, with interest al 15% compounded annually?
DL"l
Rlrt+ir"-r] A. P 40,519.21
B. P 40,681.29
i(1 + i)n c. P 40,454.29
D. P 40,329.10
P = 42.0346A
But: AAAA A
:
F
110 (lrrrrsl,i,rr llrrrrk l,).grrt,r,rirrg r4r..rr.rrrit:s b.y J,i,r. [t. ,l'i,rrs Arrrrrrit.y 111
.'. The accumulated amount is p 40,454.29.
A, P 1,234.09
B. P 1,255.90
c. P 1,275.68 AA444A444LM
D. P 1,295.05 1*AAAA444LL4444
i
Ft=Fz -+ Eq. 1
,ttlllt
I
10,000 jts at
,_r] p!t
, _ n[(r * i) f., =e(t+i)" :;l
,l
g(r + i)" ' rl
i Fl = 3oo,ooo(1+ 0.12)10
t
solve the interest per month.
R[(r AAAAAAAAAA I
I
(r + o.os)10 (o.os) p <-r.r.r.ii.ri.rr-...........................i
,9/2,n,, p=
Pz= 187,400 -+ Eq. 1
187,400 P = 10,834.38
Pr = 58,880.69
Money borrowed today is to be paid in 6 equal paymenta et the end of 6 quarters. P1 =P2(1 +i)n
lf the interest is 12 o/o compounded quarterly. How much wer lnltlally borrowed if 58,880.69 = Pz (1+.0.06)5
quarterly payment is P 2,000.00? 'Pz n'
Pz = 43,999.078-
A. P 10,834.38
B. P 10,278.12 Total amount = 100,000 + Pz
c. P 10,450.00 Total amount = 100,000 + 43,999.08
D. P 10,672.90 Total amount = 143,999.08
)-
114 Quest,i,n 13tr,k Ilrrgrrr.r,ri^g l,lt:,rrrruir:s by ,lairne ll. Ti'rrg Annuity 115
How much must you invest today In order to withdraw p 2,000 annually for\0
years if the interest rate is 9%? \. A piece of machinery can be bought for P 10,000 Lsn or for P 2,000 down and
payments of P 750 per year for 15 years. what is the annual interest rate for the
A. P 12,835.32 time payments?
B. P 12,992.22
c. P 12,562.Q9 A. 4.61 0/o
c. 4.41%
.1./;/;,.r,r,, D. 4.51 0/o
p= {qrrl(t+i)"i
Cash price = 2,000 +
Solving for P:
P -+ Eq. 1
How much must be depo-sited at 60lo each year beginning on January 1, year 1, in 7so[(1+ i)'5 - r]
order to accumulate P 5,000 on the date of the lasi Oepolit, January .l y-ear 6?
,
1 0,000 = 2,000 +
--ilr;--
A. P 728.99 (1+i\15
r----l---1
B. P 742.09 10.6667
i(1 + i)''
c. P 716.81
D. P 702.00
By trial and error:
,9o/,2,rn
i= 0.0461
i= 4.61%
,F
116 Question llank -. I4nginecling hkxlnonrics by Jainrc [t. 'l'iorrg Annuity 117
. / /uz,;,,
Cash Price = 500,000 + Pz -+ Eq. 1
A.
B.
c.
P 38,120.00
P 37,520.34
P 37,250.34
-,-@
_ _'roo,ooo[{r*o.r+)'o-r]
D. P 37,002.00 Pt = 521,61't.56
500,000 AAAAA,AA
t-/o1rtrn. D :
Pr= '1
F = 50(1,000)
- (1+i)"
Pt
F = 50,0000 Pz '"""'-"'
^ _521.611.56
Solving for A: "- (1*oi4f
Pz = 308,835.92
ilI t[fIIt
12
With A = 2,497.06
A. P 806,899 33
B. P 807,100 12 ,-
n[1r*i;"
a -rlI
c. P 807,778 12
r1-
i(1+i)"
D. P 808,835.92
118 lltnk
ru
Qrrostion I,lnginocling l,l<:onornir:s by Jairnc It. 'l'iorr11 Arrnui[y 119
An instructor plans to retire in exaclly one year and want an account that will pay
12
him P 25,000 a year for the next 15 years. Assuming a 6 % annual effective
A = 12,615.80
interest rate, what is the amount he would need to deposit now? (The fund will be
depleted after 15 years).
The amount needed to invest monthly"is P 12,615.80.
A. P 242,860.22
B. P 242,680.22
c. P 242,608.22 A man purchased on monthly installment a P 100,000 worth of-land. The interest
D. P 242,806.22 rate is 12 % nominal and payable in 20 years. What is the monthly amortization?
A. P 1,101.08
B. P 1,202.08
c. P 1,303.08
D. P 1,404.08
':*ir**..
P = 242,806.22
F = 6,922.93
The amount the engineer has to pay at the end of the 5th year is
o'12=0.01 P6,922.93.
where: i=
12
n=12QO)=24O
n[1t + o.or) '?40-r] An investment of P 350,000 is made today and is equivalent to payments of
100,000 = ---E- P200,000 each year for 3 years. What is the annual rate of return on investment
(1+ o.o1)240 (0.01) for the project?
A = 1,101.0d
A. 32.7 %
,'. The monthly amortization is P 1,101.08.
B. 33.8 %
c. 33.2%
D. 33.6 %
,?"e*r",
A young engineer borrowed P 10,000 al 12 % interest and paid P 2,000 per
annum for the last 4 years. What does he have to pay at the end of the fifth year
in order to pay off his loan? . _ n[1r*i;"-r]
(r+i)"i
A. P 6,999.39 3-r]
B. P 6,292.93
.---
D_
2oo,ooo[(r + i)
c. P 6,222.39
(t + i)'(i)
D. P 6,922.93
But P = 350,000
ty';rs.*-..
zoo,ooo[(r+i)3
t'-' -r]J
B +Pz =10,000 -+ Eq. 1
10,000 350,000= AAA
i(1 + i)'
:
By trial and error:
i=0.327
i = 32.70/.
2,ooo[(1+ o.rz)a - r] .'. The annual rate of return of the investment is 32.7%.
^
=_
L
O.12(1+ 0.12)a
AAAA
:
Pt =6,074'70 Pt
Maintenance cost of an equipment is P 200,000 for 2 years, P 40,000 at the end
P2 of 4 years and P 80,000 at the end of g r,sars. €ompute the semi-annual amount
o-
,, - F
that will be set aside for this equipment. Money worth 10% compounded
(,t+0.12\5
annually.
Pz = 0'567F
A. P 7,425.72
Substitute values in Eq. 1: B. P 7,329.67
c. P7,245.89
D. P 7,176.89
I
122- Quostiorr llrrrrk l')rtgirtt'trt'irlg l')<',rttotttit:s lly Jairntr ll'l'iorlg Annuity 123
/,/,2,,,,
I
o- F n[1r+o.o+ea)'u -rl
I
(1 + i)n 81.170.06 L
= 0.0488(1+ r
0.0488)16
I
20'000-
P.
' =(1 + 0.1 0)' A =7,425.72
Pt =16,528'92 .'. The semi-annual amount that will be set aside is p 7,425.72.
40,000
^'
(1+ 0.10)"
Mr. cruz plans to deposit for the education of his 5 years old son, p 500 at the
Pz =27'320-54 end of each month for 1 0 years al 12o/o annual interest compounded monthly.
The amount that will be available in two years is
80,000
^
'r
Y^=-
(1+0.10)U
P 13,100.60
P 13,589.50
Pg = 37,320'59 P 13,982.80
P 13,486.7p
Substitute in Eq. 1
.Vbr,rn.
P = 16,528.93 + 27,320.54 + 37,320 59
P = 81,170.06
Solving for the semiannual amount to set aside for thc equipment' A
0123451r78
I II11,,lAA^,
AA44A44444L4
I I II-I
AAAAAAAA A.4
)
174 Qucst.ion Uank - lr)nginccl'ing lir:ottottrics[.ry Jaime lt.'l'iorrg Annuity 125
5oo[(1+ o.or)'z4-r]
_
=
0.01 5500 5500 s50a ss00 5500
F = 13,486.70
A small machine has an initial cost of P 20,000, a salvage value of P 2,000 and a
life of 10 years. lf your cost of operation per year is P 3,500 and your revenues
per year is P 9,000, what is the approximate rate of return (ROR) on the
investment?
Pr + Pz = 20,000 -+ Eq. 1
A 242o/o
Solving for Pr:.
B. 24.8 o/o
c. 25.1%
D 25.4 %
2000
I
9000 9000
o_- F
'z
*;y
0123
1l
9 10
_
P-:---:-
'2
2.000
(1+i)10
3500 3500
TI
3500.1500
Substitute values in Eq. 1:
5,500[(1+ i)10 - r]
i)10 - #F = 2o'ooo
.
20,000 i(1+
i=0.248
i = 24.8o/o
AAAAAAAAAAA A
:
: .'.....'....>,|,-. F
D. P 1,263.71 n[1r*i;" -rl
F- L J
A --3,942.44
iAAAAA
;
The amount needed to invest monthly is P 3,942.44.
.'. The proceeds the employee obtains is P 1,263.71. Mr. Robles plans a deposit of P 500 at the end of each month for 10 years at
12o/o ennual interest, compounded monthly. What will be the amount that will be
available in two years?
The preside+t of a growing engineering firm wishes to give each of 50 employees A. P 13,941.44
a holiday bonus. How much is needed to invest monthly for a year al 12o/o B. P 13,272.22
nominal rate compounded monthly, so that each employee will receive a P c. P 13,486.73
1,000 00 bonus? D. P 13,089.32
A. P 3,942.44 9;1,,r,r",
B, P 3,271.22
c. P 3,600.12
D. P 3,080.32
12
F = 13,486.73
AAAA
Mr. Ramirez borrowed P 15,000 two years.ago. The terms of the loan are lOyo
interest for 10 years with uniform payments. He just made his second annual
payment. How much principal does he still owe? F = P(1+ i)"
Fl = 15,000(1+ 0.10)2
A. P 13,841.34
B. P 13,472.22 Fr = 18,150'00
c. P 13,286.63
D. P 13,023.52
Fz=
n[o+u" -r]
.V;/,tr... i
2,441.181(1+ o.r)'? - r]
Fz:
01
Fz ='5'126'48
Balance = Ft -Fz
Balance = 18,150.00 -5,126.48
Balance = 13,023.52
AAAAA/1//1/1/
.'. The amount Mr. Ramirez still owe is P 13,023.52.
A. P 3,702,939.73
B. P 3,607,562.16
c. P 3,799.801.23
D. P 3,676,590.12
130 Question Bank - Engineering lJconornica by Jaime R. 'l'iorrg Annuity 131
I 6 payments 24 payments
A man paid 10% down payment of P 200,000 for a house and lot and agreed to
01 2 3 1515171819... 3940 pay the balance on monthly installments for "x" years at an interest rale ol 15o/o
compounded monthly. lf the monthly installment was P 42,821.87, find the value
of x?
A.3
A A,a A A A A A A B.4
: c.5
D
D.6
,.-F
Solving for F:
_
L_
o[(''+i)" -r'l
I
Solving for P:
1 oo,ooo[(1 + o.oss)'?4 - r]
P=
0.035(1+ 0.035)24
P = 1,605,836.76
.'. The equivalent lump sum amount is P 3,702,939.73. Down payment = 10% of Cost of house and lot
200,000 = 01O(Cost)
Cost = 2,000,000
5,000
where: i#=0.0125
n =12x AAA A
q =P,l(1+i)n
Also, P = 1,800,000 ;......,...,,,.,.,...'. "..t F2
F., = 5oo(1+ o.o7)21 i.... Fj
Substituting values: F1=2O,7O2'81
A. P 1,666.98 p1 Ayata borrows P 1oo,0oo al lOo/o effective annual interest. He must pay back
B. P 1,699.86 on the first day of
the loan over 30 y""r" *ith uniform monthly payments due
c. P 1,623.8e eatn montn. Wnit Ooes Mr. Ayala pay each month?
D. P 1,645.67
A. P 839.19
'/./rrl,i.n B. P 842.38
c. P 807.16
D. P 814.75
page
Refer to the cash flow on the next
A. 3.15
B. 1.75
c. 2.15
D. 2.75
,'/n1r.rlrr,.,
f
Cost of machine = 25,000 r
U
Let P = Present worth of the ftl
ER=(1+i)'-t total amount generated bY the
o.to.=(r+i)12-1
machine iI
For machine to PaY off for
'f
1.19=(1+i)u ra
itself, P = 25,000 I
i = o.007974 :l
l- .a<o 1 rtl
Al(1+0.007e74)"- -11 15,ooo[(1+ 0.18)" - r]
D_ L )
O.OO7 97 4(1 + 0.007974 )35e
25.0C0 = L
0.1 8(1 + 0. 1 8)"
P = 118.163A
0.3(.18)n = (1.18)" -1
Substitute values in Eq. 1: 0.7(1.18)n = 1
('18)" =1'428
A+118.163..A=100,000
1 19.163A = 100,000 Take log on both sides:
A = 839.19
nlog1.18 =1o91.428
.'. Mr. Ayala pays each month an amount of P ttC,ll, 1oo1.428
" logl .18
n = 2.15 years
I ,-
136 Question Bank
Annuity 137
- Engineering .Economics by Jaime R. 'Iiorrg
n[tr*o.ro)'-r]
40,87178 = -L-10
A machine costs P 20,000.00 today and has an estimated scrap value of
P2,000.00 after 8 years. lnflation is 2o/o per year. The effective annual interest A = 3,573.99
rate earned on money invested is 8%. How much money needs to be set aside
each year to replace the machine with an identical model 8 years from now? .'. The money to set aside each year is P 3,573.99.
A. P 3,345.77
B. P 3,389.32
c. P 3,489.11 Engr. Sison borrows P 1OO,OO0.OO at10% effective annual interest. He must
pay
D. P 3,573.99
oaJr tne loan over 30 years with uniform monthly payment due on the first day of
each month. What does Engr. Sison pay each month?
Let F = future amount needed for the replacement of the old machine
F=Fr-2,000
r = p(1+ i)"
Fr = 20,OOO(1+ 0.'t0)B A L4444AA4 ALA A LL4LL4LMA A AAL4AL4L4L4
1= 42,871.78
P
Note that interest used was 10% instead of 8%. This is due to inflation rate
which was added to the regular rate. The inflation rate must be added A+P= 100,000 -+ Eq. 1
because money's purchasing power with inflation becomes smaller, thus
bigger amount is needed for the replacement of the old machine.
F = 42,871.78 -2,000
F = 40,871.78
Substitute values of P and i in Eq. 1 solving for the annual income which is the 100,000 rental plus the interest
per year:
n [1r + o.oozoz)"' - r]
A* ' =i =100.000 Annual income = 1 00,000(1 .18)
0.00797(1 + 0.00797)""' Annual income = 118,000
A+118.21A = 100,000
119.21A = 100,000
Difference = 128,205.13 - 118,000
Difference = 10,205.13
A = 83836
.'. The difference between the firm's annual revenue and expenses is
.'. Mr. Sison pays each month an amount of p 83g.g6. P10,205.13.
lnstead of ,000.00 in annual rent for office space at the beginning of A service car whose cash price was P 540,000 was bought with a downpayment
each year 0 years, an engineering firm has decided to take out a of P 162,000 and monthly installment of P 10,874.29 for 5 years. what was the
10-year P loan for a new building at 6% interest. The firm will invest rate of interest if compounded monthly?
P 100,000.00 of the rent saved and earn 18o/o annual interest on that amount.
what will be the difference between the firm's annual revenue and expenses?
A. P 10,200.12
B. P 10,205.13
c. P 10,210.67
D. P 10,215.56
P+ 162,000 = 540,000
P = 378,000
The expenses will be that of
the amortization of the loan.
n[1r*i1^ -r'lJ
ButP= L' tl / AA
i(1 + i)'
Substitute in Eq. 1
n[(r*o.oo)n-rl
4 .. ___u__t__J = 1 00o,ooo
0.06(1+ 0.06)'
A+6.84=1,000,000
A =128,2A5.12
i(1 + i)n
140 Quest,ion llank - Dngirrooring Economice by Jaime R. Tiong Annuity 141
o.02 = IE .71;zn,
12
NR = 0.24
NR = 24% Fz = 18,000 -+ Eq. 1
.'. The rate of interest is 24Yo compounded monthly. Solving for Fr:
F=
annual amount should be deposited each year in order to
100,000.00 at the end of the 5'n annual deposit if money earns' AA A
F1>F2
A. P'16,002.18 1=3.47254
B. P 15,890.12
c. P 16,379.75 Solving for Fz:
D. P 15,980.12
F = P(1+ i)n
.V"zr*-
F, = Fl('l+ i)^
Fz = 3.4725A('l+ 0.15)2
Fz = 4'59244
1 oo, ooo
4.5924A = 18,000
A = 16,379.75 A = 3,919.52
.'. The uniform annual amount to be deposited each year is p 16,379.75.
The annual Payment necessary is P 3,919.52'
(lrrtrsliolr lllnk Iinginct,ring Uconomics by Jairnc ll.'l'iorrg Arrntrity 143
B. P 5,560.22
c. P 371,670.34
c. P 5,650.22
D. P 371,802,63
D. P 5,780.12
V1,.to,,
ERsemi annually = ERquarteay
LetP=amountinvested
I
(1 + i)2 - t =( t *o'08')4 -1
\ 4) f,
P= ,|
i_- 0.0404 rl
I
o-
looo[(1+o.tz)10 -t] I,f
P=4 AAA AA
I 0.12(1 + 0.1 2)10
D _ 15,000 AAA P = 5,650.22
0.0404
P =371,287.13
.'. The amount you must invest today is P 5,650'22'
.'. The present value of the perpetuity is p 371,2g1 .13. tl
irr
atl
Amanpaidal0%downpaymentofP200,000forahouseandlotandagreedto ll
.fu,ro.,
F=
,_soo[(r+o.oz)u-r]
o.07
F = 3,576.64 AAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA4:
.'. The total peso amount avairabre upon the 6ir'dcpollt rr p 3,576.64.
144 Question Bank Engineering Economics by Jaime R. Tiong Annuity 145
-
2oo'ooo
Cost of house and 1ot =
0.10
Cost of house and lot = 2,000,000
But P = 1,800,000
t, -_ 3,702,939.80 t,
I
" (.+ 0.1414(4) 3,702,939.80
I
l. 4/ ,,
Ii.
1, 800,000 =
^[(,,.T)'"''-,] Pt =2,135,507.273 Pt n" .'....'......:
ti
0.15)5(1',) ll
[9]!)[.'*
(12r( 12.) Equating P and Pr:
il
A = 42,821.87
li
A man inherited a regular endowment of P 100,000.00 every end of 3 months for (1.035)4" -1 =0.7474
x years. However, he may choose to get a single lump sum of P 3,702,93g.80 at (1.035)4"
the end of 4 years. lf the rate of interest was 14o/o compounded quarterly, what is
the value of x?
O'2526(1'035)4n = 1
A. 10 1'0354n = 3'9588
B. 11
c. 12
Take log on both sides:
D. 13
4n1og1.035 = 1o93.9588
,l%r,-" 1oo3.9588
" 41o91.035
n = 10 Years
AL44AL44L44A AAAAAAAA AA AA
ERmontnty = ERannuattv
1t + i1t' - 1 = (1 + o.tz)l - t
But P = 50,000
(t+i)" =0:tz
i= 0.009489 . 0.08\
1+_ |
411 0)
t( 4)
n=12(10)=120
h-
R [(r
L\
+ i) "-rl)
' A =\827.79
(t+i)"i
n[(r * o.oos+as)l'zo-r] The quarterly payment of Mr. Rainer Wandrew'is P 1,827 '79'
1,000,000 =
(1 + o.oo9a89;"0 1o.oos+ao1
A= 13,994.17
1.000.000
For having been loyal, trustworthy and efficient, the company has offered a
supervisor a yearly gratuity pay of P 20,000.00 for 10 years with the first payment
to be made one year after his retirement. The supervisor, instead, requested that
he be paid a lump sum on the date of his retirement less interest that the But F = 4,000,000
company would have earned if the gratuity is to be paid on yearly basis. lf
interest is 15%, what is the equivalent lump sum that he could get? n[{r*o.rs)'o -r]
4,000,000= j___L15 A
A. P'100,357.37
B. P 100,537.73 A = 197,008.25 p
c. P 100,375.37
.'. The company's deposit each year is P 197,008.25.
'-/"2:2r,,
Equivalent lump sum = present worth of annuity, P A man purchased a car with a cash price of P 350,000. He was able to negotiate
with the seller to allow hinr to pay only a downpaymenl of 20o/o and the balance
Equivalent payable in equal 48 end of the month installment al'l .5% interest per month. One
Lump Sum the day he paid the 20th installment, he decided to pay monthly payment. How
P= much is his monthly payment?
A. P 8,929.29
B. P 8,225.00
c. P 8,552.00
D. P 8,008.20
AAA AA .'/,fr,>n
Total price = 350,000
Downpayment = 0.20(350,000)
Downpayment = 70,000
A. P 194,089.17
B. P 195,780.12 AAAAAA
c. P 196,801.56
D. P 197,008.25
150 Qut:sl.ion Ilrrnk I,)ttgirtcct'ittg [!txrnotnit:s by Jairnc It. 'l'irrrrg Arrnuitv 151
,. -t'l'
n[1t+o.ots;o8
280.000=--+
n[1t+o.otsyo8 -tl
280.000=
' ' (1 + 0.015)45(0.015) (1 + 0.01 5)"'(0.0'l 5)
A = 8,225.00 A =8,225.00
.'. The man's monthly payment is P 8,225.00. After the 20th payment:
280,000 ......-,'"F)
A man purchased a car with a cash price of P 350,000. He was able to negotiate
with the seller to allow him to pay only a downpayment of 20o/o and the balance t
payable in equal 48 end of the month installment at 1.SYo interest per month. One a
the day he paid the 20th installment, he decided to pay monthly payment. What is I
the remaining balance that he paid? I
I
I
A. P 186,927.24 J
D. P 185,900.20
:
i,.,.,.,..,...,.........,. t
1. Ft 't
;l
,7.L;,t2.,,
,l
rd
Fl= rl
Total price = 350,000 ri
Downpayment = 0.20(350,000) B,2zsl(1+ o.ors)'z. - r]
Downpayment = 70,000 rl
F,l= rl
0.015 tr
Balance to emortize = 350,000 - 70,000 Fr = 190,192.16
Balance to amortize = 280,000
Solving for equivalent monthly payment, A
Solving for F:
.?2a.,.
A. P 34,859.78
B. P 35,890.12 AAAAAAAA'AAA
AA A A A A A A A'A A A A A
c. P 35,074.58
D. P 34,074.85
:
'/.Zz.ru.
Balance to amortize = cash price - downpayment
Balance to amortize = 280,000 - 0.15(280,000)
Let F = Amount needed to purchase the machine 10 years from now Balance to amoritze = 238,000
F = 500,000(1.75)
F = 875,000
F,+50,000=875,000
E = 825'000 But P = 238,000
AAA AA
:
E= 238,000 =
A. P 15,185.78 B. 19.21%
B. P 15,289.12 c. 19.47 %
c. P 15,783.90 D. 19.74%
D. P 15,632.11
154 Question Bank - Ilngineering lJconomics by Jaime R. 'l'iong Annuity 155
,72r.".,-
Cost of machine = 250,000
Downpayment = 0.1 0(250,000) A company has approved a car plan for its six senior officers in which the
Downpayment = 25,000 company will shoulder 25o/o of lhe cost and the difference payable by each officer
to a financing company in 48 equal end of the month installments at an interest
Since no interest is considered for the balance, the annual payment, A is rate of 1.5% per month. lf the cost of each car is P 350,000, determine the
amount each officer has to pay the financing company per month?
-
A=_
Balance
Cash A. P 7,523.90
2
Price B. P 7,619.22
^ 250,000 - 25,000 c. P 7,190.00
2 D. P 7,710.94
A = 112,500
,7"2*r-"
Solving for interest:
P + 25,000 = cash price
Let P = total amount each officer will shoulder
P+25,000=195,000
P = 170,000 AA P = 0.75(350,000)
P = 262,500
D_
n[1r*i;"
L
-rl J
Let A = monthly amortization of each officer
i(1 + i)"
112,500[(1*i)'-rl
170,000 262,504
i('1 + i)'
i= 0.209
i=20.9%
ERqr"rt".ty : ERannuatty
[',-Y)'
[ 4) - 1 = (1+ o 2oe)l
' -'r i('l + i)^
n[1r*oorsyou-rl
[,.,*rE)'=1.20s 262,500 L
- 0.015(1+ r
\ 4) 0.015)48
A =7,710.94
t+E = 1.0486
4
NR = 0.1947 .'. The amount each officer has to pay the financing company per month is
P 7,71094.
NR = 19.47% compounded quarterly
F:P
lf P 1 ch year for g years, how much annuity can a person a[{r*o.r+)'-r]
get a every year for 8 years starting 1 year after the 9th 160.853.46 - L
0.14(1+ 0.14)B
depo oney is 14%.
B = 34,675.18
A. P 34,467.21
B. P 34,567.81 .'. The annuity the percon can get from the bank each year is P 34,675.18.
c. P 34,675.18
D. P 34,867.37
A. P 135,267.21
B. P 135,507.42
c. P'135,605.48
.BBBBBBBB D. P 135,807.30
I
Solving for F:
0.14 10,000
F = 160,853.46
P -'..
Solving for P:
_- s[(''+ o r+)B - r'j Let A = Maximum monthly the employee can afford
' l14G or4f
D- L J
A = 0.30(12,000)
A = 3,600
Equating:
\
\
158 Question llank - It)nginecring Economics by Jaime R. Iighg Annuity 159
c. P 72,173.90
The maximum cash value of the car is P 135,507.42. D. P 72,311.44
"'-/"/r,t rn
A new company developed a program in which the employees will be allowed to 100,000
purphase shares of stocks of the company at the end of its fifth year of operation,
when the company's thought to have gained stability already. The stock has a
par value of P 100.00 per shqre.
How much shares of stocks will he be able to purchase at the end of the fifth year
of his yearly deposits?
A. 476
B. 478 Solving for the annual payment, A
c. 480
9,2**
n[(t+o't)20-l"l
Solving for the future worth of annuity: 100,000=#
(1+ 0.1)'"(0.1)
160 Question Bank - Engineering Economics by Jaime R. 'l'iong Annuiry 161
A = 11,745.96
A debt of P 12,000 with interest of 2Oo/o compounded quarterly is to be amortized
After the tenth payment is made; by equal semi-annual payments over the next three years, the first due in 6
months. How much is the semi-annual payments?
100,000
A. P 2,775.50
B. P 2,662.89
c. P 2,590.04
D. P 2,409.78
.'-/./r,,h..,.
AAA A
Solving for the equivalent semi-annual interest rate:
i
'n ERsemi = ERquarterty
,..,.,1,rt;:.,,ii
"nnratty
Solving for the future worth of the annuity, Fr (1+i\2 -1 o'20
\ , - 11+
\
)4
4) -
1
E_
nltr+lr
L -r']J 1+i = 1.1025
i = 0.1 025
't't,7 4s.96l
L'
(+ o. t)10
' - tl-l Solving for semi-annual payment, A
=-
0.1
E = 187,200.35 hL)
n ltr + il" - r'.l
(1+ i)ni
Solving for future worth of 100,000, Fz
F2:1OO,OOO(1+0.1)10 A = 2,775.50
Fz = 259,374'25
.'. The semi-annual payment is P 2,775.50.
Balance = Fz-Ft
Balance = 259,37 1.25 - 187,200.35
Balance =72,173.90
A fund donated by a benefactor to PICE to provide annual scholarships to
The original principal that is still unpaid after the 1Oth payment is deserving CE students. The fund will grant P 5,000 for each of the first five years,
P72,173.90. P 8,000 for the next five years and P 10,000 each year thereafter. The
scholarship will start one year after the fund is established. lf the fund earns 8%
interest, what is the amount of the donation?
A. P 99,490.00
B. P 99,507.35
c. P 99,601.71
D. P 99,723.54
,'/;/,)r,ru
Annuity 163
162 Question Ilank - Engineering Economics by Jaime R. 'I'xrrrg
D- P4
rE-.....-........:
" (1 + i)''
D _ 125'000
'5 - (1r+0.o8f
Ps = 57,899'186
lf a low cost house and lot worth P 87,000 were offered al 10o/o down payment
and P 500 per month for 25 years, what is the effective monthly interest rate on
5,ooo[(1+ o.oa)s - r] the diminishing balance?
P1
(1+ 0.08)5(0.08)
A. 0.492%
P,l :19,963.55 B. 4.92 o/o
C. O.O492 o/o
D. 49.2 o/o
(r+l)'l ,9*i**
8,ooo[(1+ o.oa)s - r]
P2 _
(1+ 0.08)5(0.08)
P2 = 31,941.68
IALL44444LLMAL444LL4LLM AL444LL4{4M
,
P4 -A I
Balance = 0.90(87,000)
10,000
P4 _
Balance = 78,300
0.08 Balance=P=78,300
P4 = 125,000
('1+ i)"i
164 Question Bank - Itrngineering Ucononrics by Jairnc ll. 'l'irrrrg Annuity 165
The average annual cost of damages caused by floods at Dona Rosario Village A. P 6,812.54
located along Butuanon river is estimated at P 700,000. To build a gravity dam to B.
' c.
P 6,782.31
protect the area from the floods, would cost P 2,500,000 and would involve an P 6,917.72
annual maintenance cost of P 20,000. With interest at 8% compounded annually, D. P 6,660.90
how many years will it take for the dam to pay for itselP
A. 4.0 years
B. 4.5 years
C. 5.0 years P,,+Pr= 10,000 --+ Eq. 1
D. 5.5 years
BBB
tl1
B
x=A-B
^'t = -2,ooo [tr*o.rz)o -r]
x=700,000-20,000 1 (l*olz)\olz)
x = 680,000 0123 Pt =6'074'70
Using equivalent (reduced) cash flow:
D_ F
,r-{r*,1n
Cost of dam = 2,500,000 = P
E
o-'
[(t * i)" - t"l
''- (r+0.12)5
nLl ' (1+i)n Pz = 0'567427 F
i
2.500.000
680, OOo ftr * o.oal" - r] Substitute values in Eq. 1:
(1+ 0.08)"(0.08)
(1.08)" -1 = 0.294(1.08)"
P|+P2 = 10,000
6,07 4.70 + 0.567427 F = 1 0,000
1 = (1.08)n(0.706)
P F -- 6,917.72
1.4164 = (.1:08),
The amount the businessman will pay at the end of the 5th year is
Equivalent cash flow P6,917.72.
Annuity 167
166 Question Bank - Dngineering Econo,mics by Jaime R. 'l'iorrg
_/
18000
nlrt*i)"
Engr Richard Flores agreed to pay the loan he is borrowing from a developmbnt
p= L' '- -t'lI --+Eq. 1
i(1 + i)"
bank in six annual end-of-the-year payments of P 71 ,477 .7O. lnterest is 18% per
annum compounded annually and is included in the yearly amount he will be
paying the bank. How much money Engr. Flores is borrowing from the bank? Solving for equivalent
monthly interest:
A. P 250,000
AAAAA :
n[(r*o.oos+uF'-1]
1 5' ooo =
P= olfur4r(1. ooo%nr
A:701.82
7 1,477 .7ol(+ o. r a)6 - r] AAAAAA
P= Solving for the monthly financing charge, B:
0.1 8(1 + 0.1 8)6
P = 250,000
^'1215,000(1.12)
H=
.'. The amount of money Engr. Flores is borrowing from the bank is
B = 150.00
P250,000.00
Total monthly installment = 7O1.82 + 150
Total monthly installment = 851 .82
Barbette wishes to purchase a 29-inch flat-screened colored W at Gillamac Solving for actual cost of money:
Appliance Center an amount of P 20,000.00. She made a lownpayment of
P5,000.00 and the balance payable in 24 equal monthly installments. lf financing
charge is 12% for each year computed on the total balance to be paid by
installment and interest rale 12Yo, how much would Barbette pay every month for
the colored TV? What will be the actual cost of the money?
851.82[(1+i)'?4 -1]
A. 36.71% 15,000 =
B. 36.21% i(1 + i)24
c. 35.89 %
D.35.23o/o By trial and error:
Zz"a) i=0.0264
Solving for the monthly installment without taking into account the But
financing: .NR
l=-
m
P = 15,000
'l 68 Question lJank - Engineering liconornics by Jairnc ll,. 'l'iorrs Annuity 169
ER"nnu"tty = ERmontny
(1 + i)i -.1 :
(t * o.ozu)l2 - t
i :0.3671 AAAA A
i:36.710/o i.................... F
.'. The actual cost (effective rate) of the money is 36.71 %. Referring to the constructed cash flow:
F +112,204.138 = 1,683,062.077 I
F = 1,570,857.939 !12244p8
Engr. Omayan of Main Engineering decided to purofrase a machine which is to
be used foi their refrigeration and airconditionlng wonfts at an amount of P But
'1
,200,000. The useful life of the machine is estimated b be 5 years with a
salvage value of P 80,000 as based on current prices. The average annual rate F
of inflation during the next 5 years will be 7%. The machine will be replaced with
a duplicate and the firm will accumulate the necessary capital by making equal
end-of-year deposits in a reserve fund that earns 6% per annum. Determine the
nftr*o.oo)'-r]
annual deposit.
1,570,857.939 = o06
A = 278,664.54
A. P 277,189.56
B. P 278,664.U
.'. The annualdeposit is P 278,664.54.
c. P 279,180.00
D. P 280.673.12
This problem is similar to the previous problem only that all amounts this
time is to earn an interest of 6%.
, a car costing P 150,000 is to be purchased
Cost of the machine at present = 1 ,200,000 ad of paying cash. lf the buyer is required to pay
4,000 each month for 4 years, what is the
Let C = Cost of machine 5 years from now: effective interest rate on the diminishing balance?
Note that the interest 13% used was actually the sum of the interest rate
and the inflation rate.
Balance = 1 50,000 - 40,000
Salvage value at present = 80,000 Balance = 1 10,000
F = P(1+ i)"
SV = 80,000(1+ 0.13)5
SV = 147,394.81 . ira A.r.rE
F + 1 47,394.81 : 2,210,922.21 5
F = 2,063,527.40
AAAAA
:..,........................,.,....- F n[(r*i)" -r]
But, P=
I i(1 + i)"
I 4,ooo[(1+ i)4(12) - 1]
110,000=
n[{r*o.oo)u -r]
147,394.81 iffi
2,063,527.40 =
0.06 By trial and error:
A = 366,062.33
i= 0.0255
.'. The annua! deposit is P 356,062.33. .NR
m
0.0255 = !B
12
NR = 0.306
NR = 30.6%
172 Question llank -. llngineering Economics by Jaime R. ,l,iong Arrnrrity 173
Converting into effective rate: Present worth = Pr + Pz
Present worth = 1,277,O34.56 + '148,643.63
ER=(1*!)'-1 Present worth = 1,425,678.19
... The difference in amount between buying the building and leasing the
building is P 233,779.27.
A. P 233,779.27
B. P 233,070.12
JJ Construction Firm had put up for sale of some of their heavy equipments for
c. P 234,070.U
construction works. There were two interested buyers submitting their respective
D. P 234,560.12 'bids for the heavy equipments. The bids are as follows:
How much is the difference between the two bids if money is worth 10%
effective?
A. P 346,520.05
B. P 346,980.12
c. P 347,019.45
D. P 347,733.29
C = 1.000.000
C
P2 - ------------:-
To compare the two bid, compare/their present worths:
(t + i)"
1,000,000
P2 -Gor, For Buyer A's Bid:
hL)
n[1r*i;"-rl
2,000,000
i(1 + i)n
0.04881(1+ 0.04881)14
Present worth of A's Bid = 2,000,000 + p -+ Eq. 1 P = 4,987,192.91
A. P 346,520.05
B. P 346,980.12
2,000,000 c. P 347,019.45
D. P 347,733.29
P <.............
. /).t
xcel First Review & Training Center, lnc. is expanding its school facilities
starting 2001. The program requires the following estimated expenditures:
Solving for annual deposit, A: To accumulate the required funds, it establish a sinking fund constituting of 15
uniform annual deposits, the fiist deposit has been made at the end of 1992. The
Po +A =P, +P, +P, -+ Eq. 1
interest rate of the fund is 2o/o pet annum. Calculate the balance in the fund on
January 1,2OO2.
o_ F A. P 2,185,902.11
(1 + i)" B. P 2,195,600.03
o_ 1000,000
c. P 2,165,399.54
'1- (+o.W D. P 2,175,380.00
P1 = 788,493.18 .%2r.,.
o_ 1,200,000
'2-(1+orop'f
Pz = 927,639.03
jPr,"i<"":.'"" t.2M
p. . <............. """""', l,M
D _ 1'500'000 al
'3 - (1+ooa14 .A
il,l
Ps = 1,136,812.54 :l
,t
,89 '91 '93 '9s ',97 '99 '0t 03
n[1r.i)'-r]
o_
t4-
i(1 + i)n
178 fluestion llank - l!ngineering li]conornics bv Jairnc ll.'l'iorrg
Annuity 179
Solving for annual deposit, A
End of 2001, or
Po+A=P,,+Pr+P. -+ Eq. 1
Jan. 1, 2002
o_ F
(1 + i)n
1,000,000
^'
l-1i=-
(1 + O.02)''
q = 788,493.18 AA A A A A A A A A A A
i
^' 1,200,000
(1+ 0.02)'"
Pz = 927,639.03
Balance=F-1,000,000
1,500,000
P3
(1+ 0.02)1a
P3 = 1,136,812.54
0.o2
e[1r*i1'-rl
nL)
r, =- F = 3,195,600.03
' i11+i1"
Balance = 3,195,600.03 - 1,000,000
P-LJ
n[1r*o.oz;'o -rl Ealancs.- 2,1 95, 600. 03
'4 - o.o2(1+0.02)la
.'. The balance in the fund on January 1 , 2OO2 is 2,195,500.03.
P4 =12.10624
A. P 40.76
B. P 41.90
c. P4354
D. P 45.95
,%l*on
Compare their present worths:
Arrnui(,y 181
180 Queslion llank llngineoring Economics by Jaime R. 'l'iorrg
Cash basis: 01 The present worth of his earnings must be equal to the present price of the
property.
P = 0.90(5,000)
Prfue
P = 4,500
Present worth = 4,500.00 I,A00A A A A
lnstallment basis:
P -"""""""""""""""""'..
Downpayment = 0.20(5,000)
Downpayment = 1,000
AAAAA AA
r=-
hLJ
P=
n[1r*i;"
i(1 + i)n
r,ooo[(r+o.o.ef
-rl
0.05(l + 0.05)a
P = 3,545.95
-r]
P2
Cash price = Pt + Pz
Solving for annual net income, A:
Eq.
h
Present worth = 4,545.95
A=350,000-135,000
Difference = 4,545.95-- 4,500
Difference = 45.95 A = 215,000
Bon Fing Y Hermanos, lnc. has offered for sale its two-storey building in the
commercial district of Cebu City. The building contains two stores on the ground
21 5,ooo[(1 + O.oz)10 - r]
P1
floor and a number of offices on the second floor. 0.07(1+ 0.07)10
P1 = 1,510,070.03
A prospective buyer estimates thai if he buys this property, he will hold it for
about 10 years. He estimates that the average receipts from the rental during this
period to be P 350,000.00 and the average expenses for all purpose in D_ F
connection with its ownership and operation (maintenance and repairs, janitorial 'z-,r*y
services, insuFance, etc.) to be P 135,000.00 He believes that the property can
D _ 2'000'000
be soid for a net of P 2,000,000 at the end of the 10'n year. lf the rate of return on '2 - (+o.W
this type of investment is 7oh, determine the cash price of this property for the
buyer to recover his investment with a 7o/o return before income taxes. P2 = 1,016,698.58
E
P= ,
(1 + i)n
^r-- 36.000
(1+ 0.10)
P =32,727.27
net present value of the low price strategy.
.'. The net present value of the high price strategy is P 32,721.27.
A. P 34,389.12
B. P 34,490.10
c. P 34,518.89
D. P 34,710.74 Jan Michael plans to purchase a new house costing P 1,000,000. He can raise
the building by issuing a 1Oo/o,20 year old bond that would pay P '150,000
interest per year and repay the face amount at maturity. lnstead of buying the
new house, Jan Michael has an option of leasing it for P 140,000 per year, the
first payment due one year from now. The building has an expected life of 20
years. lf interest charge for leasing is 12o/o, which of the following is true?
+ i)n
i(1
A. Lease is morei economical than borrow and buy.
B. Lease has same result with borrow and buy.
P= slq
20; + 0. 1oF -11
0.10(1 + 0. 10)'
---"-= 20,000 C.
D.
Borrow and buy is half the value than lease.
Borrow and buy is economical by almost a hundred thousand than lease.
D_ 34,710.74
,9;2,r.,.
.'. The net present value of the low price strategy is P 34'710'74' Compare present worth of borrow and buy and lease..The Smaller the
present worth the better for Jan Michael.
A. P 32,727.27
B. P 33,737.34
c. P 33,747.20
D. P 33,757.89
'/-/,2--
150,ooo[(1 + o.r o)'zo - r]
z= 0.10(1+ 0.10)20
P1=1,277,034.56
184 Qucst,ion 13rrrrk I!)rrginotrrirrg llt:onornics by Jaime It. 'l'iorrg Annuity 185
For lease: (A = 140,000, i = 12oh) Gross income per year = 150,000
Expenses per year = 40,000 + 70,OOO + 1O,OOO + 0.1 O(1 SO,OOO) + 5,000
Expenses per year = 140,000
olz
Pz -'
AAAAAAA
;
P2 = 1,374,540.64
Materials P 40,000 The new annual operating expenses are now as follows:
Labor P 70.000
Overhead P 10,000 + 10% of sales Material =40,000-7,000 33,000
Sellino exDenses P 5,000 Labor = 70,000 - 10,000== 60,000
Overhead = 10,000-8,000 + 15,OOO = 17,000 + 10% of sates
Engr. Landicho will give up his regular job paying P 15,000 per year and devote Selling = 5,000
full time to the operation of the business. This will result in decreasing labor cost
Expenses per year = 33,000 + 60,000 + 17,000 + O.1O(150,000) +
by P 10,000 per year, material cost by P 7,000 per year and overhead cost by P S,OOO
Expenses peryear = 130,000
8,000 per year. lf he expects to earn at least 2Oo/o of his capital, is investing in
this business a sound idea?
o 1 2 3 4 s 1t 1s
A. Yes, it is a sound idea.
B. No, it is not a sound idea.
C. Neither yes nor no because it simply breakeven.
D. lt depends on the current demand of the market.
AAAAA AA
.VZ.*r,"
CASE 1: He does not resign from his job.
186 Question Bank - lt)ngineering Economics by Jaime R. '['iorrg Annuity 187
A=150,000-130,000
A = 20,000
A Civil Engineering student borrowed P 2,000.00 to meet college expenses
during his senior year. He promised to repay the loan with interest al 4.5 % in 10
equal semi-annual installments, the first payment to be made 3 years after the
date of the loan. How much will this payment be?
.'. lt is not a sound idea since the present worth of the income for both
case 1 and case 2 are less than the investment which is P 100'000.00.
P=F --) Eq. 1
n[(1. - 1]
A housewife bo\ght a brand new washing machine costing P 12'000 if paid in P= ')"
cash. However, she can purchase it on installment basis to be paid within 5 (1 + i)"
years. lf money is worth 8% compounded annually, what is her yearly
imortization if all payments are to be made at the beginning of each year?
A. P 2,617.65
B. P 2,782.93
c. P 2,890.13
D. P 2,589.90 P= 8.866A A AA I
Vi/,,2,-"
F = P(1+ i)n
-+ Eq. 1 I
0'045
F = 2.ooo( 1+
( 2) )5
F =2,235.355
12,000=A+3.3124
12,000 = 4.312A.
A --2,782.93
The investment that gives a bigger rate of return is the better investment
Compare the rate of return of the two situations:
A father wishes to provide P 4O,OO0 for his son on his son'sZ1"t birthday. How
much should he deposit every 6 months in a savings account which pays 3% A. Domestic operation:
compounded semi-annually, if the first deposit was made when the son was 3 %
years old?
A. P 829.68
B. P 815.80
c. P 830.12
D. P 846.10
AAAAAAAAAA
0 1 2 l. 4 '.. 2g 21
40,000 =
^[(,.T)"-,i
--j3-5 Pt + Pz = 8,000,000 + Eq. 1
2
A = 846.10
2,ooo,ooo[(1+ i)'o - r]
is true?
-----* Dt.-. Tffi = 8,ooo,ooo
B. Foreign operation:
8,000;000
A I pay P 90,OOO cash, P 60,000 at
th nnual payments starting with one
at es as to the principal and interest
at ?yment which must be made for 6
years.
A. P 66,204.14
B. P 65,701.67
c. P 67,901.34
; . A AAAAAA D. P 68,900.12
:
4,ooo,ooo[(1+ i)? - r]
P3
i(1 + i)7
P,+P.+90,000=400,000
P1 + P. = 310,000 --r Eq. 1
4,ooo,ooo[(1+i)? -r]
= 8,000,000
i(1 + i)7 (1 + i)3
i= 0.2080
i=20.80%
o[t,+o oz)6 -r]
P2 _
0.07(1+ 0.07)6
The foreign operation has a rate of return whlch ls 3% less than the
P2 = 4.7665A
domestic operation.
I
192 Quostion Bank - [trnginoering Economics by Jaime ll. 'l'iorrg Annuity 193
o- - F
'3 (1 +Dn 15,ooo[(1+ o.oa)s - r]
_ 4,7665A P1
't - {t*0.97;'
I
-- 0.08(1+ 0.08)5
P1 = 59,890.65
Ps = 3'89094
o- F '
Substitute values in Eq. 1
'z-*y
52,4o6.32 + 3. 8ebeA
o _ 59,890.65
'z-,r*ooty
: :::::.,,.
Pz = 51,346.58
.'. The annual payment is P 66,204.14.
Fair prepayment = 51,346.58
AAAAA
n[{r*o.rs)'o -r]
5,000,000 =
0.13
A =271,447.78
194 Question Bank - Engineering Economics by Jaime R' 'I'iong
n[{r*i)" -r] 89
1
F,r: 0 10
I
Fr = 1;759'055'07 BBBBB the end of the 2nd year, 3-'d year and 4th year, respectively. lf money is worth 10%
what is the equivalent present wo(h of the investment?
F. =F,r(1+i)'
Ft t"'- """"n Fz
A. P 3,129.89
Fa = 1,759,055.07(1+ 0.13)5 i"""""""""'- l7.r
B. P 3,319.45
c. P 3,372.12
\ = 3,240,944.94 D. P 3,490.09
e[1r*i;"-rl
L J
E-
i
a[{r*o.ra)'-r]
Fz=
0.13
Fz =6480278
Substitute in Eq. 1
Pr = 2'189'06 ^ 1,500
" (1+ 0.10)'
0
Ps =1,126'97
D_ 2,000
500 500 500 '6 -
o+0.'to)a
;
P6 = 1,366.03
5oo
[(1
+ o. r o)3 - r] .'. The equivalent present worth is P 3,319.45.
P3
0.10(1+ 0.10)3
P3 =1,243.42
,177o/,.n.
P=2,189.06+1,130.39
P = 3,319.45 Let F = equivalent future worth
F
P4
.'' _- soo [(t+o.to)4 -t _ol
1,000
o.1o I o.to I
P4 =-(1 + 0.10)' Pa
I,500
Fl = 3'205
P4 =826.45 Pt
P6
198 Question Bank - Engineering Economics by Jaime R. Tiong
Llnifonrr Arithmetic and Geometric Gradients 199
F=3,205+1,655
n=sool1 - 4 1
10.10 (1+0.r0)4 _1_l
F = 4;860 A = 690.s8
The cash flow in the previous page is equivalent to the figure below:
n.=c[1-
' Li
"
(1+i)"
I
-1.1
'i
,t.
-<ir.r!...!.
ll,, '. rt 1-l
I I.500
10.05 (1+ 0.05)" - 1.1
Ar = 719'53
A:5,000-A1
A=5,000-719.53
A = 4,280.47
s,000 5,000 s,000 s,000
:
P =Pt-Pz -+ Eq. 1
P,r=
, 4280.474280.474,280.47 4,28.0.47
:
P;:,<"""""' """""""j
7 =17,729.75
o_c[t-1t*i;" n-.|
''-TL i -fl.'r]
D_soo[t-1t*o.os)4
''- -
4 1
^'
4,280.47l
T. .a
(t+o.os) -t.1
1
Substitute values in Eq. 1 The equivalent present worth of the debt is P tl5'178.34.
P = 17,729.7 5 - 2,55',t.4',1
P : 15,178.34
.92-24,. ,%:;*,.".
n[1r*i;'-rl
L J
o-
I1-
An amortization of a debt is in a form of a gradient series of P 5,000 on the first i(1+i)n
year, P 4,500 on the second year, P 4,000 on the third year, P 3,500 on the
_ s, ooo
[(1
+ o.os)a - r]
fourth year. Determine future amount of the amortization if interest is 5%. t1-
o.o5(1+0.05)a
A. P 18,030.56
P1=17'729.75
B. P 18,290.12
c. P 18,621.89
D. P 18,449.37 F, =P,(1+i)"
Ft = 17,729.75(1+ 0.05)a
.t'l"Zz,i,u.
1=21,550.62
-l
o _c[t-(t+i)*-
''-iL "
i (1+i)".1
* o.o5)-4 4 I
-' - 5oo [t - (t o.os
' o.o5 [ (1+ o.o5)']
Pz =2'551'41
Fz = Pz(1+ i)n
Fz=2,551.41(1+0.05)a
Fz = 3'1O1'25
F =21,550.62-3,101.25
F = 18,449.37
ffiofadebtisinaformofagradientseriesofP5,oooonthefirst
G;; ilEoil; ",h "tn"
s"Lo no vqa r,. P g:. f :1 ?^what
1;999 :i -11i, pavment the "
l;lll"is ?l"tn
i;dh'G;;. wn"ri. equiialent u1it9r1 periodic
is 5%'
equirai"nt uniform periodic payment if interest
A. P 4,280.47
B. P 4,378.17
c. P 4,259.68
D. P 4,325.12
204 Question Bank - Engineering Economics by Jaime R. Tiong tlnif<rrm Arithmetic and Geometric Gradients 205
7"2r.,.'- Comparf the equivalent annual salary of the two ball clubs:
o.=c[1- n
^t-"Li (r*D"-rl]
Ar=6oo,ooot#
f;jful]
\ =2,235,276.31
Let 41 = equivalent uniform payment due to uniform arithmetic series only Total annual salary of the NBA superstar with the Chicago Bulls, A:
n.=c[]- n l
A=3,000,000+Ar
A = 3,000,000 + 2,235,276.31
' Li
(1+i)" -1.1 A= 5,235,276.31
o.=uoo[ ' - + 'l
... The offer of Chicago Buits is $235,276.31 more annually'than that of LA
' 10.05 (1+ 0.05)4 _ 1_l Lakers'
Ar = 719'53
lf money is worth 10% and Mr. Grisham will not receive any royalty after the fifth
year of Lxhibition of the movie, by how much is proposal A bigger than proposal
A. Chicago Bulls offer is smaller than that of l-A Lakers B?
B. Chicago Bulls offer is exactly the same as l-A Lakers,
ID. Chicago
chicago Bulls offer is just few dollars more p6r year than that of l-A Lakers,
Bulls offer is
A. P 1,532,630 c. P 1,478,100
over $150,000
per year than that of LA Lakers, B. P 1,390.090 D. P 1,289.450
9"2r2.,,
206 Question Bank - Engineering Economics by Jaime lt. 'l'iorrg Llnifurrn Alit,lrrnotic antl Geometric Gradients 207
Solving for the present worth of proposal B: What is thq pregent worth of
Let 41 = equivalent uniform payment of the uniform arithmetic gradient the given cash flow diagram
if interest rate is i10%?
n.=c[1- n I A. P 2,200.34
i
This is an example of uniform geometric gradient since the next term in the
series is a fixed percentage of the previous term.
.
1+l=-
540
500
'l+r=1.08
Solving for the present worth of the royalty Thus, r = 0.08
o_ G f1-x")
zss,r as.sz[(r + o.ro)5 - r]
' 1+i[ 1-x J
P=
0.01(1 + 0.1 0)5
1+r
P =967,370.57
1+i
Total present worth of proposal B = 2,500,000 + gOT,37O.S7 1+ 0.08
= 3,467,370.57 1+0.10
x= 0.9818 D
Proposal A is P 1,532,630 bigger than propoeal B. .'. The presentworth of the given cash flow is P 2,191.49'
208 Question Bank - Engineering Economics by Jaime R. Tiong 1 [lrrrlbrrrr Arit,ltrno[it: ttnd (]oomettic Gradients 209
A. P 3,529.54 o .'. The equivalent future worth of the given cash flow is P 3'529'54'
B. P 3,259.34
c. P 3,925.64
D. P 3,295.54
This is an example of uniform geometric gradient since the next term in the A. Jocelyn, P 671.'18
series is a fixed percentage of the previous term. B. Jocelyn, P 763.27
C. Joan, P 671 .18
Solving for the fixed percentage, 1+ r:
1+r=540 ,9oz*r.,.
500
'l+r=1.08 To compare, solve the future amount of the two investments:
D_ G (t-r"')
' - t+rIr-r.1
x=-1+r
1+i
1+ 0.08
x=
1+ 0.10
x = 0.9818
2,357.9s
'_
D 5oo [r - o.sar au I
- 0*olo)L 1-oss1s l Solving for the fixed percentage, 1+ r:
1.100
P =2,191.49 1+r - --:--
1,000
1+r=1.10
210 Question Bank - Engineering Economics by Jaime R. Tiong L.lnilbrnr Arithmotic and Goometric Gradients 211
Thus, r = 0.10
Since r = 0.10 is not equal to I = 0.14, then x+ 1. Use the following formula:
Engr. Herqro, be\eving that life begins at 40, decided to retire a1{ 1t{-e!!!!!
life-at ase +0. neVisnis to have upon his retirement the sum of P 5,000,000. On
- c (t-r")
H=-t his 21"t-birthday, he deposited a certain amount and increased his deposit by
1+i[ 1-x 15% each yeai until he will be 40. lf the money is deposited in a super savings
J
-l account which earns 15% interest compounded annually, how much was his
initial deposit?
1+r
1+i A. P 17,253.18
x=
1+0'10 B. P 17,566.33
1+O.14 c. P 17,672.77
x = 0.9&t9 D. P 17,490.21
o _ 1,000 [t - o.so+s,o I
(1.oJOL 1-0s64, ]
since the first deposit was made when Engr. Hermo was 21, then the value
P =7,508.45 of n is 20.
E
o- '
('1 + i)"
_
P==
5.000.000
(1 + 0.1 5)"
P = 305,501.39
305,501 3e=dtrb
0.14
F =27,072.21
G:17,566.33
Joan has P 763.27 more than Jocelyn.
.'. Engr. Hermo's initial depositwas P 17'566.33.
212 Question Bank - Engineering Economics by Jaime R. Tiong
Question Bank 5
A newly-agq.uired equipment requires an annuar maintenance
costs of p 1or0o0.
lf the annubt rndintenance cost is increased by 2oo/o each
v"r, v"ar for 10
years, what is the estimated present worth of ihe maintenince "*w
costs it money is
worlh 15Yo?
A. P',t0,s,712.33
B. P 106,101.37
c. P 107,490.12
D. P 108,890.11 A company issued 50 bonds of P 1,000.00 face value each, redeemable at par at
the end of '15 years. To accumulate the funds required for redemption the firm
established a sinking fund consisting of annual deposits, the interest rate of the
fund being 4%. What was the principal in the fund at the end ol ,l2h year?
r= 2OVo A. P 37.002.54
B. P 37,520.34
i= 15o/o c. P 38,010.23
D. P 38,782.34
x=1+r
1+i 9;z*r...
, _1+ O.20
1+ 0.15 Amount needed by the company after fifteen years = 50(1,000) = 50,000
x =1.04348
LetA=annualdeposit
c
' - 1-l[t-r")
D_
i-r.,J
1o,ooo (t
' _- 1*ols[-1-l.rrn4l
D -t.o+s+a,o')
)
P = 106,101.37
n[{r*i)'-r]
,F=
But F = 50,000
Substituting values:
n[1r*o.o+';'u -r'l
50,000
A=2,497.06
J
2'14 Question Bank - Engineering Economics by Jaime R. Tiong Bonds 21 5
0 2 4 6 8 1011 12
A P 1,000,000 issue of 3%, 1S-year bond was sold at 95%. What is the rate of
A. 3.O o/o
B. 3.4%
C. 3.7 o/o
D. 4.O o/o
n[tr*i)"-r]
F'rz =
I
,, _rrl(+i)" -r]-(1+ir
c
+Eq.1
24e7.06[(1+ o.o+)1'? - r] "n-- ;6*y
Ftz =
0.04
Fe = 37,520'34
.'. The principal in the fund at the end of the 12th year is P 37 ,520-34.
A. P 13,084.58
B. P 13,048.85
c. P 13,408.58 Vn = 0.95(1,000,000)
D. P 13,480.58 Vn = 95,000
C = 1,000,000
.V"z*...
Zr = 1,000,000(0.03)
Zr = 30,000
zr[1r * i)"]
150,000
0.03 ,"" =-lnY -
c
A = 13,084.58 (1+i)n
30, ooo
[(1
* iI
u
_ 1] ,,,
ooo, ooo
95,000
.'. The annual deposit is P 13,084.58. ------+
i(1+ i)15 -11;
Dl5-
216 Question Bank - Engineering Economics by Jaime R. Tiong Bonds 217
i:0.03 %=
i =3Yo
.'. The man must pay the ceilificate the amount of P 90,614.93.
A man was offered a Land Bank c,ertificate with a face value of P 100,000 which is
bearing interest of 6% per year payable semiannually and due in 6 years. lf he
wants to earn 8o/o semiannually, how much must he pay the certificate?
A. P 90,123.09 A P 1,000 bond which will mature in 10 years and with a bond rate of 8% payable
B. P 90,614.93 annually is to be redeemed at par at the end of this period. lt is sold at p1,030.
Determine the yield at this price.
c. P 90,590.12
D. P 90,333.25 A. 7.56%,
B. 7.65 o/o
9"2a.". c. 7.75%
D. 7.86%
,,v"=-
zrf(r*i)" -1] , c
;1'1*;y -(1+ir
-+ Eq. 1
Zr ZrZr Zr Zr Zr Zr Zr Zr Zr
Zr ZrZr Zr Zr Zr Zr Zr Zr Zr Zr Zr
,, _rrl(*i)'-1] , c
-ll;;n--,r*;y, -+Eq 1
"n I
Zr = 1,000(0.08)
Zr=80
Zr = 3,000
C = 1,000
Substitute values in Eq. 1
Substitute the values in Eq. 1
vn-
\,
zrf1r * i;^l
:-
c
-______!__________ '(1+i)"
i(1+i)" ., _zr[{r*i)"]
"n --@!n--(t*n , c
2'l8 Question Bank Engineering Economics by Jaime R. Tiong Bonds 219
-
i - 0.0385
r, oooto.oe)
kr+
i)10 - r] 1009_ i= 3.85%
'
r..dao = +
i(1+i)" (1+i)''
of interest is 3.85 %.
By trial and error:
i= 0.0756
A P1,000, 6% Uond pays dividend semiannually and will be redeemed al 11Oo/o on
i--7.56% June 21, 2004. ll is bought on June 21,2OO1 to yield 4% interest. Find the price of
the bond.
The yield is 7.56 %.
A. P 1,122.70
B. P 1,144.81
c. P 1,133.78
You purchase a bond at P 5,100. The bond pays P 200 per year. lt is redeemable D. P 1,155.06
for P 5,050 at the end of 10 years. What is the net rate of interest on your
investment?
Vn: 5,100
30 3A 30
I
I
I
C = 1,100
200 200 200
I V" = 1,144'81
C = 5,050
.'. The price of the bond is P 1 ,144.81.
220 Question Bank - Engineering Economics by Jaime R. 'l'iorrg
Question Bank 7
,-1;;
A. P 222.67
B. P 212.90
c. P 236.20
D. P 231.s6
k=',-,8
\lco
o.1o=1-FE
v 400
cu
4o0/ *T
:(o.gou
Cs =236'20
.'. The selling price at the end of the Sth year is p 236.20.
A machine costs P 8,000 and an estimated life of 10 years with a salvage value of
P 500. What is its book value after 8 years using straight line method?
A. P 2,000.00
B. P 2,100.00
c. P 2,200.00
D. P 2.300.00
,9zo*-
Solving for annual depreciation charge, d
222 Question Bank - tr)ngineering Economics by Jaime R. 'l'iorrg l)trprcr:rnl iorr arrd Depletion 223
. Co-Cn
d=-
n
. 8.000-500 ABC Corporation makes it a policy that for any new equipment purchased, the
10
annual depreciation cost should not exceed 20% of the first cost at any time with
no salvage value. Determine the length of service life necessary if the depreciati
d=750 used is the SYD method.
/
Solving for book value after 8 years, C6 A. 7 years
C. =Co-Dm
,/
B. 8 years
c8 =8,000-750(8) C. '9 years ./
Ce = 2,000
D. 10 years ./
../;/;r*,,
d" = c^r-?-)
"In+1]
A machine has an initial cost of P 50,000 and a salvage value of P10,000 after 10
-+ Eq. 1
years. What is the book value after 5 years using straight line depreciation?
A. P 30,000.00
B. P 31,000.00
c. P 30,500.00
r vears -2o(2o
+1)
- r,o
D. P 31,500.00
2
?).,r^n.
An asset is purchased for P 9,000.00. lts estimated life is 10 years after which it
Solving for the annual depreciation charge, d will be sold for P 1,000.00. Find the book value during the first year if sum-of-
years' digit (SYD) depreciation is used.
c^ -c_ A. P 7,545,45
n
B. P 7,320.11
.
ct =
500.000 - 100.000
' c. P 7,490.00
25 D. P 7,690.12
-=-
d = 16,000 V/,,t;"n..
Solving for the total depreciation in the first three Years, Dg Solving for depreciation on the first year, d1
Ds = 16,000(3) d,:(co-c")=+.-
years
Ds = 48'000
z
226 Question Bank - Engineering Economics by Jaime R. Tiong Deprocintion and Depletion 227
But
Cr=Co-D,
n(n + 1)
) vears cr =530,000-96,000(4)
2
1o(10 + 1) Ca = 146'000
r vears - 2
- au
.'. The book value at the end of the 4th year is P 146,000.00
Substituting,
d1 =(9,000-1,000)#
dt =1,454'54
The cost of equipment is P 500,000 and the cost of installation is P 30,000. lf the
d, = (co -.")r#"*
salvage value is 10o/o ol the cost of equipment at the end of 5 years, determine the n(n +
book value at the end of the fourth year. Use straight-line method. r vear - 2
1)
10(1'1)
A. P 146,320.50 ) vear = ------:-----!'
B. P 146,000.00
2
c. P 146,230.50 )year = 55
D. P 146,023.50
Substituting;
Vt,,,,,, d1 = (2o,ooo - 12'ooo)r+l
't55/
Co = 500,000 + 30,000 = 530,000 dt = 1'454'54
Cn = 0.10(500,000) = 50,000
. c^-c_
n
A machine has an initial cost of P 50,000 and a salvage value of P 10,000 after
_ _ 530,000-50,000 10 years. Find the book value after 5 years using straight-line depreciation.
5
d = 96,000 A. P 31,000.00
B. P 31,500.00
Solving for the book value at the end of the fourth !ear, Ca c. P 30,000.00
D. P 30,500.00
228 Question Bank - l)ngineering Econornics by Jaime R. 'l'iorrg
l)o;rrocint,iort and Depletion 229
.'ll,/,r.,
4'ooo
Yo= xtoo
Let Cs = book value after 5 years 50,000
o/o
= 8ok
Solving for annual depreciation charge, d:
.'. The straight line method depreciation rate is 8%.
r-"0
aa vn
n
_ 50,000 - 10,000
10 A machine costing P 45,000 is estimated to have a book value of P 4,350 when
d = 4,000
Solving for Cs :
Cs=Co-Ds
B. 32.25o/o
cs =50,000-4,000(5) c. 32.00%
C5 = 30'000 D. 32.75o/o
.'. The book value after 5 years of using is P 3O,OOO.OO
k=1-"8
A machine has an initial cost of P 50,000.00 and a salvage value of P 10,000.00 !co
after 10 years. What.is the straight line method depreciation rate as a percentage
of the initial cost?
k=1-u@
\145,000
k = 0.3225
A. 1O o/o
B. 8% k = 32.25o/o
c. 7% o/o.
D. I o/o .'. The annual rate of depreciation is 32.25
V;1itr..
Let d = annual depreciation An asset is purchased for P 120,000.00. lts estimated life is 1 0 years, after which
it will be sold for P 12,000.00. Find the depreciation for the second year using the
sum-of-years' digit method.
d-co-cn
n A. P 17,578.13
,{ _ 50,000 - 10,000 B. P 17,412.43
10 c. P 17,344.67
d = 4,000 D. P 17,672.73
Solving for the percentage of depreciation with respect to the initial cost: V;z*,,,
4x100
%=
co
d, =(co -c,).4
jyears
230 Question Bank - Engineering Economics by Jaime R. Tiong Depreciatiort and Depletion 231
n(n +
) vears
1)
2
10(1 An asset is purchased for P 9,000.00. lts estimated economic life is 10 years
) vears
1)
after which it will be sold for P 1,000.00. Find the depreciation in the first three
2
years using straight line method.
) years = 55
A. P 2,400.00
/o\
B. P 2,412.34
d2 = (120,000-12,000)l + c. P 2,250.OO
'\55/ I
D. P 2,450.00
dz =17,672'73
.%7i*--.
.'. The depreciation for the second year is P 17,612.73.
C. 27 o/o
D = d(3)
D. 28%
D = 800(3)
.V;/;r,,- D =2,400
Using Matheson Formula .'. The total depreciation in the firct three years is P 2'400.00.
k=1-"8
lco An engineer bought an equipment for P 500,000. He spent an additional amount
of P 3O,0OO for installation and other expenses. The estimated useful life of the
Y = 1-.o@'il\n equipment is 10 years. The salvage value is x % of the first cost. Using the
i/ 720,000
stiaight line method of depreciation, the book value at the end of 5 years will be
k = 0.25
P 291,500. What is the value of x?
k=25%
A. O.2
.'. The annual rate of depreciation is 25%. B. 0.4
c. 0.3
D. 0.1
Cs=Co-Ds -r Eq'1
232 Question Bank Engineering Economics by Jaime R. Tiong Depreciation and DePletion 233
-
Co :500,000 + 30,000
co = 530,000 n
-
800.000 - 35,000
Solving for annual depreciation, d:
d ---ro
d = 76,500
,..-Co-Cn
n The annual depreciation charge is P 76'500'00'
r_ 530,000-x(530,000)
10
d:53,000-53000x The
The initial cost of a paint sand mill, including its installation, is P 800,000.
Bli approved tife oi this machine is 10 years for depreciatio.l.' Tle
Total depreciation for 5 years, Ds: "tl]'?lg9;
ill is P 50,000 and the cost of dismantling is estimated to
Ds = d(5)
""l"rri"
O" piS aight-line depreciation' what is the book value of the
machine at the end of six Years?
D5 =(53,000-53,000x)5
A. P 341,000.00
Book value at the end of 5 years, Cs B. P 343,Q00.00
c. P 340,000.00
Cs=Co-Ds D. P 342,000.00
6=Co-Cn
n
A unit of welding machine cost P 45,000 with an estimated life of 5 years. lts
. 410,000 - 60,000
salvage value is P 2,500. Find its depreciation rate by straight-line method. -20
A. 18.89 % d = 17,500
B. 19.21%
years, cro
c. 19.58% Solving for the book value (appraisal value) at the end of 10
D. 19.89 %
Cls=Co-D16
cro = 41o,0oo - 10(17,500)
Cro'= 235' o0o
6=Co-Cn
n ...Theappraisalvalueofthemillattheendofl0yearsisP235,000.00.
,_45,000-2,500
.J E
d = 8,500
An equipment costs P 1O,OOO with a salvage value of P 500 at the end of
10
years. catcutate the annual depreciation cost by sinking fund method at 4 %
Depreciation rate = -9
co interest.
d = 791.26
A. P 6,710.89
Co = 360,000 + 5,000 + 25,000 + 20,000 B. P 6,400.89
C" = 410,000 c. P 6,666.89
D. P 6,512.78
Solving for annual depreciation charge, d
236 Question Bank - Engineering Economics by Jaime R. Tiong L)oprecial,ion and Depletion 237
.V,z"ar-
since the percentage of depreciation is constant every year to be 20% life is 10 years
the book value, use the Matheson Formula
of An asset is purchased for P 9,000.00. lts estimated economic
1,000.00. Find the depreciation in the first three
aftei wnicn it will be sotd for P
years using sum-of-years' digit method'
*=1_.8 A. P 3,279.27
!Co
B. P 3,927.27
o.2o=1-'E c. P 3,729.27
50,000 v D. P 3.792.72
Vffi=ouo 722*-
,tn
50,000
= 0.80s Solving for depreciation in the first three years, Da
B. P 41,211,158.40
c. P 41,254,000.40 Substitute in Eq. 1
D. P 41,24.253.40
Ds =1,454.54+ 1'309.09 + 1,163'64
Ds =3,927 '27
since a rate of interest is given in the probrem, use qinking fund method.
.'. The depreciation in the first three years is P 3,927 '27 '
Solving for annual d€preciation charge, d
_ (s60,000,009 - 0x0.06)
il?'-G;;fli" ui"irriir" is esiimated.at P 150,000 ?J T:iT,"l.declining
d oatancemethod,determinethedepreciationchargeforthesecondyear.
(1+ 0.06)15 - 1
d= 41,244,253.40 A. P 99,658.41
B. P 99,128.45
.'. The annual depreciation charge is p 41,241,253.40. c. P 99,290.00
D. P 99,378.45
238 Question Bank - Engineering Economics by Jaime R. Tiong l)r:prot:iat,iort anrl Depletion 239
9Z**
Using the Matheson formula: efinery developed an oil well which is estimated to
s of oil at an initial cost of $ 50,000,000. What is the
the year where it produces half million barrels of oil? Use
k= 1-"8 computing dePletion.
!Co
k = 1- uE!g,ogq
A. $ 500,000.00
\l 560,000
B. $ 510,000.00
k = 0.2316
c. $ 525,000.00
D. $ 550,000.00
Tabulating the depreciation charges:
.'. The depreciation on the second year is P 99,658.41. Totaldepletion during the year = (500'000)(10)
Total depletion during the year = $ 5,000,000
A. P 9,358.41
B. P 9,228.45
c. P 9,250.00
D. P 9,308.45
9,Zz*,"
The first cost of a certain equipment is P 324,000 and a salvage value of P 50'000
at the end of its life of 4 years. lf money is worth 6% compounded annually, find
the capitalized cost.
A. P 540,090.34
B. P 541,033.66
c. P 540,589.12
D. P 541,320.99
.7;za-.
Capitalized cost= Co+ P+ Eq. 1
Total depreciation = Co - Cn
Co -Cn =32a,000-50,000
Co - Cn =274,OOO
Since, there is a given interest rate,
use sinking fund method in solving
for annual depreciation charge.
i
'-[tr*ir-r]
^_(co-c")
\ '
.{- 274.000(0.06)
o.oo)' - r]
[t',.
d--62,634.07
P = 217,033.66
Another way to solve for the value of P t A piece of equipment was purchased for P 4,000,000. The useful life is
estimated at 5 years with no salvage value. The equipment is estimated to be
o[(r*i)'-r] used for 1,000 hours per year. Operating costs are as follows:
, _
+ i)"
i(1
Fuel : l0liters per hour, P 10 per liter
Oil : 1 liter Per hour, P 20 Per liter
Grease : 2 liters per hour, P 5 per liter
,_ffi[t'.'1"-'] i(1 + i)n ti
nt uses 6 P 60,000 each. Cost of money is 15% per
insurance, age, etc. is 15% per year. The interest tabie
is Problem the figure.
Determine the cost of using the equipment and tires, in pesos per hour.
Substitute in Eq. 1
,7"2r*-
Capitalized cost = 324,000 + 217,033.66
Capitalized cost = 541,033.66 A. Annual cost of equiPment onlY
An item is purchased for P 100,000. Annual cost is p 1g,ooo. Using interest rate AAAAA
8%, what is the capitalized cost of perpetual service? n[{r*o.rs)u-r]
4.000.000 = r i
Capitalized cost = Co + I
I
178.989.33
-'-----x vear The total cost of using the equipment and tires is P 2,202.90 per hour.
Hourly cost of insurance, etc =
yeil '--' =178.99
1,000hours
2,258.82 =.0.36035C0 - 320.35 At 6%, find the capitalized cost of a bridge whose cost is P 250M and life is 20
Co =7'157 '4O years, if the bridge drust be partially rebuilt at a cost of P 100M at the end of each
20 years.
,'. The corporation could afford to pay P 7,157.40 for anot[er motor.
A. P 297,308,323.10
B. P 298,308,323.10
c. P 296,308,323.10
D. P 295,308,323.10
A motorcycle costs P 50,000 and has an expected life of 10 years. The salvage
value is estimated to be P 2,000 and annual operating cost is estimated at P ,%h*.
1,000. What is the appropriate rate of return on the investment if the annual
revenue is P 10,000?
A. 12.12%
B. 12.54 o/o
C. 12.72o/o
D. 12.ggo/o
,:%b-
To get the rate of return, i, equate annual cost and annual revenue:
A packing equipment that cost P 500,000 will last for 20 years and have a scrap -
value at that time of P 50,000. Repair will average P 30,000 per year in which the
Annuat
"o",
= Ico 9") i + co(i) + o.c. -r Eq. 2
e P 20,000 per month. The [tt*i)'-t.]
as many units per year. lt costs
25 years at a cost of P O.C. = 25,000 + 30,000(12)
1,OOO,OOO. Repairs for this machine will average P 25,000 per year and operating O.C. = 385,000
expenses will be P 30,000 a month.
Substitute values in Eq.2
lf money is worlh 8% effective, How much will be saved each year if the more
economical equipment is used?
A. P120,978.20
B.' P120,962.20
Annual cost = 518,678.78
c. P120,988.20
D. P120,999.20
Difference = 639,666.98 - 518,678.68 = 120,988.20
.'. The amount that will be saved each year if the more economical
Compare the annual cost of the two packaging equipments: equipment is used is P 120,988.20.
FOR FIRST EQUIPMENT:
Annuat cost
-9") +co(i)+o.c.
= it'(1+i)
For Offer B: I
Using sinking fund method in computing depreciation
L") -1
I |
(700'000 -1 00'000X0' 1 8)
Annual 6ss1 =
(c^ -c_)
-t.1
i
+ Cn(i) + O.C.
Annual cost =
@
Annual cost = 151,508.78 + 500x
+ (700,000)(0.1 8) + 500x
l(t*i)
(6-40'000 -0X0' 1-6)
Annual cost -- + (6a0, 000)(0.20) + 0.02(6a0,000) + 90, 000 For alternative B
ftt*o.to)'-t.] Annual rental = 1,500x
Annual cost = 275,743.53
Equating:
Solving for the difference between the two offers:
151,508.78 + 500x = 1,500x
Difference = 27 5,7 43.53 - 241,7 38.61
1,000x = 151,508.78
Difference =34,004.92 x = 151.5 days
At 18% interest, how many days per year must the equipment be in use if .Vn/oln.' .
alternative A is chosen? Capitalized cost = Co + present worth of all depreciation charges
A. 152 days Let P = present worth of all depreciation charges using sinking fund method
B. 154 days
C. 156 days
252 Question Bank - Engineering Economics by Jaime R. Tiong Cepitalized Coet & Annual Coet 253
Capitalized cost = Co + 1
I
0.14388C0 =224.38
Co = 1'559'50
Capitalized cost = 5OO,0oO +
' ]lPqq
0.06
The maximum justifiable amount that can be paid'for the treated pole is
Capitalized cost = 666,666.67
P 1,559.50.
.'. The capitalized cost is P 666,666.67.
For an assufance of rate of return of 12o/o,lhe one used in computing For full load operation, efficiency = 7Oolo
annual cost, the annual income must be equal to annual cost.
(e'810x43)
Annual income = Annual cost P_ 4s.5
3,600 0.70
Annual income = 550,540.57
P= 7,616.375 watts
.'. The annual income required is P 550,540.57. P= 7.6'16375 kw
Annual cost
tffiffi
P=QorE, = 228,965.546
,'%h-.
Compare annual cost of either engine.
For Machine A:
For reconditioned engine:
Annual cost: depreciation + interest of first cost + operating cost
Using sinking fund method in computing depreciation
to tn
Annual cost = * coi + o.c.
-n (c^ -c-) i
(10.000 - 0) Annual cost = +O.C.
Annuat cost = #+(10,000)(0.08)+2S0 [(t. i)" - t]
6
-+C^i
258 Question Bank - Engineering Economics by Jaime R. Tiong
Capitalized Cost & Annual
(?8'000 0)-(0'1-0) Cost 259
Annuat cost = + (28,000)(0.10)+ (20,000 + 2,500) Using sinking fund method
in computing depreciation
ftr.o rof -rl
Annual cost = 29,886.33 Annual
^rrrru'rr uosl
cost = '(C" -C ) i
+o'c'
For new engine: FE+coi
$2,ooo _z
,2oo)(0.2o)
Using sinking fund method in computing depreciation
Annuat cost = ,
+ (52'000)(0 20) + (8'300
+ 27
'600)
Annuar =
jco - c") I + c^i + o.c.
Annuar cosr = .rl;',o"T-
"o.,
[{t.i)" -t 1
For diesel driven unit:
(9''ooo - o)(o'10)
Annuat
rr ruar = + (62' 000)(0' 1 0) + (20' 000)(0'85) Using sinking fund method
^r """'
"o., 0)fi-T in computing depreciation
I;;r
Annual cost = 27,090.21 Annual wo'(
cost = lco -C,) i
' Excel Review Center is considering the purchase of a generating set to Difference = 52,320.21 _
47,S7 6.44
the electrical needs during brown outs. Difference = 4,243.22
The first offer he received is for a gasoline driven unit with an estimated life span
of 5 years and would cost the review center p 52,000. The annual maintenance ]ff ,1i:::llffi,U:5;"" ffiJ#;,,"f ", p 4,7 43 7 t c hea pe r tha n the
cost is estimated to be P 8,300, annual operating cost would be p 27,600 and
salvage value would be P 7,200. The second offer the review center received is
for a diesel engine driven unit with an estimated life span of l0 years. Annual
maintenance cost is P 5,800, annual operating cost is p 1g,goo and with salvage
value of P 1 1,900. The price of the unit is 98,250. sewa ge havin g .or"
How much cheaper is the annual cost of the diesel driven unit than the gasoline
"orro"r]h
crete, cast iron and steel.
Because of
-r 'J^^^ ^!,,
driven unit?
A. P 4,612.04
B. P 4,743.77
c. P 4,490.12
D. P 4,500j2
/
260 Question Bank - -Ungineering Econotttit:s bv Jairne ll. 'liong
Annuat cost : Itt -:") I + coi+ o.c Let x = number of units to be manufactured per month to break-even
lncome = 135x
Expenses=69,994+S6x Steel yearly fixed operating cost of
drum produce and sells $ 200. What
$ 200,000.
- Each
To breakeven; manu
manU.--.-,-, e vreo^-Eve, sales volume
i" dr.;;;::;;
is the
lncome = Expenses
135x=69,994+56x A. 5,031
79x = 69,994 B. 5,0,17
x = 886 units c. 5,043
D. 5,000
.'. The number of units to be forged to breakeven is gg6 units.
A. 1,033 "'
The number of drums to be sord
each year to breakeven is 5,000
drums.
B. 1,037
c. 1,043
D. 1,053
kcases that sell for p 65.00 each.
lt costs
to operate its plant. This sum inclules
rent,
,#il"ii,"^11[?,1ffi ;
Let: x = number of units to be manufactured per month to breakeven 11_oe"**,;;fii;o:#,x,;"JlUi"i;,;y.ffi
Ttoid taking a loss?
lncome = 600x
Expenses:
Labor = 115x
Materials = 76x
Variable = 2.32x
Overhead = 428,000
9;2r.,..
II
264 Question Bank - Engineering Economics by Jaime R. f iong Broak'cven Analysis 265
To avoid taking loss means that the minimum production must be enough to Let: x = number of units to be forged to breakeven
breakeven.
lncome = Expenses
Let; x = number of cases to be sold each year to breakeven 125x=56x+70,000
lncome = Expenses 69x = 70,000
65x=50x+35,000 x = 1,014.49 units e 1,015 units
15x = 35,000
x = 2,333.33 cases ! 2,334 cases The number of units to be forged to breakeven is 1,015.
v-l-ll-
/ lweek )/ Sdavs\(Thours)
ll-l
Let: x = number of motors to be sold each month to breakeven
\35units/\ week /\ day )
lncome = Expenses x = t hour per unit
275x= 150x + 20,000 .'. The maximum production time is t hour per unit.
125x = 20,000
x = 160 motors
.7'/u,,,,, ... The number of units to be producod and sold per month to breakeven is
120.
Let: x = number of blocks to be sold per month to breakeven
lncome = 55x
Expenses:
ElectricitY = 20x
Tax =2x
Fixed charges = 3,500 + 25,000 i tZ,OOO = 40,500
To breakeven:
A. 100
lncome = Expenses
B. 104
55x=20x+2x+40,500 C. 110
33x = 40,500
D. 112
x = 1,227 .3 blocks s 1 ,228 blocks
,'. The number of blocks to sel! per month to breafieven is 1,22g. ,92d,.,
Let x = number of motors to produce per month to break-even
Expenses=4000+78,000
JRT lndustries manufactures automatic voltage regulators at a labor cost of
Expenses = 82,000
P85.00 per unit and materi fixed charges on the
business are P 15,000 per e p 20.00 [er unit. lf lncome = 750x
the automatic voltage regu g0.00 each, how many
units must be produced an
To break-even,
lncome = Expenses
A. 120
B. 124
750x = 82,000
c. 128
D. 130 x=109.33*1'10 units
lncome = 580x
Expenses:
Labor = 85x
Materials = 350x
Variable = 20x
Fixed charges = 15,000
A. 1,000 feet
To breakeven: B. 1,040 feet
lncome = Expenses C. 1,100 feet
580x = 85x + 350x + 20x+ 15,000 D. 1,120 feet
125x= 15,000
x = 120 units .V"Z*,*.
268 Question Bank - Engineering gconomics by Jaime R. Tiong
Break-evenAnalysis 269
For enameled wire: To breakeven,
lncome = Expenses
Let x = length of wire
1800x = 1,000x + 38,333.33
Cost of wire = 0.55x
800x = 38,333.33
Cost of soldering = '1.65(a00) = ggg
x = 47.92: 4Sunits
Total cost = 0.5Sx + 660
lf 200 units are produced per month, there wiil be profit since
it needs onry
For tinned wire: 48 units to break-even.
To break-even,
lncome = 1,800x
lncome = Expenses
,iI
270 Question Bank - Engineering Economics by Jaime R. Tiong Break'evenAnalyeis 271
The number of rivet holes for the multiple-punch machine to pay for
itself is 9,601.
'
A new Civil Engineer produces a certain construclion material at a labor cost of P
16.20 per piece, material cost of P 38.50 per piece and variable cost of P 7.4O per
minute. This method requires P0.50 per holes to set multiple punch machine and piece. The fixed charge on the business is P 100,000.00 per month. lf he sells the
an installation cost of P 2,000.00. lf all other costs are the same, for what number hnished product at P 95.00 each, how many pieces must be manufactured in eacl"
of rivet holes will the multiple punch machine pay for itself? month to breakeven?
A. 9,601 A. 3,045
B. 9,592 B. 3,035
c. 9,581 c. 3,030
D. 9,566 D. 3,040
,V"z:ro,-. 9"2*""
Using first method, the Drill Press: Let x = number of pieces to be manufactured per month to breakeven
Let n = number of rivets holes that will make the multiple punch machine The number of pieces to be manufactured each month to breakeven is
pay for itself
3,040.
\
Total cost using drill pr€SS = total cost using multiple puhph machine
\
272 Question Bank - Engineering Economics by Jaime R. Tiong Break'evenAnalyeie 273
To breakeven,
n Transmission Co nt lncome = Expenses
ume is 500,000 uni 50) O.Sx = 80,000
Fixed expenses tot
a year? x = 160,000
lncome = 0.5x
Expenses = 80,000
274 Question Bank - Engineering Economics by Jaime R. Tiong I It'r'it k-rrvt'tt nnrilrll\ -275
At .,af
ation of an automobile part with a production A certain firm has the capacity to produce 650,000 units of product perl''
ear is only operating at62% of capacity due to present, it is operating al62% capacity. The firm's annual income is. . ,sts"r"
foreign currency to finance the importation of their P4,160,000.00. Annual fixed costs are P 1 920,000.00 and the variableni
me is P 430,000.00. Annual fixed costs are equal to P 3.56 per unit of product. What is the firm's annual profit or lo5)
P190,000.00 and variable costs are P 0.348 per unit. what is the breakeven
point? A. P 814,320
B. P 815,230
A. 294,560 c. P 816,567
B. 291,000 D. P 817.239
c. 290,780
D. 295,490
,%,n -.
.7;/)zr-. Pr oduction = 0.62(650,000)
Let x = number of units to breakeven
Production = 403,000
Solving for the expenses:
Total expenses = 1,920,000 + 3.56(403,000)
Variable cost = 0.348x Total expenses = 3,354,680
Fixed cost = 190,000
Total Income = 4, 1 69,000
Solving for the income:
lncome: Expenses
D. P 3,254,680
__-
0.991x = 0.348x + 1 90,000
0.643x = 190,000 Solving for the flrm's annual profit or loss:
x = 295,490
Pr oduction = 0.62(650, 000)
The current breakeven point is 295,490. Pr oduction = 403,000
Brenk'ovon Analyeis 277
276 Question Bank - Engineering Economics by Jaime R. Tiong
.'. The number of thresherg to be produced and sold annually to
Total expenses = 1,920,0Q + 3.56(403,000) breakeven is 25.
Total expenses : 3,354,680
\ \
Total income = 4,169,000 '\
The direct labor cost and material cost of a certain product are P 300 and P 400
ln as much as the total expenses is P3,354,680, then the volume of sales per unit, respectively. Fixed charges are P 100,000 per month and other variable
must be equal to this value in order breakeven. qosts are P 100 per unit. lf the product is sold at P 1,200 per unit, howmany
units must be produced and sold to breakeven?
Thus, volume of sales = P3,354,680
A. 280
.'. The firm's volume of sales to breakevpn is P 3,354,680. B. 250
c. 260
D. 270
A small shop in Bulacan fabricates threshers for palay producers in the locality.
The shop can produce each thresher at a labor cost of P1,800.00. The cost of
materials for each unit is P 2,500.00. The variable costs amounts to P 650.00 per Let x = number of units produced per month to breakeven
unit while fixed charges incurred per annum totals P 69,000.00. lf the portable
threshers are sold at P 7,800.00 per unit, how many units must be produced and Expenses:
sold per annum to breakeven? cost
Direct labor = 300x
Direct material cost = 400x
A. 28 Variablecost = 100x
B. 25 Fixed charges = 100,000
c. 26
D. 27 Total expenses = 300x + 400x + 100x + 100,000
Total expenses = 800x + 100,000
,7"22*^
Total income =1,200x
Let x = number of threshers produced and sold in 1 year
To breakeven:
Expenses: Total income = total expenses
Labdr cost = 1,800x
1,200x=800x+100,000
Materials cost = 2,500x
Variable cost'= 650x 400x = 100,000
Fixed charge = 69,000 x=25O
Total expenses = 1,800x + 2,500x + 650x + 69,000 .'. The number of units to be produced and sold monthly to breakeven is
Total expenses = 4,950x + 69,000 250.
Total income = 7,800x
To breakeven:
'-/nl,t;,,
The following data for year 2000 are drqllable for Cagayan Automotive Company
Let x = number of units produced per month to breakeven
which manufactures and sells a single arlto-motive product line:
Expenses:
Unit selling price ..... P 40.00
Unit variable cost ..... P 20.00
Labor cost = 230x
Material cost = 370x
Unit contribution margin ..... P 20.00
Variable cost = 10x
Total fixed costs ..... P 200,000.00
Fixed charges = 1,000,000
What is the breakeven point in units for the currentyear?
Total expenses = 230x + 370x + 10 x + 1,000,000
A. 10,000 Total expenses = 61 0x + 1,000,000
B. 10,100
c. 10,050 Total income = 750x
D. 10,200
To breakeven:
Total income = total expenses
Let x = number of units produced per month to breakeven 750x=610x+1,000,000
140x = 1,000,000
Expenses:
Variable cost = 2Ox
x=7,142.8 say 7,143 ynits
Fixed charges = 200,000
.'. The number of sets to produce per month to breakeven is 7,143.
Total expenses = 20x + 200,000
A. P 25,011
The cost of producing a small transistor radio set consists of P 230.00 for labor B. P 25,111
and P 370.00 for material. The fixed charges in operating the plant is P c. P 25,121
1 ,000,000.00 per month The variable cost is P 10.00 per set. The radio set can D. P 25,132
be sold for P750.00 each. Determine how many sets must be produced per
month to break even.
Expenses:
Question Bank L0
Laborcost = 10x
Material cost = 15x
Variable cost = 8x ,/
Fixed charges = 10,990
C. Prime cost lf. Fost IilE Boord Exom D Depreciation 26. Porr E(E Boord Exom
D. OandMcosts A series of uniform accounts over an These are products or services that are
infinite period of time. 21. Posl lhE Bocrd Exom desired by human and will be
10. Posl tE Boord Exomm An association of two or more purchased if money is available after
An index of short tem paying ability is A Depreciation individuals for the purpose of operating the required necessities have been
called B Annuity a business as co-owners for profit. obtained.
c Perpetuity
A receivable turn-over D lnflation A. Sole proprietorship A. Utilities
B. profit margin ratio B. Company B . Necessities
C. current ratio I6. Posl tE Boord Exom C. Partnership C Luxuries
D. acid-test ratio The quantity of a certain commodity D. Corporation D. Product goods and services
that is offered for sale at a certain price
I I. Post ilE Boord lxom at a given place and time. 22. Posl ECE Boord Exom 27. Post ECE Boord Exom
An artificial expenses that spreads the We may classify an interest rate, which These are products or services that are
purchase price of an asset or another A. Demand specifies the actual rate of interest on required to support human life and
property over a number of years. B. Supply the principal for one year as activities, that will be purchased in
c. Stocks somewhat the same quantity even
A. Depreciation D. Goods A. nominal rate though the price varies considerably.
B. Sinking fund B. rate of return
C. Amnesty I7. Posl tE Boord Exom C. exact interest rate A. Utilities
D. Bond Work-in process is classified as D. effective rate B Necessities
C. Luxuries
12. Posl tlE Boord Exom A. an asset 23. Post E(E Boord Exom D. Product goods and services
Estimated value at the end of the B. a liability It is defined to be the capacity of a
useful life. c. an expenses commodity to satisfy human want. 28. Post ECE Boord Erom
D. an owner's equity A condition where only few individuals
A. Market value A. Discount produce a certain product and that any
B. Fair value 18. Post IllE Boord Exom B. Luxury action of one will lead to almost the
C. Salvage value What is the highest position in the G. Necessity same action of the others.
D. Book value corporation? D. Utility
A. Oligopoly
13. Post tlE Boord April Exom A. President 24. Post ECE Boord Exom B. Semi-monopoly
Consists of the actual counting or B. Board of Directors It is the amount which a willing buyer C. Monopoly
determination of the actual quantity of c. Chairman of the Board will pay to a willing seller for a property D. Perfect competition
the materials on hand as of a given D. Stockholders whbre each has equal advantage and
date. is under no compulsion to buy or sell. 29. Post ME Boord Exon
19. Posl tE Boord Exom Grand total of the assets and
A. Physical inventory Type of ownership in business where A. Fair value operational capability of a corporation.
B. Material update individuals exercise and enjoy the right B. Market value
C. Technological assessment in their own interest. C. Book value A. Authorized capital
D. Material count D. Salvage value B. lnvestment
A. Equitable C. Subscribed capital
14. Posl f,lE Boord Exom B Public 25. Posl E(E Boord Exom D. Money market
Additional information of prospective c Private This occurs in a situation where a
bidders on contract documents issued D. Pure commodity or service is supplied by a 30. Posl IIIE Boord Exom
prior to bidding date. number of vendors and there is nothing The worth of the property equals to the
20. Posl illE Boord Exom to prevent additional vendors entering original cost less depreciation.
A. Delict Decrease in the value of a physical the market.
B. Escalatory property due to the passage of time. A Scrap value
C. Technological assessment A. Perfect competition B Face value
D. Bid bulletin A. lnflation B. Oligopoly C. Market value
B. Depletion C. Monopoly D. Book value
c. Recession D. Elastic demand
284 Question Bank - Engineering Economice by Jaime R. Tiong Mult,iplo Choice Test 285
31. Posl tE Eoord Exom - - A---- profit margin
42. Qucrllon f7.Qucrtlon
Money paid for the use of borrowed B. gross margin A market situation where there are only The payment for the use of borrowed
capital. C. net income two buyers with many sellers. money is called
D. rate of return
A. Discount A. Duopoly A. loan
B. Credit 37. Posl tE
Boord Exom
B. Oligopoly B. maturity value
C. lnterest Worth of the property as shown in the C. Duopsony C. interest
D. Profit accounting records of an enterprise. D. Oligopsony D. principal
32. Post tE Boord Exom A. Fair value t[3. Queslion 48. Oueslion
Liquid assets such as cash and other B. Market value
The cumulative effect of elapsed time The interest rate at which the present
assets that can be converted quickly C. Salvage value
on the money value of an event, based work of the cash flow on a project is
into cash, such as accounts receivable D. Book value
on the earning power of equivalent zero ofthe interest earned by an
and merchandise are called invested funds capital should or will investment.
38. Posi tlE Boord [xom
earn.
A. total assets Those funds that are required to make A. Effective rate
B. fixed'assets the enterprise or project a going A. Present worth factor B. Nominal rate
C. current assets con@rn. B. lnterest rate C. Rate of return
D. none ofthe above C. Time value of money D. Yield
A. lnitial investment D. Yield
33.Posl tE Boord Exorn B. Current accounts 19. Question
The length of time which the property C. Woking capital ft[.Queslion The ratio of the interest payment to the
may be operated at a profit. D. Subscribed capital Defined as the future value minus the principal for a given unit of time and
present value. usually expressed as a percentage of
A. Physical life 39. Queslion
the principal.
B. Economic life A market situation where there is only A. lnterest
C. Operating life one seller with many buyer. B. Rate of return A. lnterest
D. All of the above C- Discount B. lnterest rate
A Monopoly D. Capital C. lnvestment
3f. Posr tE
Boord Exom B. Monopsony D. All of the above
The provision in the contract that C. Oligopoly 15. Question
indicates the possible adjustment of D. Oligopsony The flow back of profit plus 50. Oueslion
material cost and labor cost. depreciation from a given project is The true value of interest rate
tl0. Queslion called computed by equations for compound
A. Secondary clause A market situation where there are few interest for a 1 year period is known as
B. Escalatory clause sellers and few buyers. A. capital recovery
C. Cohtingency clause B. cash flow A. expected return
D. Main clause A. Oligopoly C. economic return B. interest
B. Oligopsony D. earning value C. norninal interest
35.Posr tlE Boord Exom C. Bilateral oligopoly D. effective interest
The present worth of all depreciation D. Bilateraloligopsony f5. 0ueslion
over the economic life of the item is The profit derived from a project or 51. Question
called {1. Queslion business enterprisg without The intangible item of value from the
A market situation where there is one consideration of obligations to financial exclusive right of a company to provide
A. book value seller and one buyer. contributors or claims of other based a specific product or service in a stated
B. capital recovery on profit. region of the country.
C. depreciation recovery A. Monopoly
D. sinking fund B Monopsony A. Economic return A. Market value
C. Bilateral monopoly B. Yield B. Book value
36. Post tlE Boord Exsm D. Bilateral monopsony C. Earning value C. Goodwill value
Gross profrt, sales less cost of goods D. Expected yield D. Franchise value
sold, as a percentage of sales is called
286 Question Bank - Engineering Economics by Jaime R. Tiong Multiple Choice Test 287
I 72. Queslion B. When the price of the bond is C and-interest price A sequence of payment for a
What is the term for the borrowed less than the redemption value D. coupon price certain person which stops when
principal usually mentioned in a typical C. When the price of the bond is the person dies
bond? equal to the redemption value. I8l. 0ueslion B A sequence of payment intended
D. When the price of the bond is The yield of a bond is obtained by for the life insurance of a person.
A. Bond rate either equal to or greater than which of the following formulas: C A sequence of payment for a
B. Face value or par value the redemption value. certain person which continues
C. Coupon rate
^ average investment indefinitely.
D. Coupon value I 77.Question
average annual interest
D It is the same as perpetuity
Which of the following will happen if a
average annual interest
I 73. Queslion bond is bough at a discoqnt? ^ 186. Sueslion
Any date on which a coupon of a bond average investment What term is usually used by the banks
becomes due will be referred to as a A par value to represent the effective interest rate
U. per period?
flat value
A. maturity date flat value A Yield
B. term of the bond quoted value B Nominal rate
C. coupon date C. Fixed rate
D. due date The unpaid interest on each 182. Question D Net rate
coupon date will not be What is a bond whose face value is
l7tl. 0ueslion considered as a new investment redeemable in installments, with 187. Question
lf P is the price of a bond and V is its in the bond. interest payable periodically as due on The acid test ratio is also known as
redemption value, what do you call the D The difference between the outstanding principal? quick ratio. Which one represents the
value P - V? coupon payment and the interest quick ratio?
due is a pa(ial repayment of A. Annuity bond
A. Par value principal. B. Serial bond A
quick assets
B. Face value C. Treasury bond current liabilities
C. Premium I 78. 0uestion D. Government bond net credit sales
D. Bond discount ln the sale of a bond, the actual B.
average net receivables
purchase price on any day is called 183. Queslion
I 75. Queslion What is the term for the sum of gross profit
C
When can we say that the bond is depreciation charges to date? current liabilities
purchased at a discount? A. Face value gross profit
B. Quoted price A. Accrueddepreciation ^
U.
net sales
A. When the price of the bond is C. Accrued price B. Applied depreciation
greater than the redemption D. Flat price C Accumulateddepreciation I88. 0ueslion
value. D. All of the above Which of the following represents the
B. When the price of the bond is I 79. Queslion
less than the redemption value What do you call the difference I84. Question - gross margin?
C. When the price of the bond is between the flat price of the bond and The difference between the value of an
the quoted price ofthe bond? net income
equal to the redemption value. asset and its salvage or scrap value at A
When the price of the bond is the end of n year is called owners'equity
either equal to or greater than A. Par value net credit sales
B
the redemption value. B Accrued interest A. depreciation average net receivables
c. Bond rate B accrued value
gross profit
I 76. 0ueslion D And-interest price C. book value C
When can we say that the bond is D. wearing value current liabilities
purchased at a premium? 180. Queslion gross profit
D
The quoted price of a bond is 185. Ouestion net sales
A. When the price of the bond is sometimes called What is a life annuity?
greater than the redemption
value. A Par value
B Face value
300 Question Bank - Engineering Economics by Jaime R. 'tiong Mult,iplo Ohoico Tost 301
Monopoly is the opposite of perfect differences are created through lf the selling price for a product is high, supply and demand at a given Price
competition. This market situation is advertising and sales promotion. more producers will be willing to work
characterized by the following: harder and risk more capital in order to
C. Difficult market entry: High barriers reap more profit. However if the selling
A. One seller and many buyers: A of entry which make it difficult for price for a product declines, capitalists will
market comprised of a single new sellers to enter the market. not produce as much because of the
supplier selling to a multitude of smaller profit they can obtain for their labor
small, independenfl y-acting buyers. What is demand? and risk.
B. Lack of substitute products: There Demandis the need, want or desire for a Therefore, the relationship between price
are no close substitutes for the oney to purchase and supply is that they are directly Price
monopolist's product. demand is always proportional, i.e. the bigger the selling
d abitity to pay,, price, the more the supply; and the smaller
C. Blockaded entry: Barriers to entry want or need for the selling press, the less is the supply.
are so severe that it is impossible for the product. Figure 2 below illustrates the price-supply
other sellers to enter the market. relationship.
The demand for a product is inversely
There exists a perfect monopoly if lhe proportional to its selling price, i.e. as the Figure 3
single vendor can prevent the entry of all selling price is increased, there will be less
other vendors into the market. The demand for the product; and as the selling When there is additional supply without an
monopolist is in the position to set the price is decreased, the demand will additional demand, a new and lower price
market price. increases. Figure 1 below illustrates the is established as shown in Figure 4.
relationship between price and demand.
A natural monopoly is a market situation
where economies of scale are so Previous supply
significant that costs are only minimized
when the entire output of an industry is
supplied by a single producer so that
supply costs are lower under monopoly
than under perfect competition and
oligopoly.
The future amount of the principal may be days while during leap years it has 29 = P(1 + i):
calculated by adding the interest (l) to the days. Again, the values of n to be used in fhe rate of discount is the discount on one n P(1 + i)"
principal (P). the preceding formulas are as follows: unit of principal per unit time.
The tabulation above shows that the future
F=P+l Let d = rate of discount amount (total amount) is just the value p(1
F=P+Pin n=- d for normal years + i) with an exponent which is numerically
Thus, 365 equal to the period.
F = P(1+ in)
d=1-:-
It is also observed that compound interest
n=- d for leap years is based on the principles of geometric
There are two types of simple interest 366 progression and using such method, the
namely, ordinary simple interest and exact total amount after each period are as
simple interest. follows:
DISCOUNT
Ordinary simple interesl is based on one Firstterm, ar = P(1 + i)
banker's year. A banker year is composed Consider the following cases where Second term, a2 = P(1 + i)2
of '12 months of 30 days each which is discount is involved: Third term, a3 = P('l + ;;3
equivalent to a total of 360 days in a year. and so on.
The value of n that is used in the
preceding formulas may be calculated as Solving for the common ratio, r:
310 Question Bank - Engineering Economics by Jaime R. Tiong Theorios and Formulas 31 1
a^
f =-L where: I ^ =single payment
present fhe present worth of continuous ChapEer 4
a,l (1 + i)n compounding is
factor where: m = number of interest period per Annuity is based on the principles of
therefore, year compound interest. Hence computation of
b. PRESENTWORTH,P i = interest per period the sum of annuity may be done using the
0123n F =PENR)N .NR formulas for geometric progression.
m
Solving for common ratio:
where: p = priniipal NR = nominal rate of interest
a-
e = 271828...
NR = nominal rate a1
But F= L r
I 12341
AAAA AA
Substituting the value of F:
01 where:
ltr*if-rl
L - =uniformseries
+
i(1 i)n
P=+
present worth I
, factor
(n-2)G
where: i = interest per period
AAAA2 Annuity due is a type of annuity where A = uniform payment
the payments are made at the .'......-.......i
i.........................- F P -'...'.....'.-.
r. beginning of each period starting from
the first period. :.........,.......... .,.,.....,>, , F
ELf
nltr+if -r"l Chapter 5
The total present worth P is equal to sum
I
of Pr and P2, mathematically,
AAAA When an annuity does not have a fixed The above cash flow can be converted into
Please refer to the cash flow in
the following page
time span but continues indefinitely, its equivalent annuity and uniform
then it is referred to as a perpetuity. arithmetic gradient whose present worth
The sum of a perpetuity is an infinite are Pr and P2, respectively
value.
(n - 2)G<. 234
(1 + i)n-1
(n-'l)G- b
Substitute values in Eq. 3 2G
('1 + i)n
Pi G[t-rt*il'n
' ',- n I (nJ)G
^G2G3G I
I i (1+i)"
..............-T-f
-=-f
(1 + i)' (1 + i)' (1 + i)*
'..
] P -""""""' """""''"""i
(n-2)G (n-l)G 1
"'-(1 -
+il'r (i*D" ' (1+i)
f .\-n
1-(1+i)" n 1
o_Gl The above cash flow is equivalent to the
'-iL i
I
-,r-rTl-lr
1 (1+i)n] figure below:
Factor out G: -
4)--
(1+i)'
01234...n-ln
I
where: G = arithmetic gradient change in
the periodic amounts at the
end of each period AAAAAA
P .,*..-.-........ ................-'i
So v ng for the common rat o r B. FUTUREWORTH:
1
Using formula for annuity:
Multiply Eq. 1 by (1 + i): t---
a. (1+il2
\ , 1
Let F = future worth of the uniform
arithmetic gradient
a1 I -(1+i)
-
(1+i)
0 1 2 3 4 ... n-l n
1
(1+i)3 _
'l
._clr-(1+i)n n
' -TI
1
(1 + i)2 -(1.,f
Subtract Eq. 1 from Eq. 2
Solving for the sum, S:
' I
./
t = "'('-'/)
ltr
316 Question Bank - Engineeling Economics by Jaime R. Tiong 'l'lrr.orrcs lrrtl l"orrurrlits 317
Substituting: A. PRESENTWORTH, P ot=X B. FUTURE
?z= *
0123 t?
II
33=x3 0
{..................
i Q_ \ / when x =1*' *1'.
(1 + i)n
'1
-x 1+i
iA=c[]- ^ I
(1+if_jl G G(1 +r), G(1 +r)2 Substitute in Eq. 1: F = P(1+ i)n
,/
.l: .
Li '1.':l
D_
' -(1+D- (i+D2 * (1+i)p +"'
o x(1-x" , =-9-[L{],,
(1+i)l 1-x
, ,r
Uniform geometrio gradient is a series "'r, G(t+ r)n-2 G(1 + r)n-1 ,- 1+r (1-x)
l'
consisting of end-of-period payments, (1 +ifr - (1 +rf
r = c1r * iY-'[1- )
x"
where each payment increases or p=9f tr)[t--l" I
1-,
decreases by a fixed percentage. 1+r\1rilf t-x ]
( J
P=G ,=erL{l
1+i( 1-x J
Whenx=1,r=l
F = P(1+ i)n
where: x=
1+r
*1.thusr +i F= Gn (1 +i)n
Multiply by 1+i (1 + i)'
;# G = first payment at the end of
the first period F =Gn('!+0n-l
(1 + r) = rate of increase or
decrease
Whenr=i,thenx=1.
Chapter 5
Substituting values in Eq. 1:
o- Gn
' 1+i
Bondis a financial security note issued by
businesses or corporation and by the
government as a means of borrowing long-
term fund. lt may also be defined as a
Geometric progression long-term note issued by the lender by the
318 'l'htrorion and llorrnulns 319
Question Bank - Engineering Economics by Jaime R. Tiong
borrower stipulating the terms of Let Vn = value of bond n years before Typor of Depreclatlon:
repayment and other conditions. redemption
A. I'hysicol Deprecialion is due to the
Bonds do not represent ownership of a Vn=Pl+P2 -+Eq 1 reduction of the physical ability of
business or corporation and therefore not an equipment or asset to produce
entitled to share of the profits. The results.
Using formula for present worth of annuity
bondholder has no voice in the affair of the
business However the bondholder has a
{w
Lender
B. Functional Depreciation is due to
the reduction in the demand for the
more stable and secured investment than
does holder of common or preferred stock a function that the equipment or
of the business or corporation. asset was designed to render. This
z'[{r* )" -r] type of depreciation is often called
Bonds are issued in certain amounts q= obsolescence,
known as the /ace value or par value of the i(1 + i)n
bond. When the face value has been Methods of Gomputing Depreciation:
repaid, normally at maturity, the bond is Using the formula for present worth of
said to be redeemed or retired. Bond rate is compound interest: A. STRAIGHT LINE METHOD
the interest rate quoted in the bond ln this method of computing depreciation,
E
fw
Lender
Chapter 7
years
D, = d(m)
Pz
I ,
320 Engineering Economics by Jaime R. Tiong 'l'hooriott rtnd l'\lrmulus 321
Question Bank -
where: Co = first cost Book value at the end of "m" years of
C Uring decllning balance method
Cn = cost after "n" years using, C,.
(salvage/scrap value) 6-
n = life of the property
k=1-d+
C. = Co - (a,r + o, +'-'+ dr) \lUo
Book value at the end of "m" years of
using, C.: k=1-im
Sum of year's digit, ) years
o[(r*i)'-r] k = 1- 0.5493
;9, ='%tD., ,
s n(n+1)
oz= k = 0.4507
z
322 Question llank - Dngineeriug Economics by Jaime R. ,I.iong 'l'huorior and l'lrrntulrrn 323
d3 =(co_c")+ depreciation charge while the sinkingJunr) Chapter 9
!year Natural Resource Maximttttt
method has the smallest annual Percentage'
d3 =(1o,ooo-5oo)* depreciation charges.
Sulfur, Cobalt, Lead, 22
and the
Period Depreciation Book Let: l.C. = initial cost of property cement,
value T.U. = total units in property long time
0 '10.000 00 U.S. = units sold
or forever, or
1 3.166.67 6.833.33
2 2,533 33 4,300 00 The depletion cost during any year is:
3 '1,900 00 2,400.00
CQ=Frntcrd+Cdd
4 1.266.67 1.133.33 lC'
cost _
Depletion __-. = rtts I
5 633.33 500.00 T_U \v.e., A Y structure or Ltr
p the annual