BME Review Guide Day 12 & 13 Mathematics Engineering Economics

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BME Review Guide Day 12 & 13 Mathematics Engineering Economics
ECONOMIC TERMS: Duopsony many two
Oligopoly few many
Economics – is a study that deals Oligopsony many Few
with the attainment of the Bilateral Oligopoly few few
maximum fulfilment of society’s
unlimited demands for goods and Demand – refers to the need, want
service. or desire for a product backed by
the money to purchase it and is
Engineering Economics – is a always based on the willingness
branch of economics which deals and ability to pay for a product and
with the application of economics not merely want or need for the
laws and theories involving product.
engineering and technical projects
of equipment.

Price
Consumer Goods and Services – 1
refers to the products or services D1
that are directly used by people to P1 2
satisfy their wants. D2
P2
Producer Goods and Services – Demand
refers to those that are used to
Supply – refers to the amount of the
produce the consumer goods and
services. product made available for sale.

Necessity – refers to the goods and

Price

S2 2
services that are required to
support human life, needs and
activities. S1 1
P2
Luxuries – refers to those goods P1
and services that are desired by
human and will be acquired only Supply
after all the necessities have been Law of Supply and Demand –
satisfied. states that “Under conditions of
Market – refers to the exchange perfect competition, the price at
mechanism that brings together which ant given product will be
the sellers and the buyers of a supplied and purchased is the
product, factor of production or price that will result in the supply
financial security. and the demand being equal.”
Buyer or Consumer – refers to the
consuming or demanding unit of a
Supply
Price

commodity.
Units
Seller – refers to an entity which
makes the product, goods or Demand
services available to buyer or
Price
consumer in exchange of
monetary consideration.
Units
Different Market Situations Supply = Demand

Market Situation Sellers Buyers

Perfect Competition many many
Monopoly one many When there is additional supply
Monopsony Many one without an additional demand, a
Bilateral Monopoly one one new and lower price is established
Duopoly two Many as shown in the figure below.

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BME Review Guide Day 12 & 13 Mathematics Engineering Economics
Previous
d d
n= ; I = Pi( )
Supply 365 365
Price
New or
Units Supply d d
n= ; I = Pi( )
366 366
Demand
New Price Elements of Simple Interest:
I=Pin
Units
F=P+I
When there is additional demand
F = P + Pin = P(1 + in)
without an additional supply, a
Where:
new and higher price is
P = principal or present worth
established as shown in figure I = interest earned
below. F = future worth
i = simple interest rate (per year)
Previous New t = time in years or fraction of a year
Demand Demand
Example:
Supply For 4 yrs: t = 4
Price

Units For 3 mo’s: t = 3/12 = ¼

New For 90 days:
Price Ordinary → t = 90/360 = ¼
Exact → t = 90/365 or t = 90/366
for Leap Year
Units For 2 yrs & 4 mo’s: t = 2 + 4/12 =
2.333
Interest – is the payment for the use
of borrowed capital for the debtor, COMPOUND INTEREST:
on the other hand it is the income - is the interest is computed every
from invested capital for the end of each interest period
creditor. (compounding period), and the
interest earned for that period is
Simple Interest, I – is the interest on
added to the principal (interest
a loan or principal that is based
plus principal).
only on the original amount of the
- to demonstrate this, consider an
loan or principal.
investment of P 1,000.00 to earn
I = Pin
10% per year for three years. The
Where: following diagram shows how
P = principal money grows:
i = interest per period
n = number of interest period 0 1 2 3
Types of Simple Interest
1. Ordinary Simple Interest
- based on banker’s year. P = 1,000 F F F
1 banker year = 12 mo’s 1 2 3
= 360 days
d d
n= ; I = Pi( ) F1 = P(1+in) = 1000(1+0.1) = P 1,100
360 360
F2 = P[1+in] = 1000[1+0.1(2)] = P 1,210
2. Exact Simple Interest F3 = P[1+in] = 1000[1+0.1(3)] = P 1,331
- based on exact number of
days in a year. Elements of Compound Interest:
r
1 year = 365 days i= ; n = m.t; I = F – P
= 366 days (Leap Year) m

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BME Review Guide Day 12 & 13 Mathematics Engineering Economics
Where: 0 1 2 n–1 n
P = principal or present worth
i = effective interest per compounding
period
F = future worth or compound amount P A A A A
n = total number of compounding
t = number of years of investments F
m = number of compounding per year
r = nominal rate 1 – (1 + i)- n
P = A[ ]
Future Worth, F: i
0 1 2 n (1 + i)n – 1
F = A[ ]
i
P Annuity Due:
- is one where the payments are
F made at the beginning of each
F = P(1 + i) n period.
Note: 0 1 2 n–1 n
The term (1 + i)n , is also denoted as
(F/P, i, n) is called the Single
Payment compound amount A A
A
factor. A
Effective Rate of Interest, ER: F
ER = (1 + i)m – 1
Note: P
For two or more nominal rates to be (1 + i)n -1
equal, their effective rates must be F = A[ ]
i
equal.
F
Continuous Compounding: P=
F = P . ern (1 + i) n-1
(1 + i)n - 1 – 1
Discount, D: P = A[ ]
D=F–P i(1 + i)n-1
D Deferred Annuity:
d= = (1 + i)n – 1
P - is an annuity where the payment
d
i= periods extend forever or the
1–d periodic payments continue
Where: indefinitely.
d = discount rate 0 1 2 3 5
Annuity, A:
- is the series of equal payment A A A
occurring at equal interval of time
which includes anything involving
fixed weekly, monthly, or yearly n=4 F
payments. P
n=5
Ordinary Annuity:
- is one where the payments are (1 + i)n – 1
made at the end of each F = A[ ]
i
period.
F
P=
(1 + i) n

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BME Review Guide Day 12 & 13 Mathematics Engineering Economics
(1 + i)n – 1 Future Worth, F:
P = A[ ]
n i(1 + i) ( )n F = P 1+i
Perpetuity: BOND:
- is an annuity where the payment - is a written contract to pay a certain
periods extend forever or the redemption value R on a specified
periodic payments continue redemption rate and to pay equal
indefinitely. dividends Fr periodically.
A
P= Price of a Bond at a given i, P:
i (1+i)
n
-1 R
P = Fr [ n ]+ n
ARITHMETIC GRADIENT i(1+i) ( 1+i)
where,
P
1 2 3 4 n F = face value or par value of the bond
0
r = bond rate
R = redemption value on a specified
A redemption date
A+G
A+2G i = investor’s interest rate of return
A+3G A+nG
P = price of bond at a given interest i
Present Worth, P: Note:
P = PA + PG ✓ A bond is said to be redeemable
1-(1+i)
-n at par if redemption value R
PA = A[ i
] equals to face value F.
✓ A bond is said to be redeemable
G (1+i) n -1
PG = [ ][ - n] at a premium if R › F.
i (1+i)n i
✓ A bond is said to be redeemable
Future Worth, P: at a discount if R ‹ F.
F = P(1+i) n = FA+ FG
n CAPITALIZED COST, K:
(1+i) -1
FA = A[ ] ✓ is an application of perpetuity.
i
✓ K of a project or structure is the
n
G (1+i) -1 sum of the first cost (FC) and the
FG = [ i ] [ i - n]
present of all future payments
and replacements which is
GEOMETRIC GRADIENT assumed to continue forever.
P 1 2 4 n SV
3
0
0 1 2 3 4 5 n
A A+G(1+r)
+ A+G(1+r)
2 A+G(1+r) OM O
OM OM OM OM
3 A+G(1+r) M
Present Worth, P: n
FC
1+ r RC
Let, w = [ 1+ i ]
OM RC - SV
K = FC + + n
i ( 1+i) -1
If w ≠ 1
P = PA + PG Where:
-n K = capitalized cost
1-(1+i)
PA = A [ ] FC = first cost
i
OM = operation and maintenance
n
G 1-w i = interest rate
PG = [ n] [ 1 - w ]
i(1+i) RC = replacement cost

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BME Review Guide Day 12 & 13 Mathematics Engineering Economics
SV = salvage value C m = C o - Dm
n
ANNUAL COST, AC: d[(1+i) - 1]
Dn =
SV i
0 1 2 3 4 5 n C n = Co - D n

OM OM OM OM OM
OM III. Declining Balance Method:
dn = k Co (1- k)n-1
FC RC
( RC - SV)i n Cn m C
k= 1- √ =1- √ m
AC = FC(i) + OM + Co Co
(1+i)n-1 Cn = Co(1- k) n
Dn = Co- Cn
DEPRECIATION:
Cm = Co(1- k)m
- refers to the decrease in the value
of an asset, due to usage of Dn = Co- Cn
passage of time. k = constant percentage; Cn ≠ 0
- An asset may depreciate IV.Double Declining Balance
physically and functionally. Method:
2 m
C m = C o [ 1 − ] ≥ Cn
n
Cost

2
Dm dm = C
n m
Dn m
2C o 2
Co dm = [ 1− ]
Cm
n n
D m = Co - Cm
m Cn
V. Sum of the Years Digit Method:
Time n ( n + 1)
∑ years =
Where, 2
reversed digit
Co = first cost dm = ( Co − Cn )( ∑ years
)
Cn = salvage value or trade-in
∑ reverseddigit
value Dm = ( Co − Cn ) ( ∑ years
)
d = depreciation
Dn = Co- Cn
n = economic life of property in
years VI. Working Hours and Service
m = any time before n Output Method:
Cm = book value after m years Working Hours Method:
Dm = total depreciation for m years (
o C −C )H
L n
dn =
H
I. Straight line method Where:
C -C Hn = total no. of hours during
d = on n
the nth year
Dm= d( m)
H = total no. of hours up to
Cm= Co - Dm
the end of the life
Dn = d(n)
Cn = Co- Dn Service Output Method:
o ( LC −C )Q
n
dn =
II. Sinking Fund Method T
(C o- Cn ) i Where:
d= n
(1+i) - 1 Qn = total no. of units of
m
output during the nth year
d[(1+i) - 1] T = total no. of units of output
Dm =
i up to the end of the life

6
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
BREAK-EVEN POINT: c. 8 d. 7
- is the value of a certain variable 6. Find the present worth of a future
for which the costs of the two payment of a P 100,000 to be made
alternatives are equal. in 10 years with an interest of 12%
Gross Income compounded quarterly.
a. P 30,655.68
Costs & Revenue

Break-Even Profit Expenses

b. P 30,444.44
Point c. P 30,546.54
Variable Cost d. P 33,000.00
Loss Fixed Cost 7. How much money must you invest
Production or Output today in order to withdraw P 1000
Income = selling price per unit x no. per year for 10 years if the interest
of units rate is 12%?
I = P (x) a. P 5,650.00
b. P 6,145.00
To Break-Even, c. P 10,000.00
Income = Expenses d. P 4,860.00
8. A bank is advertising 9.5% accounts
that yield 9.84% annually. How often
is the interest compounded?
a. daily
Instruction: Choose the best answer. b. monthly
c. semi-annually
1. If you borrowed money from your d. quarterly
friend with simple interest of 12%, 9. A firm borrows P 2,000 for 6 years at
find the present worth of P 50,000.00 8%. At the end of 6 years, it renews
which is due at the end of 7 months. the loan for the amount due plus P
a. P46,730.00 b. P45,789.00 2,000 more for 2 years at 8%. What
c. P46,200.00 d. P44,893.00 is the lump sum due?
2. Find the nominal rate which if a. P 6,135.00 b. P 5,254.00
converted quarterly could be used c. P 5,280.00 d. P 6,035.00
instead of 12% compounded semi- 10. What is the present worth of the two
annually. P100 payments at the end of the
a. 21.84% b. 11.83% third year and fourth year? The
c. 14.02% d. 11.29% annual interest rate is 8%.
3. Mr. Reyes borrowed money from the a. P 153 b. P 162
bank. He received from the bank P c. P 160 d. P 127
1,842 and promise to repay P 2,000 11. A deposit of P 1000 is made in a
at the end of 10 months. Determine bank account that pays 8% interest
the simple interest. compounded annually.
a. 19.45% b. 16.10% Approximately, how much money
c. 10.29% d. 15.70% will be in the account after 10 years?
4. What is the corresponding effective a. P 2,345.00 b. P 2,160.00
are of 18% compounded semi- c. P 1,925.00 d. P 1,860.00
quarterly? 12. You need P 4,000 per year for four
a. 18.95% b. 18.46% years to go to college. Your father
c. 19.25% d. 19.48% invested P 5000 in 7% for your
5. In how many years is required for P education when you were born. If
2,000 to increase by P 3,000 if you withdraw P 4,000 at the end of
interest at 12% compounded semi- your 17th , 18th , 19th , and 20th
annually? birthday, how much money will left in
a. 10 b. 9

7
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
the account at the end of the 21th
year?
a. P 3,400 b. P 4,000
c. P 2,500 d. P 1,700
13. A Mechanical Engineer wished to
accumulate a total of P 10,000.00 in
savings account at the end of 10
years. If the bank pays only 4%
compounded quarterly, what should
be the initial deposit?
a. P 4,876.94 b. P 6,716.73
c. P 4,995.86 d. P 5,890.11
14. A machine costing P 480,000 has a
life expectancy of 12 years with a
salvage of 10% of the first cost.
What is the book value after five
years using the declining balance
method?
a. P 183,892 b. P 152,758
c. P 174,322 d. P 166,342
15. A machine has an initial cost of P
50,000 and a salvage value of P
10,000.00 after 10 years. What is the
book value after 5 years using
straight line depreciation?
a. P 35,000.00 b. P 25,000.00
c. P 15,500.00 d. P 30,000.00
16. A product has a current selling
price of P 325. If its selling price is
expected to decline at the rate of
10% per annum because of
obsolescence, what will be its selling
price four years hence?
a. P 213.23 b. P 210.21
c. P 221.42 d. P 209.54
17. A machine costing P 480,000 has a
life expectancy of 12 years with a
salvage value of 10 % of the first
cost. What is the book value after
five years using the declining
balance method?
a. P 183,892 b. P 152,758
c. P 196,432 d. P 214,785
18. The first cost of equipment is P
100,000 and estimated to have a
book value of P 30,000 when retired
at the end of 10 years. Determine
the annual rate of depreciation using
a constant percentage declining
balanced method.
a. 10.33% b. 11.34%
c. 10.56% d. 10.21%
8
19. A company bought an equipment
for P 56,000. Other expenses
including installation amounted to P
4,000. The equipment is expected to
have a life of 16 years with a salvage
value of 10% of the original cost.
Determine the book value at the end
of 12 years by sinking fund method
at 12% interest.
a. P 28,500 b. P 29,000
c. P 29,520 d. P 27,530
20. The maintenance cost of a machine
this year is expected to P 1000. The
cost will increase P 200 each year
for the subsequent 9 years. The
interest is 15 % compounded
annually. What is the approximate
present worth of maintenance for the
machine over the full 10 years?
a. P 4,818.67 b. P 4,418.76
c. P 8,414.67 d. P 4,481.76
21. A man was offered a certificate with
a face value of P 100,000 which
bearing of 6% per year payable
semi-annually and due in 6 years. If
he wants to earn 8% semi-annually,
how much must he pay the
certificate?
a. P 102,334 b. P 96,322
c. P 90,615 d. P 93,322
22. A certain office equipment has a
first cost of P 20,000 and has a
salvage value of P 1000 at the end
10 years. Determine the total
depreciation at the end of the 6th
year using sinking fund method at
3% interest.
a. P 10,720 b. P 12,340
c. P 11,420 d. P 10,520
23. A P 1,000.00 6% bond pays
dividend semi-annually and will be
redeemed at 110% on June 21,
2004. It is bought on June 21, 2001
to yield 4% interest. Find the price of
the bond.
a. 1,144.81 b. 1,432.32
c. 1,129.42 d. 1,042.12
24. A machine initially worth P 50,000
depreciates in value each year by
20% of its value at the beginning of
that year. Find its book value when it
is 9 years old.
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
a. P 7,782.42 b. P 6,710.88 5. A student has money given by his
c. P 8,388.61 d. P 5,368.71 grandfather in the amount of P
25. Calculate the 5th year depreciation 20,000.00. How much money in the
charge using a fixed percentage form of interest will he get if the
method of an asset costing P 1000 money is put in a bank that offers 8%
having a life expectancy of 5 years rate compounded annually at the
and an estimated salvage value of P end of 7 years?
400. a. P 34,276.48 b. P 34,270.00
a. P 78 b. P 80 c. P 36,276.40 d. P 34,266.68
c. P 90 d. P 84 6. If P 5,000.00 shall accumulate for 10
years at 8% compounded quarterly.
…END… Find the compounded interest at the
end of 10 years.
a. P 6,040.20 b. P 6,000.00
c. P 6,005.30 d. P 6,010.20
Instruction: Choose the best answer. 7. If P 12,500 is invested at 6% on
January 1 year 1. How much will be
1. The president of a growing
accumulated by January 1, year 10?
engineering firm wishes to give each
a. P 21,118.75 b. P 20,218.75
of 50 employees a holiday bonus.
c. P 24,115.25 d. P 12,110.00
How much is needed to invest
8. How much must be deposited at 6%
monthly for a year at 12% nominal
each year beginning on Jan.1, year
interest rate, compounded monthly,
1, in order to accumulate P 5000.00
so that each employee will receive a
on the date of the last deposit, Jan 1
P 1,000.00 bonus?
year 6?
a. P 2,750.00 b. P 4,311.00
a. P 725.00 b. P 717.00
c. P 3,940.00 d. P 3,890.00
c. P 751.00 d. P 715.00
2. Mr. Ramirez borrowed P 15,000.00
9. How many years will P 100,000
two years ago. The terms of the 10%
earned a compound interest of P
interest for 10 years with uniform
50,000.00 if the interest rate is 9%
payments. He just made his second
compounded quarterly?
annual payment. How much
a. 4.55 b. 3.55
principal does he still owe?
c. 5.68 d. 2.35
a. P 12,000.00 b. 11,700.00
10. The effective rate of 14%
c. P 13,024.00 d. 10,177.00
compounded semi-annually is:
3. Funds are deposited in a savings
a. 14.94 % b. 14.49%
account at an interest rate of 8% per
c. 14.88% d. 12.36%
annum. What is the initial amount
11. If the nominal interest rate is 3%,
that must be deposited to yield a
how much is P 5000.00 worth in 10
total of P10,000.00 in 10 years?
years in a continuously compounded
a. P 4,530.00 b. P 4,564.00
account?
c. P 4,894.00 d. P 6,720.00
a. P 7,500.00 b. P 6,750.00
4. A student deposits P 1,500.00 in a
c. P 6,350.00 d. P 5,750.00
9% account today. He intends to
12. If P400 is deposited now in a
deposit another P 3,000.00 at the
savings account with a interest of
end of two years. He plans to
8%, what will be the amount in the
purchase in five years his favorite
account years from now?
shoes worth P 5,000.00. Calculate
a. P 740.37 b. P 704.73
the money that will be left in his
c. P 605.24 d. P 506.42
account one year after the purchase.
13. An instructor plans to retire in
a. P 1,300.00 b. P 1,260.00
exactly one year and want an
c. P 1,280.00 d. P 1,250.00
account that will pay him P

9
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
25,000.00 a year for the next 15
years. Assuming a 6% annual
effective interest rate, what is the
amount he would need to deposit
now? (the fund will be depleted after
15 years).
a. P 249,000.00
b. P 242,806.00
c. P 248,500.00
d. P 250,400.00
14. P 1,500.00 was deposited in a bank
account 20 years ago. Today it is
worth P 3,000.00. Interest is paid
semi-annually. Determine the
interest rate paid on this account?
a. 3% b. 2.9%
c. 3.5% d. 4%
15. A merchant puts his P 2000.00 to a
small business for period of 6 years.
With a given interest rate on the
investment of 15% per year,
compounded annually, how much
will he collect at the end of the 6th
year?
a. P 4,400.00 b. P 4,390.15
c. P 4,200.00 d. P 4,626.00
16. The sum of P1,000.00 is invested
now and left for 8 years and which
time, the principal is withdrawn. The
interest that have accrued is left for
another eight years. If the effective
annual interest rate is 5% what will
be the withdrawn amount at the end
of the 16th year?
a. P 706.00 b. P 500.00
c. P 774.00 d. P 779.00
17. A debt of P 10,000 with 10 %
interest compounded semi-annually
is to be amortized by semi-annual
payments over the next 5 years. The
first due is 6 months. Determine the
semi-annual payment.
a. P 1,200.00 b. P 1,295.00
c. P 1,193.90 d. P 1,400.40
18. A man borrowed P 300,000 from a
lending institution which will be paid
after 10 years at an interest rate of
12% compounded annually. If
money is worth 8% per annum how
much should he deposit to a bank
monthly in order to discharge his
debt 10 years hence?
10
a. P 2,798.52 b. P 3,952.50
c. P 4,672.31 d. P 5,093.06
19. A machine initially worth P 50,000
depreciates in value each year by
20% of its value at the beginning of
that year. Find its book value when it
is 9 years old.
a. P 5,368.71 b. P 6,710.88
c. P 8,388.61 d. P 7,782.42
20. A company bought an equipment
for P 56,000. Other expenses
including installation amounted to P
4,000. The equipment cost.t is
expected to have a life of 16 years
with a salvage value of 10% of the
original cost. Determine the book
value at the end of 12 years by the
straight-line method.
a. P 19,500 b. P 20,500
c. P 19,200 d. P 18,530
21. An item is purchased for P
100,000. Annual cost is P 18,000.
Using 8% interest rate what is the
capitalized cost for perpetual
service?
a. P 235,000 b. P 352,000
c. P 325,000 d. P 532,000
22. A machine has an initial cost of P
50,000 and a salvage value of P
10,000 after 10 years. What is the
book value after 5 years using
straight-line depreciation?
a. P 15,500 b. P 25,000
c. P 30,000 d. P 35,000
23. A factory is running at 80%
efficiency with a fixed cost of P
78,000.00 variable cost per unit of P
130.00 selling price per unit of P
416.00 and production capacity of
5000 units. What is the current profit
of the factory if all products
manufactured are sold?
a. P 1,066,000 b. P 1,354,400
c. P 1,042,000 d. P 1,633,000
24. A company purchases an asset for
P 10,000.00 and plans to keep it for
20 years. If the salvage value is zero
at the end of 20th year, what is the
depreciation in the third year? Use
SYD method.
a. P 747.00 b. P 1,000.00
c. P 857.00 d. P 937.00
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
25. A man was offered a certificate with
a face value of P 100,000 which is
bearing interest of 6% per year
payable semi-annually and due in 6
years. If he wants to earn 8% semi-
annually, how much must he pay the
certificate?
a. 100,520.32 b. 98,434.32
c. 90,614.93 d. 96,562.52
26. The costs of producing a
commodity consist of P 45.00 per
unit for labor and material cost and P
15.00 per unit for other variable cost.
The fixed cost per month amounts to
P 450,000. If the commodity is sold
at P 250.00 each, what is the break-
even quantity?
a. 2368 b. 2345
c. 2224 d. 2362
27. An asset is purchased for P
9,000.00. Its estimated economic life
is 10 years after which it will be sold
for P 1,000.00. Find the depreciation
in the first three years using sum of
years digit method.
a. P 3,927.27 b. P 3,324.32
c. P 3,464.35 d. P 3,743.26
28. A P 1000 issue of 3%, 15year-bond
was sold at 95%. What is the rate of
interest of this investment?
a. 3.0 % b. 2.8%
c. 3.5% d. 3.52%
29. An asset is purchased for P
120,000. Its estimated life is 10
years, after which it will be sold for P
12,000. Find the depreciation for the
second year using the sum of the
years digit method.
a. P 17,342 b. P 17,505
c. P 17,673 d. P 17,632
30. The cost of producing a
commodity consist of P 45.00 per
unit for labor and material cost and P
15.00 per unit for other variable cost.
The fixed cost per month amounts to
P 450,000. If the commodity is sold
at P 250.00 each, what is the break-
even quantity?
a. 2178 b. 2014
c. 2368 d. 2589
31. A new machine was installed by a
company at a total cost of P 300,000
11
and projected to have a useful life of
15 years. At the end of its useful life,
it is estimated to have a salvage
value of P 30,000. Determine the
capitalized cost if interest is 18%
compounded.
a. P 320,322.33
b. P 363,321.53
c. P 324,604.17
d. P 312,542.02
32. A certain copier machine cost P
150,000 with a trade-in value of P
15,000 after making 800,000 copies.
Using the declining balanced
method, what is the book value
when the machine had made
300,000 copies?
a. P 68,111 b. P 64,896
c. P 62,531 d. P 63,254
33. Determine the book value at the
end of 4 years of a machine costing
P 20,000 having a serviceable life of
8 years and a salvage value of P
2000 at the end of that time, Use
SYD method.
a. P 6800 b P 6200
c. P 7250 d. P 7000
34. Calculate the depreciated value
after 6 years of a P 10,000 machine
having a useful life of 10 years and a
salvage value of 10% of its original
cost at the time. Use straight-line
depreciation.
a. P 4500 b. P 4400
c. P 4200 d. P 4600
35. A company purchased an asset for
P 15,000 and plans to keep it for 20
years. If the salvage value is zero at
the end of the 20th year, determine
the depreciation in the 4th year? Use
SYD.
a. P 1206 b. P 1087
c. P 1157 d. P 1214
36. A machine has an initial cost of P
50,000 and a salvage value of P
10,000 after 10 years. What is the
straight-line method depreciation
rate as a percentage of the initial
cost?
a. 7% b. 10%
c. 9% d. 8%
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
37. An asset is purchased for P
9,000.00. Its estimated life is 10
years after which it 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.
a. P 7,545.00 b. P 6,000.00
c. P 6,500.00 d. P 8,000.00
38. An asset is purchased for P
500,000.00. The salvage value in 25
years is P 100,000.00. What is the
total depreciation in the first three
years using straight-line method?
a. P 48,000 b. P 16,000
c. P 24,000 d. P 32,000
39. 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 2000 b. P 4000
c. P 2500 d. P 3000
40. A P 1,000,000 issue of 3%, 15 years
bond was sold at 95%. What is the
rate of interest of this investment?
a. 3% b. 5%
c. 4% d. 2%
41. A company purchases an asset for
P 10,000.00 and plans to keep it for
20 years. If the salvage value is zero
at the end of the 20th year, what is
the depreciation in the third year?
Use sum of the years digits
depreciation.
a. P 747.00 b. P 857.00
c. P 1000.00 d. P 937.00
42. The corporation purchased a
machine for P 1 million. Freight and
installation charges amounted to 3%
of the purchase price. If the machine
shall be depreciated over a period of
8% years with a salvage value of
12%. Determine the depreciation
charged during the 5th year using the
sum of the years digit method.
a. P 101,107.11
b. P 170,110.00
c. P 107,110.11
d. P 100,711.11
43. The original cost of a certain piece
of equipment is P 150,000 and it is
depreciated by 10% sinking fund
12
method. What is the annual
depreciation charge if the book value
of the equipment after 10 years is
the same as if it had been
depreciated at P 14,000.00 each
year by straight-line formula?
a. P 8784.36 b. P 5645.57
c. P 6454.54 d. P 3484.23
44. An engine is expected to have a
maintenance cost of P 1000 the first
year. It is believed that the
maintenance cost will increase P
500 per year. The interest rate is 6%
compounded annually. Over a 10
years period, what will be the
approximate effective annual
maintenance cost?
a. P 3011.00 b. P 2450.00
c. P 3452.00 d. P 1345.00
45. ABC Corporation makes it a policy
that for every new equipment
purchased, the annual depreciation
cost should not exceed 20% of the
first cost at any time without salvage
value. Determine the length of
service life if the depreciation used is
the SYD method.
a. 9 yrs b. 10 yrs
c. 12 yrs d. 19 yrs
46. A man buys a small garden tractor.
There will be no maintenance cost
the first year as the tractor is sold
with one year’s free maintenance.
The second year the maintenance is
estimated at $20. In subsequent
years of the maintenance cost will
increase $20 per year (that is 3rd
year maintenance will be $40; 4th
year maintenance will be $60, and
so forth). How much would need to
be set aside now at 5% interest to
pay the maintenance costs on the
tractor for the first six years of
ownership?
a. $101.57 b. $239.36
c. $164.74 d. $284.13
47. A manufacturing company buys a
machine for $50,000. It estimates
the machine’s useful life is 20 years
and that it can then be sold for
$5000. Using straight line
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
depreciation, what is the annual
depreciation charge?
a. $2000 b. $2500
c. $2250 d. $2750
48. Company A has fixed expenses of
$15,000 per year and each unit of
product has a $0.002 variable set.
Company B has fixed expenses of
$5000 per year and can be produce
the same unit of product at a $0.05
variable cost. At what number of
units of annual production will
company A have the same overall
cost as Company B? Quantity is
nearest to:
a. 100,000 units b. 300,000 units
c. 200,000 units d. 400,000 units
49. Plan A requires a $100,000
investment now. Plan B requires an
$80,000 investment now and an
additional $40,000 investment later.
At 8% interest. What is the
breakeven point on the timing of the
additional $40,000 later?
a. 3 years b. 7 years
c. 5 years d. 9 years
50. A machine part, operating in a
corrosive atmosphere, is made of
low-carbon steel, costs $350
installed and lasts six years. If the
part is treated for corrosion
resistance it will cost $700 installed.
How long must the treated part last
to be as good an investment as the
untreated part, if money is worth
7%?
a. 8 years b. 14 years
c. 11 years d. 17 years
51. An investor is considering buying a
20-year corporate bond. The bond
has a face value of $ 1000 and pays
6% interest rate per year in two
semi-annual payments. Thus, the
purchaser of the bond would receive
$30 every 6 months, and in addition
he would receive $1000 at the end of
20 years, along with the last $30
interest payment. If the investor
though he should receive 8% annual
interest, compounded semi-
annually, the amount he would be
13
willing to pay for the bond is closest
to:
a. $500 b. $700
c. $600 d. $800
52. The cost C of a product is a function
of the quantity x of the product: C x
= x2 – 4000x + 50. Find the quantity
for which the cost is minimum.
a. 3000 b. 1000
c. 2000 d. 1500
53. A manufacturing firm maintains one
product assembly line to produce
signal generators. Weekly demand
for the generators is 35 units. The
line operates for 7 hours per day, 5
days per week. What is the
maximum production time per unit in
hours required of the line to meet the
demand?
a. 1 hr b. 3 hrs
c. 0.75 hr d. 2.25 hrs
54. A series of year end payments
extending over eight years are as
follows: P10,000 for the first year,
P20,000 for the second year,
P50,000 for the third year, and
P40,000 for each year from the
fourth through the 8th year. Find the
equivalent annual worth of these
payments if the annual interest is
8%.
a. P44,800.00 b. P35,650.00
c. P30,563.00 d. P33,563.85
55. A machine has been purchased and
installed at a total cost of P
18,000.00. The machine will be
retired at the end of 5 years, at which
time it is expected to have a scrap
value of P 2,000.00 based on current
prices. The machine will then be
replaced with an exact duplicate.
The company plans to establish a
reserve funds to accumulate the
capital needed to replace the
machine. If an average annual rate
of inflation of 3% in anticipated, how
much capital must be accumulated?
a. P15,030.00 b. P13,382.00
c. P18,548.39 d. P15,386.00
56. What uniform annual amount
should be deposited each year in
order to accumulate P 100,000.00 at
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
the end of the 5th annual deposit if
money earns 10% interest?
a. P15,708.83 b. P18,494.45
c. P17.943.45 d. P16,379.75
57. An asset is purchased for
P20,000.00. Its estimated life is 10
years, after which it will be sold for P
12,000.00. Find the depreciation for
the second year using the sum-of-
the years-digit method.
a. P 19,000 b. P 18,200
c. P 17,673 d. P 18,400
58. A firm borrows P 2000 for 6 years at
8 %. At the end of 6 years, it renews
the loan for the amount due plus P
2000 more for 2 years at 8%. What
is the lump sum due?
a. P 5,254.00 b. P 6,135.00
c. P 6,035,00 d. P 5,280.00
59. The purchase of a motor for P6,000
and a generator for P4000 will allow
a company to produce its own
energy. The configuration can be
assembled for P500. The service will
operate for 1600 hours per year for
10 years. The maintenance cost is
P300 per year, and cost to operate
is P0.85 per hour for fuel and related
cost. Using straight line
depreciation, what is the annual cost
for the operation? There is P 400
salvage value for the system at the
end of 10 years.
a. P 2710 b. P 2630
c. P 2480 d. P 2670
60. In five years, P18,000 will be
needed to pay for a building
renovation. In order to generate this
sum, a sinking fund consisting of
three annual payments is
established now. For tax purposes,
no further payments will be made
after three years. What payments
are necessary if money is worth 15%
per annum?
a. P 2870 b. P 5100
c. P 3919 d. P 2670
61. What is the present worth of the two
P 100 payments at the end of the
third year and fourth year? The
annual interest rate is 8%.
a. P 153 b. P 162
14
c. P 160 d. P 127
62. A manufacturer of sports
equipment produces tennis rackets
for which there is a demand of 200
per month. The production set cost
for each lot of racket us P 300.00. In
addition, the inventory carrying cost
for each racket is P 24.00 per year.
Using the Economic Order Quantity
(EOQ) model, which is the best
production batch size for the
rackets?
a. 245 units b. 173 units
c. 71 units d. 346 units
63. A deposit of P 1000 is made in a
bank account that pays 8% interest
compounded annually. Approximately,
how much money will be in the
account after 10 years?
a. P 2,160 b. P 1,860
c. P 2,345 d. P 1,925
64. You need P 4000 per year for four
years to go to college. Your father
invested P 5000 in 7 % account for
your education when you were born.
If you withdraw P 4000 at the end of
your 17th , 18th , 19th , and 20th
birthday, how much money will be
left in the account at the end of the
21st year?
a. P 2500 b. P 1700
c. P 3400 d. P 4000
65. Mr. Ayala borrows P 100,000.00 at
10% effective annual interest. He
must pay back the loan over 30
years with uniform monthly
payments due on the first day of
each month. What does Mr. Ayala
pay each month?
a. P 870.00 b. P 878.00
c. P 846.00 d. P 839.00
66. A local film is establishing a
sinking fund for the purpose of
accumulating a sufficient capital to
retire its outstanding bonds at
maturity. The bonds are redeemable
in 10 years, and their maturity value
is P 150,000 How much should be
deposited each year if the fund pays
interest at the rate of 3%?
a. P12,547.14 b. P14,094.85
c. P13,084.58 d. P16,848.87
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
67. A machine cost P20,000.00 today
and has an estimated scrap value of
P 2,000.00 after 8 years. Inflation is
8% per year. How much money
needs to be set aside each year to
replace the machine with an
identical model, 8 years from now?
a. P 2,990.00 b. P 3,920.00
c. P 3,290.00 d. P 3,610.00
68. A businessman wishes to earn 7 %
on his capital after payment of taxes.
If the income from an available
investment will be taxed at an
average rate of 42%. What minimum
rate of return, before payment of
taxes, must the investment offer to
be justified?
a. 12.1% b. 11.1%
c. 10.7% d. 12.7%
69. The maintenance cost for a sewing
machine this year is expected to be
P 500. The cost will increase P 50
each year for the subsequent 9
years. The interest is 8 %
compounded annually. What is the
approximate present worth of
maintenance for the machine over
the full 10 years period?
a. P 4,700 b. P 5,300
c. P 4,300 d. P 5,500
70. A machine costing P45,000 is
estimated to have a book value of P
4,350 when retired at the end of 6
years. Depreciation cost
computed using a constant
percentage of the declining book
value. What is the annual rate of
depreciation in %?
a. 33.25% b. 32.25%
c. 35.25% d. 34.25%
71. A market whereby there is only one
buyer of an item for which there are
no goods substitute.
a. monopoly b. oligopoly
c. monopsony d. oligopsony
72. A market situation where there
a. bilateral oligopsony
b. bilateral oligopoly
c. oligopoly
d. oligopsony
73. A market situation where there is
one seller and one buyer.
a. bilateral monopoly
b. bilateral monopsony
c. monopoly
d. monopsony
74. A condition where only few
individuals produce a certain product
that action of one will lead to almost
the same action by the other.
a. oligopoly
b. duopoly
c. oligopsony
d. perfect competition
75. The difference between what a
negotiable paper is worth in the
future and its present worth is known
as:
a. profit b. sunk value
c. discount d. depreciation
76. The length of time during which the
property maybe operated at a profit
is:
a. economic life
b. property life
c. physical life
d. investment life
77. A type of annuity where the
payments are made, at the start of
each period, beginning from the first
period.
a. Ordinary annuity
b. Perpetuity
c. Deferred annuity
d. Annuity due
is 78. A type of annuity where the
payments are made at the end of
each payment period starting from
the first period.
a. Ordinary annuity
b. Annuity due
c. Perpetuity
d. Deferred annuity
79. If A is the periodic payment and I is
the interest rate, then the present
worth of a perpetuity is:
a. Ai b. A/i
n
c. (Ai) d. A(1 + i)
80. The amount of a property in which
a willing buyer will pay to willing
seller for the property when neither
one is under the compulsion to buy
or sell.
a. Fair value
15
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
b. Goodwill value function which the property was
c. Book value designed to render:
d. Market value a. functional depreciation
81. The decrease in the value of the b. normal depreciation
property with the passage of time. c. depletion
a. Depreciation d. physical depreciation
b. Scrap value 90. Those bonds without any security
c. Depletion behind them except a promise to pay
d. Salvage value on a certain date by issuing
82. The recorded current value of an corporation.
asset is a. Coupon Bonds
a. present worth b. Mortgage Bonds
b. book value c. Debenture bonds
c. salvage value d. Collateral trust bonds
d. depreciation 91. The method of depreciation which
83. Scrap value of an asset is assumes that a sinking fund is
sometimes called established in which funds will
a. salvage value accumulate for replacement.
b. unused value a. straight method
c. bargain value b. declining balance method
d. replacement value c. sinking fund method
84. The amount of company’s profit that d. sum of the years digit method
the board of directors of the 92. The method of depreciation
corporation decides to distribute to sometimes called the constant
ordinary shareholders. percentage method of the Matheson
a. Dividend b. Return formula, it is assumed that the
c. Share stock d. Par value annual cost of depreciation is a fixed
85. It is the profit obtained by selling percentage of the salvage value at
stocks at a higher price that its the beginning of the year.
original purchase price. a. straight line method
a. Capital gain b. Return b. declining balance method
c. Debenture d. Goodwill c. sinking fund method
86. The value which is usually d. sum of the years digit method
determined by a disinterested their 93. The method of depreciation which
party in order to establish a price that assumes that the total depreciation
is fair to both seller and buyer. that has taken place is directly
a. fair value b. book value proportional to the quantity of output
c. use value d. market value of the property up to that time is:
87. The amount the property would sell a. straight line method
for if disposed-off as junk: b. working hours method
a. utility value b. scrap value c. service-output method
c. use value d. resale value d. sum of the years digit method
88. The type of depreciation due to the 94. The process of determining the
lessening of the physical ability of a value of certain property for specific
property to produce results. reasons
a. Functional depreciation a. valuation b. inventory
b. Physical depreciation c. appraisal d. both a & b
c. normal depreciation 95. An intangible value which an
d. depletion actually operating concern has due
89. The type of depreciation due to the to its operation
lessening in the demand for the a. goodwill value
b. going value

16
BME Review Guide Day 12 & 13 Mathematics Engineering Economics
c. franchise value
d. book value
96. Funds supplied by others on which
a fixed rate of interest must be paid
and the debt must be repaid at a
specific time is:
a. borrowed funds
b. equity capital
c. ownership funds
d. Invested capital
97. The simplest form of business
organization, wherein a person uses
his or her own capital to establish a
business and is the sole owner.
a. individual ownership
b. corporation
c. partnership
d. enterprise
98. An association of two or more
persons for the purpose of engaging
in a business for profit.
a. individual ownership
b. corporation
c. partnership
d. enterprise
99. A distinct legal entity, separate from
the individuals who own and which
can engage in almost any type of
business transaction in which a real
person could occupy himself or
herself:
a. individual ownership
b. corporation
c. partnership
d. sole proprietorship
100. A document that shows proof of
legal ownership of a financial
security is:
a. bond b. check
c. note d. coupon

…END…

17