ENGINEERING ECONOMY Where: 13. Mr.

Jack Ammo borrowed Php 2,000 from

F = amount Mang Gagancho on June 1, 1928 and Php
d = discount rate 500 on June 1 1930, agreeing that money
Interest n = number of periods is worth 5% compounded annually. Mr.
P = proceeds Jack Ammo paid Php 500 on June 1, 1931,
For a Borrower – the amount of money paid for Php 400 on June 1, 1932 and Php 700 on
the use of the borrowed capital. June 1, 1933. What additional sum should
SAMPLE PROBLEMS:
Mr. Jack Ammo pay on June 1, 1938 to
For a Lender – the income produced by the discharge all remaining liabilities?
1. Find the ordinary simple interest on Php
money which has been loaned. a. Php 1863.50
1,000.00 for 8 months and 20 days at an
interest rate of 10%. b. Php 2801.60
SIMPLE INTEREST c. Php 685.30
a. Php 72.22
If the interest earned is linearly d. Php 1004.10
b. Php 7.78
proportional to the initial amount of the loan,
c. Php 66.67
interest rate and the number of interest periods 14. An investment of Php 8,250.50 increases
d. Php 1072.22
for which the principal is committed. by Php 10,200.50 if invested at 7%
2. An engineering student wish to buy a compounded quarterly. Find the term of
I = Pin calculator. He was offered by a dealer an the investment in number of years.
F=P+I option of paying Php. 350 at the end of 20 a. 46.4 years
F = P (1 + in) days or Php. 390 at the end of 90 days. b. 25.1 years
What simple interest rate the student is c. 11.6 years
Where: paying if he agrees to pay in 90 days? d. 2.9 years
I = total interest earned by the a. 54.56% c. 67.58%
principal b. 72.68% d. 58.78% 15. If money is worth 6% compounded
P = principal amount lent or borrowed annually, what payment 12 years from now
i = interest rate per interest periods 3. Find the exact simple interest on Php is equivalent to a payment of Php 125,000,
n = number of interest periods 1000.00 which was deposited on January nine years from now?
F = future amount 8, 1990 and to be withdrawn on October 8,
a. Php 156,321
1992 if i = 10%.
a. Php 458.27 b. Php 149,876
Types of Simple Interest
b. Php 852.74 c. Php 148,877
Ordinary Interest – interest is computed on the c. Php 274.86 d. Php 145,628
basis of one banker’s year (12 months each d. Php 1274.86
consisting of 30 days). ANNUITY
4. A business man deposited Php. 10,000
It is a series of periodic payments
Exact Interest – interest is computed on the last January 1, 1999 that earned a simple
(usually equal) made at regular intervals of time.
exact number of days, 365 days for non-leap interest rate of 8%. What is the
year and 366 days for leap year. accumulated interest after November 10,
Annuity to Future:
2000?
Note for a leap year: a. Php. 4,000 c. Php. 2,364
- If the year ends with 00, it should be b. Php. 1,832 d. Php. 1,486 F=A
divisible by 400
- If the year ends with any number, it 5. If the discount rate is 20%, find the
effective rate. Annuity to Present:
should be divisible by 4.
a. 9.57%
COMPOUND INTEREST b. 12.55%
Whenever an interest earned by the c. 25% P=A =A
principal is not paid at the end of each interest d. 6.14%
period, and added to the principal, and therefore
will also earn interest for the succeeding 6. An amount of Php. 50,000 was deposited
Types of Annuity
periods. in 110 days. The net interest earned is
Php. 8,000 after deducting 20% income
tax. What is the annual rate of return? Ordinary Annuity
F = P (1 + i)n a. 65.45% c. 48.60% Periodic payments are made at the
end of each payment period.
I=F-P b. 59.32% d. 83.79%

Interest Rates 7. If j = 12% compounded quarterly find the

effective rate of interest. Annuity Due
For i (interest rate per interest period)
a. 9.57% c. 12.55% Periodic Payments are made at the
b. 25% d. 6.14% beginning of each payment interval.
i=
8. What interest rate compounded monthly is Deferred Annuity
equivalent to 10% effective rate? Periodic payments are made at a
Clue: i = __% per year a. 9.57% c. 12.55% later date.
j = __% nominal rate of interest b. 25% d. 6.14%
Perpetuity
Clue: j = __% compounded annually 9. What interest rate compounded quarterly is
equivalent to 10% compounded semi –
m = __% number of compounding period(s) annually? P=
per year a. 9.88% c. 12.14%
m = 1 (annually) b. 25.11% d. 6.55%
m = 2 (semi-annually) P=
m = 4 (quarterly) 10. The effective rate on 25% compounded
m = 12 (monthly) daily is nearest to: SAMPLE PROBLEMS:
a. 26.18% c. 27.25%
For w (effective rate of interest – actual rate of b. 29.12% d. 28.39% 16. What is the present value of a 3-year annuity
interest per year) paying Php 3000.00 at the end of each year,
11. Which of the following has the greatest with interest at 8% compounded annually?
EQUIVALENT RATES effective rate? a. Php 9,739.2
If one interest rate can be used a. 12.31% compounded quarterly b. Php 7,731.3
instead of another interest rate and vice versa, b. 12.20% compounded monthly c. Php 5,153.8
then the rates are said to be equivalent rates. c. 12.35% compound annually d. Php 10,025.3
d. 12.32% compound semi-annually
17. An employee obtained a loan of Php. 10,000
F1 = F2 and P1 = P2 12. At the birth of a child, what amount should
at a rate of 6% compounded annually in order
to build a house. How much must he pay
m1 m2
his father invest in order to provide the monthly to amortize the loan within a period of
(1 + i1) = (1+ i2) child with Php 25,000.00 at the age of 21 10 years?
years if money earns 4 3/8% compounded a. Php. 120.42
DISCOUNT (D) = interest-in-advance quarterly? b. Php. 110.22
a. Php 10,025.32 c. Php. 105.75
b. Php 8,250.50 d. Php. 115.64
D=Fdn c. Php 685.23
P=F-D d. Php 2,801.57
18. An investment of Php 480 is made at the 29. The first cost of certain equipment is Php
beginning of each six months for 12 years 324,000 and salvages value of Php 50,000
and 6 months. What is the amount of and must be replaced at the end of each 4
=
investments at the end of the term, if interest years. If money is worth 6% compounded
rate is 3.5% compounded semi-annually? annually, find the capitalized cost. Ytotal = total number of hours the machine can
a. Php 10,520.7 a. Php 936,864.37 be used in its entire life.
b. Php 19,613.1 b. Php 1,367, 901.15
c. Php 15,153.8 c. Php 1,264,803.16
d. Php 7,386.3 d. Php 895, 762.31 TIME DEPENDENT METHODS

19. A man loans Php 187,000 from a bank with 30. At 6%, find the capitalized cost of a bridge Uniform Methods
interest at 6% compounded quarterly. He whose cost is Php 250 M and life is 20 years,
agrees to pay his obligations by paying eight if the bridge must be partially rebuilt at a cost
equal annual payments, the first being due at of Php 100 M at the end of each 20 years.
the end of 10 years. Find the annual a. Php 334.5 M c. Php 295.3 M
payments. b. Php 300.2 M d. Php 320.6 M
a. Php 51,746.7
b. Php 28,562.1 31. A stock certificate of a mining company
c. Php 49,613.4 guarantees a dividend of P100 at the end of
d. Php 11,830. 5 each year for 10 years, and a final additional
payment at the end of 10 years of P1,200. If
20. An engine costing Php 40,000 may be
money is worth 12% effective. What is the Straight Line Method
purchased on installment plan by paying Php
10,000 down payment, Php 5,000 at the end certificate worth now?
of the first year and 5 equal end-of-year a. P 951.4 c. P 1500
payments starting at the end of the second b. P 869.63 d. P 1237.5 d=
year. Determine the amount of these
payments if money is worth 10% effective. 32. A bond with a par value of P1, 000 and with a Sinking Fund Method
a. Php 5,153.8
bond rate of 10% payable annually is sold
b. Php 9,739.2
now for P1,080. If the yield is to be 12%, how
c. Php 7, 386.3 d = Dn
d. Php 2,801.6 much should the redemption price at the end
of 8 years?
21. An asphalt road requires no upkeep until the a. P 1,444.07 c. P 1826.10 Non-Uniform Methods
end of 2 years when Php 60,000 will be b. P 1,555.07 d. P 1521.09
needed for repairs. After this, Php 90,000 will
be needed for maintenance at the end of
each year for the next five years, then Php DEPRECIATION
120,000 at the end of each year for the next It is the loss or decrease of value in
ten years. If money is worth 4.8% the physical properties due to passage of time
compounded annually, what is the equivalent and use.
uniform annual cost for the 17-year-period?
a. Php 2,408,143.8
b. Php 51,746.7
c. Php 235,689.1
d. Php 94,830.5
Sum of the Years Digit Method
22. A loan may be paid by 10 equal end-of-
year payments of Php 10,000 each. If the d = KDn
interest rate is 10% effective, what 5 equal
payments will equitably repay the said loan
if the first payment falls at the end of the Where: K=
third year? FC = first cost
a. Php 19,613.4 Dr = accumulated depreciation at the end of r
b. Php 14,218.9 periods Declining Balance Method
c. Php 11,830.5 BVr = book value at the end of r periods
d. Php 9,739.2 Dn = total depreciation
SV = salvage/scrap/junk value
BVr = FC (1 – k)r
Situation I n = economic/useful life of equipment
For a nominal rate of 6% compounded semi-
quarterly for 8 years of an ordinary annuity,
compute the following: DEPRECIATION METHODS k=1-
23. Sinking Fund Factor
a. 0.01223 c. 0.00014021 TIME INDEPENDENT METHODS k = rate of depreciation
b. 0.013242 d. 0.00018452
Note:
Output Production Method
24. Present Worth Factor
DBM is only applicable when SV is not zero
a. 39.42463 c. 48.32064
b. 42.31648 d. 50.68098
Double Declining Balance Method
25. Capital Recovery Factor
a. 0.023631 c. 0.0255 BVr = FC ( 1 – k)r
b. 0.020695 d. 0.01973

26. Find the present value of perpetuity of Php k=

1000 payable every month if money is worth
10% compounded quarterly
a. Php 533,564.83 SAMPLE PROBLEMS:
b. Php 398,386.32
c. Php 120,992.13 33. What is the book value of Php 120,000 worth
d. Php 254,543.72
= of electronic equipment after 8 years of use if
it depreciates to 13% of its original value in 12
27. Find the present value of perpetuity of 15,000 Xtotal = total number of units the machine can years? Use the simplest depreciation method.
payable semi-annually if money is worth 8% produce in its entire life. a. Php 69,600 c. Php 60,900
compounded quarterly. b. Php 34,800 d. Php 50,400
a. 358, 106.35 c. 371,287.13
b. 375,442.59 d. 362,187.40 Working Hours Method 34. A photocopying machine costing Php 75,000
with salvage value of Php 10,000 at the end
28. A property is purchased for Php. 100,000. of its life can print 3 million sheets in its entire
Annual cost is Php. 18,000. Using 8%, what life. If it has already printed 500,000 sheets,
is the capitalized cost for the perpetual find the accumulated depreciation of the
service? machine at this time.
a. 350,000 a. Php 64,166.7 c. Php 20,484.3
b. 320,000 b. Php 10,833.3 d. Php 12,007.4
c. 335,000
d. 325,000
35. A lathe costing Php 3 million has a salvage 46. Compute the depreciation at the 4th year only. 57. On a land worth P800,000, an investor
value of Php 0.1 million. It can be used for a. Php 51,412.20 constructs a building worth P3,000,000. The
5000 hours in its entire life. Find the book b. Php 65,421.23
owner estimates that the annual receipts from
value after using it for 1000 hours. c. Php 74,278.52
a. Php 580,000 d. Php 95,231.10 rentals will be P720,000 and annual
b. Php 2,420,000 expenses to cover taxes, insurance and
c. Php 1,120,000 47. Compute the book value at the end of 6 maintenance of the building will be P80,000.
d. Php 290,000 years. The investor estimates that the land can be
a. Php 51,423.21 sold for P1,200,000, the building for
36. The cost of equipment is Php 500,000 and b. Php 65,321.20 P2,000,000 at the end of 20 years. If his
the cost of installation is Php 30,000. If the c. Php 74,924.33
money is now earning 15%, compute the rate
salvage value is 10% of the cost of the d. Php 80,415.52
equipment at the end of 5 years, determine of return.
the book value at the end of 4th year. 48. A machine has an initial cost of Php 50,000 a. 17.3% c. 13.4%
a. Php 480,000 and a salvage value of Php 10,000 after 10 b. 15.4% d. 16.7%
b. Php 96,000 years. What is the book value after five years
c. Php 384,000 using double declining balance method? 58. An existing machine in a factory has an
d. Php 146,000 a. Php 17,457 annual maintenance cost of P40,000. A new
b. Php 22,360
and more efficient machine will require an
37. Based on its purchase price, a machine is c. Php 16,384
expected to depreciate at uniform rate of 18% d. Php 23,453 Investment of P90,000 and is estimated to
annually. What is the useful life of the have a salvage value of P30,000 at the end of
machine using SLD method? 49. The cost of a machine is Php. 140,000 and 8 years. Its annual expenses and
a. 8.33 c. 5.56 has a useful life of 8 years and a salvage maintenance and upkeep total to P22,000. If
b. 7.22 d. 4.44 value of Php. 10,000. Find depreciation The Company expects to earn 12% compute
charge during fourth year use double the rate of return.
38. A dump truck was bought for Php 300,000, declining balance method.
a. 12.5% c. 16.5%
six years ago. It will have a salvage value of a. Php. 16,765.6
Php 30,000 four years from now. What is its b. Php. 19,765.6 b. 14.6% d. 17.2%
book value now if sinking fund method of c. Php. 10,762.6
depreciation is used at 6% interest per year? d. Php. 14,765.6 59. A project is estimated to cost P100,000, lasts
a. Php 20,484.3 8 years and have a P10,000 salvage value.
b. Php 142,884.9 50. Determine the first cost of a machine with a The annual gross income is expected to be
c. Php 157,115.1 salvage of value of Php 30,000 at the end of P24,000 and annual expenses excluding
d. Php 235,689.1 its useful life of 10 years if the book value
depreciation will total to P6,000. If money is
after 6 years is Php 70,778.88. Use double
39. A unit welding machine cost Php 45,000 with declining balance method. worth 10%, compute the rate of return.
an estimated life of 5 years. Its salvage value a. Php 300,000 c. Php 270,000 a. 11.31% c. 14.33%
is Php 2,500. Find annual depreciation cost b. Php 310,000 d. Php 210,000 b. 9.92% d. 10.13%
using sinking fund method, assuming that
money can be deposited to a bank and can 51. A manufacturer produces certain items at a 60. Talisay City is considering a new street
earn an interest of 8.5% per annum. labor cost of Php 115 each, material cost f
cleaner worth P50,000. The new machine will
a. Php 8,016.4 Php 76 each and a variable cost of Php 2.32
b. Php 7,256.9 each. If the item has a unit price of Php 600, operate at a savings of P600 per day
c. Php 7,172.5 how many numbers of units must be compared to the present equipment. Assume
d. Php 7,594.5 manufactured each month for the the MARR is 12% and the machine life is 10
manufacturer to break even if monthly over years with zero resale value at that time. How
40. What is the book value of equipment head is Php 428,000? many days per year must the machine is used
purchased 3 years ago at Php 15,000? The a. 1047 c. 1034 to justify the investment?
expected life span is 15 years. Use Sum of b. 1053 d. 1002
a. 15 days c. 20 days
the Years’ Digits Method.
a. Php 3,000 52. A factory has a production of 12000 units per b. 25 days d. 10 days
b. Php 5,250 month with an efficiency of 80%.
c. Php 4,350 Monthly Operating Cost P800,000
d. Php 9,750 Material and Labor Cost P200/unit
Selling price P500/unit
41. Equipment costs Php 12,000. It has an Compute the monthly profit or loss.
estimated salvage value at the end of its life a. P 2,800,000
of Php 1000. Determine the depreciation b. P 2,008,000
charge during the 3rd year if it has an c. P 2,880,000
economical life of 5 years. Use SYD method. d. P 2,080,000
a. Php 11,000
b. Php 2,200 SITUATION
c. Php 8,800 The maximum annual capacity of a
d. Php 3,200 telecommunication company is 500,000 units.
The said company produced and sold
42. A machine is bought at Php 420,000 with an 350,000 units this year. The total income is
economic life of 6 years and a salvage value Php. 350 million. Overhead cost is Php. 100
of Php 50,000. The cost of money is 12% per million and the variable cost is Php. 200 per
year. If the first year depreciation is Php unit.
105,714, what method of depreciation was
used? 53. Find the break-even point in units per year.
a. Straight Line Method a. 120,000 units
b. Sinking Fund Method b. 125,000 units
c. Sum of the Years’ Digits Method c. 130,000 units
d. Declining Balance Method d. 135,000 units

43. Determine the accumulated depreciation at 54. Find the company’s annual profit or loss for
the end of 8 years, for an asset that costs this year’s production.
Php 15,000 and an estimated scrap value of a. Php. 225 million
Php 2,000 at the end of 10 years. b. Php. 150 million
a. Php 2,992.6 c. Php. 160 million
b. Php 12,007.4 d. Php. 180 million
c. Php 2,516.6
d. Php 12,483.4 55. If the company can increase its production
and sales to 80% of full capacity, how much is
44. An equipment costing Php 60,000 has a book the profit or loss?
value of Php 4,000 after 8 years. The a. Php. 220 million c. Php. 200 million
depreciation is computed by using the b. Php. 190 million d. Php. 180 million
constant percentage of the declining book
value. Find the annual rate of depreciation. 56. A project capitalized for P50, 000 invested in
a. 27.82% c. 22.78%
depreciable assets will ear n a uniform annual
b. 28.27% d. 28.72%
income of P19, 849 in 10 years. The costs for
Situation operation and maintenance cost is P9, 000 a
A machine costs Php 735,000 has a life of 8 years year, and taxes and insurance will cost 4% of
and a salvage value of Php 35,000 at the end of 8 the first cost each year. If the rate of interest
years. is 12%, compute the rate of return.
45. Determine the annual rate of depreciation. a. 12% c. 14%
a. 31.65% c. 25.41% b. 16% d. 20%
b. 36.51% d. 30.41%