UNIVERSITY OF THE EAST -CALOOCAN

Civil Engineering Department

University of the East

College of Engineering

Civil Engineering Department

M6-A1: TVM Applications to Investment and Comparison of Alternatives

SUBMITTED BY

Plandez, Rouen Danielle B.

2019147098

SUBMITTED TO:

Engr. Reyman Solas

11/16/2022
<NCE_4103> - <Engineering Economics> 2022

1. A company puts P25 000.00 down and will pay P5000.00 every year for the lifeof a
machine for 10 years. If the salvage value is zero and the interest rate is 10%
compounded annually, what is the present value of the machine? (Ans: - P55 723.00)
i=10% A=5000 n=10
(1.1) 10
−1
Pt = -25000-5000 ( )
0.1(1.1)10
= P55, 723

2. An electric generator is purchased for P80 000.00, it is expected to be used for five
years, and then sold for P15 000.00. Annual operating and maintenance costs are
estimated at P20 000.00. Using a discount rate of 10%, determine thepresent worth of
the investment. (Ans. - P146 502.00)
(1.1) −15
Pt = -80000-20000 ( ) + 15000(1.1)−5
0.1(1.1)5
=P-146 502

3. To maintain its newly acquired equipment, the company needs P40 000.00 Forthe first
five years and P60 000.00 per year for the next five years. In addition, amount of P140
000.00 would also, be needed at the end of the fifth and the years. At 6% interest, what
is the present worth of these costs? (Ans. -P549 812.00)
(1.06) −15 (1.06) −1 5
Pt = -40000( ) − 60000 ( ) (1.06)−5 − 140000(1.06)−5 −
0.06(1.06)5 0.06(1.06)5
−8
140000(1.06)
=P-549 812

4. An investment of P135 000.00 is being considered for a new lathe machine.

Catimated economic life of the lathe is 12 years with a salvage value of P10
000.00. Projected annual income and expenses for the investment are P80
000.00 and P30 000.00, respectively. Using a MARR of 15% compounded annually
and applying PW analysis, determine if the lathe should be purchased.(Ans. Purchase is
justified, P137 900.00)
(1.15) −112
Pt = -135000+(80000-30000) ( ) + 10000(1.15)−12
0.15(1.15)12
= P137 900

5. A mining company is offered a 9-year lease for a coal mine at a cost of P120M.The
engineers estimate the company will be able to mine 15 000 tons/yr for thefirst four
years and 22 500 tons/yr. for the next five years. Operating costs is computed at
P1250/ton, while the price of coal is P2750/ton. If the company

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<NCE_4103> - <Engineering Economics> 2022
requires a 12% minimum rate of return on its investment, determine if the offershould be
considered. Apply PW analysis. (Ans. offer should be accepted, P25.66M)
(1.12) −1 4
Pt = -120000+(15000(2750-1250)) ( ) + ((22000)(2750 −
0.12(1.12)4
(1.12)4−1
1250) ( )(1.12)−4 = P-25.66M
0.12(1.12)4

6. J. Timberlake Corporation needs a special manufacturing machine for its production

plant. The company may purchase the machine for P500 000.00 and have it installed at a
cost of P50 000.00. The machine will incur an annual cost ofP35 000.00 for maintenance
and repair, and is expected to be used for eight years and then sold for P50 000.00. The
company may also rent the machine at P115 000.00 per year r If the machine is rented,
costs of installation and payableat the end of each year. If the machine is rented costs
repair shall be shoulderedby the lessor, however, a fee of P20 000.00 per v AU VUU.00
per year nd of each year will be charged for basic maintenance. If the payable at the end
of each year wi company requires an 11% MARR on its investments, determine thebetter
using PW analysis. Ans. It is advantageous to rent, -P694 726.57; -P708 417.97)
(1.11) −18 (1.11) −1 8
(rent) -115000 ( ) − 20000( ) =P694 726.57
0.11(1.11)8 0.11(1.11)8
(1.11) −1 8
(purchase)Pt = -550000-35000 ( ) + 50000(1.11)−8 = P-708 417.98; It is
0.11(1.11)8
advantageous to rent

7. Same as problem number 6 except that the lease requires that rent payment begiven in
advance (at the start of each year). (Ans. It will be advantageous to purchase, - P708
417.97;- P759 825.00)
(1.11) −18 (1.11) −1 8
(rent) -11500 ( )(1.11)−8 − 20000( ) =P759 825.03
0.11(1.11)8 0.11(1.11)8
(1.11) −1 8
(purchase)Pt = -550000-35000 ( ) + 50000(1.11)−8 = P-708 417.98; It is
0.11(1.11)8
advantageous to rent

8. TWO 30-hp pumps are being considered for use in a manufacturing plant. PumpA has
an efficiency of 85%, costs P220 000.00, has a life of 15 years, and a salvage value of
P40 000.00. Pump B has an efficiency of 78%, costs P130 000.00, has a life of 15 years,
with no salvage value. Power charge is P9/kW-hr and the pump will be operated eight
hours a day, 270 days per year. Annual insurance and tax charges are 5%. Determine the
pump to be purchased, using PW analysis and a 14% rate of return. (Ans. Purchase
Pump A, P3425 790.35 <P3595 893.09)

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<NCE_4103> - <Engineering Economics> 2022
A
30 ℎ𝑝 0.746 𝑘𝑤 8ℎ𝑟𝑠 270 𝑑𝑎𝑦𝑠
𝑥 x x = P511 843/year
0.85 1 ℎ𝑝 𝑑𝑎𝑦 𝑦𝑟
B
30 ℎ𝑝 0.746 𝑘𝑤 8ℎ𝑟𝑠 270 𝑑𝑎𝑦𝑠
𝑥 x x = P557 778/year
0.78 1 ℎ𝑝 𝑑𝑎𝑦 𝑦𝑟

9. Two processes are being considered for the production of a machine part. Process 1
requires an equipment cost of P180 000.00, a yearly operating cost ofP90 000.00, and
has zero salvage value at the end of its 6-vear life. Process 2 has corresponding figures
of P320 000.00, P72 000.00, P45 000.00 and 9-year life. If the applied MARR is 20%,
compare the two processes using PW analysis.(Ans. PT1=-P693 567.36; PT2=-P718
084.62)
(1.2) −1 18
P = -180000-18000 (1.2)−6-180000(1.2)−12-90000( ) = -P693 567.36
0.2(1.12)18
18
−9 −18 (1.2) −1
P = -320000+(-320000+45000)(1.2) +45000(1.2) -72000( )
0.2(1.12)18
= -P718 084.62

10. CLC Publishing is considering the purchase of an offset printing machine. A study of
three available alternatives show the following estimates: If at the end ofeight years,
alternative A could be replaced with an identical machine having thesame cost and
benefits, determine the alternative to be selected using present worth analysis and a 14%
MARR. (Ans. PTA= - P5005.80; PTB = P24 536.06; PTC = - P5108.53; select
alternative B)
(1.14) −116
Pta = -700000+155000( ) + 35000(1.14)−16 = -P5005.8
0.14(1.14)16
(1.14) −1 16
Ptb = -850000+145000( ) + 70000(1.14)−16 = -P24 536.06
0.14(1.14)16
(1.14) −116
Ptc = -1000000(1.08) +170000( ) + 80000(1.14)−16 = -P5108.53
0.14(1.14)16

11. To increase production, an engineer is considering the purchase of a new machine. The
machine costs P350 000.00 and will have a salvage value of P10
000.00 at the end of eight years. Operating and maintenance cost is expected tobe
P4000.00 per year. With this machine, annual revenue is expected to increase by P85
000.00. Using future worth analysis and a 15% rate of return, determine if the purchase
should be recommended. (Ans. FT = P51 214.34; recommend the purchase)
(1.15) −1 8
Pt = -350000+(85000-4000) ( ) + 10000(1.15)−8 = 16 742.06
0.15(1.15)8
8
16742.06(1.15)
= P51 214.32 ; recommended

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12. You purchased a warehouse eight years ago for P3.5M. Since then you rented itout for
P240 000.00 per year, incurring P55 000.00 per year for repairs and maintenance. Five
years ago, you spent P250 000 for roof replacement and youincreased the annual rent to
P300 000.00 the succeeding year. If you decide to sell the warehouse for P5.4M to a
willing buyer now, evaluate your investment using future worth analysis and a 12.5%
rate of return. (Ans. - P1328 417.25)
(1.125) −1 5
Ft = 5400000+(300000-55000) ( + (240000
) −
0.125
(1.125)5−1
55000) ( )(1.125) − 250000(1.125)5 − 3500000(1.125)8 =
5
0.125
= P1328417.25

13. Using future worth analysis and a MARR of 10%, find the future worth of an
investment opportunity with estimated receipts and disbursements shown below:
(1.1) −13
Ft = 150000 ( ) + (200000 − 25000)(1.1)3 + (240000−25000)(1.1)4 +
0.1
(150000−120000)(1.1)5 + (50000 − 100000)(1.1)6 − (500000)(1.1)7
=P29 585.2

14. You have a choice to borrow P5000.00 from a friend or from a bank. The bank charges
20% per year, while your friend charges 1.6% per month. If the loan ispayable in one
year, where will you borrow to get the best deal and why? (Ans.From the bank, I will
save P49.00)
Bank= 5000(1.2) = 6000
Friend=(1.016)12= 0.2098
5000(1.2098) = 6049; From the bank, I will save 49.00

15. Two machines A and B are being considered for use in a small manufacturing plant.
Machine A has a first cost of P125 000.00, an estimated life of seven yearsand a salvage
value of P12 500.00. Annual operations and maintenance cost is to be P10 000.00. The
corresponding figures of machines B are P175 000.00, seven years, P25 000.00, and
P8500.00. Using future worth analysis and an interest rate of 14%, specify which
machine should be preferred. (Ans. Select Machine A, - P407.588.51)
(1.14)7−1
Ft= 12500-125000(1.14)7 − 10000 ( ) = -P407.588.51
0.14

16. Two types of metal sheets can be used in the manufacture of container vans thatrequire
20 m2 of material. Steel sheets which cost P500.00/m2 may be used but will have to be
painted at a cost of P200.00/m2, with repainting done every 4 years. Aluminum, which
costs P1000.00/m2 and is guaranteed to last for 16 years, may also be used. If aluminum
is used the vans may be sold at P10 000,00 higher than the steel vans at any time. If steel
is used repainting has to be

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done before the vans are sold. If the vans are to be sold after 8 years, determinethe
material to be used using FW analysis and a 15% MARR. (Ans. Use aluminum, FTA-
P51 12046)
Painting = 14,000 Repainting = 4000
Aluminum = 20000
Fts = -14000(1.15)8-4000(1.15)4-4000 = -P53822.35Fta = -
20000(1.15)8 + 10000
= -P51 180.46 ; Use aluminum

17. If the vans in Prob. No. 16 are to be sold after 16 years with all other data remaining
the same, determine the material to be used. (Ans. Use steel, FTS=-P175 639.81)
F=-14000(1.15)16 − 4000(1.15)12 − 4000(1.15)6 − 4000(1.15)4 − 45000
= -P175639.81 ; use steel

18. An engineer has a current balance of P110 000.00 in his savings account. The bank will
be giving 6% interest compounded semi-annually for the next two yearsand 8% interest
compounded semi-annually thereafter. A large corporation is offering P10 000.00, 8%
bonds that pays interest every six months for P11
000.00. If the maturity is five years, and bond earnings are deposited in the bank,should
he withdraw and purchase the bonds, or should he leave his savings in the bank? Use
future worth analysis. (Ans. Money should be left in the bank; P156 654.05; P147
706.39)
savings
F = -110000(1.03)4= 123805.97
F = 123805.97(1.04)6 = 156 654.05
Corporation
F = 10 000(0.04) = 400
4 4
(1.03) −1 (1.04) −1
Fr = 400 (400 ( )(1.04) −6 + 400 ( ) + 10000)10
0.03 0.04
= 147 706.39

19. Determine the annual cost of a structure that requires P15M to build with a salvage
value of P2M after 12 years, if interest is 6%. (Ans. -P1670 601.00)
12
At = -15 000 000 ( (0.06)(1.06) )+2 000 000( (0.06)
)
(1.06) −1
12 (1.06)12−1
= -P1 670 601

20. A generator costs P80 000.00 has an annual maintenance cost of P9000.00, a12-year
useful life, and a salvage value of P5000.00. If interest is 8% effective,determine the
annual cost of the generator. (Ans. - P19 352.13)
12
At = -9000-80000 ( (0.08)(1.08) )+5000( (0.08)
)
(1.08) −1
12 (1.08)12−1
= -P19 352.13
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21. To maintain a machine with a 15-year life, the following outlays are needed: P3000.00
at the end of the 5th year, P 4500.00 at the end of the 9th year, and P4000.00 at the end
of the 12th year. If the money is worth 7% compounded annually; determine the
equivalent uniform maintenance cost of the structure forthe 15-year period. (Ans. -
P698.60)
(0.07)(1.07)
At = (-3000(1.07)−5 − 4500(1.07)−9 − 4000(1.07)−12
15
( )
(1.07)15−1
= -P698.6

22. To maintain a structure with a life of 20 years, it is necessary to provide the

following for repairs:
P 20 000.00 at the end of 5th year P 30

000.00 at the end of 10th yearP 40

000.00 at the end of 15th year

If money is worth 10% compounded annually, determine the equivalent uniform annual
maintenance cost for the 20-year period? (Ans. - P3942.00)
(0.1)(1.1)
At = (-20000(1.1)−5 − 30000(1.1)−10 − 40000(1.1)−15
20
( )
(1.1)20−1
= -P3 942.00

23. A man pavs P 15 000 annually starting at the end of the 5th year until at the endof the
10th year, P20 000 at the end of the 11th year until at the end of the 15th year and 35 000
annually for the succeeding 5 years. With 100% pay for 20 years to settle that amount
equally? (Ans. P12 405.23)
(1.1) 5−1 −15 (0.1)
)(1.1)5+15000 (1.1) (−1 (1.1))10) (
6
At = (35000 ( )+20000 (1.1)
( )
0.1 0.1 0.1 (1.1)20−1

= P12 405.23

24. Using a MARR of 15%, determine the annual worth of a packaging equipmenthaving
an initial cost of P830 000, a 10-year life and a salvage value of P140
000.00. A net revenue of P250,000 per year is expected from this equipment.(Ans. P91
516.08)
10 0.15
0.15(1.15)
At = 250000 − 830000 ( )+140000( )
(1.15) −110 (1.15)10−1
= -P104 920.26

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25. Find the annual cost of a machine having a first cost of P320 000.00 a life of fiveyears
and a salvage value of P25 000.00, operating cost of machine is P15
000.00 per year, with end-of-year taxes amounting to 3% of first cost. Use aninterest rate
of 10%. (Ans. - P104 920.26)
0.1(1.1) −1 5 0.1
At = -15000 − (320000𝑥0.03) − 320000 ( +25000(
) )
(1.1)5−1 (1.1)5−1
=-P104 920.26

26. Big Bro manufacturing company purchased a delivery van having a cost of P900000.00,
a life of eight years and a salvage value of P75 000. Estimated maintenance cost is P20
000.00 per year with a major overhaul costing P80 000 required at the end of four years.
Using a 14% MARR, find the annual cost of thevan? (Ans. - P218 556.05)
(0.14)
At = (-20000+(−900000(1.14)8 − 80000(1.14)4 + 75000 ( )
(1.14)8−1

= -P218.556.05

27. An investor is considering the development of a recreational complex with the

following relevant data: initial cost is P54M, estimated life is 15years, salvage value is
P2.5M, yearly costs for operations and maintenance is P3.5M, annual property tax is 4%
of first cost, insurance premium (payable at the start of the year) is 2% of first cost,
expected yearly revenue is P15M. If the investor appliesa 10% MARR, determine the
annual worth of this venture. (Ans. P1131 100.49) At = 15 000 000 – (54 000 000 x
0.04) + (-54 000 000(1.1)15 + 2 500 000 −
0(1.1) −1
15 15
(54 000 000 𝑥 0.02) ( (1.1)
)
0.1(1.1)14
= P1131 100.49

28. A water supply system is being considered for a small district. The
syType equation here.stem requires an initial investment of P8M, will operate for 15years
and will be sold for P0.4M after that time Annual operations and maintenance costs are
expected to be P48 000.00 for the first year and is expected to increase by P12 000.00 each
year thereafter. Determine the annual cost of this project using i = 11%. (Ans. -P1210
425.43)

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(1.11) −1 15 12000 (1.1) −1
At= (-8 000 000 (1.11)−15 + 400 000 − 48000
15
( )− ( −
0.11 0.11 0.11
(0.11)
15)) ( ) = -P1210 425.43
(1.11)15−1

29. Solve Problem No. 10 using annual worth method, (Ans. ATA = -2799.02; ATB =
P3916.33; Arc = -- P815.40)
16
A = 5005.89(0.14(1.14) ) = -2799.02
16 (1.14) −1
16
B = 24536.06 (0.14(1.14)16 ) = 3916.33
(1.14) −1
16
0.14(1.14)
C = 5108.53 ( ) = -815.40
(1.14)16−1

30. KTC Toy Co. is at present spending P400 000.00 annually for the manual operation of its
assembly line. To cut costs, three proposals for automation are being considered.
Proposal X has an initial equipment cost of P800 000.00, has salvage value of P75
000.00 at the end of six years and results in 65% savings per year on operations cost.
Proposal Y costs P500 000.00, has a six- year life, asalvage value of P50 000.00 and
results in 50% savings per year. Proposal Z has an initial cost of 300 000.00. a life of
three years with no salvage value. With this proposal, a similar replacement will be
available for P350 000.00 and a 45% savings in operations is realized. Determine the best
alternative using annual worth analysis and a MARR of 14%. (ANS, ATX= P63060.83
ATY=P77 279.13; ATZ= P42 101.86, Best alternative is Proposal Y)
6
y = 500 512.83 (0.14(1.14)6 ) = -77279.13
(1.14) −1

6
x = 245222.55 (0.14(1.14)6 ) = 63060.82
(1.14) −1

6
z = 163720.12 (0.14(1.14)6 ) = 42101.86
(1.14) −1

31. Autobot Systems Inc. is evaluating three robot proposals for use in its assemblyline.
Information regarding these proposals are as follows: Assuming a salvage value of 10%
and a 17% MARR, determine which robot should be preferred using AW analysis,
(Ans. AT1 = P201 367.37; AT2 = P296 740,03; AT3 = P222880.18; select robot 2)
3
At(robot1) = - 2 000 000 (0.17(1.17) 3) – 150 000 + 1 200000 + (2 000 000 x 10%)
(1.17) −1
(0.17)
( ) = 201 367.37
(1.17)3−1

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6
At(robot2) = - 3 000 000 (0.17(1.17) 6) – 200 000 + 1 300000 + (3 000 000 x 10%)
(1.17) −1
(0.17)
( ) = 296 740.03
(1.17)6−1
2
At(robot3) = - 1 500 000 (0.17(1.17) 2) – 100 000 + 1 200000 + (1 500 000 x 10%)
(1.17) −1
(0.17)
( ) = 222 880.18
(1.17)6−1
Choose robot 2

32. SolId Steel Mfg. purchased a universal testing machine (UTM) for P1.22M, with
estimates that this would result in quality control - cost savings of P188 000.00 per
year for 12 years Determine the IRR realized on this investment if the equipment has
no salvage value at the end of 12 years. (Ans. 11%)
12
188000 – 1 220 000 ( 𝑖(1+𝑖) 12 ) = 0 ; I = 11%
(1+𝑖) −1

33. A small machine has an initial cost of P 20 000.00 savage value of P 2000,00and a
life of 10 years. If your cost of operation per year is P3500.00 and yourrevenues per
year is P9000.00, what is the approximate rate or return on the investment? (Ans.
24.8%)
10
9000 – 2000 ( 𝑖 ) – 3500 – 20000 ( 𝑖(1+𝑖) ) = 0 ; I = 24.8%
(1+𝑖)10−1 (1+𝑖)10−1

34. Four years ago, an investor purchased a five door-apartment for P5.5M, Incomefrom
rent exceeded maintenance and insurance cost by P480 000.00 per year. Ifthe property is
sold now for P7.55M with an 8.25% income tax charged from capital gain, determine
the after tax-rate of return realized on the investment. (Ans. 14%)
4
480 000 – 6927125 ( 𝑖 ) – 5 500 000( 𝑖(1+𝑖) ) = 0; I = 14%
4 (1+𝑖) −1 4 (1+𝑖) −1

35. A 10-year copper mine lease requires P27.1M. The estimated annual net incomeof the
mine is POM for the first five years and P4M for the last five years. If an investor
requires a 12% MARR, determine the acceptability of the project based on the IRR.
(Ans. Project is acceptable, 14.66%)
5 5
6 000 000 ((1+𝑖) −15 ) + 4 000 000 ((1+𝑖) −1) (1 + 𝑖)5- 27 100 000 = 0
(1+𝑖) −1 5 (1+𝑖) −1
I = 14.66%; Project is acceptable

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36. For its 3-vear fabrication contract, Decepticon Industries is considering the use ofrobot 1
of Prob, No. 30, using ROR analysis and a 25% MARR, determine the suitability of the
robot. (Ans. Robot 1 is acceptable, 29.93%)
3
−1
200 000 + (1 200 000 – 150 000) ((1+𝑖) ) -2 000 000 + (1 + 𝑖)3 = 0
𝑖
I = 29.93%; robot 1 is aceptable

37. Optimum properties Corp. is considering the construction of a 50-unit condominium near
the University belt area. The 15-year investment study shows the following data: With an
estimated occupancy rate of 92% at all times, validatethe acceptability of the project
using the IRR method. The company applies a 15% MARR on its investments (Ans.
Project is acceptable, 15.7%)
15
(43M + 8.6M) (i/(i+e)) + 5520000 – 3000000 – 396000 - ( 𝑖(1+𝑖) )=0
15 (1+𝑖) −1
I = 15.73%

38. Determine the best printing machine using ROR analysis for the data given inProb.
No. 10. (Ans. Select machine B; iB-A= 15.34% ; iC-B: =10.9%)
A
16
0 = -157 000 – 10000 ((1+𝑖) −1)16+ 35 000 (1 + 𝑖)−16 = 15.34%
𝑖(1+𝑖)
B
8
−1
0 = -345 000 – 15000 ((1+𝑖) ) 8+ 45 000 (1 + 𝑖)−8 = 10.895%; Select B
𝑖(1+𝑖)

39. Vita Pharmaceutical Co. is considering four proposals for the expansion of itsdietary
supplements production facility. The investment requirements and thecash flows for
an 8-year period is presented below. Determine the best alternative if the company
applies a 14% MARR for its investments. (Ans. Consider P4; i2-1 = 13.27%; 13-1
=5.91%; 14-4 =21.76%)
2-1
8
0 = -1.5M – 300000 ((1+𝑖) −1)8 + 200 000 (1 + 𝑖)−8 = 13.274%
𝑖(1+𝑖)
3-1
8
−1
0 = -2M – 250000 ((1+𝑖) )8 + 700 000 (1 + 𝑖)−8 = 5.91%
𝑖(1+𝑖)
4-1
8
−1
0 = -2.8M – 700 000 ((1+𝑖) )8 + 1 200 000(1 + 𝑖)−8 = 21.754%; Consider P4
𝑖(1+𝑖)

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40. A firm that applies a 20% MARR on its investments is considering one of two 7- year
engineering projects. Project 1 requires an initial investment of P4M, would generate an
annual income of P2M, and would entail an annual cost of PO.4M. Project 2 requires
P7M, would generate an annual income of P3.7M for the first three years and P3M for
the remaining four years, this project would incur annualdisbursements of P0.8M.
Indicate the better alternative using the incremental investment approach. (Ans. Project 2
is better; 12.1 =29.17%)
3 4 (1+𝑖) −1 7
0 = -3M – 2.9M ((1+𝑖) −1) + 2.2((1+𝑖) −1) (1 + 𝑖)−3 − 1.6( ) = 29.17%
𝑖(1+𝑖)3 𝑖(1+𝑖)4 𝑖(1+𝑖)7

41. Two anti-pollution project proposals are being considered by Enercon Industries.The
expected cash flows are as follows: Using the incremental investment approach and a
12% MARR, determine the better alternative (Ans. i2-1 = 9.17%;select Project 1)
4
1 000 000 = -125 000 ((1+𝑖) −1) 4+ 950000(1 + 𝑖)5
𝑖(1+𝑖)
I = 9.16%; Choose project 1

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