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ENGINEERING ECONOMICS 02 Calculate the 5h year depreciation charge using a fixed percentage
method of an asset costing P 1000 having a life expectancy of 5 years
PSEMODULE 10.2 (SOLUTION) and an estimated salvage value of P 400.
A machine initially worth P 50,000 depreciates in value cach year by A. P990 C.F 80
20% of its value at the beginning of that year. Find its book value B.P 78 D.P84
when it is 9 years old.
A. P 8,388.61 C.P7.782.42 Solution
B. P 5.368.71 D. P6,710.88
k1- 1-000.16745
Sole-on
Altemate Solution Calculator (Mode 36) d, PC(1-1)()
BV = FC(1-k)
d, 1,000(1-0.16745) (0.16745)
BV, =50,000(1 -0.2 SOk d, Php 8045
BV, = Php 6.710.89
Alternate Solution: Mode 36
|50% (1-0.2)
Ans.D BV96,710.89
o Phplk
A machine has an initial cost of P 50,000 and a salvage value of P 400
10.000 after 10 years. What is the straight line method depreciation d, 4-5ý= 80.45
rate as a percentage of the initial cost?
A. 7% C. 9% Ans.C
B.88% D. 10%
6. A certain copier machine cost P I50,000 with a trade-in value of P
Selutkon 15,000 after making 800,00 copies. Using thedeclining balanced
FC-SV S0,000-10,000
L 10
Php 4000 method, what is the book value when the machine had made 300.000
copies?
d4.000 A. P 68,111 C. P 64.896
FC 50,0X0
d/FC 0.08 8% FO B. P62.531 D. P 63,254

Ans B BVFC(1 where: k =1-

An equipment initiallyworth P 50,000 depreciates in value each year
by 20% of its value at the beginning ofthat year. Comput its book
value when it is 19 years old.
k =1- 5,000,2.878x10
A. P 850.67 C.P750.45
B. P 520.45 D. P 720.57 BV (150,000) (1-2.8782 x 10)

Setote
BVsPhp63,254.48
BV, =FC(1-k 50.000(1-0.2)" Aliemate Solution Mode36
BV, =Php 720.57
Alternate Solution Mode 36 150,000
800 0015,00
50k 300,000 63,254.48
150k(1-0.2) Ans.D
BV, =19 720.57 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 ofP
Ans. D 2000 atthe end of that time, Use SYD method.
see
A. P 6800 C. P 620
4. A company bought an equipment for P 56,000. Other expen ses B. P 7250 D. P 7000
including installation amounted to P4,000. The equipment is expected
to have a life of 16 years with a salvage value of 10% ofthe original Salut
cost. Determine the book value at the end of 12 years by the straight BV FC-D
line method.
A. P 19,500 C. P 20,500
wbere FC 20,000
B. P 18,530 D. P 19,200 DReverse Digits
SV
Sum of the digity
Seleion: :
8+7+6+5
D I+2+3+4+5+6+74R20,000-2,000)
C-SV)
BV. FC-D. >
where:D. L D= Php 13,000
So thus

BV = (Php 56k + Php 4k)- 12 (56k +4k)-0.1(56k+4k) BV 20,000-13,000= Php 7,000.00

16
Ans.D
BV Php19,500
Alenate Solution Mode 32 3. Calculate the depreciated value after 6 years of a P 10,000 machine
having a useful lite of l10 years anda salvage value of 10 % of its
0 56k+ 4k =60k originalcost at that time. Use straight-line depreciation.
A. P 42000 C. P 4400
160.1(56k+4k) =6k B. P 4500 D. P 4600
BV2 1 2 19,500
Solution.
AnsA
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D (FC-Sv) BV PC-D, where: D, = Reverse D1git-(FC -SV)

Sum of the digits

D,10,000-0.1(10,000)] =Php 5,400 At Ist yr

BV, = FC-D. D (9,000-1.000)= Php 1,454.55

BV. = FC-D. = 10,000-5,400=Php 4,600
Altemate Solution Mode 32
2
Then
BV FC-D, 9,000-1,454.55
Php 10k
BVPhp7,545.45
1o(10000)0.1) = 1000
BV, 6=Php 4,600
Ans.B
Ans D 14. An asset is purchased for P 500,000.00. The salvage value in 25 years
9. A company purchased an asset for P 15,000 and plans to keep it for 20 is P 100,000.00. What is the total depreciation in the first three years
years. If the salvage value is zeo at the end of the 20th year, determine using straight-line method?
the depreciation in the 4th year? Use SYD. A. P 48,000 C.P 24.000
A. P 1214 B. P 32.000 D. P 16,000
C.P 1087
B. P 1157 D. P 1206
Sedit
Seluken:

d. Reverse Digl(FC SV) D,S00,oo0-100,000)=Php 48,000

Sumof the digits
Ahemate Salution Mode 32
-(15,000-0) Php 1214.29
0 500,000
Ans.A UJEFO 25 100,000
D 0 - 3 ý = 48,000

10.
AP1000.000 issue of 3%. 15 year bond was sold ut 95%. Whatisthe Ans.A
rate of interesi of this investment?
A. 5% C.4% 15. A machine costs P 8,000 and an estimated life of 10 years with a
B. 2% D. 3% salvagevalue of P 500. What is its book value after 8 years? Using
straight-line method.
Seletens P 2500 C. P 3000
B. P 2000 D. P 4000
iannual net profitL000.000)(0.03) 0.03158 3.158%
total investment 0.95(1.000,000

Ans. D D, 10 8,000-500)=Php 6.000

11. An item is purchased for P 100.000, Annual cost is P 18,000.Using BV, 8.000-6,000 2,000
8%interest rate what is the capitalized costfor perpetual service? Alterntle Sotution Mode 32
A. P352,000 C.P 532,000
B. P 235,000 D.P 325000 8000
Seletion
10 500
CcFC+ 100,000+ Php 325,000
0.08 BV, 8Php 2.000
Ans. D Ans. B
12. A machine has an initial cost of P 50.000 and a salvage value of
10,000 after 10 years. What is the book value after 5 years using 16. The costs of producing a commodity consist of P 45.00 per unit for
straight-line depreciation? labor and material cost and P 15.00 per unit for other variable cost.
A.P25,0000 C. P 35,000
The fixed costper nonth amounts to P 450,000. If the commodity is
B. P 15,500 D. P 30.000 sokd at P 250.00 each, wbatis the break-even quantity?
A. 2345 C. 2368
Selutien B. 2632 D. 2224

BV, = FC-D, where:D, 50,000-10,000)

D, = Php 20,000

BV, = 50,000-20,000= Php30,000

2 Expenses Iocome
250x 45x I5x +450,000
Alternate Solution Mode 32
x2.368.42 units
0 50,000
Ans.
1010,000
BV, =5 = Php 30,000
17. An assel is purchased for P 9,000.00. Its estimated economic life is 10
Ans. D years alter whichit will be sold forP 1,000.00. Find the depreciation
in the first three years using sum of years digit method.
13. An asset is purchased for P 9,000.00. Ius estimated life is 10 years after A. P 3,927.27 C. P 3,324.32
which it will be sold for P1,000.00. Find the book value during the B. P 3,464.35 D. P 3,743.26
first year if sum-of-years' digit (SYD) depreciution is used.
A. P 8,000.00 C.P6.5(X.00 Sadeio
B. P 7.545.00 D. P 6,000.00

Seleo
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Reverse Digit(FC
D. = Sum -Sv)
of thc digits

D. = 0*°(9,000-1,000)
10
,.0.08" 100,000
P 100.0001+
D, = Php 3927.27

Ans.A P Php 90,614.93

Ans.B
18.
AP1,000,000.00 issue
of 3.5%, 15 year-bond wassold at 809%. What
is the rate of interest of this investment? 23. A new machine was installed by a company at a total cost of P 300,000
A. 3.0% C. 2.8% and projected to have a useful life of 15 years. At the end of its useful
B. 4.375%6 D. 3.52% life, it is estimated to have a salvage value of P 30,000. Determine the
capitalized cost if interest is 18% compounded annually.
Selulion: A. P 320,322.33 C. P 363,321.53
B. P 324.604.17 D. P 312,542.02
i annualnet profit (1.000.000 )(0.03)-0.04375 4.375%
total investment
0.80(1.000.000) Soluctio
Ans. B CC FC+RC-SV
(1+ i)-1 Note: FC=RC
19. An asset is purchased for P 120.000. Iis estimated life is 10 years, after
which it will be sold for P 12,000. Find the depreciation for the second CC 300,0004300,000-30,000
year using the sum of the years digit method. (1+0.18)-1
A. P 17,342 C.P 17,673 CC= Php 324,604.17
B. P 17,632 D. P 17,505
Ans. B
Solitiom
24. A company purchases an asset for P 10,000.00 and plans ta keep it
Reverse Digil(FC
d
Digits
d, =(120.000-12,000) 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.
d, Php 17,672.73 A. P 1000.00 C. P 857.00
B. P 937.00 D. P 747.00
Ans C
Selulian:
20. A factory is running at 80% efficiency with a fixed cost of P
Reverse Digit(Fc-sv)
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
Digits
profit of the factory if all products manufactured are sold.
A. P 1,066,000 C. P 1,354,400
d, 10,000-0)=Php 857.14
B. P 1,042,000 D.P 1633,000

Ans.C
25. The corporation purchased a machine for P I million. Freight and
Profit Sold- Expenses
installation charges amounted to 3% of the purchase price. If the
[(416)(5000)-1 30(5000)](0.8)-78,000 machine shall be depreciaied over a period of 8
years with a salvage

Ans. A
=Php1,066,000
Od
21. A company purchases an asset for P 10,000.00 und plans to keep il for
value of l12 %. Determine the depreciation charged during the Sth
year using the sum of the years digit method.
A. P 101,107.11
B. P 107,1 10.11
C. P 170,I10.11
D. P 100,711.11

Sali7
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 1,000.00
B. P 937.00
C.P 857.00
D. P 747.00
d.= Reverse Digit (FC Sv)
-

Digits
Solilon
E(.0.000)(1.03)-(1.000.000)(1.03)(0.12)]
= Reverse Digil (FC -SV) 2
Digits d,=Php 100,711.11
8
d, = ( P h p 10k-0) = Php 857.14 Ans. D

26. The original cost of a certain piece of equipment is P 150.000 and it is

Ans. C depreciated by 10% sinking fund method. What is the annual
depreciation charge if the book value of the equipment after 10 years
is
22. the same as if it had been depreciated at P14,000.00 each year by
A man was offered a certificate with face value of P 10,000 which
a
is bearing interest of 6% per year payable semi-annually and due in 6
straight-line formula
A. P8784.36 C. P 5645.57
years. Ifhe wants to earn 8% semi-annually, how much must he pay B. P 6454.54 D. P 3484.23
the certificate?
A. 100,520.32 C. 98,434.32 Sel-t
B. 0,614.93 D. 96.562.52

Sedu-tiepi
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AtSLN 30. A man buys a small garden tractor. There will be no maintenance cost
V - D , , = 150,0K0 -14,000(1o) - Phpt0,0M 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
AtSEM
years ofthe maintenance cost will increase $20 per year (that is, 3rd
year maintenance will be S40; 4th year maintenance will be $60, and
R-SV-0i)-»where SV =BV, 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
I50.000-10.0m= 01" -1
0.I ownershipP
A Php8,784.36 A.$101.52 C. $239.36
B.$164.74 D. $284.13
A
Seltion
7. An engine is expected to have a maintenance cost of P1000 the first
year. It is believed that the maintenance cost will increase P 500 per P-Ax-1)d
year. Theinterest rate is 6% compounded annually. Over a 10-year
pernod. what will be the approximate effective annual maintenance
cost? P o(x-1)($20)|
A. P 3011.00
B P3452.00
C. P 2450.00
D. P 1345.00
+0.05)
P-$239.36
Solton Ans. C
A+ (x-1)d 100+(x-){S00) Php 22.161.25 31. A manufacturing company buys a machine for $50,000. It estimates
(1+0.06) the machine's useful life is 20 years and that it can then be sold for
$S000. Using straight line depreciation, what is the annual
P-P--0+9)"] depreciation charge?
A..S2000 C. $2500
22.161.25 -(0.06)| B.$2250 D. $2750
0.06
A= Php 3,011.00
STT
Ans A
d(CsV (50,000-5,000) = $2250
28. ABC Corporation makes it a policy that
for every new equipment Alternate Solution
purchased. the annual depreciation cost should not exceed 20% of the
Mode 3 2
first cost at any time without salvage value Determinethe length of
service life if the depreciation used is the SYD method
A9yrs C. 10 yrs o S0.000
12 yrs D. 19 yrsS
20 5.000
Seluton: $2250
Ans. B
Since the st depreciation is the greatest then
d Annual depreciation =0.2 FC 32. Company A has fixed expenses of $15,000 per year and each unit of
Then. product hus a SO.002 yariable set. Company B has fixed expenses of
$5000 per year and can be produce the same unit of product at a S0.05
Rev. digits (FC-SV) e SV =0 variable cost. Atwhat number of units of annual production will
Digits Compuny A heve the same overall cost as Company B? Quantity is
n ( n -1C)=0.2 FC nearest t0
A. 100,000 units C. 300,000 units

n=9 yTs

Ans A
CER Soltio
200.000 units D. 400,000 units

Epenses, 2Expenses
29. A manufacturer uses 1000 items uniformly throughout the year. The 0.002x + 15.000 = 0.05x +5.000
cost to produce the items in-house is Php 2,000.00 for set-up and Php x =
208,333.33 200,000 units
260.00 per item. Insurance and taxes are estimated as 12% of averuge
inventory, and it costs Php 40.00 to store each unit for one complete
AnsB
year. How many of these items should the manufacturer produce at a
33. Plan A nequires a S100,000 investment now. Plan B requires an
time?
A. 135 item
$80,000 investment now and an additional S40,000 invesument later.
C. 345 items
At 8% interest, what is the breakeven point on the timing of the
B. 237 items D. 153 items
additional S40,000 later?
3 ycars C.7 ye
B. Syeaus D. 9 yearss
Sdton PLAN A

unit of time is a year: a = 1000 iten/year

Fixed Cost: K = Php 2000.00
00,000
Inventory Cost: h y = 40.00,(0.12)Php260.00) Php 71.20
PLAN B
Hem- yeur ilem- year item-yeur Plan A Present W = Plan B Present W
From CFD

120
Ans B
=237
00,(00)= 80,0X)+ 40,000(1+ 0.0
n= 9,01 yrs
40,000

80,000
As.
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38. A manufacturing fim maintains one product assembly line to produce
34. A machine part, operating in a corrosive atmosphere, is made of low signal generators. Weekly demand for the generators is 35 units. The
carbon steel, costs S350 installed and lasts six years. If the part is line operates for 7 hours per day, 5 days per week. What is the
treated for corrosion resistance it will cost $700 installed. How long maximum production time per unit in hours required of the line to
must the treated part last to be as good an investment as the untreated meet the demand?
part, if money is worth 7%?| A. hour C. 3 hours
A. 8 years C.14 yearN B. 0.75 hour D. 2.25 hours
B. l1 years D.I7 years
Seleken:
Sobuton

P-0] 350a07-(1.0) 7 hrs5 days

day wgek hr/unit
A =$73.43 35 units
wgek
700 0.07 (0+007)
n=16.27 yrs

Ans.D
ewpsi
39. A series of year end payments extending over eight years are as
35. An investor is
follows: P10,000 for the first year, P20,.000 for the second year,
considering buying a 20-year corporate bond. The PS0,000 for the third year, and P40,000 for each year from the fourth
bond has a face value of
two semiannual payments.
Si000 and pays 6% interestrate per yearin through the 8th year. Find the equivalent annual
worth of these
Thus the purchaser of the bond would payments if the annual interest is 8%.
receive $30 every 6 months, and in addition he would receive S1000 at
the end of 20 years, along with the last $30 A. P44,800.00 C. P35.650.00
interest payment. B. P30,563.00 D. P33,563.85
If the 8%
investor though he should receive annual interest
compounded semiannually, the amount he would be willing to pay for
Se
the bond is closest to
A. $500
B. $600
C. $700
D.$800
TU FOR M10,000
20.000
40k 40k 4Dk 40k 40k
50,000
8

0.080.000)
P-1,0001 0.08 EUAC EUAC

P S802.07 P=10,000(1+0.08) +20,000(1+0.08)+50,000(1+0.08)

D 400001-(1+0.08)
a.08 (1+0.08)
P Php 192,880
36. Consíder a deposit of P600.00 to be paid buck in one yeur by P700.00. Then, determining EUAC
What are the conditions on the rate ofinterest, 1% per year
compounded annually, such that the net present worth of the PEUA[-(+0
investmentis positive. Assume i 20
A. 0sic16 7%
B. 0si<14 3%
C. 125%si<143%
D. 16.7% sis100%
380A1-(1+0.08)
0.08

Seltion
CEBU EVAC=Php33,563.85
Ans.D
40. A machine has been purchased and instaled at a total cost of
P18.000.00. The machine will be retired at the end of 5 years, at
P F{1+i
which time it isexpected to have a serap value of P2,000.00 based on
600=700(1+i) curent rices. The machine will then be replaced with an exact
i = 0.1667 1667% duplicate. The company plans to establish a reserve funds to
accumulate the capital needed to replace the machine. If an average
Thus, 0% Si s16.67%
annual rate ot unflatton of 3% in anticipated, how mucbh capital must be
Ans. A accumulated?
A PI5,030.00 C. P13,382.00
B. Pl8.548.39 D. P15,386.00
37. The cost C of a product is a function of the quantity x of the product:
C)=x-4000x+ 50. Findthequantityfor which the cost is
minimum.
F P(l+f) where: P =18000-2000 Php 16,000
A. 3000 C. 000 Subst. P:
B. 2000 D. 1500
F=l6,000(1+0.03) Php 18,548.385
Selon
C(x)=x*-4000x +50
C(x)= 2x-4000 =0
x 2000 units

Ans.
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41. What uniform annual amount should be deposited cach year in order to
accumulate P100,0XX0.00 at the end of the 5h annual deposit if money
eams 10% interests?
-(0"] >where:P =F(1+i)
A. P15,708.83 C.PI8494.45
So: F(l+1)"-1-(1+"]
B. P17.943.45 D. Pl6.379.75
18.000(1+0.1s) = 1+0.15)"|
0.15
Selaien: A Php3,919.54

F[a- ADS. B
46. What is the present worth of the two PI00 payments at the end of the
100.000[0-01-
0.10L third year and fourth year? The annual interest rate is 8%.
A = Php 16,379.75 A PI53 C. P162
B. P160 D. P127
Ans. D
Selulie
42 An asset is purchased for P1 20,000.00. Its estimated life is 10 years.
after which it will be sold for P12.000.00. Find the depreciation for
the second year using the sum-of-the-ycars-digit method:
P
0.08) 1008)' Php152.89 =

PA 100 100
A. P19,000
B. P17.673
C. P18,200
AlternateSolution:
D. P18,400
P=100(1+0.08)+100%i+0.008)= Php152.89
Solelion: An.A
d =Reverse Digit -SVv) 47. A manufacturer of sports equipment produces tennis rackets for which
Digits there is a demand of 200 per month. The production set cost for each
lot of racket us P300.00. In addition, the inventory carrying cost for
-(120,000-12,000) each racket is P24.00 peryear. Using the Economic Order Quantity
(EOQ) model, which is the best production batch size for the rackets?
A. 245 units C. 173 units
d. = Php 17,672.73
EFOR B71 units D. 346 units

Ans. B Settion

43. A fim borrows P2000 for 6 years at 8%. At the end of 6 years, it
EOQ-2ak-2(200/month)(Php 300 = 245 units

renews the loan for the amount due plus P2000 more for 2 years at 8%. h V(Php24/year)(1yr/12months)
What is the lump sum due? Ans.A
A. P6,135.00 C. P5,254.00
B. P5,280.00 48. What is the maximum profit when the profit-versus-production
D. P6,03500
function is as given below? P is profit and x is unit of production.
Seluion: P 200,000-x- to the 8th power

From CFD:
A. 285,000 C. 250,000
LumpSum 2,00(1+0.08)+2,000(1+0.08) B. 200,000 D. 305,000
= Php 6,034.6

Ans D Seluion
P200.000-x1

44. The purchase of a motor for P6000 and a generator for P4000 will
allow a company to produce its own energy. The configuration can be 1-(.1 -8)(*+1)" -0
assembled for PS00. The service will operate for 1600 hours per year dx
for 10 years. The maintenance cost is P300 per year, and costto X0.3713
operate is P0.85 per hour for fuel and related cost, Using siraight line At x= 0.3713
depreciation, what is the annual cost for the operation2 There is P400
P 199,999.46» Php200,000
salvage value for the system at the end of 10 years.
A. P2710 C. P2630 Ans.B
B. P2480 D. P2670
49. A man was offered a certificate with a face value of P 100,000 which
of 6%
Solutier: is bearing per year payable semi-annually an due in 6 years. If
he wants to earn 8% semi-annually, how much must he pay the
certilicate?
By SLM Mode 3,2
A. P 90,615 C. P 96,322
x(yr y(Price) B. P93,322 D.P 102,334
0 6,000+4,000+S00
0 400 Sotuon
AC shift 15 2 1010 the value of B
So, the annualcost is
EUAC=1010 300+0.85(1600) = Php 2670
Php 100,000 10.08
Ans.D P100.00 1+ 0.06
45. In five years, P18,000 will be needed to pay lor a building renovation.
In order to generate this sum, a sinking fund consisting ofthree annual P Php 90,614.93
payments is established now. For tax purposes, no further payments
will be made after three years. What payments are necessary if money
AnA
is worth 15% per annum?
A. P2870 C. PS100
B. P3919 D. P2670
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50. A certain office cquipment has a first cost of P 20.000 and has a Converting the mode of compounding
salvage value of P 1000 at the end of 10 years. Determine the total
depreciation at the end ofthe 6th year using sinking fund method at 3%
interest 010- 0.09569
A. P 10,720 C.P 12.340
B. P11420 D. P 10.520 From PW:

Seluton:

FC-SV-0+i-1
A
20,0-1,00 0.03 003)"-i 100,000 0.09569
A = Pbp1657.38 12
A= Php 839.2
At 6th yr

Ans. D
D. 1+i-i- 0.03
+003-1=Php10,720.61
Ans.A 54. A local firm is establishing a sinking fund for the purpose of
accumulating a sufficient capital to retire its outstanding bonds at
S1. AP 1000, 6% bond pays dividend
be redeemed
semi-annualy and will
at 110% on June 21, 2004. It is bought on June 21, 2001 to yield 4%
maturity. The bonds are redeemable in 10 years, and their maturity
value is P150.000.00. How much should be deposited each year ifthe
interest. Find the price of the bond. fund pays interest at the rate of 3%? 150,000
A. 1,144.81 C. 1,432.332
A. P12,547.14 C.P14.094.85
B. 1,129.42 D.1,042.12 D.P16,848.87
B. P13,084.58

Selufion Selu-tion

P-0]Ri
1000
(0.06
EFOR150.0F-0-.009)"-
2 A=Php 13084.58
P.
0.04
2
(100-(0.1000)12 B
P= Php 1,144.81
55. A machine cast P20,000.00 today and has an estimated scrap value of
Ans.A P2,000.00 after 8 yeurs. Inflation is 8% per year is 8%. How much
money needs to be set aside each year to replace theFQE machine with
an identical model 8 years from now?
52. You need P4000 per year for four years to go to college. Your father A. P2,990.00 C.P3,920.00
B. P3,290.00 D.P3,610.00
invested PSO00 in 7% account for your education when you were born.
2000
Ifyou with P4000 at the end of your 17, , 19th and 20
draw 18 Solet
birthday, how much money will be left in the account at the end of the
21 year?
A. P2500 C. P1700
B. P3400 D. P4000A 4000 1
2 3

Saladan
2 2p2
20,000

CEBU A1-(1+0.08)
20,000-2,000(1+0.08) 0.08
A=Php 3292.27
Ans. B
FromCFD, At21
so(1007- +0.0n)-1(007= S6. A machine is under consideration for investment. The cost of the
machine is P25,000.00. Each year it operates, the machine will
Then,
generate a savings of P15,000.00. Given an effective annual interest
At 21, x = Php 1700
rate of 18%. whut the discounted
is payback period, in years, on the
Ans. C investment in the machine?
A.1.75 years C.L.67 ycars
53. Mr. Ayala borrows PI00.000.00 at 10% effective annaual interest. He B. 3.17 years D.2.16 years
must pay back the loan over 30 years with uniform monthly payments
due on the first day of each monh. What does Mr. Ayala pay each
month?
A. P870.00 C. P878.00
B. P846.00 D. P839.00
P-0"]
Setukon 25,000 0.18
1-(1+0.18)"
n=2.155yTs
Ans.D
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57. A businessman wishes to earn 7% on his capital after payment of Since the Ist depreciation is the greatest then.
taxes. If the income from an available investment will be taxed at an d Annual depreciation = 0.2 FC
average rate of 42%, what minimum rate of retum, before payment of
taxes, must the investment offer to be justified? Then
A. 12.1% C.11.1% Rev. digilS(FC-SV) @SV =0
B. 10.7% D.12.7% 2 Digits
Selti.
Let x >invested n
nn+1C)=0.2 FC
0.07x =(1-042)x i
2
i =0.121 » 12.1%
n=9 yrs

Ans. A Ans. A
58.
The maintenance cost for sewing machine this year is expected to be
a
P S00. The cost will increase P S0 each year for the subsequent 9 62. A deposit of P1000 is made in a bank account that pays 8% interest
years. The interest is 8 % compounded annually. Whatis the compounded annually. Approximately how much money will be in
approximate present worth of maintenance for the machine over the the account after 10 years?
full 10-year period? A.P2,160 C. PI860
. P4.700
C.P 5,30%0 B.P2.345 D. PL925
B. P 4,300 D. P5,500.
Selution
Selutien: F P(1+i=1000(1+0.08)
P-Ar1)a] F Php 2158.92
(1+i) Ans.A
500+50(x-1) 63. A machine costing P 480,000 has a life expectancy of 12 years with a
10.08)
P Php 4.653.88
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 C. P 152,758
Ans. A B. P 174,322 D. P 166,342

59. A machine costing P 45,000 is estimated to have a book value of P

4,350 when retired at the end of 6 years. Depreciation cost is computed Saleion
using a constant percentage ofthe declining book value. What is the BV FC-D, =FC(1-k
annual rate of depreciation in %? where
A. 33.25% C. 32.25%
B. 35.25% D. 34.25% 0.10FC
FC
0.1746
Setution BV, 480,000(1-0.1746) = Php183,896.97

Ans. A
k l 43500.3225
45000 64. A macinehas an initial cost of P 50,000 and a salvage value of
Aternate Sohrion: Mode 3 6 P10,000.00 after 10 years. What is the book value after 5 years using
straight line depreciation?
0 45,000 A P 35,000.00 C.P 25,000.00
6 4350 B. P 15.500.00 D. P 30,000.00

ACShift 1 5 2 .67745 the value of B Setution

k=l-B 0.3225 BV, = FC -D,

Ans. C CE
esks where: D 50,000-10,000) Php 20,000
BV, S0.000-20,000 = Php 30,000
60. An equipment costs P 10,000 with a salvage value of P 500 at the end
of 10 years. Calculate the annual depreciation cost by sinking fund Aluetnate Solutso Mode 32
method at4 % interes x
A. P 791.26 C. P 950.00
B. P 971.12 D. P 845.332 oso,000
1o10.000
Selution: BV, 5 Php 30.000
Ans. D
C-SVui)-] 65. A producthas a current selling price of P 325. If its selling price is
10,.000-500 +0.04)- expected to decline at the rate of 10% per annum because of
A Php 791.26 absolescence, what will be its selling price four years hence?
A. P 213.23 C. P 210.21
Ans. A B.P221.42 D. P 209.54

61. Acompany makes it a policy that for any new equipment purchased, Seleiems
the annual depreciation cost should not exceed 20% of the first cost at BV, = FC(1-k) BV, = 325(1-0.1)' = Php 213.2325
any time with no salvage value. Determine the length of service life
necessary if the depreciation used is the SYD method Ans.A
A. 9 years C. 10 years
B. 12 years D. 19 years

Solutomi
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66 A machine costing P 480,O00 has a life expectancy of 12 years with a 70. For some interest rate i and some number of interest perids n, the
salvage vaBlue of 10% of the first cost. What is the book value after ive unilorm series capital recovery factor is 0.0854 and the sinking fund
years using the decining balance method? factor is 0.0404. The interest rate i must be
A. P 183,892 C.P152,7S8 A. 3 4% C. 6%
D.P 214,785 B. 4 4% D. 8%
B.P196432
Selulior Soletion
BV, = C - D. BV. = RC(1-A) = USCRF-SFF
=0.0854-0.0404
where
i=0.0450
O.10FC -0.1746
Ans. B
BV, = 4$0,000(1-0.1746) = Php183.,896.97
71. A man buys a small garden tractor. There will be no maintenance cost
AnsA 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
67. The fist cost of equipment is P 100,000 and estimated to have a book years the maintenance cost will increase $20 per year (that is, 3d year
value of P 30,000 when retired at the end of 10 years. Detemine the maintenance will be S40; 4th year maintenance will be S60, and so
forth). How much would need to be set aside now at 5% interest to pay
annual rate of deprecation using a constant percentage declining
balanced method. the maintenance costs on the tractor for the first six years of
A. I1.34% C. 10.33% ownership?
B. 10.21% A. $101.52 C. $239.36
D. 10.56%
B. $164.74 D. $284.13
Sola~ien:
Seloi
eni
30.000-0.1134
kl-100.000
Alternate Solution Mode 36 P-A-

0 100.000 P-0(-520)
10 30.000 +0.05
k = 1-B =0.1134
P $239.36
Ans. A AnsC
72. A manufacturing company buys a machine for S50,000. It estimates
68. A company bought an equipment for P56.000. Otherexpenses the machine's useful life is 20 years and that it can be sold for $5000.
including installation amounted to P 4,000. The equipment is expected Using straight line depreciation. what is the annual depreciation
to have a life of 16 years with a salvage value of 10% of the original
cost. Detenmine the book value at the end of 12 years by sinking fünd
charge?
A.$2000 C. $2500
method at 12% interest.
B. $2250 D.$2750
A. P 28,500 C.P28,500
B. P 27,530 D.P29,520
Sduteni
BVFC Dn d(FC-Sv)=50.000-5,00)
Determining annual dep.
d $2250
FC-SV fa+i"-1 AlternateSalation-
(Php56k+ 4k)-(0.10)(Php 56k + 4k) Mode 32

20126 CEBU 0 50,000

A = Pbp 1263.06
20 5.000
B $2250
BV12-C-DPi2
BV2 Php(5ok 4k) 00.12)| 13. Company A has fixed expenses of SI5.000 per year and each unit of
BV2 Php 29,518.38 product has a $0.002 variable cost. Company B has fixed expenses of
$5000 per year and can produce the same unit of product at a $0.05
Ans D variable cast. At what number of units of annual production will
Company A have the same overall cost as Company B? Quanity is
69. The maintenance cost of a machine this year is expected to be P 1000.
nearest to
The cost will increase P200 each year for the subsequent 9 years. The A. 100,000 units C. 300,000 units
interest is 15% compounded annually. What is the approximate present B. 200,000 units D. 400,000 units
worth of maintenance for the machine over the ful 10 years?
A. P 4,818.67 C. P8,414.67
B. P 4,481.76 D. P4,418.76
Sealian

2Expenses, - Expenses
Slo
0.002x+ 15,000) =0.05x + 5,000
P-A(a1)a
P-21iy
1000 200(x -1) As.
x 208,333.33 units

(1+0.15)
P Php 8414.66
As C
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74. Plan A requires a Php5,000,000 investment now. 78. A bank charges 1 h per month on the unpaid balance for purchases
Plan B requires an Php 4,000,000 investment now and an additional Php made with its credit card. This is equivalent to what effective annual
2.000,000 investment later. At 8% interest, what is thhe breakeven point interest rate?
on the timing of the additional $40,000 later? A. 1.5% C. 18%
A. 3 years C. 7 years B. 12% D. 19.5%
B. 5 years D.9 ycaN
Seltlon
Seleton
PLAN A i,(1+-1 i,= (1+0.015)"-1
i, 0.19562 = 19.562%

Ans.D
5,000,000
79. A man purchased a car with a cash price of P350,000. He was able to
Plan A Present W = Plan B Present W negotiate with the selker to allow him to pay only a down payment of
5,000.000= 4,000,000+ 2,000,000 (1+0.08) 20% and the balance payable in equal 48 end of the month installment
PAN B at 1.5% interest per month. On the day he paid the 20h installment. he
n 9.01 yTs
decided to pay theremaining balance. How much is the monthly
Ans. D 2,000,000 payment and what is the remaining balance that he paid?

A. P187030.20 C. P186034.30
4,000,000 B. P186927.25 D. P 195986.26

75. A newbuildingis being considered to housesome equipment. The

Seltion
new buiding will reduce maintenance costs by S00 per year for the
first ten years, and $3000 per year thereafter. Based on a 50-year
From CFD
P DP+Annual payments
analysis period, what buiking construction cost can be justified? The
justified construction costis closest to if the interest is 9.5%
A. $30.000
C. S90,000 250.000=(3so.0o0)(0.2)+ 0.015 -(+0015)
B. $50.000 D. $140,000 APhp 8225

Sdton Balance350.000(1-0.2)(1+0015 (0.015)-1

214 FPhp186921.24
Ans. B
80. In anticipation of a much bigger volume of business after 10 years, a
AT6000
fabrication company purchased an adjacent lot for its expansion
program where it hopes to put up a building projected to cost
P4.000,000.00 when it will be constructed 10 years after. To provide
3.000r, for the reguired capita expense,it plans to put up-a sinking fund for the
0 . 0 9 5 L ( + 0 . 0 9 5 )

ao
0.095 1-+0.095) 10.095)
purpose. How much must the company deposit each year if interest to
be eamed is computed at 15%?
P S50.071.52 C. 197,008.25
A. P198,009.30
Ans B. P197,007.45 D. 199,008.23

76. How many months at an interest rate of l percent per month does Salidon
money have to be invested before it wil double in value?
A. 59 months C. 70 months
B. 62 months D. 76 months
F[0- 4.000,00= 0.15)-
Sellon CEBUAns.C A=Php 197.008.25

F P(1+i) 2P P(1+i 81. An oil well which could produce a net income of P5,000,000.00 per
year for 25 years is being considered to be purchased by group of
2P=P(+0.0i) businessmen. If the returm on investment is targeted to be 20% out of
n 69.66 months the netincome and asinking fund at 18% interest is to be established
Alternate Solution: ( Rule of 72 to recover the investment, how much must be paid to the oil well?
A. P73,921,184.58 C. P73,985,239.55
72 rule
B. P72.867,170.54 D. P67,895.179.70
12 months 70 months
Ans.C Solfiom
77. A department store charges one and one-half percent interest per
month on credit purchases. This is equiyalent to a nominal annual
15,000,000 = Php 73,921,184.58

interest rate of
0.18
A. 1.5 percent C. 18.0
1+-I (1+0.18)-1
I5.0 D. 19.6 As.A
Selu-kon:
.i.m
i, =(0.015)(12)
, =0.18 a 18%

Ans.C
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82 A unit of welding machine cost P45,00X with an estimated life of 5 86. A steel drum manufacturer incurs a yearly fixed operating cost of
years. Its salvage value is P2,500 find its deprecation using $200,000. Each drum manufactured costs Si60 to produce and selk for
Straight line method $200 What is the manufacture's break-even sales volume in drums per
Assuming that n will deposit the money to a bank giving 8.5%. Solve year?
for the deprviation. A. 100X) C. 1250
B. 25(X) D. 5000
A. P8700: P7692.50 C. P8500 P7172.54
B. P8500: P6494.55 D. P7834 P6794,45 Sele
Break even
2 Income =2Expenses
Using SLM
200x 160x + 200,000
C-SV_45.000-25000 -Php 8500 x5000units
Mode: 32 Ans.D
0 45.000 87. A manufacturing firm maintains one product assembly line to produce
5 2.500 signal generators. Weekly demand for the generators is 35 units, and
the line operates for seven hours per day. days per
five week. What is
B-Php 8500 the maximum production time per unit, in hours, required of the line in
By Sinking Fund
order to meet demand'
FC-SV 01+i"-1 A. 0.75 hour C. I hour
B. 2.25 hours D. 5 hours

45,000-2500=0.085 (+0.08s)-I
A = Php 7172.54
Solufiom

Ans. C 7 hrs5 days

s units
83 If you obtain a loan of PIM at the rate of 12%
day wgek , wek
compoundedannualy
in order to build a house, how much umust you pay monthlyto amornize
1 hr/unit
the loan within a period of ten years? Ans. C
A. P14.980.60 C. P14,974.50
88. Tops Corporation's gross margin is 45% of sales. Operating expenses
B. P13.785.56 D. P13,994.64
such as sales and administration are 15% of sales. Tops is in a 40% tax
bracket. What percent of sales is their profit after taxes?
0% C. 5%

B.18% D. 24%
Changing the mode of compounding

o12-
0.11386 Sales=(1-0.4)(0.45-0. 15)
0.18 18%
P
Ans. E

89 A company purchased for a cash price of P500,000.00 a machine

1.000,0)= 0.11386 which is esuunated to have a salvage value of PS0,000.00 at the end of
12 its 10 yeat ecunomie life. How much yearly deposit must the company
A = Php13,994.72 deposit un a siæking fund hat will pay l18% interest, compounded
yearly, to accumulate the needed fund to purchase a new machine at
Ans.D the end of the 10th year economic life of the machine it purchased if a
new machine will cost 75% mmore by that time.
84. A bank pays one percent interest on savings accounts four times a
A. P35,078.60 C. P35,085.64
B. P40,080.67 D. P35,074.58
year. The effective annual interest rale is
A. 1.00% C. 3.96%
B. 1.04% D. 4.06% Sale.kon

ola-bon 3y SEM
= (1+0.01) -1 =0.0460
-sV- "-
= 4.6%
Ans. D (500.000)(75)-50,000 = 0.18 +0.1s)" -
A =Php 35,074.58

85. Whal interest rate, compounded quaterly, is equivalent to a 9.31%

Ans. D
effecive interest rate?
A. 2.25% C. 4.66%
B. 2.33% D. 9.00% 0. A car dealer acdvertise the sale of a car model for a cash price of
P280,000.00. Ii purchased on installment, the required down pay ment
is 15% and balunce payable in 18 cqual monthly installnents at an
nterest rate of 1.5% per month. How much will be the required
nonthly payuwents?
-1
0om-(-
O.0XX) = 9%
A.PI5,186.70
B. PI5,200.87
C.PI5,185.78
D. Pl6,187.75

AnsD
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Selelion:
Sdton The service has an infinite life, capitalized cost:

Car price = DP + Anual payments

CapCost (Brand B) =initial Cost
A
280,000 0.15(280,.000)+ o.015 1-(1+0.015)" 3.500+0, 000(1-0.87)= Php 29.500.00
A = Php 15,185.78
0.10
Ans.C
AnsC
91. A small building can be reroofed for Php 30,000 (aluminum) or Php 96. The heat loss from bare steam pipes costs a hotel manager Pbp 20,000
175,000 (shingles). The estimated lives are 50 years and 15 years annually. Two brands of insulation are available. Brand A will cost Php
respectively. If the interest rate is 10%, what is the cquivalent uniform 6,000 and will reduce o8ses by 93%. Brand B wil cost Php 3500 and wil
reduce losses by 87%. Which insulation is economically superior if the
annual cost for aluminum?
interest rate is 10% ?
A. Php 30,258.00 C. Php 35,098.00
D. Php 20,675.00
A. Brand A C. both are superior
B. Php 23,0O8.00
B. Brand B D. insufficient data for comparison

Selelen
The service has an infinite life, capitalized cost
EUAC 1 0 " - 1
300,000 20,000(1-0.93) Php 20,000.00
O.100.10)" Cap Cost (Brand A)= 6,000 0.10
EUAC =Php 30,258aluminum
Ans.A Cap Cost (Brand B) =3,500+ 10
=
Php 29.500.00

Brand A is superior for it needs lesser Cap Cost

be reroofed for
92.
A smallbuilding can
175.00
Php 30,000 (aluminum) or Php Ans. A
(shingles). The estimated lives are 50 yearsand15years,
respectively. If the interest rate is 10%. what isthe equivalent unifom
annual cost for shingles? 97 The total estimated costs of producing 240 and 360 units are Php
A. Php 30,258.00 34000and Php 4000 respectively. is cost?
What the incremental
C.Php 35.098.00 A. Php 5.00/unit C. Php 7.50 unit
B. Php 23,008.00 D. Php 20.675.00
B. Php 7.00/unit D. Php 10.00/unit

Seluton

A110 =175,000 incremental cost= 4000-34O0600 Php 5.00/ unit

L 01 0 1 . 1 0 5 I 5 , 0 0 0 360-240
120

EUAC Php 23,008shingles Ans. A

Ans. B
98. The totalestimated costs of producing 240 and 360 units are Php 3400
93. An item is purchased for Php 5,000,000. Amualcosts are Php and Php 4000respectively. Whatis the is the fixed cost?
900,000. Using 8%, what is the capitalized costof perpetual service? A. Php 14.71/unit C. Php 2,200.00 /unit
A. Php 16, 250,000.00 C Php 12,645,000.00 B. Php 5.00/ unit D. Php 4.500.00 /unit
B. Php 12.345.000.00 D. Php 1.450,000.00
Selotian
incremental cost 4000-3400 Php 5.00/umit
The service has an infinite life; capitalized cost: 360-240 120
Cap Cost (Brand A)= initial Cost +
Fited Cost=Php 3400 (Php 5.00/unit 240 units)= Php P 2,200
Ans.C
5,000.00+ n6RPhp16.250,000 CEBU 99. A production onder for200 units is received. The item is made on a
Ans.A
machine that has a Php 1,000.00 set-up., an output of six items per
94. The heat loss from bare stean pipes costs a hotel manager Php 20.000
hour, and a daily fixed cost of Php 5000. The variable item cost is
$1.00. What is the highest price the company could afford to buy the
annually. Two brands of insulationare avaitable. Brand A will cost Php
6,000 and will reduce losses by 93%. Brand B will cost Php 3500 and will item for, instead of producingthe item itself?
A. Php 186.78 c. Php 183.50
reduce losses by 87%. What ure the capitalized conts of perpetual service
for brand A if the interest rate is 10% 7
B. Php 159.25 D. Php 120.50
A. Pbp 16.000.00 C. Php 30,000.00
B. Php 20,000.00 D. Php 42,000.00

Stion: Working hours in a day is assumed to be 8 hours.

The service has an infinite life; capitalized cos 200units
time requreu (6nit l hrX&hrs/ day) 4,17 dayss
A
Cap Cost initial Cost +
Cost per em= piN0+4.17(Php5000)+ 200(Php50)
= 6,000+ 20,000(1-095)-
0.10
Php 20,001K) Php 159.25
200

Ans. B Ans. B
95. The from bare steam pipes costs
heal loss a hotel
manager Php 20,000
annually. Two brands of insulation ure avaikable. BrandA will cost Php
6,000 and will reduce losses by 93%. Brand B will cost Php 3500 and will
reduce losses by 87%. What are thecapitalized costs of perpetual service
for brand B if the interest rate is 10% 7
A. Php 16,0KO.00 C. Pbp 29,.500.0K)
B. Php 20,000.00 D. Plhp 42,000.00
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100. A public works project has an initial cost of Php 1.000,000 benefits
with a present worth of Php 1.500,000 and disbenefits with a present
worth of Php 300,000. What is the benefits cost ratio and the excess of
benefits over costs?
A. 2.0 and Php 5,000,000.00 C. 1.7 and Php 300,000.00
B. 1.2 and Php 1,000,000.00 D. 1.2 and Php 200,000.00

Seloten:
B1SO0,000-300,000 = 1.2
c 1.000,000
B-C Phpl,500,000-Php300,000-Phpl,000,0 = Php200.000.00

Ans. D

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