ENGINEERING ECONOMICS

ASSESSMENT 3
1. A brand new car costs 500,000P and the salvage value is 10% of the original cost after 20 years.
Find the book value of this car after 5 years by straight line method.
Given:
C O=500,000 P
C L =50,000 P
n=5 years
L=20 years
Find: C 5
Formula:
C n=C O−Dn
n
D n= (CO −C L )
L
n
C 5=CO − (C O−C L )
L
Solution:
n
C 5=CO − (C O−C L )
L
5
C 5=500,000− (500,000−50,000)
20
C 5=387,500 P

2. A generator set costs 500,000P and the salvage value is 10% of the original cost after 20 years,
find the depreciation charge per year if money worth 12%.
Given:
C O=500,000 P
C L =10 % of C O=50,000 P
i=12 %∨0.12
L=20 years
Find: d
Formula:
( C O−C L ) i
d=
( 1+i )n−1
Solution:
( C O−C L ) i
d=
( 1+i )n−1
( 500,000−50,000 ) 12
d=
( 1+ 0.12 )20−1
d=6,245 P

3. A car costs 500,000P and the salvage value is 10% of the original cost after 20 years. Find the
depreciation charge at the 8th year by sum of the year’s digit method (SYDM).
Given:
N=8
L=20
C O=500,000 P
C L =50,000 P
Find: d 8
Formula:
2( L−n+1)
d n= C −C L
L(L+1) O
Solution:
2( L−n+1)
d n= C −C L
L(L+1) O
2(20−8+1)
d8 = 500,000−50,000
20(20+ 1)
d 8 =27,857 P

4. A lathe machine cost 650,000P and the salvage value is 65,000P after 20 years, find the
depreciation charge at the 5th year by Matheson’s Formula, (Declining Balance Method, DBM)
Given:
C O=650,000 P
C L =65,000 P
L=20 years
n=5
Find: d 5
Formula: d n=CO k (1−k )n−1
Solution:

k =1−
√
L CL

CO

k =1−
√65,000
20

650,000
k =0.1087

d n=CO k (1−k )n−1

5−1
d 5=(650,000)(0.1087)(1−0.1087)
d 5=44,590 P

5. A pump costs 50,000P and the useful life is 10 years. Find the book value after 8 years by double
declining balance method.
Given:
C O=50,000 P
L=10 years
n=8 years
Find: C 8
Solution:

( )
C n=C O 1−
2 n
L

(
C 8=50,000 P 1−
2 8
10 )
C 8=8,388.608 P
C 8=8,389 P
6. A concrete hollow blocks (CHB) machine costs 40,000P and the salvage value is 4000P after 6
years. If it could make 108,000 pieces of hollow blocks within the useful life, find the depreciation
charge at the year 1999 if it made 15,000 pieces only.
Given:
C O=40,000 P
C L =4,000 P
L=10 years
T =108,000 pieces of hollow blocks ( estimated units¿be produced )
T n=15,000 pieces of hollow blocks (actual units produced)
Find: D n
Solution:
D n=( T )
CO −C L
Tn

D n=( 40,000 P−4,000 P

108,000 ) 15,000
D n=5,000 P

7. A car costs 500,000P and the salvage value is 50,000P after 20 years. Find the book value after
5 years if money worth 12% per annum.
Given:
C O=500,000 P
C L =50,000 P
i=12 %∨0.12
L=20 years
n=5 years
Find: C 5
Solution:
( 1+i )n−1
C 5=CO − L
(C O−C L )
( 1+ i) −1
( 1+0.12 )5 −1
C 5=500,000− 20
(500,000−50,000)
( 1+0.12 ) −1
C 5=460,324 P

8. A motor costs 60,000P and the salvage value is 6000P after 10 years. If it was used for 28,800
hours within the useful life, find its depreciation at the year 1998 if its total operating hours were
2520.
Given:
C O=60,000 P
C L =6,000 P
L=10 years
H=28,800hours
H n=2,520hours
Find: D n
Solution:

(
D n= O
C −C L
H ) Hn

D n=( 60,000 P−6,000 P

28,800 )2520
D n=4,725 P

9. A tractor costs 800,000P and whose salvage value is 40,000P after 10 years. Find the total
depreciation after 6 years by declining balance method.
Given:
C O=800,000 P
C L =40,000 P
L=10 years
n=8 years
Find: d n
Solution:

k =1−
L CL

√
CO

k =1−
k =0.2589
√
40,000
10

800,000

Solving for D n:
n−1
d n=CO k (1−k )
d 6 =800,000 ( 0.2589 )( 1−0.2589 )6−1=46,302.68
d 5=800,000 ( 0.2589 )( 1−0.2589 )5−1=62,478.31
4 −1
d 4 =800,000 ( 0.2589 ) ( 1−0.2589 ) =84,309.83
d 3=800,000 ( 0.2589 )( 1−0.2589 )3−1=113,756.35
2−1
d 2=800,000 ( 0.2589 )( 1−0.2589 ) =153,496.63
d 1=800,000 ( 0.2589 )( 1−0.2589 )1−1=207,120
∑ d n=¿ 46,302.68+62,478.31+84,309.83+113,756.35+153,496.63+207,120 ¿
∑ d n=¿ 667,459 P ¿
10. A generator costs 500,000P and whose salvage value is 10,000P after 20 years. Find the book
value after 12 years by sum of the year’s digit method.
Given:
C O=500,000 P
C L =10,000 P
L=20 years
n=12
Find: C 12
Solution:
D n=
[ ]
n ( 2 L−n+ 1 )
L ( L+ 1 )
( C O−C L )

D n=
[
12 ( 2(20)−12+1 )
20 ( 20+1 ) ]( 500,000 P−10,000 P )
D n=406,000 P
Solving for C 12
C n=C O−Dn
C 12=500,000 P−406,000 P
C 12 =94,000 P
11. A personal computer costs 60,000P and the salvage value is 5000P after 10 years. Find the
book value after 6 years if money worth’s 12% per annum.
Given:
C O=60,000 P
C L =5,000 P
L=10 years
n=6 years
i=12 % per annum=0.12
Find: C 6
Solution:
( C O−C L ) i
d=
( 1+i )L −1
( 60,000−5,000 ) 0.12
d=
( 1+ 0.12 )10−1
d=3,134.129029

D n=d [ ( 1+i )n−1

i ]
D 6=3,134.129029 [
( 1+0.12 )6−1
0.12 ]
D 6=25,434.04955

C n=C O−Dn
C 6=60,000−25,434.04955
C 6=34,565.95045 P
C 6=34,566 P

12. A car costs 800,000P 4 years ago and the salvage value is 50,000P 6 years from now. If it is to
be replaced by a new one and the trade in value is 450,000P find the sunk cost if money worth’s
12%.
Given:
C O=800,000 P
C L =50,000 P
L=10 years
n=6 years
ResaleValue=450,000 P
i=12 % per annum=0.12
Find: SC
Solution:
SC=Cn −Resale Value
For n=4
SC=C4 −450,000 P

By SFM:
C n=C O−Dn
(1+i )n−1
D n= L
(CO −C L )
( 1+i ) −1
( 1+i )n−1
C n=C O− L
(C O −C L )
( 1+ i ) −1
Solution:
Solving for C 4:
( 1+i )n−1
C n=C O− L
(C O −C L )
( 1+ i ) −1
( 1+0.12 )4 −1
C 4=800,000− 10
(800,000 P−50,000 P)
( 1+ 0.12 ) −1
C 4=595,740.50 P

SC=C4 −450,000 P
SC=595,740.50 P−450,000 P
SC=145,741 P

13. To develop a timberland containing 2,000,000 trees required an initial investment of

30,000,000P. In a certain year, 400,000 trees were cut off. Find the depletion charge during the
year.
Given:
C O=30,000,000 P
T =2,000,000 P
Sn=400,000 P
Find: d n
Solution:
(C ¿ ¿ O−C L )
d n= Sn ¿
T
( 30,000,000−0 )
d n= ( 400,000)
2,000,000
d n=6,000,000 P
d n=6 M P

14. A mining company has a gross income of 32,000,000P per month from the production of iron
core. All expenses, excluding depletion expenses, amount of 26,000,000P per month. If the fixed
depletion rate of iron core is 15%, what is the monthly depletion allowance?
Given:
GI =32,000,000 P
Expenses Excluding Depletion=26,000,000 P
Percentage Allowance for Natural Resources=15 %∨0.15
Find: d n
Solution:
GI =d n=( Percentage Allowance )( GI )
¿=GI−Expenses Excluding Depletion

d n= ( 0.15 )( 32,000,000 P )
d n=4,800,000 P

¿=32,000,000 P−26,000,000 P
¿=6,000,000 P

d n=50 % ( ¿ )
d n=0.50 ( 6,000,000 P )
d n=3,000,000 P

15. Ten hectares of timberland will yield an annual profit of 1,000,000P for 10 years, after which the
timber will be exhausted. The land can be sold for 12,000P per hectare. If the prospective buyer
wishes to earn 15% on his investment and can deposit money in a sinking fund at 8%, determine
the maximum price he could pay for the timberland.
Given:
A=1,000,000 P
C L =120,000 P
L=10 years
i=8 %=0.08
Solution:
( P−C L ) i
A=Pr+
( 1+i )L −1
( P−120,000 ) 0.08
1,000,000=P(0.15)+
( 1+0.08 )10−1
( P)(0.08) (120,000)(0.08)
1,000,000=P ( 0.15 ) + 10
−
( 1+0.08 ) −1 ( 1+ 0.08 )10−1
(120,000)(0.08) (P)(0.08)
1,000,000+ 10
=P ( 0.15 )+
(1+ 0.08 ) −1 ( 1+0.08 )10−1
P=4,603,414.566 P
P=4,603,415 P

16. A machine cost 100,000P and with a useful life of 25 years. Find the book value after 3 years by
using double declining balance method.
Given:
C O=100,000 P
L=25 years
n=3 years
Find: C 3
Solution:

( )
n
2
C n=C O 1−
L

(
C 3=100,000 P 1− )
2 3
25
C 3=77,868.8 P
C 3=77,869 P

17. A machine cost 80,000P and the salvage value is 20,000P after 20 years. Find the book value
after 2 years by using sum of the years digit method.
Given:
C O=80,000 P
C L =20,000 P
n=2 years
L=20 years
Find: C 2
Formula:
C n=C O−Dn
D n= [
n ( 2 L−n+ 1 )
L ( L+ 1 )] ( C O−C L )
Solution:
Solving for D2:

D 2=
[
2 ( 2(20)−2+1 )
20 ( 20+1 ) ] ( 80,000−20,000 )
D 2=11,142.85714

Solving for C 2:
C n=C O−Dn
C 2=80,000−11,142.85714
C 2=68857.14286
C 2=68857 P

18. A machine cost 80,000P and the salvage value is 20,000P after 20 years. Find the constant
percentage in the declining book value.
Given:
C O=80,000 P
C L =20,000 P
L=20 years
Find: k
Solution:

k =1−
L CL

CO√
k =1−
√
20,000
20

80,000
k =0.0669 ×100 %
k =6.69 %

19. A machine cost 80,000P and the salvage value is 20,000P after 20 years. Find the sinking fund
factor if interest rate is 8% per year.
Given:
C O=80,000 P
C L =20,000 P
L=20 years
i=8 %=0.08
Find: SFF
Solution:
i
SFF=
( 1+i )L −1
0.08
SFF=
( 1+0.08 )20−1
SFF=0.0219

20. A machine cost 80,000P and the salvage value is 20,000P after 20 years. Find the depreciation
charge by sinking fund method if interest rate is 8% per year.
Given:
C O=80,000 P
C L =20,000 P
L=20 years
i=8 %=0.08
Find: d
Solution:
( C O−C L ) i
d=
( 1+i )L −1
( 80,000−20,000 ) 0.08
d=
( 1+0.08 )20−1
d=1311.13 P
d=1311 P