UNIVERSITY OF THE EAST-MANILA

COLLEGE OF ENGINEERING
INTEG 1-ME1

PROBLEM SET 2-ENGINEERING ECONOMY

1. What is the present worth of two $100 payments at the end of the third and fourth
years if the annual interest rate is 8%? (Ans. $153)

2. Consider a project that involves the investment of $100,000 now and $100,000 at the
end of year 1. Revenues of $150,000 will be generated at the end of years 1 and 2. What
is most nearly the net present value of this project if the effective annual interest rate is
10%? ($69,415)

3. At an annual rate of return of 8%, what is the future worth of $100 at the end of year 4?
(Ans. $136)

4. A person invest 450 pesos to be collected in 8 yrs. Given that the interest rate on the
investment is 14.5% per year compounded annually, most nearly what sum will be
collected 8 yrs from now? (Ans. 1330 pesos)

5. If $500 is invested at the end of each year for 6 yr at an effective annual interest rate of
7%, what is most nearly the total dollar amount available upon the deposit of the sixth
payment? (Ans. $3577)

6. A student needs $4000/yr to attend college. Her father invested $5000 in a 7% account
for her education when she was born. If the student withdraws $4000 at the end of her
17th,18th,19th and 20th years, how much money will be left in the account at the end of
her 21st yr? (Ans $1700)

7. An investment of $350,000 is made to be followed by revenue of $200,000 each year for

three years. What is most nearly the annual rate of return on investment for this
project? (Ans: 0.57143 or 57.143%)
8. A bank is advertising 9.5% accounts that yield 9.84% annually. How often is the interest
compounded? (Ans. Quarterly)

9. What is most nearly the effective annual interest rate on a loan if the nominal interest
rate is 12%/yr compounded quarterly? (12.55%)

10. What is the book value of equipment purchased 3 yrs ago for $15,000 if it is depreciated
using the sum of years digits method? The expected life is 5 yrs. ($3000)

11. Company A purchases $200,000 of equipment in year 0. It decides to use straight line
depreciation over the expected 20 yr life of the equipment. The interest rate is 14%. If
its overall tax rate is 40%, what is the present worth of the after tax depreciation
recovery? ($26,500)

12. A steel drum manufacturer incurs a yearly fixed operating cost of $200,000. Each drum
manufactured costs $160 to produce and sells for $200. What is the manufacturer’s
break even sales volume in drums per year? (5000 drums)

13. A company must relocate on of its factories in 3 yrs. Equipment for the loading dock is
being considered for purchase. The original cost is $20,000, and the salvage value after 3
yrs is $8000. The company’s rate of return on money invested is 10%. The capital
recovery rate per year is most clearly? ($5630)

14. The following cash-flow diagram represents an investment of $400 and a revenue of x at
the end of years one and two. Given a discount rate of 15% compounded annually, what
must x approximately be for this set of cash flows to have a present worth of zero?(Ans.
$246)

15. What annuity over a 10 yr period at 8% interest is most nearly equivalent to a present
worth of $100? (Ans. $14.90)
16. A company invests $10,000 today to be repaid in 5 yr in one lump sum at 12%
compounded annually. If the rate of inflation is 3% compounded annually,
approximately how much profit is realized over 5 years? ($5202)

17. A firm borrows $2000 for 6 yr at 8% to be repaid in a lumpsum at the end of 6 yr. At the
end of 6th year, the firm renews the loan for the amount due plus $2000 more for 2yrs
at 8%. What is most nearly the amount of the loan renewal? ($5506)

18. The following schedule of funds is available to form a sinking fund.

At the end of the fourth year, equipment costing $25,000 will have to be purchased as a
replacement for old equipment. Money is valued at 20% by the company. At the time of
purchase, how much money will be needed? (Ans.1000)

19. $10,000 is invested at the beginning of a year in a 15% security and held for 5 yrs. During
that time, the average annual inflation is 6%. Approximately how much, in terms of year
zero dollars will be in the account at maturity? (Ans: $15,030)

20. $1000 is deposited into a 9% account today. At the end of its 2nd year, another $3000 will
be deposited. In 5th year, a $4000 purchase will be made. Approximately how much will
be left in the account 1 year after the purchase? (Ans. $1542)