Engineering Economy Quiz 2

Instructions:
 Deadline of submission is today, January 23 (Monday), 5:00 PM. Submissions beyond the deadline
will not be accepted.
 Upload your solutions at the end of the form. Submit your file as SURNAME.pdf. Do not put other
names or unnecessary notes in the filename. Write your name at the top left corner of the 1st
page of your solution.
 No need to rewrite the problems on your solutions. Just provide solutions according to their
consecutive order.
 WORK INDEPENDENTLY SO YOU COULD EVALUATE IF YOU HAVE REALLY UNDERSTOOD THE
TOPICS DISCUSSED. DO NOT TRY TO INPUT OR SUBMIT SOMETHING YOU CANNOT EXPLAIN IF
ASKED DIRECTLY TO YOU.
Solving Guidelines:
 For every problem, provide the Given, Required, and Solution. Show the formula to be used and
show how values will be substituted.
 Do not round off in between calculations. Rounding off must only be done on the final answer.
 Express your answer in 2 decimal places unless stated otherwise.

Questions:
1. A Filipino contractor in the USA plans to purchase a new office building costing P1,000,000. He
agrees to pay P150,000 annually for 20 years. At the end of this time, he estimates that he can
resell the building for at least P600,000. Instead of buying the building he can lease it for P140,000
a year. All payments are to. be made at the beginning of each year and the rate of interest is 10%.
Draw the cashflow diagram for both situations.
a) What is the present worth of the purchasing price?
b) What is the present worth of the leasing price?
c) Should the contractor purchase or lease the building?

2. Determine the difference between the capitalized cost of the timber and steel penstock for a
hydroelectric plant with interest of 10%:

Timber Steel
First Cost Php50,000 Php80,000
Estimated Life 10 years 30 years
Scrap Value Php2,000 None
Annual Maintenance Php1,200 Php200
Show calculations for the capitalized cost of each item separately.

3. What amount of money invested today at an interest of 14.22% compounded quarterly can
provide the following scholarships: P30,000 at the end of each year for 6 years; P40,000 for the
next 6 years, and P50,000 thereafter? Draw the cashflow diagram.

4. A bond with a par value of Php1,000 with a bond rate of 10% payable annually is sold now for
Php1,080. If the yield is to be 12%, how much should the redemption price be at the end of 8
years?