ME2

A method used in evaluating projects as an “after-the-fact” justification tool of the

reimbursements to the overheads.
Benefit Cost Ratio

A method that is especially useful in problems involving endowments and public projects with
indefinite lives.
Capitalized Worth

It reflects the capital cost of an asset.

Capital recovery

Numerically, it is the annual worth value of the initial investment at a stated rate of return which
considers the salvage value in its calculations.
capital recovery

The equivalent annual amount an asset must earn to recover the initial investment plus a stated
rate of return.
capital recovery

A method that takes into account the interest rate external to a project at which net cash flows
generated by a project over its life can be reinvested.
External Rate of Return

Is the interest rate which is earned on unrecovered investments in a project such that uncovered
investment at the end of the life of a project is zero.
Internal Rate of Return

Another name for the internal rate of return method which is the discounted cash flow,
profitability index, widely used rate of return for performing engineering economic analysis.
investor’s method

It is a reasonable rate of return established for the evaluation of an economic alternative.

Minimum Attractive Rate of Return

It is a level established by an organization that a capital project must provide a return that
exceeds it.
Minimum Attractive Rate of Return

The lowest rate of return of investment that an organization will accept.

Minimum Attractive Rate of Return

External rate of return amounts discounted to the present at minimum attractive rate of return
per compounding period.
Net cash outflows
A method used in evaluating projects which is a measure of liquidity rather than a measure of
profitability.
Payback Period

Amount of time before recovery of the initial capital investment is expected.

Payback Period

Another name for the internal rate of return method which is the discounted cash flow, investor’s
method widely used rate of return for performing engineering economic analysis.
Profitability Index

It is the rate on the unpaid balance of borrowed money, or rate earned on the unrecovered
balance of an investment such that the last cash flow brings the balance exactly to zero.
rate of return

The estimated interest rate produced by an investment.

rate of return

The numerical value of i in a rate of return equation can range from:

-100% to infinity

The internal rate of return on an investment refers to the interest rate earned on the:
unrecovered balance of the investment

For the net cash flows and cumulative cash flows shown, the value of x is:

Year 1 2 3 4 5

NCF, $ +13,000 -29,000 - x -8,000

25,000

Cumulative NCF, +13,000 -16,000 - +9,000 +1,000

$ 41,000
50,000

For the net cash flows and cumulative cash flows shown, the value of x is:

Year 1 2 3 4 5

NCF, $ +10,000 - -15,000 x -4,500

 23,000

Cumulative NCF, +10,000 - -28,000 +5,500 +1,000

$ 13,000
33,500

If the extra benefits obtained by investing additional capital are better than those that could be
obtained from investment of the same capital elsewhere in the company at the MARR, the
investment should be made.
True

If money is borrowed specifically for a project, the interest rate on the borrowed capital is
appropriate to use as the rate.
True

Recommendations using the BCR method will result in identical recommendations to PWM,
FWM and AWM.
True

The internal rate of return can never be equal to the external rate of return.
False

A conventional cash flow series is one wherein: total of cumulative cash flows is zero
False

A company purchases a new machine with an initial cost of $15,000 and a salvage value of
$1,800. Net revenues in year 1 are $8,000, $8,150 in year 2, and increase by $150 each year
the following 8 years. Use a MARR of 12%. Determine the present worth (in $).
33,819.45

A company purchases a new machine with an initial cost of $15,000 and a salvage value of
$1,800. Net revenues in year 1 are $8,000, $8,150 in year 2, and increase by $150 each year
the following 8 years. Use a MARR of 12%. What is the annual worth (in $)?
5,985.51

A company purchases a new machine with an initial cost of $15,000 and a salvage value of
$1,800. Net revenues in year 1 are $8,000, $8,150 in year 2, and increase by $150 each year
the following 8 years. Use a MARR of 12%. Determine the IRR of this machine (in %, round off
to 2 decimal places).
55.21

An asset was purchased for P100,000 and retired at the end of 15 years with a salvage value of
P4,000. The annual operating cost was P18,000. Determine the capitalized cost (in $) of the
asset based on an interest rate of 8%.
369,195.45
What is the capitalized cost (in $) of a project cost of a public works project that will cost
$25,000,000 now and will require $2,000,000 in maintenance annually? The effective annual
interest rate is 12%.
41,666,666.67

The initial cost of a proposed project is $40M, the capitalized perpetual annual cost is $12M, the
capitalized benefit is $49M, and the residual value is $0. Determine the difference of the
benefits and costs (in $) of the project.
-3,000,000

A road resurfacing project costs $200,000, lasts 5 years and saves $100,000 annually in
patching costs. MARR is 10%. Determine the BCR (round off to 3 decimal places) of the project.
1.895

A road resurfacing project costs $250,000, lasts 5 years and saves $150,000 annually in
patching costs. MARR is 12%. Determine the present worth (in $).
290,716.43

A road resurfacing project costs $250,000, lasts 5 years and saves $150,000 annually in
patching costs. MARR is 12%. Determine the future worth (in $).
512,341.68

A road resurfacing project costs $250,000, lasts 5 years and saves $150,000 annually in
patching costs. MARR is 12%. Determine the annual worth (in $).
80,647.57

A road resurfacing project costs $250,000, lasts 5 years and saves $150,000 annually in
patching costs. MARR is 12%. Determine the BCR (round off to 3 decimal places) of the project.
2.163

A contractor is saving money for a lucrative project. The initial cost is $175,000, annual outlays
for maintenance is $1,500 and $4,000 every 3 years. There will be an additional one-time cost
of $15,000 in 2 years for miscellaneous fixtures. At an interest rate of 8% per annum, how much
money must he save now (in $) for the project?
210,431.76

A contractor is saving money for a lucrative project. The initial cost is $155,000, annual outlays
for maintenance is $1,000 and $2,000 every 3 years. There will be an additional one-time cost
of $10,000 in 2 years for miscellaneous fixtures. At an interest rate of 10% per annum, how
much money must he save now (in $) for the project?
179,306.76

Survey indicates that remunerations of field engineers are P1.75M against P2.9M for field
engineers with Construction Occupational Safety and Health (COSH) and other accredited
trainings. If the cost of trainings is assumed to be P1.5M per year for 2 years and the forgone
earnings during those years are assumed to be P1.75M per year, what internal rate of return (in
%, round off to 2 decimal places) does training represent? Use a 10year study period at a
MARR of 5%.
7.47

Survey indicates that remunerations of field engineers are P1.5M against P2.5M for field
engineers with Construction Occupational Safety and Health (COSH) and other accredited
trainings. If the cost of trainings is assumed to be P1.25M per year for 2 years and the forgone
earnings during those years are assumed to be P1.5M per year, what internal rate of return (in
%, round off to 2 decimal places) does training represent? Use a 10year study period at a
MARR of 8%.
8.11

Statistics show that the annual earnings for persons with a bachelor’s diploma are $35,220
versus $57,925 for someone with a master’s degree. If the cost of attending graduate studies is
assumed to be $30,000 per year for 4 years and the forgone earnings during those years are
assumed to be $35,220 per year, what rate of return (in %, round off to 2 decimal places)does
earning a master’s degree represent? Use a 35-year study period.
6.85

Ten years ago, a construction company purchased equipment for $5,700. Scrap value after 10
years is $1,000. At present, the average annual revenue of the company is $1,040. How much
(in $) was the company able to recover based from its revenue at 12% per year return?
88.18

Ten years ago, Mr. XYZ purchased a tractor for $285,000. He anticipated a salvage value of
$50,000 after 10 years. During this time his average annual revenue totaled $52,000. If the
annual M&O cost was $10,000 the first year and increased by a constant $1000 per year, what
was the annual worth (in $) at 12% per year? Assume the $50,000 salvage was realized.
-9,175

Given the cash flow diagram below, determine the external rate of return (in %, round off to 2
decimal places). MARR=8%
9.97

ABC purchased for a project for $3.15 million. The net cash flow is estimated at $500,000 per
year, and a salvage value of $400,000 is anticipated regardless of when it is sold. Determine the
number of years (round off to 2 decimal places) the equipment must be used to obtain payback
at MARR of 0% per year.
5.5

ABC purchased for a project for $3.15 million. The net cash flow is estimated at $500,000 per
year, and a salvage value of $400,000 is anticipated regardless of when it is sold. Determine the
number of years (round off to 2 decimal places) the equipment must be used to obtain payback
at MARR of 8% per year.
8.2

ABC purchased for a project for $3.2million. The net cash flow is estimated at $550,000 per
year, and a salvage value of $450,000 is anticipated regardless of when it is sold. Determine the
number of years (round off to 2 decimal places) the equipment must be used to obtain payback
at MARR value of 5% per year.
6.19

ABC purchased for a project for $3.2million. The net cash flow is estimated at $550,000 per
year, and a salvage value of $450,000 is anticipated regardless of when it is sold. Determine the
number of years (round off to 2 decimal places) the equipment must be used to obtain payback
at MARR value of 10% per year.
8.26

A proposed project is to be assessed given the cash flow diagram below. Determine the
external rate of return (in %, round off to 2 decimal places) with a MARR=12%.

6.22

A proposed project is to be assessed given the cash flow diagram below. Determine the
external rate of return (in %, round off to 2 decimal places) with a MARR=10%
10.01

Shown in the table are the cash flows for 4 water treatment systems that are to be compared at
a MARR of 13% per year. Determine the savings between the alternative to be selected and the
next one.
Life n, years 3 4 6 12

Capital Investment, 150,00 175,000 250,00 450,000

$ 0 0

Salvage Value, $ 15,000 0 5,000 30,500

Revenue, $ 60,000 60,500 65,000 75,000

1,396.44

Shown in the table are the cash flows for 4 water treatment systems that are to be compared at
a MARR of 8% per year. Determine the savings between the alternative to be selected and the
next one.
5,291.71

Shown in the table are the cash flows for 4 water treatment systems that are to be compared at
a MARR of 11% per year. Determine the savings between the alternative to be selected and the
next one.
492.81

Shown in the table are the cash flows for 4 water treatment systems that are to be compared at
a MARR of 7% per year. Determine the savings between the alternative to be selected and the
next one.
6,799.09
Shown in the table are the cash flows for 4 water treatment systems that are to be compared at
a MARR of 9% per year. Determine the savings between the alternative to be selected and the
next one.
3,736.9

Shown in the table are the cash flows for 4 water treatment systems that are to be compared at
a MARR of 10% per year. Determine the savings between the alternative to be selected and the
next one.
2,136.6

Shown in the table are the cash flows for 4 water treatment systems that are to be compared at
a MARR of 12% per year. Determine the savings between the alternative to be selected and the
next one.
1,192.44

Analyze the alternatives given below using capitalized cost at an interest rate of 12% per
annum. What is the difference between the 2 alternatives?
Alternative A Alternative B

Initial Cost, $ 150,000 800,000

Operating Cost, $ 50,000 12,000

Market Value EOL, 8,000 1,000,000

$

Life, years 5 ∞
147,065.15

Analyze the alternatives given below using capitalized cost at an interest rate of 11% per
annum. What is the difference between the 2 alternatives?
97,263.78

Analyze the alternatives given below using capitalized cost at an interest rate of 13% per
annum. What is the difference between the 2 alternatives?
189,133.34

Analyze the alternatives given below using capitalized cost at an interest rate of 8% per annum.
What is the difference between the 2 alternatives?
127,560.21

Analyze the alternatives given below using capitalized cost at an interest rate of 7% per annum.
What is the difference between the 2 alternatives?
245,606.84

Analyze the alternatives given below using capitalized cost at an interest rate of 10% per
annum. What is the difference between the 2 alternatives?
37,407.58
Analyze the alternatives given below using capitalized cost at an interest rate of 9% per annum.
What is the difference between the 2 alternatives?
35,856.99

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 5% increment at a MARR of
4%.

8.662928005

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 5% increment at a MARR of
6%.
8.851360554

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 5% increment at a MARR of
5%.
8.796571624

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 3% increment at a MARR of
8%.
8.647470031
For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 4% increment at a MARR of
8%.
8.673989048

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 4% increment at a MARR of
7%.
8.750747997
For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 3% increment at a MARR of
7%.
8.681370548

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 3% increment at a MARR of
6%.
8.630371958

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 5% increment at a MARR of
8%.
8.70105485

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 5% increment at a MARR of
7%.
8.821561911

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 4% increment at a MARR of
6%.
8.739729142

For the cash flows shown in the diagram below, determine the internal rate of return (in %,
round-off to 5 decimal places) by using interpolation method with 4% increment at a MARR of
5%.
8.646865701

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 7% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
12.1819822

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 6% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
11.67723163
An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 9% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
13.19019958

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 8% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
12.68628414

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 5% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
11.17196509

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 11% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
14.19709591

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 10% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
13.69378589

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 13% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
15.2030777

An initial capital of $25,000 was put up for a new project that will produce an annual income of
$8,500 for 5 years and then will have a salvage value of $1,000 at that time. Annual expenses
for its operation and maintenance amounts to $750. If money is worth 12% compounded
annually, determine the project's ERR (in %, round-off to 5 decimal places).
14.70017827

Given the table of values, solve for the Benefit Cost Ratio (round-off to 4 decimal places) at an
interest rate of i=12% per annum.
 PW, $ AW, $ FW, $

First Cost 100,000 221,068

M&O 50,670 10,408 98,742

Cost

Benefits 40,000 403,560

Disbenefits 22,819 5,000

1.0601

Given the table of values, solve for the Benefit Cost Ratio (round-off to 4 decimal places) at an
interest rate of i=10% per annum.
PW, $ AW, $ FW, $

First Cost 100,000 194,872

M&O 50,670 10,408 98,742

Cost

Benefits 38,000 360,512

Disbenefits 22,180 4,556

1.0806

Given the table of values, solve for the Benefit Cost Ratio (round-off to 4 decimal places) at an
interest rate of i=10% per annum.
PW, $ AW, $ FW, $

First Cost 100,000 259,370

M&O 61,446 10,000 159,374

Cost

Benefits 40,000 637,496

Disbenefits 30,723 5,000

1.3321
Determine the payback period (in years, round-off to 5 decimal places) at an interest rate of 9%
per year for an asset that initially cost $30,000, has a scrap value of $1,700 whenever it is sold,
and generates cash flow of $3,100 per year.
23.18020861

Determine the payback period (in years, round-off to 5 decimal places) at an interest rate of 8%
per year for an asset that initially cost $30,000, has a scrap value of $1,700 whenever it is sold,
and generates cash flow of $3,100 per year.
18.75965443

Determine the payback period (in years, round-off to 5 decimal places) at an interest rate of
10% per year for an asset that initially cost $30,000, has a scrap value of $1,700 whenever it is
sold, and generates cash flow of $3,100 per year.
35.44959709

Determine the payback period (in years, round-off to 5 decimal places) at an interest rate of 7%
per year for an asset that initially cost $30,000, has a scrap value of $1,700 whenever it is sold,
and generates cash flow of $3,100 per year.
16.14786404