ENGINEERING ECONOMY Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L, Dimal NOMINAL RATES AND EFFECTIVE RATES Nominal Rate of Interest (NRI) - specifies the rate of interest ‘and the number of interest periods per, year. . r=im where: nominal rate of interest interest rate per period m = number of periods Effective Rate of Interest (ERI) - is the actual or exact rate of interest earned on the principal during @ one-year period: ~ 4 ERI=(1+i)"-1 where: ERI = Effective Rate of Interest \ i = interest per period = r/m m = number of periods Using the calculator, we will no longer use the formulas, we'll just use the statistical‘mode (AB*). Example 1: Determine the effective rate of 12% compounded quarterly. , A. 12.89% C. 12.55% B. 12.57% D. 11.67% Solution: For compounded quarterly, m = 4. 500 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY Solution 1: Consider column X as months and Y as the interest rates. ‘period for quarterly is 3 months and the effective rate is 12 months. Solve for Y when X is 12, or) Subtract 1 from the result then multiply by 100 to- convert it to % form. Therefore, the effective rate is.C..12.55%. - 501 - Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal Alternate solutioi Solution 2: Consider column X as years and Y as the interest rates. 1 period for quarterly, is 1/4 year. and effective rate is t year. Subtract 1 from thé result then muti by 100 to. convert it to % form. ‘ Therefore, the effective rate.is C. 12.55%. 2802: Scanned with CamScanner, Calculator Techniques - ENGINEERING ECONOMY Solution 3: Consider column X as periods. There are 4 periods for effective rate of 1 year ’ based from quarterly. Solve for Y when X is 4. . Therefore, the effective rate is C. 12.55%. Regardless of what consideration for column x (i.e. months, years, period), the result is the same. Just _ consider the number. of mgnths or periods with _reference to 1 year for any type of. modes of compounding. 503 Scanned with CamScanner\ CALCULATOR TECHNIQUES by Engr: Reynilan L. Dimal Example 2: : : Given the effective rate of 12%, find the nominal rate compounded semi-annually. A. 12,12% x C.11.49% ° B, 11.39% D. 11.66% Solution: Solution.1: Consider column X as months. 12 months is for effective rate of.1 year. For serhi- annual there are 6 months. Find Y when X = 6. Subtract 1 from the result theh multiply m = 2 (2 _ semi-annual in 1 year) to convert to nominal rate. _ Then multiply by 100 to convert to % form. 504 Scanned with CamScannerTherefore, the nominal rate compounded .semi- _ annually is D. 11.66%. Alternate solution: Solution 2: Consider column X as years / period. This solution will be the same as solution 3 : (considering column X as period) because for: effective rate, t year is 1 period, For semi-annual, there are 1/2 year. Find Y when x = 1/2. 4 CT .y Tes Mrs ks) ; 505 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal Subtract 1 from the result then multiply m= 2 (2 semi-annual in 1 year) to convert to nominal rate. Then multiply by 100 to convert to % form. Therefore, the nominal rate compounded semi- annually is D. 11.66%. Most of the time, we will be using solution 3 where column X is considered number of periods. Example 3: Find the norhinal rate which if converted quarterly could be used instead of 12% compounded monthly. What ‘is the corresponding nominal rate? A. 12.46% C. 12.19% B, 12.12% D. 12.89% Solution: Consider column X as periods. Given is 12% compounded monthly (m = 12). ec) 506 Scanned with CamScanner| Cate Tecnu ENGINEERING ECONOMY a | To convert to compounded quarterly, there are 3 periods (months) for 1 quarter. Get Y when X = 3, “Subtract 1 from the result then multiply by m = a4 (m = 4 for quarterly) to convert to nominal rate. | -Therefore, the nominal rate quarterly is.B. 12.12%. Example 4: Find the nominal rate compounded monthly which is equivalent to 12% compounded quarterly. A. 11.88% C. 12.78% B, 10.57% D. 12.67% 507° \ Orog Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L, Dimal | Solution:-Consider column X as periods. Given is 12% compounded quarterly (m = 4). To convert to compounded monthly, there are 1/3 periods (1, month) for 1 quarter (3 months). Get Y | when X = 1/3. Subtract 1 from the result then multiply by m =-12 (m = 12 for monthly) to convert to nominal rate. Therefore, the nominal rate monthly is A. 11.88%. E 508 ; : Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY Example 5: If P1,000 becomes P1,811.36 after 5 years when invested at an unknown rateiof interest - compounded bimonthly, determine the unknown nominal rate and the corresponding effective rate, respectively. A. 6%, 12% C. 12%, 12.616% B. 10%, 10.562% D. 13%, 13.256% , Solution: _For compounded bimonthly, m = 6 (6 periods in a year or every 2 months), After 5 years, r umber of periods becomes 30 (5 years x 6 periods/year). Input to mode 3 6, as column X = periods and Y is the amount. : ‘To solve for nominal rate, get Y when X = 1 (1 period). h | Oo ousom 509 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr, Reynilan L. Dimal Divide by 1000 to-get the interest rate. Then subtract by 1. Then multiply by m = 6 to get the nominal rate. Therefore the nominal rate is 12%. To get the corresponding effective rate, evaluate Y when X = 6 (6 period for 1 year). Divide by 1000 to get the interest rate. Then subtract by 1.to get the effective rate. " ‘Therefore, the effective rate‘is 12.616%. The answer is C. 12%, 12.616%. 510 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY COMPOUND INTEREST The addition of interest to the principal sum ofa . loan or deposit is called compounding. Compound , ‘interests interest on interest. It is the result of reinvesting interest, rather than paying it out, so that the interest in the next period is then earned on the principal sum plus previously-accumulated interest. mt F=P(1+i)" or F=P(1+4) m where: F.= Future worth P = Present worth i = Effective interest rate per interest period (per month, per quarter, per year, etc.) n = total number of compounding period’ m= mode of compounding . r = specified nominal rate t-= number of-years Calculator technique uses.the statistical mode (AB*) and remember the concept: 4 : F=P(ny) where: F = Future worth P = Present worth fn = number of periods calculator function 511 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal Example 1: ae, What is the future worth of P12,000 deposited in an account earning interest at the rate of 9% compounded quarterly for 8 years? A, 20,500.23 C.. 24,457.24, B. 25,400.56 D. 23,642.56 Solution: Consider column X as periods. ; For 8 years compounded quarterly, number of ~- periods is 32 (4 periods/year x 8 years). ~ iz Using the formula F=P(ny) 5 multiply to present worth of: 12,000 to get the future worth. Therefore, the future worth is’C. 24,457.24. 512 , Scanned with CamScanner\Calculator-Techniques - ENGINEERING ECONOMY . Example 2: A man possesses a promissory note whose maturity value is P6700, due in 3 years hence. If the rate of + interest is 10%, compounded semi-annually, what is the value of this note now? A. 4,000 Cc. 3,000. B. 6,000 “ D. 5,000 Solution: For 3 years compounded semi-annually, number of periods is 6 (2 periods/year x 3 years). 3 Therefore, the present worth is D. 5,000. ¥ . 513 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal _ Example 3: By the conditions of a will, the sum of P25,000 is left to a girl to be held in trust by her guardian until it amounts to P45,000. When will the girl receive - the money if the+ fund i is invested at 8 percent compounded quarterly? A. 6 years C. 7 years — B. 8 years D. 9 years Solution: .Solve for X when Y is 1.8 to get the number of periods. 514 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY To get the number of years, divide this value by m = 4 (m= 4 for quarterly). Rounding up the value, the girl will receive the money after 8 years. You need to round up the value because 7 years is not enough for the money to become 45000. And-in economy, when. the answer is time, always round up the value. Therefore, answer is B. 8 years. Example 4: How long will it take for an investment to double its amount if invested at an interest rate of 6% compounded monthly? A. 10 years C. 13 years. B. 12 years D. 14 years Solution: 515 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal The ratio of Future. worth to Present worth is.2 ‘ because the investment doubles. : Hence, solve for X when Y is 2 to get the number of periods. , To get the number of years, divide this value by m = 12.(m =, 12 for monthly). Rounding up the value, after 12’ years the investment doubles its value. Therefore, answer is B. 12 years. © Example.5: How long will it take the money to triple itself if invested at 8% compounded annually? A. 14 years Cc. 15 years B. 16 years D. 12 years “Solution: 516 Scanned with CamScanner” Calculator Techniques - ENGINEERING ECONOMY The ratio of Future worth to Present worth is 3 because the investment triples. Hence, sdlve for X when Y is 3 to.get tlie number of periods. m because its x is in years. Rounding up the value, after 15 years the. investment triples its value. Therefore, the answer is-C. 15 years. Example 6: How much money should a man invest in a bank account paying 8 percent annual interest compounded continuously if he wants to use the money to buy a $20,000 car in 4 years?: A. $14,522.98 C. $18,667.84, B. $13,007.32 D. $12,780.05 Sojution: $ For continuously compounding account, m approaches infinity. In mathematics, ry lim (a+2) =e M-~r00) m)}* 517 Scanned with CamScannert CALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal Hence, annual rate for 8% compounded continuously is e%°°,. For 4 years compounded continuously, solve for y when x is.4, anenc using thé formula F =P(nf), divide $20,000 by this value to get the. present worth. Therefore, the present worth is A. $14,522.98. 518. Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY Example 7: How long will it take the money to double if itis . compounded continuously at an annual rate of 5 percent? ‘ : A. 12.45 years C. 15.26 years B. 13.86 years 4 - D. 14.78 years Solution: The ratio of Future worth to Present worth is 2 os because the money doubles. Hence, solve for X when Y.is 2 to get the number of periods, li > No need to divide this value My, m because its x is in years. Therefore, the money doubles iri B. 13.86 years. 519 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L, Dimal cet ca rata tees ANNUITY . A uniform series of payments occurring at equal interval of time. Examples of annuities are regular deposits toa savings‘account, monthly home mortgage payments, monthly insurance payments and pension’payments. Annuities are classified: by the frequency of payment dates. The payments (deposits) may be made weekly,-monthly,. quarterly, yearly, or at any other interval of time. ‘Types. of Annuity: 1. Ordinary Annuity 2. Annuity Due 3. Deferred Annuity 4. -Perpetuity Calculator technique uses the statistical mode (AB") and remember thé.concept: read where: P = Present worth A= petiodic'equal payments ye = calculator function t Example 1: ‘How much money will you invest today in order to withdraw P2000 annually for’10 years'if the interest rate is 9%? oy ‘ A. P12;835. 32 _C. P12,563.25 B. P12,785.45 D. P12,586.47 520 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY. Solution: i This is an example of ordinary annuity, Input the values for AB* statistical mode. " From the formula: P=A()'B™) A = P2000 for 10 years ; rt B= @o) 5 Solve first for ye then multiply to A. 521 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal dl > Present worth of annuity. Therefore, you need to invest P12,835.32 today in: order to withdraw P2000 annually for 10 years at 9%. interest rate. Answer is A. P12,835.32. Example 2: » Aman wants to buy a car by paying a down payment of P100,000 and the balance to be paid monthly for.5 years at 18%. What is the monthly Payment if the cost of the car is P600,000? A. P15,465.25 C. P16,769.6 B, P13,473.4 | D. P12,696.7-* Solution: The remaining balance is P500,000 and to be paid monthly for 60 months (S years). =~ : ‘From.the formula: P= a(>8*) : 522. XK Scanned with CamScannerC Iculator Techniques - ENGINEERING ECONOMY > Divide P500,000 by this value to get the E enely payment. (A). ~> monthly payment (A) Therefore, the man needs to pay D. P12,696.71.- monthly for 60 months in order to pay the loan. Example 3: An employee obtained a loan of P100,000 at the rate of 6% compounded annually to repair a house. How much must he pay monthly to arriortize the loan within a period of ten years? :. A. P1102.24 7Cy pi2se. 54 B. P1120.24 E _ D. P1212.24 s Solution: In this problem, the given rate is compounded annually (effective rate) but the annuities are to be | paid monthly, hence, we need to convert the given effective rate to nominal rate if. we are using manual solution. Then another problem is the formula for annuity. But using the knowledge in calculator technique, just use 12 months for 1 year and the rate is simply 1.0! ‘ 523. ; Scanned with CamScannerCALCULATOR TECHNIQUES/by Engr. Reynilan L. Dimal rn In this case, we don’t need to convert the given effective rate to nominal rate. From the formula: P=a(S2") - 4 > Divide P100,000 by this value to get the fronely payment (A). | > monthly. payment (A) Therefore, the employee néeds to pay pila. 24° monthly for 120 months (10 years) in order to. Amortizeitne loan. Answer is A. P1102.24. eel) \ “s 524 Scanned with CamScannerSaleulatoe Techniques ~ ESN ECONOMY Example 4: A father invests P10,000 now for the college ‘education of his new born son. If the fund earns 14% effective, how much will the son.get each year’ starting from his 16th to the 20th birthday? A. P20,894.23 C. P20,567.98 B. P20,791.64 D. .P20,587.43 Solution: The:3 examples are all ordinary annuity. But this example is a type of deferred annuity. The difference of the solution for these two types of annuity lies on the limits when summation is used. Input the given rate in statistical mode AB*. From the formula: P= A(yB%). the limits for x will only be 16 to_20 bécause these are the only periods that annuity | exist. Look at the cash flow diagram: p= 10000 Scanned with CamScannerCALCULATOR T a ws Engr. Reynilan L. Dimal > Annuity Therefore, the SON. will get P20791.64 each year starting his 16" to 20" birthday. Answer is B. P20,791.64. Example 5: A-farmer bought a tractor costing P25,000 payable :_in 10 semi-annual payments starting at the a beginning of each period. -If the interest rate is 26% compounded semi-annually, determine the amount of each installment. A. P5,047,30 C.:P4,077.20 B.P4,654.21 * D. P5,066.25 ° Solution: The last two types of annuity are ordinary annuity and deferred annuity. But this is an example of annujty due. Also, the differences between these types of annuities are all_within the specified limits. 526 Scanned with CamScanner- Calculator Techniques - ENGINEERING ECONOMY “From the formula: p=a(de”), the limits for x will be 0 to 9 (10 payments total) because the payment is made at the beginning of the period. Look at the cash flow diagram: B= 10000 > Divide P25,000 by this velue to get the monthly payment (A). FA 0 corer Therefore, the farmer will pay C. P4077.20 every 6 tnonths starting from the day of the loan. 527 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal . ee Example 6: Suppose that you make 12 equal annual deposits of P2,000 each into a bank account paying 8% interest per year, The first, deposit will be made one year from today. How much money can be withdrawn from this bank account immediately after the 12" deposit? A. P35,492 & P37,954 B, P36,218 , D. P38,755 Solution: . This is an example of ordinary annuity but the requirement is the future worth of, all annuities. This ‘will.not be a problem because annuity is considered compound interest. We will just combine the concept of annuity.and compound interest. Solve for thé rate for.12 annuities then muttiply to P2000 to gét the present worth. From the formula: realy") 528 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY i > This is now the © -value of the present worth. To get the future worth, use the formula: F =P(nj) future worth. The future worth of P2000 deposited per year for 12 years is P37,953. Therefore, the answer is C. P37,954, 4 529 Scanned with CamScannerCALCULATOR TECHNIQUES by ab Reynilan L. Dimal Alternate solution: For future worth, use the formula: F= a(>e8*") > Future worth after 12 years. Therefore, the answer is C. P37,954. Example 7: If P10,000.00 is deposited each year for 9 years, how much annuity can a person get annually from the bank.every year for 8 years starting 1.year after the 9'" deposit is made? Cost of money is 14%. . A, P23,546.19 C, P10,000.00 B. P12,676.20 D, P34,675.18 Solution: Solve first for the future worth of 9 years’ deposit of P10, 000. 530 Scanned with CamScannerSolve for the rate for 9 annuities then multiply to P10000 to get the present worth. From the formula: P=a(> 8") : 4ae value of the present worth. Scanned with CamScannerCALCULATOR TECHNIQUES by Engr: Reynilan L. Dima} Pasha chtictsshabasa ss Se Sas DS To get the future worth, use the formula: F=P(nj)’: Multiply to-memory A to get the future worth, > Store to memory B for future reference. oq. the future worth of 9 deposit! 5 Note: another Solution in solving the future worth is. using the formula F = Ay, Bet): 532 Scanned with CamScanner. Calculator Techniques - ENGINEERING ECONOMY I er For another,8 years of withdrawals, P160853.4658 represents the present worth. Adjusting again the limits, solve the rate with limits from 1 to 8. Pe 160883.4658 92% > Divide the value in memory B by this value to get | the annual withdrawals (A). > Annual withdrawals for 8 yéars. Therefore, the person can get P34,675.18 each year for 8 years. Answer is D. P34,675.18. ee 533 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal An arithmetic gradient cash flow is one wherein the cash flow changes (increases or decreases) by the same amount in each cash flow period. For ‘ example, if the cash flow ia period 1 is P800, in period 2 it is P900, and in period 3 it is P1000, with amounts increasing by P100 in each subsequent Period. This is an arithmetic gradient cash flow series with gradient, G,.equal to P100. In Calculator Technique, use the concept of annuity then use the formula: P= [A+ G(x ]B> where: . P = Present worth A = First payment G = Gradient B, X = Calculator function In arithmetic gradient, the procedure forhandling - cash flows changes by a constant amount from one interest period to the-next. In geometric gradient, cash flows will change by a from one interest period to the next. For example, if the cash flow'in period 1 is $100, in: period 2 it is . $110, and in period 3 it is $121, with amounts increasing by 10%. in each:subsequent:period. This - Is a geometric gradient cash flow series with rate of gradient, 9, equal to 10%. sIn Calculator Technique, use the concept of annuity then use the'formula: i P= Saco te 7 334 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY where: P = Present worth ‘A = First payment. g = rate of gradient B,.X = Calculator function Example 1: A certain amount was borrowed and to be repaid in > ten installments at the end of every year thereafter with each payment P1000 more than the preceding. The first payment is P15,000. If interest is 12% - compounded annually, determine the amount loaned. ? A. P150,465.25 . C. P106,769.6 B. P130,473.4 D. P105,007.43 Solution: 1 Input the corresponding rate to statistical mode ABY “This is an example of arithmetic gradient series. Then use the formula: P= )'[A+G(X- 1B“ where: A= 15000 G = +1000 535 Scanned with CamScanner> Present worth Therefore, the amount loaned is D. P105,007.43. Example 2: Find the present worth of the loan, if the first payment is $100 at the end of every year with each . payment $10 less than the previous year for four * "years. Interest is 10% compounded annually. A. $273.2 5 C. $327.2 B. $372.2 D. $237.2 Solution: 536 Scanned with CamScanner~ Calculator Techniques - ENGINEERING ECONOMY Then use the formula: P= pla +G(X~1)/B* where: . * : > Present worth Therefore, the present worth of the loan is A. $273.2. a Example 3: The first-year maintenance cost for a new automobile is estimated to be $100, and it increases at a uniform rate of 10% per year. Using . an 8% interest rate, calculate the’ present worth of cost of the first 5 years of maintenance. , A. $840.43 C. $240.83 B. $480.43 . Du. $440.83 537 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal * ee Solution: ‘ { Input the corresponding rate to statistical mode AB* This is an example of geometric gradient series. Then use the formula: P= yaa +9)"'B* where: > Present worth Therefore, the present worth for the maintenance ‘costs.is E: $480.43. y z 538 ras Scanned with CamScanner~ Calculator Techniques ~ ENGINEERING ECONOMY ° Example 4: Annual maintenance costs for a machine are P1,S00 this year and are estimated to iricrease 10% each year every year. What is the present worth of the maintenance costs for six years if interest rate is . 8%? . ob A. P8,728.79 “ . C, P16,769.6 B. P13,473.4 D. P14,113.76 Solution: _ This is an example of geometric gradient series. : Use the formula: P = Ato B™ where: “ Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal a er >-Present worth , Therefore, the present worth for the maintenance costs is A. P8,728.79. - 540 Scanned with CamScanner= ENGINEERING ECONOMY Calculator Techniq DEPRECIATION “A Depreciation is the decrease in the value of physical property due to passage of time. Depreciation is a method of reallocating the cost of a tangible asset over its useful lifespan of it being in motion. Methods of computing depreciation: 1. Straight Line Method (SLM) _ 2..Sinking Fund Method (SFM) 3. Declining Balance Method (DBM) 4. Double Declining Balance Method (DDBM) 5. Sum-of-the-years-digits Method (SYD) We will use the following examples tu discuss the different methods for computing depreciation using calculator techniques. Example 1: A certain equipment has a first cost P900,000, life of 8 years and a salvage value of P200, 000. What is the book value of the equipment after 5 years using straight line method? A. P462,500: » .C. P437,500 B. P457,500 ‘ D. P442,500 Solution: Use statistical mode (A + BX)-if the problem is Straight line method. And use this format: x) oy | 0} \FC L} sv 541 Scanned with CamScannerCALCU! LATOR TECHNIQUES by Engr. Reynilan L, Dimal where: FC = First Cost ' SV = Salvage Value. _ L= Endof life (useful life) To solve for book value after 5 years, simply solve _for’'y when xis 5: ~> Book value after'5S years. - _ Therefore, the answer is A. P462,500. Example 2: *: A certain equipment has a first cost 900,000, life - of 8 years. and a salvage value of P200,000. What is~ - annual depreciation using straight line method? 5 A. P75,800 C, P87,500., B, P57,800 D. P78,500 a Scanned with CamScanner. Calculator Techniques - ENGINEERING ECONOMY fe Solution: { To solve for annual depreciation, simply subtract the first cost to the book value after 1 year. > Annual depreciation For straight line method, the annual depreciation. Is “the same for nth year. If we will check the difference of book value for ist-year and 2nd year, the result will be the same. ; > Annual depreciation Therefore, the answer is C. P87,500. 543 Scanned with CamScannerx CALCULATOR TECHNIQUES by Engr: Reynilan'L. Dimal , TTT Example 3: A printing equipment costs P73,500 has a fife © expectancy of 8 years and has a salvage value of P3500 at the end of its life. The book value at the end of “x” years is equal to P38,500. Using straight . liné.method of depreciation, solve.for the value of xX. hs ALS years _ .C. 4 years B. € years ¥ D. 3 years Solution: -Therefore, after.4 years, the book value ofthe equipment is P38,500, Answer is C. 4 years. ¢ 544 - Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY Example 4: r A machine with a useful life of 15:-years is bought for P 20,000. The: money is worth 8% and the scrap value is P 5,000. Using sinking fund, determine the annual depreciation. A. P552.44 C. P442.55 B. P255.44 D. P244.55 Solution: For Sinking Fund method, use statistical mode -(AB*) to input the corresponding rate. It will be solved similar to the formula-used:in annuity. To solve for annual depreciation, use the formula: ae (resey) \ d = annual depreciation charge FC = First Cost SV = Salvage Value _ L = End of life (useful life) B, X = Calculator function 545. where: Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L, Dimal = = ~>. Annual depreciation Therefore, the annual depreciation is A. P552.44, Example 5: A machine with a useful life of 15 years is bought for P 20,000. The money is worth 8% and the scrap _ value is P 5,000. Using sinking fund, determine accumulated depreciation for the 4" year. A, P12489 C. P2489.37 B. P11997 D, P1997.04 Solution: To solve for accumulated depreciation for the.n™ year, use the formula: on Sloe sem D,’= accumulated depreciation charge . nnual depreciation charge h = nth-year for total depreciation charge B, X = Calculator function 546 where: a Scanned with CamScannerSolve first for annual depreciation charge using the concept from previous problem. ' To solve for accumulated depreciation forthe 4” 4 year, use the formula: Dy = yaet i T Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal a aa lee aaa allied ay > Total depreciation charge for 4 years. Therefore, the accumulated depreciation for. the 4 year is C. P2489.37. Example 6: Be A machine with a useful life of 15 years is bought for P 20,000. The money is,worth 8%. and the scrap value is P 5,000. Using sinking fund, determine book value at the tenth year. A; P 12,489 C. P 2,489.37 B. P 11,997 P 1,997.04 Solution: To'solve for book value at the n® year, use the formula:. BV, =FG-D,, where: BV, = Book Value - FC = First Cost * D, ="accumulated depreciation charge n = nth year for total depreciation charge Solve first for annual dep ion charge. . 548 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY. 7 > Total depreciation charge for 10 * yedrs. Store to B for future reference. R To determine the book value after 10 years, use the. formula: BVjo =FC-Dyo = 20000-B Scanned with CamScanner‘CALCULATOR TECHNIQUES by Engr, Reynilan L. Dimal a > Book value after 10 years. Therefore, book value at the tenth year Is B. P 11,997. Example 7: . A broadcasting corporation purchased an equipment that costs P7,000, last 8 years and has a salvage value of P350. determine the book value during the 4th year using declining balance method. : , A, P1,565.25 C, P1,711.25 B. P2,214.84 D, P1,645.84 Solution: Use statistical mode (AB”) If the problem Is declining balance method. Use the format: ”" Y FC Ll) 8 where; ' FC = First Cost SV = Salvage Value L = End of life (useful life) Scanned with CamScanner> Calculator Techniques - ENGINEERING ECONOMY To solve for book value during the 4th year, simply ‘solve for y when x is 4. > Book value after 4 years. Therefore, the book value'during 4th year using declining batance method is A. P1,565.25. a, Example &:, A certain copier machine costs P150,000 with a _ trade in value of 15,000 after making 800,000 copies. Using the declining balance method, what is the book value when the machine had.made 300,000 copies? A. P63,254.48 C. P67,833.32 B. P64,765.25 * .D. P130,473.4 Solution: Solve for y when x is 300000. $51 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal i —— ee > Therefore, the book value when the machine had made 300,000 copies is A. P63,254.48. Example 9: A broadcasting corporation purchased an equipment that costs P7,000, last 8 years and has a salvage value of P350. determine the book value during the 4th using double declining balance method, A. P1,565.25 C. P1,711.25 B. P2,214,84 D. P1,645.84 Solution: For DDBM, use also statistical mode (AB*) similar to DBM. But the format is different: Rly: ‘ 0} FC uP where: a FC = First Cost L.= End of life (useful life) The given salvage value will not be used for DDBM. : 552 Scanned with CamScannerTo ‘solve for peak value during the ath yen Sita. ; solve for y when x is 4. * ‘Therefore, the book value during.the 4th year using DDBM is B. P2,214.84. Example 10: -Cost of the machine is P140,000, useful life of 8 years, salvage. value of P10,000. Determine the 4" year depreciation charge using the People Declining ~ Balance Method. A. P17,465.25 e P17,833 B. P14,765.625 D.,P13,473.4 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L.Dimal | Depreciation charge at the ‘4th ‘year is the difference of the book value for 3rd year.to 4th year. 4 d=BV;-BV, =37—4y. bz > 4" year depreciation charge Therefore, the answer is.B. P14,765.625. Example 14: _ An asset is purchased for P 9,000. Its estimated life is 10: years which it will be sold for P 1,000. Find the book value during the 1° year using SYD. A. P-7,545.45 C. P 4,415.54 B. P 1,454.54 D. P4,545.45 Solution: ) Use statistical mode (A+BX+CX2) if the Problem is SYD method. Use the format: XY o | Fcl / L | sv L+1] sv| ~ where: FC = First Cost’ SV = Salvage Value | i . End of life (Useful life) x _ 554 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY To. solve for book value during the ist year, ‘simply solve for y when x is 1. > Book value for 1st year. ; Thereore, the book value during 1st year using sum-of-the-years-digits method is A. P 7,545.45, Example 12: 7 a A telephone company purchased a microwave radio equipment for P6M. Freight and installation charges amounted to 3% of the purchased price. Ifthe equipment shall be depreciated over a period of 8 years with a salvage value of 5%, determine the depreciation charge during the fifth year using the sum of the year’s digit method. ° A. P563,444.33 C, P635,333.33 B. P653,333.33 D. P536,444.44 + \ 555, Scanned with CamScannerCALCULATOR TECHNIQUES by Engr, Reynilan L. Dimal ‘Solution: } Depreciation charge at the Sth year is the difference of the book value for 4th year toSth year. d= BV, -BVs = 4Y-5Y_ % >, Ca year depreciation charge Therefore, the 5th year depreciation charge using SYD'is B: P653,333.33. : : ) 556 Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY Exercises: 1. A man borrowed P 100,000 at the interest rate of 12% per annum, compounded quarterly. What is the effective rate? © AL13-% C. 12 % B. 13.25% D. 12.55 % What is the effective rate of interest if P1000 is invested at a nominal rate of 15% compounded quarterly? A, 15.86%, C..17.86% ; B. 16.86% D. 18.86% Fifteen years ago P 1,000.00 was deposited ina bank account, and today it is worth P 2,370.00. _The bank pays interest semi-annually.. What was the interest rate paid in this account? A. 3.8 % C. 5.0% B. 4.9% D.5.8% Excel, Bank advertises 9.5 % account that yields 9.84 % annually. Find how.often the‘interest is compounded. hs A. Daily C. Bi-monthly B. Monthly D. Quarterly The amount of P 12,800.in 4-years at 5 % compounded quarterly is _" f A. P 14,785.34 C. P 16,311.26, B. P 15,614.59" D. P 15,847.33 . What is the present worth of two P 100 payments at the end of the third year and fourth year? The anhual interest rate is 8%. A. P 153 Cc. P 162 B. P 160 :D. P:127 557 Scanned with CamScannerCALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal ——— 7. Find the present worth of a future payment of P 100,000 to be made in.10 yeafs with an interest of 12% compounded quarterly. A. P 30,444.44 , C,.P 30,655.68 B. P 33,000.00 Oe 30,546.01 8. How long (in yéars) will it take money to quadruple if it earns 7 % compounded semi- annually? A.20.15 ? CL SBS B. 26.30 D. 40.30 9. -A nominal interest of 3% compounded continuously is given on the account. What.is the accumulated amount of P 10,060 after'10 years? A. P 13,498.59 C. P 13,789.98 B. P-13,489.59 D. P.13,494.52 10. A man invested P 10, 000 at an interest rate of 10% compounded anhually. What will be the final.amount of nis investment, in terms of today’s pesos, after five. years, if-inflation remains.the same at the rate of 8% per year? A: P 10,960.86 €. P 9,799.70 B, P 10,298.89 D. P-9,980.05 11. A man purchased on monthly installment.a P 100,000 worth Of land. The interest rate is 12 %.nominal and.payable in 20 years. What. is the monthly amortization? A, P 1,101.08 C. P1,152.15. B. P 1,121.01 DP 1, 128.12 558 Scanned with CamScanner’ _ Calculator Techniques ~ ENGINEERING ECONOMY 12: Money borrowed today is to be’ paid in 6 equal #5 payments at the end of 6 quarters, If the interest is 12'% compounded quarterly. How. much was initially.borrowed if quarterly paymentis P 2000.00? “A, P 10,834.38 C. P 10,586.99 B. P-10,382.90. “+ D.-P:10,200.56 What is.the accumulated amount of.five year annuity paying.P 6,000 at thé end of each year, with intérest-at, 15 % compounded annually? A. 40,454.29 “°C, P-41,454:29 B. P 41,114.29. D.'P 40,544.29 , 13. ‘14. What are the present worth of a 10 year’. annuity paying P10000 at the end of each year, : with interest at 15% compounded annually? A. 50,188 ..- 2° » €,'203,037 B. 104,678... . eee D. 302,789 ‘15. What is the present:worth of P500 deposited at the-end of every. three months for:6:years if the _- interést rate is 12% compounded - “semidnnually? i i ‘A, P8504. 2-3” C..P7,690 B. P9,568", B. P6,;759 16. If 10, 000 is deposited each: year. for, 9 years, how much-annuity can a person. get annually from the bank.every year.for 8 years starting 1 year after the 9"" deposit is made. ‘Cost-of. money is 14%. { A. P.43,576 : t P 34,675 ‘Be P45, 376 - DD. P 37,465 é : 559 Scanned with CamScannerCALCULATOR TECHNIQUES 17, y Engr. Reynilan L, A.man.bought’an equipment costing.P 60; 000 payable in- 12.quarterly payments, each installment payable. at.the beginning of each period. The rate: of interest is 24% compounded quarterly. What is .the arian of each : “payment? < : Ay P'7,371,91 L G P 6,987:98 BLP 4,780.12 D. P 8,628,26 “18. 19. 20. A young woman, 22, years old,.has just graduated from. college. She accepts'a good job and‘desires to establish her own. retirement fund: At the end. of each year. thereafter she -- plans to deposit'P2,000.in afund at 15%. : annual interest. How old-willshe be:when the fund has an‘ accumulated value of P_ 1M, A: SI C..53 t B. 52 irae D..54 Find the present worth of-the loan, if the first payment is $100 at the end every year with each payment $50- more than the previous year for four. years. If interest is 7% ou ales annually. A. $875.46. ~ Cc. $578.46 : B.- $785.46 D. $587.46 A -mechanical.contractor is trying to.calculate the present worth of.personnel salaries ‘over the next five-years.. He has four-employees.whose: - combined salaries thru:the end of this year are $150,000. If Hé-expects to give.each: employee a.raise-of 5% each year, the present worth of ~his-employees" salaries at‘an interest rate of | 12% per. year is néarest'to: A.°$591,008 . C.$702,908 B. $816,108 D. $429,308 560 Scanned with CamScanner21. 22. » Calculator Techniques ~ ENGINEERING ECONOM ‘A.machitie has an initial.cost of. P 50,000. anda ae salvage value of P1.0;000.00 after 10-years. . What is the book. valué-after’5 years using Straight-line: depreciation? : th ‘A. P-35;000.00 “ C. P:15,500.00° BYP 25,000.00 ; + .D; P 30,000.00: : A machine has an {nitial:cost.P.100,000 and - salvage’ value of P 20,000. Find the straight-line: 23. 24, method depreciation rate, expressed asa percentage of the initial cost. “A. 10 % C.9.% B. 8% “D.1t % An equipment costs. P480;000: and has:a. B salvage value of 10%’of its cost at the’ end of its economic life-of 35,000 operating hours. Tn. the’first year, it was. used for 4,000. hours.- ‘Determine its book value at-the:end of the first year using’straight line method. ; A.430,629 Gi 340,296. < B.403;269 Dy 304,629 A broadcasting corporation purchased an equipment for P53,000 and paid P1,500 for freight and delivery charges to the job site. The”. equipment has anormal life‘of 10 years with a trade-in value. of P5,000 against the purchase : Of a. new equipment.at.the:end. of the life. Determine the arinual depreciation cost by the straight line method.. A. P3,668, C. P4,387 B.P3,987 D..P4,950° 561 Scanned with CamScanner"CALCULATOR TECHNIQUES by Engr. Reynilan L. Dimal IE catenin pete acter gt et ema ‘28. ‘An:equipment costs P'10,000 with a salvage 4 valué if P-500 at the: end of 10 years.. Calculate the annual Geotediation, cost by sinking fund CP. 791,26 1D, B.794.33 “26,4 broadcasting corporation. purchased-an : equipment for P53,;000-and:paid ‘P1,500 for “freight:and ‘delivery chargés to the job site. The <: equipment has.a normal. life of 10 years with a " trade-in value ‘of P5,000 against the. purchase - of-a new equipment at the-end ofthe life. Determine the annual depreciation cost.by the > sinking fund method. Assume the interest at : Gil 5%, compounded annually. A:,P3,668. : ! C..P4,387 B: P3,987. gs teri Bupa ee -27.-Whatis.the ‘book value of ani: euuipinen: : purchased’ 3 years ‘ago at P 50,000: with a. : -galvage Value of.P' 15,000 at the end of 5 years -using dedining: balance: meéthiod? : “AvP14,795.67 C.:P18,719.67 “ABs P22; 297. ey: ; D. 724,279) 67. 28. A plant: ‘bought ‘ealeinee: for’ P220,000.and “used, it for 10 years, the life’span of the-equi i » What is the: book-value of the calciner aftar 5. years of use. Assurie a’scrap value of | P20, 000 for the ‘double declining balance-method. A. P120;,000° Cy, P65,570 B.:P72,090 _ - D, P56,570 562, Scanned with CamScannerCalculator Techniques - ENGINEERING ECONOMY. 29. An asset is purchased for P 9,000. Its estimated 30. life is 10 years which it will be sold for P 1,000. Find the depreciation during Ist year.using SYD. - A. P.7,545.45 C. P.4,415.54 B. P.1,454.54 ‘ D. P.4,545.45 A telephone compiny purchased a:microwave radio equipment for P6M. Freight and installation charges amounted to 3% of the purchase price. If the equipment shall. be depreciated over a périod of 8 years with a salvage value of 5%, determine the book value after 5 years using the sum-of-the-years-digit method. ‘ A. 1,280,000 C. 1,820,000 B.-653,333.33 D. 635,333.33 563 Scanned with CamScanner