ENGINEERING ECONOMY

F  P 1  in 
F  P  Pin
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Simple Interest

F  P 1  in 
Compound Interest
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F  P 1  
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Continuous Interest
Rate of Interest

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 PROBLEM 1
A loan of P5,000 is made for a period of 15
months, at a simple interest rate of 15%, what
future amount is due at the end of the loan
period?
A. 5,937.50 C. 5,873.20
B. 5,712.40 D. 5,690.12
 PROBLEM 2
What is the ordinary interest on P1,500.50 for
182 days at 5.2%?

A. P39.01
B. P39.82
C. P39.45
D. P39.99
 PROBLEM 3
What is the interest due on a P 1500 note for 4
years and 3 months, if it bears 12% ordinary
simple interest?

A. P 756 C. P 765
B. P 675 D. P 576
 PROBLEM 4
An investment of P35,000 was made four years ago
at an interest rate of 2.3% quarterly, and an another
investment of P45,700 was made six years ago at an
interest rate of 3% semi-annually. How much will be
the lump sum of the investment two years from
now? Assume simple interest.

A. C. P108,670
P121,956 D. P178,341
B.
P256,783
 PROBLEM 5
What is the effective rate corresponding to 18%
compounded daily? Take 1 year is equal to 360
days.
A. 19.61 %
B. 19.44 %
C. 19.31 %
D. 19.72 %
 Problem 6
What rate of interest compounded annually is
the same as the rate of interest of 8%
compounded quarterly?
A. 8.07 %
B. 8.12 %
C. 8.16 %
D. 8.24 %
 Problem 7
An amount of P1,000 becomes P1,608.44 after 4
years compounded bimonthly. Find the nominal
interest.
A. 11.89 %
C. 12.00 %
B. 12.08 %
D. 12.32 %
 PROBLEM 8
By the condition of a will, the sum of P20,000 is
left to a girl to be held in trust fund by her
guardian until it amounts to P50,000. When will
the girl receive the money if fund invested at 8%
compounded quarterly?
A. 11.23 years C. 11.46 years
B. 11.57 years D. 11.87 years
 PROBLEM 9
An investment of P37,000 is made such that the
interest is 8% compounded bi-monthly. A
withdrawal of P29,500 is made two years after.
How much money is there after five years from
the last withdrawal?

A. P34,520 C. P38,122
B. P20,642 D. P55,670
 PROBLEM 10
Find the time required for a sum of money to
triple itself at 5% per annum compounded
continuously.
A. 21.97 years
B. 18.23 years
C. 25.34 years
D. 23.36 years
 PROBLEM 11
A man wishes to have P40,000 in a certain fund
at the end of 8 years. How much should he
invest in a fund that will pay 6% compounded
continuously?
A. P24,751.34
B. P28,864.36
C. P36,421.44
D. P30,468.42
 PROBLEM 12
A man wishes his son to receive P200, 000 ten years
from now. What amount should he invest if it will
earn interest of 10% compounded annually during
the first 5 years and 12% compounded quarterly
during the next 5 years?

A. P68, 757.82
B. P45,778.34
C. P78,624.13
D. P61,277.01
 PROBLEM 13
Jones Corporation borrowed P9, 000 from Brown Corporation
on Jan. 1, 1978 and P12, 000 on Jan. 1, 1980. Jones
Corporation made a partial payment of P7, 000 on Jan. 1,
1981. It was agreed that the balance of the loan would be
amortizes by two payments one of Jan. 1, 1982 and the other
on Jan. 1, 1983, the second being 50%larger than the first. If
the interest rate is 12%. What is the amount of each
payment?

A. P9, 137.18; P13, 705.77

B. P8, 434.23; P12, 459.33
C. P8, 434.23; P13, 705.77
D. P9, 137.18; P12, 459.33
 PROBLEM 14
A man deposits P50, 000 in a bank account at
6% compounded monthly for 5 years. If the
inflation rate of 6.5% per year continues for this
period, will this effectively protect the
purchasing power of the original principal?

A. P49, 225.00 C. P 67,437.00

B. P45,320.00 D. P52,721.00
Annuity
 PROBLEM 15
What is the present worth of a P500 annuity
starting at the end of the third year and
continuing to the end of the fourth year, if the
annual interest rate is 10 %?
A. P 727.17
C. P 717.17
B. P 714.71
D. P 731.17
 PROBLEM 16
What is the future worth of P600 deposited at
the end of every month for 4 years if the interest
rate is 12% compounded quarterly?

A. P36,641
B. P24,850
C. P38,922
D. P42,406
 PROBLEM 17
A factory operator bought a diesel generator set
for P 10,000.00 and agreed to pay the dealer
uniform sum at the end of each year for 5 years
at 8% interest compounded annually, that the
final payment will cancel the debt for principal
and interest. What is the annual payment?

A. P 2,500.57 C. P 2,544.45
B. P 2,540.56 D. P 2,504.57
 PROBLEM 18
XYZ Sugar Inc. invested on a new falling film
evaporator worth P 1,772,000 for their new
product. The procurer agreed to start paying 2
years after the down-payment at P325,700
every year at 5% rate for five years. How much
should the down-payment be?

A. P694,360 C. P158,895
B. P429,037 D. P578,903
 PROBLEM19
John secured a home improvement loan in the
amount of P 10,000 from a local bank at an interest
rate of 9% compounded monthly. He agreed to pay
the loan in 60 equal monthly installments. Right
after the 24th payment, John wishes to pay off the
remainder of the loan in a lump sum amount. What
is the payment size?
a. P 7,473
b. P 6,000
c. P 6,576
d. P 7,710
 PROBLEM 20
A man wishes to provide a fund for his retirement such
that from his 60th to 70th birthdays he will be able to
withdraw equal sums of P18, 000 for his yearly expenses.
He invests equal amount for his 41st to 59th birthdays in
a fund earning 10% compounded annually. How much
should each of these amounts be?

A. P2285
B. P1564
C. P3192
D. P2819
 PROBLEM 21
A man loans P 187,400 from a bank with interest
at 5% compounded annually. He agrees to pay
his obligations by paying 8 equal annual
payments, the first being due at the end of 10
years. Find the annual payments.

A. P 43,600.10 C. P 43,489.47
B. P 43,263.91 D. P 44,980.20
 PROBLEM 22
A person buys a piece of lot for P 100,000
downpayment and 10 deferred semi-annual
payments of P 8,000 each, starting three years
from now. What is the present value of the
investment if the rate of interest is 12%
compounded semi-annually?

A. P 142,999.08 C. P 143,104.89
B. P 142,189.67 D. P 143,999.08
 PROBLEM 23
A young engineer borrowed P 10,000 at 12%
interest and paid P 2,000 per annum for the last
4 years. What does he have to pay at the end of
the fifth year in order to pay off his loan?

A. P 6,999.39 C. P 6,292.93
B. P 6,222.39 D. P 6,922.93
 PROBLEM 24
A car loan is made for P 249,000 down-payment at
an agreement of 3% compounded monthly the first
is due 4 months after the down-payment for 48
months. If the car’s present worth is P 1.5 million.
How much is the monthly payment?

A. P 21,755
B. P 29,327
C. P 27,898
D. P 23,645
 PROBLEM 25
A house worth 4.5 million pesos is amortized for an
initial payment of X. The first payment is done 1
year after the down payment at an interest rate of
2.5% compounded semi-annually for 20 years at P
100,000. Determine the down payment X:

A. P 1,231,854
B. P 414,837
C. P 563,900
D. P 787,177
 PROBLEM 26
A contract has been signed to lease a building at P20,000
per year with an annual increase of P1,500 for 8 years.
Payments are to be made at the end of each year, starting
one year from now. The prevailing interest rate is 7%.
What lump sum paid today would be equivalent to the 8-
year lease-payment plan?

A. P147,609
B. P154,677
C. P233,654
D. P123,543
 PROBLEM 27
The Manila Highway Department expects the
cost of maintenance for a particular piece of
heavy equipment to be P5000 in year 1, P5,500
in year 2, and amounts increasing by P500
through year 10. At an interest rate of 10% per
year, the present worth of the maintenance cost
is nearest to:
A. P38,220 C. P42,170
B. P46,660 D. P51,790
 PROBLEM 28
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 P150,000. If he
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 nearest to:
A. P591,000 C. P816,100
B. P702,900 D. P429,300
 PROBLEM 29
Suppose that the maintenance for a piece of
equipment costs $300 and increases by 15%
every year for 5 years. The value of money is 9%.
What is the equivalent present cost over the
time horizon?
A. $2022.71 C. $1175.16
B. $1536.22* D. $1166.90
 DEPRECIATIO
N
Uniform Methods

A. Straight Line FC  SV
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BV  FC  d nT
 DEPRECIATIO
N
Uniform Methods

B. Sinking Fund dn  (FC  SV)i

(1  i)n
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dnT  (FC  SV) (1  i) 1
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 (1  i) 1

BV  FC  dnT

 DEPRECIATIO
N
Non-Uniform Methods

A. Declining Balance:
dnT  FC(1  f )L1 

f BV  FC(1  f )n
SV
f  1  FC
L
 DEPRECIATIO
N
B. Double Declining Balance

2 n1 2
dnT  FC(1 L
)  L
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BV  FC(1 L
2 )n
 DEPRECIATIO
N
C. Sum of Years Digit

L(L  1)

2 Ln
1 
For nth year: dn  (FC 
n
SV) Ln
Total depreciation to nth year: dnT   (FC  SV) 1 
1
BV  FC  dnT
 PROBLEM 30
A machine costs of P 8,000 and an estimated life
of 10 years with a salvage value of P 500. What
is its book value after 8 years using straight line
method?
A. P 2,000.00 C. P 2,100.00
B. P 2,200.00 D. P 2,300.00
 PROBLEM 31
ABC Company provides the following
information: Cost of equipment = $5000,
Salvage value = $500, Life = 10 years. Using
straight line method, the yearly depreciation
charge is
A. $500 C. $550
B. $50 D. $450
 PROBLEM 32
The equipment bought at a price of Php 450,000
has an economic life of 5 years and a salvage
value of Php 50, 000. The cost of money is 12%
per year. Compute the first year depreciation
using Declining Balance Method.
A. 174,300 C. 143,800
B. 160,200 D. 120,500
 PROBLEM 33
A set of centrifugal pump costs P 783,400. The
estimated economic life of the equipment is 15
years with a salvage value of P12,000.
Determine the book value after 5 years using
the double declining balance:

A. P451,712 C. P189,281
B. P383,040 D. 539,202
 PROBLEM 34
A machine costs Php 300,000 with a salvage
value of Php 50,000 at the end of its life of 10
years. If money is worth 6% annually, use
Sinking Fund Method to determine the total
depreciation in the the 6th year.
A. P 151,209 C. P 167,699
B. P 219,434 D. P 107,539
 PROBLEM 35
A set of centrifugal pump costs P 783,400. The
estimated economic life of the equipment is 15
years with a salvage value of P12,000.
Determine the depreciation in the fifth year
using the SYD method:

A. P78,479 C. P84,286
B. P46,980 D. P70,711
 PROBLEM 36
A certain asset has present worth of P394,000
and a salvage value of P24,780 for 10 years. Find
the book value of the asset after 4 years using
SYD method:

A. P231,756 C. P165,750
B. P142,750 D.
P173,830
 PROBLEM 37
An industrial plant bought a generator set for 90,000.
Other expenses including installation amounted to
10,000. The generator set is to have a life of 17 years with
a salvage value at the end of life of 5,000. Determine the
book value at the end of 13 years by the declining
balance method

A. 10,118
B. 10,645
C. 11,322
D. 9,033
 PROBLEM 38
An industrial plant bought a generator set for 90,000.
Other expenses including installation amounted to
10,000. The generator set is to have a life of 17 years with
a salvage value at the end of life of 5,000. Determine the
depreciation charge during the 13th year using the
sinking fund method at 12%

A. 1,943.39
B. 1,272.54
C. 2,029.93
D. 1,324.42
 BREAK-EVEN ANALYSIS

FC
BEP 
SP  VC

FC = Fixed/Overhead cost
SP = Selling Price
VC = Variable cost
 PROBLEM 30
The cost of producing AC units from Condura Phils., is
estimated to be P8940 per unit and the labor cost is P337
per unit. The utilities, rentals, machineries etc anounts to
P435,600 per month. What should be the yearly
production if the units are sold for P16,550/unit?

A. 720 units
B. 687 units
C. 226 units
D. 783 units
 PROBLEM 40
The following are the costs of producing a product of a small
business:

Cost of Materials: P76/ unit

Cost of Labor: P13/unit
Rental: P13,450/month
Utilities: P840/month
Machine cost: P19,350

What is the monthly break even point production if the product

is sold for 250 pesos per unit?:
A. 276 B. 208 C. 172 D. 103