CONTENTs

Ques tion
Question Bank .l present
Economy
1-24
Question Bank2 Simple lnterest and
Discount
25_40
Question Bank 3
Compound lnterest
41 _ 102
Question Bank 4
Annuity
103 _ 194 A bookstore
Question Bank 5 should this b
Uniform Gradient
195 _ 212
Question Bank 6
Bonds
A. P 2o0.oo
213 _ 220
B. P 3oo.oo
Question Bank 7 c. P 4oo.oo
Depreciation and
Depletion D. P 5oo.o0
221 _240
Question Bank g
and AnnualCost _260
241
Question Bank g
Letx=sellingprice
sis
261 _ 280
Question Bank 10 Objective Note: The profit of
euestions 30o/
281 _ 302 th"-r!'rri"g;.t""'"^ffi
Theories and Formulas ::t#:Tf X?i#^"";1;innor#"or,n"capitaror3oyoor
303 - 323
Profit = 0.30x _+ Eq. 1
Glossary
Also,
324 - 337
5ffi :1'[%']3?;"*,'*r-
=
discount
F'rotrt = 0.90x _
200 _+ Eq.
2

and 2;
;:1f i%:'#lo;111
200 = g.5x
x=400
; The selting price
of the book is p 400.00

A businessma
tncome from a
what minimum
to be justified?

A. B.o2 %
B. 12.07
c. 10.89 %%
D. 11 .08 0/o
2 Question Bank - Engineering Economics by Jaime R. 'l'iong Present Economy 3

,%*-
Let x = capital Dalisay Corporation's gross margin is 45o/o of sales. Operating expenses such as
y - gross income sales and administration are 15oh of sales. Dalisay Corporation is in 40% tax
bracket. What percent of sales is their profit after taxes?
Projected earnings = 0.07x
A. 21%
Taxableincome=y-x B. 20 o/o

c. 19%
tax = 0.42 (y - x) D. 18 o/o

Net earnings = Taxable income - tax ,(*rt,"..

Net earnings = (y - x)- o.+z(v - *)
Let x = sales of Dalisay Corporation
Net earnings = 0.58(y - x)
Gross margin = 0.45x
Projected income = net earnings Operating expenses = 0.15x
0.07x=0.58(y-x)
0.07x:0.58y-0.58x Net income before taxes = 0.45x - 0.15x
0.65x = 0.58y = 0.30x

\r-_ 0.65x Since tax is 40%, net profit after taxes will be:
'-
o.s8
Y =1.1207x Net profit = 0.60(0.30x)
Net profit = 0.18x
.'. Rate of return before payment of taxes = 0.1207 or 12.07o/o of the capital
.'. Net profit is 18% of the sales

A manufacturing flrm maintains one product assembly line to produce signal

generators. Weekly demand for the generators is 35 units. The line operates for 7 ln determining the cost involved in fabricating sub-assembly B within a company,
hours per day, 5 days per week. What is the maximum production time per unit in the following data have been gathered:
hours required of the line to meet the demand?
.... P 0.30 per unit
A. t hour .... P 0.50 per unit
.... P 300.00 per set up
B. t hour and 10 minutes
C. t hour and 15 minutes
D. t hour and 20 minutes It is decided to subcontract the manufacturing of assembly B to an outside
company. For an order of 100 units, what is the cost per unit that is acceptable to
the company?
,%/,*
Let t = maximum production time per unit A. P 3.80
B. P 4.00
')
c. P 4.10
. _ (, z nours )(s oays)( l week
- day jt *""k ,1.35 ,",tr.l
'
[
t = t hour per unit

.'. The maximum production time per unit is t hour.

 Present Economy 5
Question []ank - [!ngint,t'rirrg l,)r'onomir:s by,]airnu ll,. 'l'iong

Cost per unit = 0.30 * O.so * 1-09

100
in 50
Cost per unit = P 3.80 An equipment installation job in the completion stage can be complete.d
drr;-_.'8 h;rr/day work, *itn so men workins- yll t!9,P1tr.::t-"llil11s,i40
job,
.'. The cost per unit is P 3.80. Jri", in" mechanical engineer contractor decided to add 15 men on the
overtime not being Permitted.

lf the liquidated damages is P 5000 per day of delay, and the men
are paid P150
p"r OrV, how much m6ney would he sa re with the additional workers?
By selling balut at P 5 per dozen, a vendor gains 20%. The cost of the eggs rises
by 12.Soh.lf he sells at the same price as before, find his new gain in %. A. P 43,450
B. P 43,750
A. 6.89 % c. P 44.250
B. 6.67 %
C. 6.58 o/o
D. 6.12 o/o
S/.k"o...
,c/7,.l,t,,..
With 50 men only:
Let x = original cost of a dozen of balut No. of days delaYed = 50 - 40 = 10 days

cost+profit=5 Liquidated damages = 5000(10) = 59999

x+0.20x=5 Salary of 50 men = 50(50)150) = 375000
1.2Ox =5
Total exPenses = 50000 + 375000
x = 4.17 Total exPenses = 425000

Cost per dozen of balut = P4.17 With 65 men (an additional of 15 men):

Let y = new cost of dozen of balut Solving for the man-day to finish the job' N:

y = 1.'125x N : (50 men)(50 daYs)

'
y =1.125(.17) N= 2500 man - day
y = 4.69125
(a total of 65)
Let x = number of days to finish the job with 15 more men
cost+Profit=5
4.69125 + (% gain)(4.6912s) = 5 (50+15)x=2500
ohgain 0.0658 x = 38.46
=
o/o gain: 6.58%
Sayx=39daYs
paid by the
.'. The new gain of the balot vendor is 6.58 %. Since number of days is 39 < 40, thus no penalty will be
contractor. So expenses Will solely on the salary of the workers:

Salary of 65 men = 65(150X39) = 380250

.'. The amount saved = 425000 - 380250 = P 44,750'00

PROPERTY TAG
21432 n
DO NOT REMOVE
6 Quest,ion lllrnk It)rrgirrct,rirrg l,l,orrornir:s by Jainro Ii,. 'l'iong Present Econorny 7

ln a eertain department store, the monthly salary of a saleslady is parfly constant Jojo bought a second-hand Betamax VCR and then sold it to Rudy at a profit of
and partly varies as the value of her sales for the month. When the value of her 40%. Rudy then sold the VCR to Noel at a profit ol20%. lf Noel paid P 2,856
sales for the month is P 10,000.00, her salary for the month is P g00.00. When more than it cost Jojo, how much did Jojo pay for the unit?
her monthly sales go up to P 12,000.00, her monthly salary goes up to
P1,000.00. What must be the value of her sales for the month so that her salary A. P 4,100
for the month will be P 2,000.00? B. P 3,900
c. P 4,000
A. P 30,000 D. P 4,200
B. P 31,000
c. P 32,000 ' / /,/,t,,, .
D. P 33,000

Let x = amount Jojo paid for the VCR unit

,'/./,r/rz"r..
Amount Noel paid for the VCR unit = x + 2856 -+ Eq. 1 I

Let x=fixedsalary I

k = constant of proportionality of salesgirl's variable salary Amount Rudy paid for the VCR unit = x + 0.40x = 1.40x
z = sales for salesgirl to earn P2,000.00
Amount Noel paid for the VCR unit = ( .+Ox)(t .20)= 1 .68x -+ Eq. 2
x + k(10000) = 900 -+ Eq. 1
x + k(12000) = 1 000 --> Eq. 2 Equating equations 1 and2'.

Subtract Eq. 1 from Eq.2: x+2856=1.68x

0.68x = 2856
2000y = 1 00
x= 4200
100
v=-
' 2000 .'. Jojo paid P 4,200 for the VCR unit.
Y = 0'05

Substitute the value of y in Eq. 1

The selling price of a TV set is double that of its net cost. lf the W set is sold to a
x + 0.05(1 0000) = 900 customer at a profit of 25Yo of the net cost, how much discount was given to the
x=400 customer?

To earn a salary of P 2,000.00: A. 37.5 o/o

B. 37.9 o/o

x+y(z)=2000 c. 38.2%
400+0.052=2000 D. 38.5 %
z=32000

Let x=netcost
Selling price = 2x

Profit = 0.25x
Profit = Selling price - net cost - discount
 (,lrrt,sl i.lr llrrrrk l,),grrrr,r,ri,g l,l.rrr.r.r,.:, lr1,,lr1rrrrr, lf 'l'iorrg I)rcsent Economy 9

0.25x 2x x disr:ounl
O.25x -. x discount
discount = 0.75x The quarrying cost of marble and granite blocks plus delivery cost to the
processing plant each is P 2,400.00 per cubic meter. Processing cost of marble
Discount is75% of the net cost. lnto tile is P 200.00 per square meter and that of granite into tiles also is P 600.00
per square meter.
Solving for discount in terms of percent of selling price;
discount -
o'75x lf marble has a net yield of 40 square meters of tiles per cubic meter of block and
2x eells at P 400 per square meter, and granite gives a net yield of 50 square meters
discount = 0.375 of tiles per cubic meter of block and sells at P 1000 per square meter, Considering
all other costs to be the same, the granite is more profitable than the marble by
discount = 375%
how much?
The discount given to the customer is 3T.S %.
.'.
A. P 12,000 per cubic meter
B. P 13,000 per cubic meter
C. P 14,000 per cubic meter
D. P 15,000 per cubic meter
A Mechanical Engineer who was awarded a p 450,000 contract
to install the
machineries of an oil mill failed to finish the work on time. As nrovirtecr far in rho '
/ /./,t.,
contract, hE ha enalty t to on er
day for the first % per e next t For Marble (Per cubic meter):
per day for eve lf the t ty was
days was the completion of the contract ? Quarrying cost & delivery cost to processing plant = 2400
A. 26 days processing cost into tit"" = 200
[( sq.m ]1+o ,q. *1= aooo
B. 27 days J'
G. 28 days Total production cost =2400 + 8000 = 10400

Total income = 40(400) = 16000

Daily penatty for the first 1 0 days = (O.OrX+SOOO0) = 12s Profit = Total income - Total production cost
I 1
Profit=16000-10400
Total penalty for the first 1 O days = 1125(10) = 1 12SO Profit = 5600
Daily penalty for the next 10 days = (O.OO5X45OO00) 2259
= For Granite (Per cubic meter):
Total penalty for the next 10 days 22SO(1O) = 22SOO
= Quarrying cost & delivery cost to processing plant = 2400
Daily penalty for the succeeding days = (0.01)(450,000)
= 45gO
processins cost into tir" = sq. m)= soooo
solving for the number of days (x) beyond 20 days from end of contract [!99)@o
that
would amount the penalty to 60750.0b
Total production cost = 2400 + 30000 = 32400
4500x + 22500 +11250 :60750
x=6 Total income = 50(1000) = 50000

.'. The completion of the contract was delayed for 26 days. Profit = Total income - Total production cost
Profit=50000-32400
Profit = 17600
10 (luestion Br.ruJt_ l,)rrgirroor.rrrg lrlcononrir:s by
Jairrro Il 'l'iong I)resent Economy 11

Solving for the difference in profit per cubic meter.

Difference = 1 7600 _ 5600

Difference = '12,000
.'. Granite is the more than marble by p,|2,000 per cubic meter.
A22OV 2 hp motor has an efficiency of 80%. lf power costsP3.00 per.kw-hr for
the first 50 kw-hr, P 2.90 per kw-hr for the second 50 kw-hr, P 2.80 for the third
kw-hr and so on until a minimum of P 2.50 per kw-hr is reached. How much does
It cost to run this rhotor continuously for 7 days?

A. P 800
B. P 820
A man would like to invest p 50,000 in government bonds and stocks
that will
c. P 840
give an overall annual return of about 5%. The money to be invested
in
D. P 860
government bonds will give an annual return of 4.5o/o and the
stocks of about 6%.
The investments are in units of p 100.00 each. lf he desires to klep r,isito"t
investment to minimum in order to reduce his rrsk, determine now riany
stocts
should be purchased.
Solving for the input power of motor:
A. 165
outDut
B. 166
' =Linput
Eftrclencv
c. 167
D. 168
o.8o
2
=input
input = 2.5 hP
Let x = number of government bonds
y = number ofstocks
input=rttr[,ffit)
'100x+100y=5gggg input = 1.865 kw

x+y=500 -+ Eq '1
Let P = total power consumption for 7 days
0.0a5(1 00x) + 0.06(1 00y) : 0.os(so0oo)
4.5x+6Y=2500 -+ Eq.2
p=(1 865**Xro*.{{$t)
P = 313.32 kw - hr
Multiply Eq. 1 by 6:
Table of Power Cost:
6x+6Y=3000 + Eq. 1a

Subtract Eq. 2 from Eq. 1a:

1.5x = 500
x = 333.33

Substitute value of x in Eq. 1,:

333.33{y=SOO
Y = 166'67 Total Power Cost = P 860.00

since there was a desire to keep stock investment minimum, y must be ,'. lt will cost P 860 to run the motor continuously for 7 days'
166 instead ot 167.

TIP ABLEEUILIBBARY
12 Quest,ion tsank , l,)ngirrccrirrg lrl<:onomics by Jairno lt. Tiong Present, Economy 13

Cost of Project = Total cost + contingency

Cost of Project = 1050000 + 157500
' An 8-meter wide concrete road pavement s00 meters long is desired to
be
Cost of Project = P 1,207'500
constructed over a well-compacted gravel road, together wii-h the necessary
concrete curbs and gutters on both sides. ln orderio put the subgrade on The project will cost P 1,207,500.
an
even level grade, a 500 cubic meters of sand fiiling is nece"."ry,-or"i *hich
the
10-inch concrete pavement will be placed?

Assume the following data: - en etectric utility purchases 2,300,000 kw-hr per month of electric energy from
National Power Cbrporation at P 2.OO per kw-hr and sells all this to consumers
4 Sand fill, including rolling and watering = p 100 per cubic meter per kw-hr should
a-fteiJeOucting distribution loss es of 2OYo. At what average rate
B. concrete pavement, 10 inches thick (iabor and materials) including currng
tnii be-sold to break even if the following are other monthly expenses in
= P 220 per sq. meter "n"rgy
Ite operation:
C. Curbs and gutters = p 12 per linear meter
Taxes 2.5Yo of qross revenue
How much will the project cost allowing 15yo for contingency? P 750,000
Salaries
lleoreciation P 2.250.000
A. P 1,207,000
lnterest P 700,000
B. P 1,207,500
P 300,000
c. P 1,208,000 Maintenance
P 200.000
Miscellaneous

A. P 4.90
"V.ur.r- B. P 5.20
c. P 5.90
Let Cr = cost of sand filling, rolling and watering D. P 6.30
Cz = cost of curbs and gutter (both sides)
Co = cost of concrete pavement
,'/,/nt n.

Let x = rate per kw-hr of energy sold to consumers

",=[#)('oom3)
Cr = P50,000 Solving for ExPenses:

P1 -nr;
.,=[T)(soomtz) AmountpaidtoNPc=[, )1r.ooooo**
1kw - hr /'
Cz = P120,000 = 4600000

With 20% losses, only 80% is sold to consumers'

., =[TP)(soom[am)
Totalnumber of kw - hr sold = 0.80(2300000)
Ca = P880,000 = 1840000 kw - hr

Total cost = C1 + Q2 + Q. Taxes = 0.025(1 8a0000)(x)

Total cost = 50000 + 120000 + BSOOOO = 46000x
Totalcost=P1,050,000
+
Total expenses = Amt. paid to NPC + Taxes-+ Salary + Depreciation
Contingency = 0. 1 5(1 050000) lnterest + Maintenance + Miscellaneous
Contingency = P 157,500
14 Qrr.st;iolr Ilnrrk l,)rrgirrr.r,rirrg l,)r:.,unrir:s [ry.lairrrt,
ll, ,l,iong
Total expenses = 4600000 +-46000x Present Economy
+ 750000 * ,ruOOOO + 700000 +
300000 + 2OO00O
Re nta, =
Total expenses = gg00000 + 46000x tT#)(. -!#)r, weeks)
= 280000
Solving for lncome:

lncome = 1,g40,000x Sarary or 2 nasmen =

(#{ffi}sz weers)(z)
To break-even; income expenses = 57600
=
'1840000x Total expenses = 12252450 + 280000 +
= 8800000 + 46000x 57600
Total expenses = p 12,590,050
17940OOx = 88OO0OO
x = 4.90 For Site B:

.'. The average rate the energy

be sold is p 4.90 per kw_hr.
cost or haurins = [ f+zk,.liff](2'75kmx7km)
" 1;5 )f
oozo ms
r
),,,
-
' = 13477695
An engineer biddino the aspharting of 7 km stretch of road
_on
y:'Jr:,ffilJinT orcho-osino oltd;;'il; il#" is confronted
sites on w.rt-rr'io-"""i,p *,"
Cost of installing & dismanfling of
machine = 10000

p6,5oo
Rentat _
r\errrdr =f l( l montn ),^^ weeks)
{.
'"'th 14 *""k.J(32
= 52000

Total expenses = 13477695 + 1OOO0 +

52000
Total expenses = p 13,539,695
The
res Solving for the difference in expenses;
to Difference = 1 3539695 _ 12596050
is Difference = 949645

A. P 949,645
c. P 956,807 .'. Site B is more expensive than site
B. P 962,10.1 A by p 949,645.
D. P 974,090

A fixed capital
For Site A: manufacturing
depreciationE al
the rate ofretu ne
cost of hauting
(z.stm[zr<m)
A. 28.33%
= 12252450
B. 29.34%
c. 30.12%
Cost of installing & dismanfling D.30.78%
of machine = 20000
16 ()trr,sliorr llirrrk l,)ngrrr,r,r'rtr1i l,l.onorrrr,.., lrt,lrrrrrr,, l( 'l'iorrg
Present Economy 17

Profit
Rate of return 5ooo
Total capitalinvested '50-
Number of oost + 1

2500000 = 101
iooooooo , 2oooooo
_- 0 2833
.,=lffi)(rorno,,,)
The rate of return is 28.33 %.
Cr = 505000

Number of days to dig and erect posts = = 33.67days ,say 34 days

A call to bid was advertised in the philippine Daily lnquirer for the construction TH*
of a transmission line from a mini-hydroeiectric power piant to the substation day

",=[H)(a+oays[s)
Cz = 30600

Number of days to strung wires = = 33.57 days , say 34 days

ffi
day

..=(H)(s+oays)(+)
A. P 745,890.23 c. P 789,120.80 Cs = 34000
B P 817,692.00 D. P 829,592.50

..=[H)(s+aavs)
Let Cr = cost of posts C4 = salary of foreman Cr = 13600
C2 = salary of 5 laborers Cs = Cost of wire
C3 = salary of 4 electricians (pa\.
cs = m)
Solving for the number of posts: [-J(soss
Cs =20140
Hydro-electric
Power station
Total directcost=Cr +C2+ C3 +Ca +C5
. = 505000 + 30600 + 34000 + 1 3600 + 20140
.-,]
= 603340
50m 50 nt 50m
ContingencY = 0. 1 0(603340)
5035 m
= 60334

Total cost including contingency = 603340 + 60334

Distance between first and last post : 5035 _ 15 _ 20
= 663674
:5000 m
18 Quest,ion llank lr)ngirrct,r'irrg l,)<:onornics by Jairut, ll. 'l'iorrg I)rcsont Economy 19

Pr ofit = 0.25(663674)
Pr ofit : 16591 8.50
is_3200
The monthly demand for ice cans being manufactured by Mr. Alarde
Total cost of Project = 663674 + 165918.50 nlcces With a manual ooerated quillotine, the unit cutting cost is P 25'00' An
Total cost of Project = P 829,592.50 ne was offered
the unit cutting t
.'. The estimated cost of the project is P 829,592.50 Alarde be able

A. 10 months
Upon her retirement after 44 years in government service, Mrs. Safud Arao-
B. 11 months
arao wa lump sum of P 2,300,000. As a hedge against
C. 12 months
inflation rt of it invested in real estate at pagadian City
D. 13 months
and the as follows:
/r,/,/,;.r"
A. 30% in T-bills earning 12% interest
B. 35% in money market placement earning 14o/o For manuallY operated guillotine:
C. 35% in blue chip stock earning 13%

lf her annual earnings from the t-bills, money market and stock is p 50,000 how Monthty expenses = units)
much did she invests in real estate? [ffi),.r.O
= P 80,000
A. P 2,091,639.12
B. P 1,916,858.24 For electrically operated hydraulic guillotine:
c. P 1,856,120.53
D. P 1,790,274.78 Cost Per unit = 0.70(25)
= 17.50

Monthry expenses = units)

Let x = amount invested in real estate tTfl)0200
y = amount invested in T-bills, money market placement and stock
= P 56,000
Since annual income of y is P 50000, thus
0.30y(0.1 2) + 0.35y(0. 1a) + 0.35y(0.1 3) : 50000 Amount saved per month = 80000 - 56000
0.1305y = 50000
=P 24,OOO
cost of machine
Y = 383141.76 Number of months to recover the machine = amount saved
Per month
_275000
x=2300000-y 24000
x = 2300000 - 383141 .76 =11.46 months
x = 1916858.24
The machine can be recovered in 12 months'
.'. The amount she invested in real estate is P 1,916,858.24.
20 Quest,io' Ba,k - l)ngi'e.rirrg llco,onrics by J:rrr,r, ll ,l'iong
Present EconomY 21

Net income = 28000 - 400

a new gold mining area in Southern Leyte, the ore contains on the average
-ln
of.ten ounces of gold per ton. Different methods of processing = P 27600
t.ort"t"o
follows: "r" ". .j. Processing Method A yields the biggest return'
Processinq Method Cost per ton % Recoverv
A P 5,500 90
B P 2.500 80
C P 400 70
r\^ ^aaaccanr crarinn of the enoineS. lRf MotOrS lnC. will pay freight On

A. Processing method A
B. Processing method B
C. Processing method C
D. Either of the processing methods B or C

,%zn*
For Processing Method A:
A. P 670 Per engine C. P 650 Per engine
D. P 610 Per engine
B. P 630 Per engine
+ooo'][ to ounces)fo.got
lncome per ton - [p
\ ounce /( ton )'
= P 36,000 lf shipped in container:

Net income = 36000 - 5500

cost or rreight t"".(!#)
= P 30,500
=
[#}..
= 1 20000
For Processing Method B:

p +ooo t o ounces
rncome per ton -[ )[
\ ounce /\ ton )')ro.aot
= P 32,000

= 20 engines
Net income = 32000 - 2500
= P 29,500 . cost of freight
cost per englne =
nr-m0", of ensine"
For Processing Method C:
'n20000
1

+ooo'1( t o ounces
lncome per ton - [p
\ ounce /\ ton )(o.zot
)' , = P 6,000

= P 28000
lf shiPPed in crates:

TIP ARLEEUI LEBARY

22 Quesl,ion Bank -- l,)nginecrirrg F.lconomics by Jaime R. Tiong Present Economy 23

so szo kg
cost of freight per ensine - [eg ][t )
\ t(g /\ engrne ,
Totat cost =
l.ks \ru
[t,'oo
)'
*n)

= 5320 = 5000

Cost of crate per englne = 50 Pr oflt = Total income - total cost

Cost per engine = cost of freight + cost of crate
= 5320 + 50
= P 5,370
B. Using ceramics:
Solving for the difference of cost:

Difference=6000-5370 rotar output in 2 morrths time = f 14-!l9rsYq}.Y=Sl(s montns)

\ hour /1. day /\ month /'
Difference = 630
= 72000liters
.'. Shipping the engine by crates is more economical by P 630 per engine
than shipping by container. rotar income = [*9]t
I liter /
rooo liters)

= 1 080000

A paint manufacturing company uses a sand mill for fine grinding of paint with an
output of 100 liters per hour using glass beads as grinding media. Media load in rotat cost = [',090']eo *nl
the mill is 25 kg costing P 200.00 per kg and is fully replenished in 2 months time i
Iks )'
at 8 hours per day operation, 25 days a month. A ceramic grinding media is = 12000
offered to this paint company, costing P 400 per kg and needs 30 kg load in the
sand mill, but guarantees an output of 120 liters per hour and full replenishment Profit = Total income - total cost
of media in 3 months. lf profit on paint production is P 15 per liter how much is
=1080000-12000
the difference in profit between the two media?
= 1 068000
A. P 436,900 The ceramic is more economical as a grinding media with a difference
B. P 462,000 in profit of P1,068,000 - P 595,000 = P 473,000
c. P 473,000
D. P 498,200

,9"2',2,*.

A. Using Glass Beads:

rotaroutput in 2 months time =

[,1qq]lgrsYq$trlf montns)
\ hour day ./\ month /'
^
= 40000liters =+)(z
rotarincome titers)
([99'ltooo00
=
liter /'
= 600000

ii ,ii[t: ;i r,' t'1

24 Question Bank - Engineoring Economics by Jaime R. Tiong
Question Bank 2

It P1000 accumulates to P15P0 when invested at a simple interest for three years,
what is the rate of interest?

A. 14.12%
B. 15.89%
c. 16.67 %
D. 16.97 %

t(r*t ',,
F = P(1+ in)
15oo=tooo[t+i(s)]
i= 0.1667
i =16 67%

.'. The rate of interest is 16.67 %.

You loan from a loan firm an amount of P 100,000 with a rate of simple interest of
2g7o but the interest was deducted from the loan at the time the money was
5fiowed. lf at the end of one year, you have to pay the full amount oiP 100,000,
what is the actual rate of interest?

A. 23.5Yo
B. 24 7 nto
c. 25.0%
D. 25.8%

,'/n7)zrn.'

lnterest = 0.20(1 00,000)

lnterest = 20,000

Amount received = 100,000 - 20,000

Amount received = 80,000
 \
26 Question Bank - Engineering Economics by Jaime R. Tiong Simple Interest & Discount 27

l= Pin
20,000 = 80,000(i)(1) J. Reyes borrowed money from the bank. He received from the bank P 1,842
i = 0.025 promised to repay P 2,000 at the end of 10 months. Determine the rate of
i=25%
o/". 12.19%
.'. The actual rate of interest is 25
12.030h
11.54%
10.29%
A loan of P 5,000 is made for a period of 15 months, at a simple interest rate of
'1
5%, what future amount is due at the end of the loan period?
F = P(1+ in)
A. P 5,937.50
B. P 5,873.20 2ooo = n+zlt.'l'19)l
c. P 5,712.40 L \12i1
D. P 5,690.12
i= 0.1029
i=10.29%
,9urr*"
The simple interest rate is 10.29 %.
F = P(1+ in)

'r --""1'
= sooolr.0.',u[E)l
"'"[tz)] rborrowed P 10,000 from a bank with 18% interest per annum, what is the
----
F = 5,937.50
amount to be repaid at the end of one year?
P 10,900
.'. The future amount at the end of the loan period is P 5,937.50.
P 11;200
P 11,800
P 12,000

lf you borrowed money from your friend with simple interest ol 12o/o, find the
present worth of P 50,000, which is due at the end of 7 months.
F = P(1+ in)
A. P 46,728.97
F=1O,ooo(+0.1S)
B. P 47,098.12
c. P 47,890.12 F = 11,800
D. P 48,090.21
The total amount to be repaid at the end of one year. is P 11 ,800.
c'*r"rn
F=P(1 +in)
tag of P 1,200 is payable in 60 days but if paid within 30 days it will have a
so,ooo=P[1 ..,r(#)] discount. Find the rate of interest.

P = 46,728.97

.'. The present worth is P 46,728.97.

28 ()uestion llnnk l,)ngirrooring lllconorni<:s by Jaime R. Tiong Simple Interest & Discount 29

/,/,,/,i,,,.. h,,,
Discount = 0.03(1,200) Solving for rate of discount, d
Discount = 36 i
.80
o=-
2,000
Amount payable in 30 days = 1,200 - 36
d = 0.04
Amount payable in 30 days = 1,164
d = 4o/o
l= Pin
Solving for the rate of interest, i
36=1,164(i)[#) .d
1-d
i= 0.3711 . 0.04
i = 37.11o/o 1- 0.04
The rate of interest is 37.11 %. I = 0.0417
t= 4.17%

,', The rate of interest is 4.1T o/o.

A man borrowed P 2,000 from a bank and promised to pay the amount for one
year. He received only the amount of P 1,920 after the bank collected an advance
interest of P 80.00. What was the rate of discount?
tIVhrl wlll be the future worth of money after 12 months, if the sum of p 2s,ooo is
A. 3.67 % lltvoatcd today at simple interest rate of 1o/o pet leat?
B. 4.OO o/o

c. 4.15 0/o
A, P 25,168
D. 4.25 o/o
3, P 2s,175
c. P 25,18e
D, P 25,250

Solving for rate of discount, d '4ta,,

.80
d=-
2,000 F = P(1+ in)

d = 0.04 F = 2s,0oo[1* (o.or)!99.1

d = 4o/o L ' ',360]
F =25,250
.'. The rate of discount is 4 %.
;. The future worth is P 25,250.

A man borrowed P 2,000 from a bank and promised to pay the amount for one
year. He received only the amount of P 1,920 after the bank collected an advance
interest of P 80.00. What was the rate of interest that the bank collected in lltlrtwitt be the future worth of money after 12 months, if the sum of p 25,000 is
advance? lnYrcteo today at simple interest rate of 1%o per month?

4.OO o/o A. P 28,000

4.O7 o/o B, P 28,165
4.17 o/o c. P 28,289
4.25 o/o D. P 28,250

- ,)L
30 Questiorr llrrrrk l,)rrgirrorrringltrconornir:s lrv.Jrrirno lt.'l'iong Sirnple lntcrest & Discount 31

.22,t ,,. Net interest = l- 0.201

Nel interest :0.801
F= P(1+ in) 890.36 :0.80t
F= 25,000[1+ o.o1(r z)]
I = 1,112.95
Bul
F = 28,000
l= Pin
.'. The future worth is P 28,000. 1,1 12 s5= 1 1 o, ooo(i)(#)
i= o.1175
i = 11.75o/o
It is the practice of almost all banks in the Philippines that when they grant a
loan, the interest for one year is automatically deducted from the principal ,'. The rate of return annually is 11.75 Yo.
amount upon release of money to a borrower. Let us therefore assume that you
applied for a loan with a bank and the P 80,000 was approved at an interest rate
of 14 o/o of which P 11 ,2AO was deducted and you were given a check of P
68,800. Since you have to pay the amount of P 80,000 one year after, what then
will be the effective interest rate? lt 0,000 is borrowed for 75 days at 16% per annum simple interest How much
wlll be due at the end of 75 days?
A. 16.02o/o
B. 16.28 o/o A. P 5,066.67
c. 16.32% B. P 5,133.33
D. 16.47 o/o c, P 5,050.00
D, P 5,166.67

( rt/,,,,.
l= Pin
F = P(1+ in)
11,2oo = 68,800(i)(1)
i= 0.1628 r = s,ooolr. (0.16)f=.)l
',(360/l
i=16.28% L
F = 5,166.67
.'. The effective rate of interest is 16.28 %. ,'. The amount due at the end of 75 days is P 5,166.67.

A deposit of P 110,000 was made for 31 days. The net interest after deducting A bueinessman wishes to earn 7% on his capital after payment of taxes. lf the
20% withholding tax is P 890.36. Find the rate of return annually. lnoome from an available investment will be tafed at an average rate of 42Yo,
what minimum rate of return, before payment of taxes, must the investment offer
A. 11.50 o/o
lo be justified?
B. 11.75%
c. 11.95% A. 12.07 %
D. 12.32 o/o
B. 12.34%
c, 12.67 0/o

D. 12.87 0h

,%dz,*.
32 (lrrcst,irrrr llrrrrk l,)rrgrru,r,t'ittg I!<:ottoutit's lry.lairne It. Tiong Simple Interest & Discount 33

profft 3,200 = (2o,ooo - 3,200)(i)(1)

Rate of return =
invested caPital i:0.1905
D i= 19.05%
Rate of return = I
C
,,, The actual rate of interest is 19.05 %
where: p = profit
C = invested capital
o/o per annum simple interest. How much
After taxes are paid, ? .1,000 is borrowed for 75 days at 16
net Profit Wlllbc due at the end of 75 days?
-
Rate of l9turn ='
invested capital
Rate of return = 7 oh = O.07
A, P 4,033.33
l, P 4,333.33
Substituting values:
C, P 4,133.33
D D, P 4,666.67
o 07: --- 0.42P
'(b^
0'58P
0.07 - C F=P(1 +in)
D
L = 0.1207 F=4ooo[.,.r,.(#)]
C
o
-C =lz.ot% F = 4,133.33

,,, Thoamount due in 75 days is P 4,133.33.

.'. The rate of return before payment of taxes is 12.07 o/o

Agntr Abanilla was granted a loan of P 20,000 by her employer CPM lndustrial
A mgn borrowed P 20,000 from a local commercial bank which has a simple lfbrlcator and Construction Corporation with an interest bf 6 % for 180 days on
interest of 16% but the interest is to be deducted from the loan at the time that ho prlncipal collected in advance. The corporation would accept a promissory
the money was borrowed and the loan is payable at the end of one year. How iOh for P20,000 non-interest for 180 days. lf discounted at once, find the
much is the actual rate of interest. pDoreds of the note.
A. 19.05 % A, P 18,800
B. 19.34 0/o l, P 18,900
c. 19.67 % C. P 19,ooo
D. 19.87 % D, P 19,100

"V;/'r.o,, ,'L.*
r= 0.16(20,000) lnterest = 0.06 (20,000) = 1,200
I = 3,200
Proceeds on the note = 20,000 - 12OO
Proceeds on the note = 18,800

But l= Pin r'. The proceeds on the notes is P 18,800.

Substituting the values:

{
34 Qucsl,iorr Ilrrrrk I,)rtgirtrrrring Econottrics by Jaimtr Il..'lliong Simple Interest & Discount 35

lf you borrow money from your friend with simple interest of 12%, find the present Mr, Danilo conde borrowed money from a bank. He receives from the bank
worth of P 20,000, which is due at the end of nine months. P1,340.00 and promised to pay P 1,5oo.oo at the end of 9 months. Determine
Tala of simple interest
A. P 18,992.08
B. P 18,782.18 A. 15.92o/o
c. P 18,348.62 B. 15.75%
D. P 18,'t20.45 c. 15.45%
D. 15.08 %

(*h,t
F = P(1+ in)
F = P(1+ in)
20 ooo = p[r
-' L'* 0.1 2f3zq).l
" '-(aooJl 1,500 = t.scol t.,r?29)l
P = 18,348.62
L (360/l
'
o.11g4 -270
The presentwo;th is P 18,348.52. 360
i.= 0.1592
i =15.92o/o

A man borrowed from a bank under a promissory note that he signed in the ,', The rate of simple interest is 15.92 %.
aniount of P 25,000.00 for a period of one year. He receives only the amount of
P21 ,915.00 after the bank collected the advance interest and an additional of P
85.00 for notarial and inspection fees. What was the rate of interest that the bank
collected in advance? Ml, J, Dela Cruz borrowed money rec€ive
P1,340.00 and promised to pay P nd of g ine
A. 13.05% lh! corresponding discount rate or as the nt,,.
B. 13.22%
C. 13.46 o/o A, 13.15 0/o
D. 13.64 % B, 13.32 o/o
C, 13.46 o/o
.7;7)a-,,-. D, 13.73Yo

Amount received = 21 ,915 + 85 (tf,.b,.

Amount received = 22,000
Solving for simple interest rate, i
lnterest = 25,000 -22,000
lnterest = 3,000 F = p(1+ in)

l= Pin 1,500=1,340[1+(#)]
3,000 = (22,000xi)(1)
i= 0.1364 0.1194 -27o i
i=13.64% 360
i= 0.1592
.'. The rate of interest the bank collected in advance is 13.64 %. i=15.92%
 36 li:l*l'1""1,,*
9::'tu' lly! Ecr)norrrir:s tr.y Jairne R. Tiong
Simple Interest & Discount
Solving for the discount, d
lnterest = 1,500.00 _1,342.00
.t
d=1- | '
lnterest = 15g.00
i+i Also,
d=1- 1

1 + 0.1 592
l= Pin
d = 0.1373
d =13.73% rsa = r,s+z1nf!)
\4)
.'. The discount rate is 1S.gZ%. i = 0.'1569
i= 15.69%

,', The simple interest rate

is 15.69%.
n"m a merchant who ask p 1,2soat
ffii:ffnil:FJ:',13i'"t th
the end o160
ri ;rf;' to ;;i
ca s h p rice on TTidll"]l -: l.d " T "l91,r ute e
",.",, -?,
rh th

Ddormine the exact simpre interest

on p 5,000 invested ror ttre perioo
J'nuery 15' 1996 to october rz, rsisi, rron-
P 1,'t24.67 ;;ffi:
of interest is 180/o.
P 1,233.5s
P 1,289.08
P 1.302.67
B, P 664.89
c, P 665.21
0, P 666.3e

F = p(1+ in)
l= Pin +Eq.1
1,250 = pL.o oa[jq)l
1( soo/]
Solving for the total number
P = 1,233.55 of days money was invested,
d

.'. The cash price of the television

set is p 1,233.55.

A man borrowed money from a

roan shark. He rgleryes from June = 30
the roan shark and
i''r,soo^oo
July = 31
;'rHI[ t",,ti"hfi:'fl?"?:3,1.i",g""0 '" '"p"v "i
ir,l'","0'o',", 0,"n",., August = 31
September = 30
A. 15.47 % Octoberl-12 =12
B. 15.69 % 271 days
C. 15.80 o/o
D. 15.96 o/o Substitute values in Eq. 1

t= s,ooo(o.1s,("1\
. 1366 /
l= 666.39

u^*
 Sinrplc lnt,erotrl, & l)iscourlt' 39
38 (,lut'strorr llrrrrk l,)rtgtttocriltg [lconottticr lrv ,lrtirtto lt. Tiong

. The exact slmple lntereet is P 666.39. ,'fi(/,,,

F = P(1+ in) -+ Eq' 1

' 1995 to
The exact simple interest of P 5,000 invested from June 21 December was invested' d
Solving for the total number of days the money
25, 1995 is P '100. What is the rate of interest?

A. 3.90 %
- 30 = $
April 22
B. o/o
May = 31

c.
3 92 June = 30

D.
3.95 % July = 31
3.98 % August = 31
September = 30
.'/./ot;,, October = 31
November = 30
l= Pin -+ Eq. 1 December 1-25 =E-
247 daYs

Solving for the total number of days, d

Substitute in Eq. 1

June21-30 =$
July =31 1o,ooo=P[1.(oro)(#)]
August = 31
September = 30
P = 8,807.92
October = 31
November = 30 her mother on her birthday is P
Decemberl-25=25 ,', The amount Nicole received from
187 dayt 8,807.92.

Substitute values:

1oo : s.ooo(i)f]!Zl
' "t365/ 182 days at 5'2%?
t rhat it the ordinary interest on P 1,500'50 for
i= 0.0390
P 39.01
i= 3.90% P 39.45
P 39.82
.'. The rate of interest is 3.90 %. P 39.99

On her recent birthday, April 22,2001, Nicole was given by her mother a certain ,'&,an'
sum of money a Present. t on
20% exact simp lf-the ac an l= Pin
amount of P 10, w much her
birthday? I = (1,500, 50)(o.o5r)[#)
A. P 8,807.92 l= 39.45
B. P 8,827.56
c. P 8,832.17
D. P 8,845.78
40 Quest iorr llrrrrk lrltrgrrroorirrg lj<:onorrrrr.x lry ,Inirno R. Tiong
Question Bank 3
Nicole has P 20,400 in cash. She invested ll alTo/o from March 1, 2006 to
November 1, 2006 at 7% interest. How much is the interest using the Banker's
Rule?

A. P 972.12
B. P 970.78
c. P 973.',t2
D. P 971.83
Tho amount of P 20,000 was deposited in a bank earning an interest of 6.5% per
1rrl,,2*. tnnum. Determine the total amount at the end of 7 years if the principal and
htlrrcet were not withdrawn during this period.
ln Banker's Rule, use exact number of days the money invested and 360
days for the total days in a year.
A. P 30,890.22
t, P 30,980.22
c, P 31,079.73
Solving for the exact number of days:
0, P 31,179.37
Marchl-31=30
April= 30
MaY = 31
r=e(t+i)n
June = 30
July = 31 F = 20,OOO(1+ 0.065r
August = 31 F = 31,079.73
September:30
October = 31
,'. The total amount at the end of 7 years is P 31,079.73.
November 1 = 1

Total = 246
A Joan for P 50,000 is to be paid in 3 years.at the amount of P 65,000. What is the
l= Pln dhcrtive rate of money?

t= (2o.4oo)(o
\ ' /\ 07)r?€)
,[360/ A. 9.O1%
B. 9.14 o/o

I = 971.83 c. 9.31Yo
D. 9.41%

r=e(+i)n
65,000=SO,OOO(1+i)3

t.a=(t+i)3
1.0914 = 1+ i
i = 0.0914
47 Quost,ion llank lr)rrginooring Econorrrir.r by.Jaime R. Tiong ( )ortrpottrttl I rrl,t,rtttl nnd Cont.iuuous C<lnrpounding 43

The present worth is P 40,530.49.

1.0914 = 1+ i
i= 0.0914

Since nothing was mentioned about how the interest was compounded, it lg the effective rate corresponding to 18% compounded daily? Take 1 year
presumed that the mode of compounding is annually.
is
$flut
aqu.l to 360 daYs.
.'. The effed.t rate is 9.14 %.
A 19,61 0/o

I 19,440h
c, 1s.31%
D 19.72%
The amount of P 50,000 was deposited in the bank eaming an interest ol7.So/o
annum. Determine the total arnount at the end of S years, if the principal and (**-
interest were not withdrawn during the period.
ER=(1+if-t
A. P 71,78',t.47
0.18)360 _1
B. P 71,187.47 en =[r+ 360/
c. P71,817.47 \
D. P 71,718.47 ER =19.72%

(tzz. ,', The effective rate corresponding to 18% compounded daily is 19.72o/o.

F = P(1+ i)n

F= 5o,o0o(1+o.o75f \Mltt nominal rate,.compounded semi-annually, yields the same amount as 16%
F =71,781.47 Slnpounded quarterly? a

.'. The tota! amount at the end of 5 years is P 71,781.47. A, 16.09 %

l, 16.32 0/o

c, 16.45%
D, '16.78%
Find the present worth of a future payment of P 80,000 to be made in six (6)
with an interest of 12Yo compounded annually.
12,h.

A. P 40,540.49 ER,
24
= EP,
B. P 40,450.49
c. P 40,350.49
D. P 40,530.49
[,.T)'-,=(,.0i)'-,
o'ro)o
.7"2*.* l..,*!B)'-
( 2/ [.,* ( 4)
[., * rB)' ='r.16e8556
\ 2)
NR
1* = 1.0816
2
 36 ()ucstiorr llrruk llrrgirrrrorirrg [!<:orrorrrir.* lrv.lrrirrro It. Tiong
Simple Interest & Discount
37
Solving for the discount, d .
lnlerest 1,500 00 - .t,342.00
lnterest = 158.00
d=1_1
1+i Also,
d=1-
1 + 0.1592 l= Pin
d = 0.1373
d=13.73% 158 = 1,342({;)

,'. The discount rate is 15.92 %. i= 0.1569

i= 15.69%

The simple interest rate is

15.69%.
Annie buys a terevision set from a merchant who
ask p l,zsoat the end of 60
::f 1'\,ll:1vlil-^1"
cash price ry^,,lmed.iare
on the assumption
ty, n J ir,
thar mor"y ir *ortn"'rn ","nani
aL
orers to comiute tne
liil;ft;#.
,inr, ,. ,n"
cash price? $ermine the exact simpre interest on p 5,000
fnuary 15, 1e96 to october rz,1sigo, ;tiJI]t;invested for the perioo rrom-
A. P 1,124.67 orinterest is 18%.
B. P 1,233.55
c. P 1,289.08 P 664.89
D. P 1,302.67 c. P 665.21
",B.
D. P 666.3e

F=P(1+in)
l= Pin -+ Eq. 1
1,250 =p[r. o.oa[i9)l
1 (s60i.l Solving for the total number
of days money was invested,
P = 1,233.55 d
January 1S-31 = 16
.'. The cash price of the television set is p 1,233.55. February 29 (since 19g6 is a leap
= year)
March =31
April
=30
May = 31
man.bollory"-d June = 30
Iamount rgney from a roan shark. He receives from the roan shark and
of p 1,u2.00 and^promised p July = 3.1
What is the simple interest rate?
to repay 1,500.00
"i
tn" Lna otl quarters. August = 31
September =30
A. 15.47 o/o October 1 - 12 =12
B. 15.69 % 271 days
C. 15.80 o/o
D. 15.96 % Substitute values in Eq. 1

r = s,ooo(o.18,{!1\
' '\366'
.V;z*--
t= 666.39
38 (1)ucstrorr llrrrrlr lr)rrgrrrrrr.rirrg l,lt:ortorrricx by ,lnime R. Tiong Simplc lnt,ereel, & Discoupt 39

The exact clmplo lnterest ls P 666.39. 'Aaa -

F = P(1+ in) -) Eq. 1

The exact simple interest of P 5,000 invested from June 21, 1995 to.December
25, 1995 is P 100. What is the rate of interest? Solving for the total number of days the money was invested, d

A. 3.90 % April22-3O =$
B. 3.92% May = 31
c. 3.95 % June = 30
D. 3.98 % July = 31
August = 31
September = 30
October = 31
November = 30
l= Pin -+ Eq. 1 Decemberl-25=25
247 days
Solving for the total number of days, d
Substitute in Eq. 1

June21-30 =g
JulY = 31
1o,ooo=P[1.rr.,(#)]
August = 31
September = 30
October = 31 P = 8,807.92
November = 30
December 1-25 =.25 The amount Nicole received from her mother on her birthday is P
187 day$ 8,807.92.

Substitute values:

1oo = s,ooo(i)fEz)
"\ 365 / What is the ordindry interest on P 1 ,500.50 for 182 days at 5.2 %?
i= 0.0390
i= 3.90% A. P 39.01
B. P 39.45
.'. The rate of interest is 3.90 %. c. P 39.82
D. P 39.99

On her recent birthday, April 22,2001, Nicole was given by her mother a certain ,ttdlL/,an
sum of money as birthday present. She decided to invest the said amount on
20o/o exact simple, interest. lf-the account will mature on Christmas day at an
l= Pin
amount of P 10,000.00, how much did Nicole receive from her mother on her
birthday? r 5oo, 50) (o.o5r)(ffi)
= (1,

A. P 8,807.92 t= 39.45
B. P 8,827.56
c. P 8,832.17
D. P 8,845.78

--,.It,.
40 llrrrk l')rrgrrroorirrg l!)<xrrtorttu x lry JaiIno R. 'liong
Question Bank 3
Quesliorr

Nicole has P 20,400 in cash. She invested rl al7% from March 1, 2006 to
November 1, 2006 at 7% interest. How much is the interest using the Banker's
Rule?

A. P 972.12
B. P 970.78
c. P 973.12
D. P 971.83
Thc amount of P 20,000 was deposited in a bank earning an interest of 6.5% per
annum. Determine the total amount at the end of 7 years if the principal and
,'/;Zr,- lntcrest were not withdrawn during this period.

ln Banker's Rule, use exact number of days the money invested and 360 A. P 30,890.22
days for the total days in a year. B. P 30,980.22
c, P 31,079.73
Solving for the exact number of days: D. P 31,179.37

Marchl-31=30
April= 30
MaY = 31
r=e(t+if
June = 30
JulY = 31
F = 2o,ooo(1+ o.o65f
F = 31,079.73
August = 31
September:30
October = 31 ,'. The total amount at the end of 7 years is P 31,079.73.
November 1= 1

Iotal=246
A loan for P 50,000 is to be paid in 3 years.at the amount of P 65,000. What is the
l= Pln dlbaive rate of money?

t= (2o.4oo)(0.07)f?€)
.",/[360J A. 9.01 o/o

B. 9.14 o/o

I = 971.83 c. 9.31%
D. 9.41%

r=e(t+i)n
65,000=so,ooo(t+i)3
1.3=(1+i)3
1.0914 = 1+ i ......_ 61rr0lw
50,000
i= 0.0914
11]lrr_oil1,1,11r,k. _U,,rinooring Economics by Jaime R. Tiong
t.s = 1r+i;
1.0914 = 1+ i tfre pres"nt worth is p 40,530.49.
i= 0.091a

since nothing was mentioned about how the

interest was compounded, it is
presumed that the mode of compounding
is annually. /
I
I
.'. The effect rate is 9.i4 %.
A 19.610/o
I 19.44%
c 19.31%
The amount of p 50,000 was depositeo
in tne bank eaming an interest of 7.5%
D 15.72%
annum. Derermine rhe rotar amount at *,e
interest were not withdrawn Ouring ifre p"ii"il -
eno oi s G;; i; il;'pri"ipri (*a-
""0
A. P 71,78't.47 En=(r+if_r
B. P 71,187.47
c. en =[r+S)'uo
\ 360/ -,
P 71,817.47
D. P 71,718.47
ER =19.72o/o

The effective rate corresponding

"' to 1g% compounded dairy is 1g.72%.
F = P(1+ i)n

F = so,ooo(1+o.o7s)s
F:71,781.47 Wtll nominai r"t",
ompounded qr"rt"1y?pounded "o.no1ilffi,a,,..
semi-annually, ._:_,
yields the same amount
as 16%
.'. The total amount at the end of
71,781.47. A, 16.09 %
!, 16.32%
c, 16.45 %
D, 16.78 %
Find the present worth of a rrtrr" pryrr,"r,t
of p g0,000 to be made ln six yea)
with an interest of 12o/o compounded'"nnrrlfy. 1o;

A. P 40,540.49
B. P 40,450.49 ER, =5P,
c. P 40,350.49
D. P 40,530.49
(,.T)'-,=[,.T)'-,

o-
E
|
[,.T)'=(,.T)'
(1+i)n
_ 80,000 [,.T)'=116e8s56
P
(1+ 0.12)6 1.T = 1.0816
P = 40,530.49
44 ()trcstiorr llrrrk l,lrrgirrr,r.r'irrg l,lr:rrrrorrrir:s by .Jaime R. Tiong
( lorrtltottttrl l rtl.t'r'rl rrtrtl ( lrttl itttttttts ()orrtpotrnding 45

l!! o 0816 (r , i)o 't o t')' 1

2 1,,
NR = 0.1632
(1ri)a 11236
NR = 16.s2 % i .0.029563

The nominal rate is 16.32o/o. NR

But, l=
-m
o o2s563 =
Y
What rate of interest compounded anrtually is the same as the rate of interest of NR = 0.'t183
8% compounded qua(erly? NR = 11.83%

A. 8.07 o/o
. Ths nominal rate's 11.83%'
B. 8.12 0/o

C. 8.16 o/o

D. 8.24%
interest?
ffil-O,, of tn".e gives the lowest effective rate of
.V;Z*r-".
ER' =EP' A, 12.35% comPounded annuallY
a 11.90 % compounded semi-annually
(1+i)1- t=(t*IB)o -',
C, 12.20% comPounded quarterlY
[4,l D, monthll
11.60 % comPounded

(1+i)=11+
( . o.o8
.)4
'(,J*-,
\ 4,
1+i=1.0824 Solving for the effective rates:
i= 0.0824
i = 8.24 Yo
A. ER = 12.35 % (if compounded annually, NR = ER

.'. The rate of interest compounded annually is 8.24%. B. ER=(1+i)"-t

en=[r.9-119)'-r
Flnd the nominal rate, which if converted quarterly could be used instead oI 12oh ER = 0.1225
compounded semi-annually. ER=12.25%

A '|.1.93 0/o

u 11.09 % rn=[r,.9J??)'-r
(: 11,85 %
I) 11.26 0/ ER=0.1277
ER = 12.77o/o

tRr -ER1 D en=(r*9119)"-r

1'
 (lrrcslion llrrnk l,)rrgirrr,r,r.irrg I,l.orrorrrir.s lry ,lirinrc R. Tiong ( lrrrrrltrrttntl l ttl r,tr"rt ttrttl ()orrt ilrutttts Ooltlpoun dtng 47

ER. 0.1224 But,

ER =12.24% .NR
l=-
m
.'. Thschoice D provides the lowest rate of
interest.
002=!E
6

Find the compound amount if p 2,500 is invested NR = 0.12

at g% compounded quarterry for
5 years and 6 months. NR = 127o

A. P 3,864.95
,', The nominal rate is 12"/o.
B. P 3,846.59
c. P 3,889.95
D. P 3,844.95

ii pi OOo shall accumulate

for 10 years at 87o compounded quarterly, then what i

5 years & 6 months = 5.5 years ,

lha compound interest at the end of 10 years?

r=n(t+if A, P 6,080.40
.15 utol !, P 6,020 40
F = 2'5oo(1* !'oe c. P 6,040 20
\ 4) D, P 6,060.20
F = 3,864.95 2,s00
i....................
""'> F l*oth',,

The compound amount of p 2,000 after 5 years

and 6 months is r=eft+if
P3,864.95.
F=s,ooo[1*ofu)'o'''
F =11,04020
An amount of P 1,000 becomes p 1,60g.44 after 4 years
compounded bimonthry lnterest=F-P
Find the nominal interest.
lnterest = 1 1,040.20 - 5'000
lnterest = 6,040.20
A. 11.89 o/o
B. 12.00 0/o
,'. The compound interest at the end of 10 years is P
6'040'20'
C. 12.08 o/o
D. 12.32 o/o

l-J2z
, -/../t//rn 18% compounded semi-quarterly?
W-nrt i" the corresponding effective rate of
r=e(+i)n A. 19.24%
1,608.44= 1,s66(1 * ;)+to) B. 19.48 o/o

c. 19.84%
1.AOAI+* =t+i D. 19.92%
1.02 = 1+i
i=o.o2 f k)*,,.
gp = (r+i)m._1

__l-.
 f

48_ ,,),::Il iorr llrrrk -, lr)nginocring li)conornir:x by Jaime R. Tiong ()ornllotttrtl I ttlrrrtrrl, nnrl Continuoue Compounding 4!)
t---

F=P(1 +i)2n
rn=lr*o,rtlt
( 8, , ol'l'"
2ooo + 3ooo = 2ooo(1* 2)
ER = 0.1948 [
ER = 19.48 % 2.5 = (1.06)2n
.
.'. The corresponding effective rate is 19.4go/o.
Take log on both sides:

log2.5 = tog(t.oo)2^
)present worth of a future payment of p 100,000 to be
made in 1 0 years log2.5 = 2nlog1.06
interest of 12o/o compounded quarterly.
n = 7.86 years

B. P 30,656.86 ,,, Thc money will increase by P 3,000 at in 7'86 years'

c. P 30,556.86
D. P 30,655.68

ifr-r,mount of P 150,000 was deposited i2the bank earning q1

L
interqs!9f-] -S-oZ

o_ F
(1 + i)n
P 215,U4.40
100,000 P 213,il4.40
^
P=
o.rz'14(10) P 2Uj53.40
f, * P 255.43.10
l
( 4/
P = 30,655.68
tb
.'. The present worth is p 30,655.6g.
r=e(t+if
F = 1 50, OOO (1 + 0.075)s
F =215,344.4O
ln how many years is required for p 2,000 to increase by p 3,000 if interest
at 12%
compounded semi-annually?
,'. The total amount at the end of 5 years is P 215'344'40'
A. 7.86 years
B. 7.65 years
C.7.23years
D. 8.12 years HOn, tong will it take money to double itself if invested at 5% compounded
f,lnuallY?

A. 13.7 Years
B. 14.2 years
C. 14.7 years
D. 15.3 years

,%*^

__..L
 r -!tF'
50 Quesl,iurr llntrk I,)rrginooring l,lt:onuurit:x by Jairne Il,. Ti<lng ()ontJxrurrtl Ittit'rr,xl rrntl (lont,inuorrs Oompounding 51

r=n(t+if
To double the money, F = 2P
,;-

2P = P(1+ i)n ER= (1+i)"-1

o
z=(r+o.osf en = [r*
l. 2) ]o)' -,
Take log on both sides
ER = 0.1449
log2=nlog1.05 ER = 14.49 %
loo2
i, Thc effective rate is 14.49%.
log1.05
n = 14.2 years

.'. The money if invested at 5% compounded annually will double in 14.2 Aan lnterest rate of 10% compounded annually, how much will a deposit of
yeats. ll,tOO be in 15 Years?
P 6,265.87
P 6.256.78
what is the corresponding effective interest rate of 1g% compounded semi- P 6,526.87
monthly? P 6,652.78
,/

A. 19.35%
B. 19.84%
,'fu'
c. 19.48% r=P(1+i)"
D. 19.64%
F = 1,500 (1 + 0.10)15
F = 6,265.87

ER=(1+i)'-r
,.. The amount of P 1,500 will become P 6,265.87 after 15 years'
en=[r+0.18)24_1
\ 24)
ER :0.1964
ER = 19.64% fiman expects to receive P 25,000 in 8 years. How much is that money worth
i[r considering interest at 8% compounded quarterly?
.'. The corresponding effective rate is 19.64 %.
lA. P 13,256.83
'iB. P 13,655.28
,l c. P 13,625.83
What is the effective rate of 14% compounded semi-annually?
fl o. P 13,205.83
A. 14.49%
B. 14.59%
c. 14.690A
D. 14.79 o/o
52 ()uort,iorr llrrrk l{ltrgirxrorilrg lii:onornir:r bv Jairne lt. Tiong
()orrrporurrl Inlorr,nt rrnd (lontinuous Compounding 53
0r23 'b*
ERquarterty = ERsemi -annually
o.oo
( * 2 ))2(8)
1.,
'' P-n"""""' [,nl)o -t=(t+o06)2-1
P ='13,265.83 \ 4) 2 \ )
i= 0.0596.
.'. The present worth is P 13,265.83. i= 5.96%

,,, Thc equivalent rate is 5.96 %.

About how many years will P 100,000 earn a compound interest of p 50,000 if
the interest rate is g% compounded quarterly?
t{hfl lr the amount of P 12,800 in 4 years at 5 % compounded quarterly?
A. 4 years
B. 5 years A, P 15,461.59
C. 6 years t, P 15,146.e5
D. 7 years 0, P 15,641.59
0, P'15,614.59
9"2*,
r=e(r+if
loo,ooo + 50,000 = 1oo,ooof1+ o.oe)4N F=P(1 +i)n
\. 4) o'05
1.5 = (1.0225)4N
F = 12.Boo(( 't* 4) )4(4)
F = 15,614.59
Take log on both sides
,', The amount after 4 years will be P 15,614.59.
log1.5 = 4N1o91.0225

N=
-']991'5
4(1o91.0225)
N = 4.56 years ly he condition of a will, the sum of P 20,000 is left to a girl to be held in trust
fund Oy her guardian until it amounts to P 50,000. When willthe girl receive the
.'. The money will double in 4.56 yearsi or about 5 years. lltollcy if the fund is invested at 8 % compounded quarterly?

A. 11.23 years
!. 11.46 years
C. 11.57 years
compute the equivalent rate of 6% compounded semi-annually to a rate D. 11.87 years
compounded quarterly.

A. 5.12%
B. 5.96 %
c. 5.78%
D. 6.12%
 F

54 Qucst,ir-rn lltnk l,)rrgirxroring Iimnomics by Jaime R. Tiong Oornglounrl lrrlr,r'oni nnd Continuous Compounding 55
.-

(
50,ooo = zo,ooo Ir + 9]?8
\4n
4-.J
b.
2.5 = (1 .o2)4"
01
Take log on both sides:
20,000 ...'...- 50,000
log 2.5 = log(1.02)an 1,000 :

log 2.5 = 4n log 1.02

o= loo" 2.5 . P(1+ l)n
4log1.O2 Fr
n = 11.57 years Fr - 1,ooo(1+ o.o5)8

.'. The girl will receive the money in 11.57 years. 1- 1,477.46

Money left after the principal is withdrawn = 1,477.46 - 1000 = 477.46

lf P 5,000.00 shall accumulate for 10 years at 4 % compounded quarterly, find
the compounded interest at the end of 10 years.
0123891016
A. P 2,333.32
B. P 2,444.32
c. P 2,555.32
D. P 2,666.32
Fe = P(1+ i)n
.V.z*r-
F2 - 477.46(+ 0.05)8
F=p(1 +i)n Fz -7o5.42
o'04)4(10)
r = s,ooo
-'--- [t( + 4 ) ,', ?hr wlthdrawal amount at the end of the 16th year is P 705.42.
F = 7,444.32
lnterest=F-P
lnterest = 7,444.32- 5,000
lnterest = 2,444.32 , 1,t00.00 was deposited in a bank account, 20 years ago. Today it is worth
10,000,00. lnterest is paid semi-annually. Determine the interest rate paid on this
.'. The compound interest at the end of 10 years ts P 2,444.32 aount,

A sum of P 1,000 is invested now and left for eight years, at which time the
principal is withdrawn. The interest has accrued is left for another eight years. lf
the effective annual interest rate is 5 %, what will be the withdrawal amount at
the end of the 16th year?

A. P 693.12 F=P(1 +i)n

B. P 700.12 3,ooo = 1,500 (1 + i)z(zo1
c. P 702.15 2= 11 + ilao
D. P 705.42

t4-
56 (|uost,iorr Ilirrrh lr)ngiruror.rrrg l,lr:orrorrrir.s by Jainre Il. Tiong Oorrrporrrrrl lnlr,r'r'sl rrrtrl ( ionl,irruorrs Oompounding 57

1.0175 = 'l+ i
l1**
i= 0.0175

Solving for the nominal rate:

ER (t+i)'-1
.=l o'12)4
.NR En
I
+
4) - 1

m
ER = 0.1255
0.0175 = !E ER = 12.55 %
2
NR = 0.035
Thc effective rate is 12.55 %.
NR = 3.5%

.'. The interest rate paid on the account is 3.5 %.

l{fndrrln Bank advertises 9.5 % account that yields 9.84 % annually. Find how
fifn thc interest is compounded.
A merchant puts in his P 2,000.00 to a s r a period of six years. A Monthly
With a given interest rate on the investm year, compounded l, Bimonthly
annually, how much will he collect at the year? 0, Quarterly
A. P 4,626.12
D, Annually
B. P 4.262.12
(h*
c. P 4,383.12
D. P 4,444.12 en = (1+i)m _t
o'ogs "l'
0.0984 = (',
( *
m) -,
F = P(1+ i)"
1.0984 = [.,* o'ogs')'
F = 2,000 (1 + 0.1 5)6
( m)
By trial and error, m = 4.
F = 4,626.12
2,(N0,"""""""""""""""'-. 4 ,', Since there are 4 interest periods per year, the interest is compounded
quarterly.
.'. The amount the merchant will collect at the end of the 6h year is
P4,626.12.

I[tcn witt an amount be tripled with an interest of 11.56%?

A man borrowed P 100,000 at the interest rate of 12Yo per annum, compounded A. 9 years
quarterly. What is the effective rate? B. 1o years
C. 11 years
A. ',t2.750/o D. 12years
B. 12.55o/o
C. 12.45 olo

D. 12.35%
 58 Quost,ion llank - Cngineering ltrconornir:s by Jaime R. Tiong ( lotttllottttrl I ttl lrt,xl rurrl (lorttLinuotrs Oompounding 59

F2 3,ooo(1 + o 1o)a
F = P(1+ i)n
F2 = 4,392.30
3P:P(+0.1156)n
3=1.1156n Fs = 5,000(1+ 0.1)1

Take log on both sides F3 = 5,500.00

log3=n1o91.1156
Substitute values in Eq. 1
loo3
1o91 .1 1 56 P + 5,500 =2,657.34 + 4,392.30
n = 10.04 years P = 1,549.64

.'. The amount will triple in 10 years. ,', The amount of money left in the bank 1 year after withdrawal is
P1,549.64.

A student plan to deposit P 1,500 in the bank now and another p 3,OOO for the
next 2 years. lf he plans to withdraw P 5,000 three years from after his last l{CrV much must be invested on January 1 , 1998 in order to accumulate P 2,000
deposit for the purpose of buying shoes, what will be the amount of money left in dl Jrnuary 1,2003? MoneY is worth 6%?
the bank after one year of his withdrawal? Effective annual interest rate is 10%.
A, P 1,509.34
A. P 1,549.64 !, P 1,249.64
B. P 1,459.64 c, P 1,378.98
c. P 1,345.98 0, P 1,494.52
D. P 1,945.64
)

98 99 00 01 02 03

P +F3 = F, 1P, -+ Eq. 1

5,000---.- Ft
P,<.'.."..'-.'.-.-.-.-.--...-....- 2,000

,'. The amount invested on January 1, 1998 is P 1,494.52.

F2 A nominal interest of 3% compounded continuously is given on the arcount.

What is the accumulated amount of P 10,000 after 10 years?
F1
A. P 13,498.59
B. P 13,489.59
F = P(1+ i)n c. P 13,789.98
i F1 = 1,500(1 + 0.1 0)6
D. P 13,494.52
I

I
1 =2,657.34

t_
60 (lrrcsl iorr llirrrk l,,) rr gr rrr,r, rin g l,)rrrrronr rr.s by .la rrnc tt. Tiong (lorttgrorrnrl Itrlr,roxl rrrrrl Oonlirtrrous Oompoundilrg 61

F = Pe(NR)N
o _ 10,000
F:'10,000e(o 03)10 ' (1+ 0OElo
3 P = 4,631.93
F = 10,000e0
F = 13,498.59
', The initial amount that must be deposited is P 4,631.93.
.'. The accumulated amount is P 13,498.59.

ll P 000,000 is deposited at a rate of 11.25 % compounded monthly, determine

A mechani umulate a total of P 1O,OOO in a savings hl Ompounded interest after 7 years and 9 months
account at bank pays only 4Yo compounded quarterly,
what shoul A, P 690,848.73 T
!, P 670,65'r.23
A. P 6,176.35 c, P 680,649.56
B. P 6,761.35 D, P 685,781.25
c. P 6,716.53 )
D. P 6.167.35 %..' ,
I
I

F=P(1 +i)n 7 yr + 9 mo. = 93 months

0.1125)s3 \
P= F ---'---(,
F = 5oO,OO0[1+
12 ) I
(1 + i)n F = 1,190,848.73
^ 10.000
( . o.04 \10(4)
lnterest=F-P
lnterest = 1,190,848.73 - 500,000
[.'. o J Jaterest = 690,848.73
P:6,716.53
,', The compound interest alf'ar 7 years and 9 months is p 690,848.73.
The initial deposit should be P 6,716.53.

&t lnterest rate is quoted as being 7.5% compounded quarterly. What is the
Funds are deposited in a saving account at an interest of 8% per annum. what is lfrcilve annual interest rate?
the initial amount that must be deposited to yield a total of p 1o,ooo in 10 years?
A, 7.91%
A. P 4,196.30 B. 7.51 o/o

B. P 4,721.39 c. 7.7',1 o/o

c. P 4,796.03 D. 7.31%
D. P 4,631.93
'l/.*
,'y'.at*.
fn= (1+i)m_r
F
P= o
[r. Tu)' -,
(1 + i)n rn =

L--b-
62 Question Bank - Engineering Econornit:n lly Jaiuro It 'l'rortg ( lrrrrpouurl Irrlr,rr,nl rrnrl Oontinuous Cornpounding 63

ER = 0.0771 0 I 2 3 -_... l0
ER=7.71 o/o r = P(1+ i)"

F= 1, oo0 (1 + 0.08)10
.'. The effective interest is7.71 %.
F =2.158.92

o/o per
3,500.00 from a friend at an interest rate of 1'5 The money in the acdount after 10 years will be P 2,158.92.
of taking a bank at a rate of 18o/o per year' How much
pay bY b moneY from the bank?

A. 7.91% flllocn years ago P 1,000.00 was deposited in a bank account, and today it is
B. 7.51 o/o
Worth P 2,370.OO. The bank pays interest semi-annually. What was the interest
C. 7.71 o/o
tala peid in this account?
D. 7.31%
A, 5.72%
9"2*r;. B, 5.78%
C, 5.84 o/o
a. Borrow money from a friend D, 5.90 %
F=P(1 +i)n
r=s,boo(i +0.015)12
F = 4,184.66
F = P(1+ i)"
b. Borrow money from a bank
F=P(1 +i)n 2,970 =1000 (1 + i)2(15)
r=9,'5oO(i +0.018)1
F = 4,130.00 2.37 =(t+1)3o
1 .02918 = 'l + i 7,000'"""""""""""'-""> 2,370
Solving for the difference:
i = 0.02918

Difference = 4,1 84.66 - 4, 1 30.00

NR
Difference = 54.66 But: i=
m
.'. You will pay P 54'66 less by borrowing the money from the bank'
Substitute the value of i to get the nominal rate:

o.o2e18 = IE
2
.NR = 0.05836
A deposit of P 1,000 is made in a bank account that pays 8 7o interest
comiounaed annually. Approximately how much money will be in the account NR = 5.836%
after 10 years?
The interest rate paid on the account is 5.84 %.
A. P 2,187.39
B. P 2,145.78
c. P 2,176.45
D. P 2,158.92

V.e*-.

Eiii
64 Questi<lD Bauk - .liuginocring li)<:()nor||r(.3 lrv ,lttttttt, ll 'l'rorrg
'-'----= oolttlxluntl Irrl,rrroxl, nrrrl Conl,irruous Compounding 65

Conrlder a deposit of P 600.00 to be paid back in one year by p 700.00. what is

P 200,000 was deposited on January 1 , 1988 at an interest rate of 24 %o
1' 1993? lho rrte of interest, io/o per year compounded annually such that the net present
compounded semi-annually. How much would the sum be on January
Uorlh of the investment is positive? Assume i > 0.
A. P 631,627.78
A, 16.50 %
B. P 612,890.76
!, ft.75%
c. P 621,169.64
c, 16.33 %
D. P 611,672.18
D, '18.67 0/o

7"/-s,* :(,..*
90 91

r=e(t+if F = P(1+ i)"

F= 2oo,ooo[,.0:o)" 7oo = 600(1+ i)1

20a,000
i= 0.1667
F = 621,169.64 F i=16.67%
.'. The amount on January 1, 1993 would be P 621,169.64. ,', The rate of interest is 16.67 %.

is the present worth of two P 100 payments at the end of the third
year and
what
A flrm borrows P 2,000 for 6 years alg o/o. At the end of 6 years, it renews the
fourth year? The annual interest rate is 8%.
lorn for the amount due plus p 2,000 more for 2 years ata %. what isthe lump
A. P 150.56 lUm due?
B. P 152.88
A. P 3,260.34
c. P 153.89
B, P 3,280.34
D. P 151.09
c. P 3,270.34
D, P 3,250.34
9"2;:

r=e(t+if
10.0 t00
Fr = 2,000(1+ o.Oa)B
Pt Fr = 3,701.86

Pz F2 =2,ooo(1+o.o8r
F2 =2,332.80 F2

Present worth = Pr + Pz Ft
present worth = 79.38 + 73.50 Total future worth = Ft + Fz
Total future worth = 6,034.66
Present worth = 152.88
The present worth of two P 100 payments is P 1 52'8&'
 ComJrounrl lrrloroxl rrntl Oontirruous Compounding 67
66 Question llank l,)ngirrccrirtg lt)trrtttttltirs lrv .laime Il. Tiong
With inflation,
Solving for its present worth:
01 Capitalto accumulate = 16,000(1 r 0.03)5
F
P= Capital to accumulate = 18,548.38
(1 + i)n

_ 6,034.66
-=(*oo8)3 '. The capital that must be accumulated is P 18,548.38.
6,034.66
P --3,260.34 i
P <'.."""""
Whd le the effective rate corresponding to 16% compounding daily? Take 1 year
r 360 days.
, i 4-,n or.,'/lZz,i*.
A, 17.35 %
E, ',17.4s%
c, 17.55%
D, 17.65%
2,000 2 000
'lth.
en=(t+i)r-t
Present lumP sum due = 2,000 + P rn=[r+0.16)360_1
Present lump sum due = 2,000 + 1,260.34
\ 360/
Present lumP sum due = 3,260.34 ER = 0.1735
ER = 17.35%
.'. The present lump sum due is P 3,260.34
,'. The effective rate is 17.35o/o.

By the condition of a will, the sum of P 25,OOO is left to a girl to Oe nJO in a trust
fund by her guardian until it amounts to P 45,000. When will the girl ieceive the
money if the fund is invested at 8% compounded quarterly?

A. 7.42years
accumulated? B. 7.67 years
C. 7.85 years
A. P 18,854.38 D. 7.98 years
B. P 18,548.38
c. P 18,458.38
D. P 18,845.38
,V"zz>-.
r=e(t+if
he machin cate 5 Years from now' the o'08
ll need the 8,000' Since there will be a 45.000 = 25.OOO( 1+
-urvvv-4vrvvv[\r-
4
)4n
)
of 2,000, t d the amount of P 16'000 only'
1.8 =1.024^
Without inflation,
Capital to accumulate = 16,000
Itl!

68 (luasl.ion Ilrrnk llngintlcring lrlconotttit'a by .lairtrc ll 'l'rrrrrg

()orrrgrorurrl IrrLr,roxl, rrlrrl
Orlutinuous Compounding 69
Take log on both sides
It*,-
log1.8 = 4nlog1.02
loo1.8 F =, P(1+ i)n
O= "
41o91.02 F=10,000(1+0.15)s
n =7.4?years F = 20,113.57

." The girl will receive the money after 7.42 years.
Let P = present worth of the account due to inflation:

o-
E
| 0l234
P 2O0,OOO was deposited at an interest rate of 24o/o compounded semi-annually (1 + i)n
After how many years will the sum be P 621 ,170? where: i = rate of inflation

A. 4 years o _ 20,113.57
B. 5 years P ("".'...................... 20,1 13.57
C. 6 years (r + o.oo)5
D. 7 years P = 15,030.03

The amount at maturity in terms of year zero pesos

"' is p 15,030.03.
r=e(t+i)n

o= 2oo,ooo[1 -
621,1 7
ry)'^ A Empany invests p 1 o,ooo today to be rgpaid
in 5 years in one rump sum
T Gmpounded annuary. no* -rcn protrii'n-pl."nt day pesos is rearized?at 12
3.10585 = 1 .122n
A, P 7,563.29
Take log on both sides t, P 7,4e8.20
C, P 7,340.12
log 3. 1 0585 -- Znlog1.12 D, P 7,623.42
loo 3.10585
21o91.12
n = 5 years
r=e(r+i)^
.'. The amount wil! become P 621,170 after 5 years'
F=10,000(1+0.12)5
F =17,623.42

ln year zero, you invest P 10,000.00 in a 15Yo security for 5 years. During that Profit=F-P
time, the average annual inflation is 6 9/o. How much, in terms of year zero pesos Profit = 17,623.42 -1 0, 000
will be in the account at maturitY? Profit = 7,623.42
A. P 15,030.03 ,'. The profit in present day pesos is p 1,623.42.
B. P 20,113.57
c. P 18,289.05
D. P 16,892.34
ll'

70 Question lJank - Engineering Economicc by Jaime lt. 'l'iong ,-'__ Oo-urllounrl lrrlrrorl tn<l (jont.inuous Compounding 71

I
How long (in nearest years) will it take money to quadruple if it earns 7 0zo A mrn expects to receive P-2-0,000 in 10 years. How much is that money worth
compounded semi-annually? tlovv conqidering interest at 6% compounded quarterly?

A. 20 years A, P',t1,042.89
B. 18 years !, P 11,035.12
C. 21 years c. P 11,025.25
D. 19 years D, P 11,012.52

J;**-.
F=p(1 +i)2n E
o- |

+ = p(t* o'07)2n (1 + i)n

\ 2) P=
4 = 11.035)2n o.oo "1o(10)
1., *
Take log on both sides: ( 4,
P =11025.25
tog4 = tog(1.m5)2n
,', The worth of the money now is p 11,025.25.
log4=2n1og1.035
n = 20.15

.'. The money invested at 7% compounded semi-annually will quadruple

about 20 years.
in
I tO0,ooo was depositeg
?o 15
years ago at an interest rate of 7% com.pounded
Itltll-annually. How much is the sum now?

A, P 2,000,033.33
!, P 2!000,166.28
How much should you put into a 10% savings account in order to have c, P 2,001 ,450.23
P10,000.00 in five years? D, P 2,002,820.12

A. P 6,216.21
B. P 6,212.12 20,1 5 years
c. P 6,218.21
F=P(1 +i)n
D. P 6,209.21
r = soo,ooo(,*o:,)"'
.V"zrz-
E F = 2,000,166.28 500,000 ,

P =---l-
(1 + i)n

10,000
." The sum of themoney now is p 2,000,166.2g.
-
(1 + 0.1 0)5
P =6,209.21

.'. You should put into a 10o/o savings account an amount of P 6,209.21.
 72 Qur:sl,ion Ilrrrrk Ir)rrgirror,rirrg Iijrrrrronr ir:r by .laime R Tiong

Solving for interest rate

annually:

ftheb,* p.ays one percent interest

effective anhual interest
on savings accounts four times a year.what is ERannuatty = ERsemiannua,y
rate?

A. 4.06% (r+i)-r=f,-g)'_,
B. 4.12% \ 2)
C. 4.16 o/o i= o.dsoo
D, 4.28%
D- F
(1 + i)n

rn= (1+i)m_r
Pl _ 25,000
sp = (r+o.or4 _1
- (1+ 0.0506)

ER = 0.0406 P, :23,795.93 F
ER = 4.06 %

.'. The effective annuat interest rate

is 4.06%. fr
fl,.
Alexander Michael owes p 25,000.00 due t;
He agrees to pay p SO,OOO.0O today and t
D- P
'3-A+OoSO6p
he pay at the end of two years if money is
Ps = 0'906P
A. P 39,015.23 i#
B. P 39,026.25 Substitute values in
Eq. 1:
c. P 39,056.21
D. P 39,089.78 50,000 + O.9O6p 23,795.93
= + 61,561.85
P = 39,026.25

Atexander Michaet must pay

Il;,;ffi;t at the end of two years
is

Flndthedifferenceo-
depos itP H il; ;. i;"i.,;Hf
"i
A. P 1,510
JT1"",.i il:
25,000 B. P 1,530
c. P 1,550
75,000 D. P 1,570

Solving simple interest:

L L,
74 Question Bank - Engineoring Economics by Jaime R. Tiong Compound Intereet and Continuous Compounding 75
l= Pin
r= 50,000(0.10x3)
I ='15,000

SolVing for compounded interest:

F = P(1+ i)n
150,000 + 280,000
F = 5O,OO0(1 + 0.1 0)3 Ps=
o.os'14(n)
F = 66,550 1,, *
\. 4/
lnterest=F-P 430,000
^'s =
1.or2s4n
lnlerest = 66,550 - 50,000
lnterest = 16,550 Substitute values in Eq. 1

Difference = 16,550- 15,000

Difference = 1,550 142,728.64 + 25g,51 1 sO = -1SO'OO9
1.0125*"
.'. The difference between simple interest and compound interest is 430',000^
396,240.2-
P1,550. 1.01254n
1.01254n = 1.0852

Take log on both sides

lf money is worth 5% compounded quarterly, find the equated time for paying a
loan of P 150,000 due in 1 year and P 280,000 due in 2 years. 4nlog1 .0125 -- logl.0852

A. 1.52 years n _ 1o91.0852

B. 1.64 years 41o91.0125

C. 1.69 years n :1.64 years
D. 1.72years
The equated time for paying is 1.64 yeans.
.V;z*-..

P1+Pr=P, -+Eq. 1

For a loan acquired six years ago, a man paid out the amount of P 75'000.00.
F
The interest was computed al18% compounded annually. How much was the
D_
(1 + i)n
_ 150.000 A. P 27,367.28
'r
P-=
(.
',
B. P 27,278.36
o.o5\4(1)
c. P 27,782.36
['* , J D. P 27,872.63
Pt =142,728.64
280,000

Solving for the borrowed amount, P

 ('r rrn lrrrrr rrrl lrl'sl
76 ('lrrcst iorr llrrrrk l')ttgtrtclt'ittg lt)txrltotltl"t lry'lrrrrrro ll 'liong t- Inl ir nrl ( brr( irrtrorrs ()ornpoun tling 77
Let P - prcscnl verlue of inherrtance when boy is 6 years old
PF 012...6789 ...
(1 I i)n 2021
_
9-
75.000
(1+ 0.18)o
P =27,782.36

.'. The borrowed money was P 27,782-36.

F
I P=
('l+ i)n
be born to them theY will Place a
birthday, the child will receive the
_ 10.000
an interest of 18% comPounded' (r + o.o+)5 ie
e to make on the birth of a child to P = 5,552.64
I

them?
,F
li r,Il
The value of the inheritance as of the boy,s 6th birthday is p 5,552.64. lLr I
A.
x

P 15,367.18 lriill
i
B. P 15,249.13
I
I
c. P 15,722.16 ,.
rl
D. P 15,482.64
A man who won P 300,000 in a lottery decided to place so% of his winning in a
I
;l I
trust fund for the college education of his son. lf the money will earn M% per
il .72r,*- year compounded quarterly, how much will the man have at the end of 10 years
when his son will be starting his college education? iN
Solving for the deposit on the child's birth, P ::.t
A. P 593.12012
,,\
D_ F
(1 + i)n
B.
c.
P 593,452.12
P 592,739.96 il
t.

Lr<
-
9:_L
300.000 D. P s93,888.96
(1 + 0.1 8)18
P =15,249.13 I l,z,zn

.'. The couple will deposit the amount ol P 15,249'13' F : P(1+ i)n

o'14l4(10)
F = 1so.ooof1-
( 4)
On his 6,h birthday a boy is inheritance will be paid in a F:593,888 96
lump sum of p t O,OOO on n the present value of the
inheritance as of the boy's st is compounded annually? The man will have P 593,888.96 at the end of 10 years.
Assume i = 4oh.

A. P 5,552.64
B. P 5,549.10
c. P 5,522.12
D. P 5,582.63
 78 (lrrt'sri,. Il:r.k l,)rrgrrrr,r'r'r.g ri<:...lrrir:s rry Jairne R. Tio.g ( lorrrporrrrrl lrrlr,rrrst and
Continuous Compounding 79

I
l,
1l r l)rl
lf the sum of P 15,000 is deposited in an account earning 4o/o plt
annum ,,(x),000
compounded quarterly, what will be the deposited amount at the end of 5 years./
(l r {) 20)5
A. P 18,302.85 I' ,r0,. t /5 51
B. P 18,450.89
c. P 18,512.83 Itrrrnrrl wrlrth = 300,000 + g0,375.51
D. P 18,638.29 f
rtornrrl worth = 3g0,375.51

.Vz*r, trrlvtng lor the difference of present

worth of proposals A and B:
r=e(r+i)" I lltornrrco 400,000 _ 3g0,375.51
o.o4 lltltororr<;c 19,624.49
F= ---1.' 4 )
15,ooofl+ )4(5)

llrr;rropoeal B is more economical than proposal

A by p 19,624.49.
F = 18,302.85

.'. The deposited amount at the end of 5 years will

be p ig,302.g5.
,,llrr lrnrr charges interest rate of 36% compounded monthry.
^ Find its effective

The Philippine Society of Mechanical Engineers is planning to put up its A a, 21 0/,

own T a2:t0%
building. Two proposals being considered are:
li 4241%
A. The construction of the building now to cost p 400,000. It 1? 57 0/"

B. The construction of a smaller building now to cost p 300,000 and at the

end of 5 years, an extension to be added to cost p 200,000. '*"
Py !o* much is proposal B rnore economical than proposal A if interest rate is ,,* -r (r+i),
2Oo/o and depreciation to be neglected?
t R [r*9!9)" -,
A. P 19,122.15 \ 12)
B. P 19,423.69 l:R -0.4257
c. P 19,518.03 ER = 42.57%
D. P 19,624.49
The effective rate is 42.57%.
.9,1---.

Proposal A has a present worth

a maller carc,i compounlll_o{ntY and
of P 400,000. ch_arges- an interest of 1.So/oper
Whrl le the effective interest rate per year? " month.
For proposal B;
Present worth = 300,000 + p
200,001 A 19.23 %
300,000 !, 19.45 0/o
c 19.56 0/o
P. 1e.65 %
 80 ()utrst,ion ll:rrrk llrrgirrcorirrg l,Ixrnorrrrcs by Jaime R. Tiong Compound Inlr,rost, lnd Cont,iuuous Compounding 81

.'/n/r.z,r*.
o'9t
25( 1*
ER=(1+i)m_1
45 =
t 4/)o'
ER = (1 + 0.01 5)12 - 1 1.8 = (1.02)4"
ER = 0.1956
ER = 19.56% Take ln on both siqes 25 M -...-.-.........-.............,, 15 M
.'. The effective interest rate per year is 19.56%.
|n1.8=4nln1.02
n=- |n1.8
" 4ln1.O2
A man expects to receive P 20,000 in 10 years. lf interest is computed at 6% n =7.4zyeas
compounded quarterly, how much is it worth today? F
;. The child wil! receive the money in7.42 years.
A. P 11,025.25
B. P 11,035.25 fi
c. P 11,045.25
D. P 11,055.25 at the
lill
Flnd the present value of installment payments of P 1,000 nbw, P 2,000 I
the end ofthe second year, P 4,000 at the end of
inO oftnl first year, P 3,000 at
ltrittriro year and P s,ogo at the end of the fourth year, if money is worth 10% i
@mpounded annuallY.

A. P 11,411.10 :l
B. P 11,530.98 ,ll
c. P 11,621.67 ik
D. P 11,717.85

ilI
p
". The worth of the money today is 11,025.25.

Microsoft CEO, billionaire Bill Gates willed that a sum of g 25 million be given to
a child but will be held in trust by the child's mother until it amounts to g 45
million. lf the amount is invested and earns 8% compounded quarterly, when will
the child receive the money?

A. 8.1 1 years
B. 7.90 years
C. 7.42 years
D. 7.24 years

3;zzr., Present value of investment = 1,000 + Pr + Pz + P3 + Pa

F = P(1+ i)n

\ L
82 Question Bank - Ii)ngintruriug llconorrrics by Jaime R. Ti<lng
Oompound lnl,orost. and Continuous Compounding 83

p=1ooo* F, * Fr.* F, * Fo 0123

(1+i) (1+i)2 (1+i)3 (1+i)a F = P(1+ i)n

3ooo 4ooo F = 1(1+ O.O8)2oo

P=1OOO+2ooo+ + + 5ooo
(1.1) (.\2 (1.1)s (.\4 F = 4,838,949.58

P =11,717.85
.'. The value of the account today is P 4,838,949.58.
.'. The present value of the installment payments is P 11,717.85.

How long will it take money to triple itself if invested at 8% compounded ,Whet is the present worth of a future payment of P 200,000 to be rnade in 10
annually? y.rrs with an interest of 1Oo/o compounded annually?
;:
A. 14.27 years A. P 76.901.21
B. 14.56 years B. P 77,108.66 fr
a.
D.
14.78
14.98
years
years
c,
D,
P 78,109.32
P79,667.32
t:
f,t
rt! I
E :l
D- t
,1f
F = P(1+ i)^
(1 + i)n ,,1 I
3P = P(1+ 0.08)n
3 = 1.08n
--=tr*orlo
200,000 ,,, J
1l:l

P : 77,108.66
Take ln (or log) on both sides:

ln3=nIn1.08
;. The present worth is P 77,108.66.
ln3
ll
-
1n1.08
n = 14.27 years
- A deposit of P 1,000.00 is made in a bank account that pays 8% interest
.'. The money will triple itself in 14.27 years. @mpounded annually. How much money will be in the account after '10 years?

A. P 2,374.21
B. P 2,158.92
c. P 2,734.12
Two hundred years ago, your great, great, great grandfather deposited P 1 in a D. P 2,400.12
saving account. Today, the bank notified you that you are the sole heir to this
account. How much is the account today if it earns 8% per annum?

A. P 4,002,450.78
B. P 4j02305.90 P = P(1+ i)n
c. P 4,838,949.58
F = 1,000(1+ 0.08)10
D. P 4,909.289.45
F =2,158.92

7"r.** .'. The account after 10 years wil! be P 2,1 58.92.

84 Oompound lnl,oroet nnd Continuous Compounding 85
Question Bank - Enginooring Econorrricc by Jaime R. Tiong

Suppose that P100,000 is invesied at a certain rate of interest compounded

What nominal rate compounded annually would quadruple the principal in 4 lhnually for 2 years. lf the accumulated interest at the end of 2 years is p 21,000.
years? Flnd the rate of interest.

A. 41.42% A. 10.12%
B. 40.81% B. 10.00 %
c.41.790h c. 10.92%
D. 40.45 o/o
D. 10.32 o/o

,t/Zrz,,.
F = P(1+ i)n
F = P(1+ i)"
100,000 + 21,000 = 100,000(1+ i)2
4P = P(1+ i)a
(1+i)2 =1'21
4 = (1+l)a
1.i =(.1T.21f
1+i=Ta F
1+i = 1.21
i= 0.4142
i= 0.1 Itrl
i = 41.42%
i=10% ,tl

.'. The nomina! rate is 41.42%. .'. The rate of interest is 10%. ,lt
Ir
lt
Five years ago, you paid P 34,000 for a residential lot. Today you sell it at
An investment of P 20,000 will be required at the end of the year. The project
P50,000. What is your annual rate of appreciation?
\fould terminate at the end of the 5'n year and the assets are estimated to have a
atlvage value of P 25,000 at that time. What is the rate of interest for this projecl
A. 8.12%
to break even?
B. 8.00 %
C. 7 .92 o/o
A. 5.74%
D. 8.320/,
B. 5.43%
c. 5.91%
D. 5.67 %

F = P(1+ i)n
25,000
5O,OO0 = 34,000(1+ i)5

(1+ i)s = 5o'ooo

34,000

,*,=u@
1134,ooo
34,000

i= 0.08
i = 8o/o 20,000
:

.'. The nominal rate of appreqiation is 8%. Pi -"':

86 Queetion Bank - Engineoring Ilconornicc by Jaime R. Tiong Compound lnlorort and Continuous Compounding 87

Equating:

20,000 _ 25,000
boirowed a certain amount on June 1990 from Romeo. Two years later'
1+i (1+i)s borrowed again from Romeo an amount of P 5,000. Sonny paid P 1'000
June 1993 and discharged his balance by paying P 7'500 on June 1995'
-^,:-
2.5
|at was the amount borrowed by Sonny on June 1990 if the interest rate is 8%
(1+i)a
(1+i)a = 1.25
1+i = {1,25
A, P 1,511.61
B. P 1,611.51
1+i =1.0574 c, P 1,711.41
D. P 1,811.31
i= 0.0574
i=5.74%

The rate of interest for this project to brcakeven is 5.74o/o. P+P,=P2+P3 -+Eq. 1

E
o- |

(1 + i)n
Frank Medina possesses a promissory note, due in 2 years hence, whose
'' _ 1t*0.08;2
D 5'000
maturity value is P 3,200, What is the discount value of this note, based on an
interest rale ol 7o/o?
P1 :4,286.69
A. P 2,795.00
B. P 2,975.00
P
c. P 2,579.00 1,000
%
' = (1+ 0.08)' 5,000
_
D. P 2,759.00
P1
Pz = 793.83
,72;*-..
7'5oo
" =(1+ 0.08)3
The discgunt value is the same as the present worth. P" =
Solving for the present worth, P
Pa = 5,104'37
o_ F
(1 + i)n Substituting values in Eq. 1

D _
l--------
3'200
P + 4;286.69 = 793.83 + 5,104.37
(1+ 0.07)z P = 1,611.51
P = 2,795.00
The amount borrowed by Sonny on June 1990 is P 1,611.51.
The discount value of this note is P 2,795.00.
88 Question Ilank - Unginr,r.ring l,)urnonricH by.lairne R. Tiong ()olttpourtrl IrrIr,n,rl rrrrrl (lrnl,irrrrous Oornpounding 89

F = P(1+ i)n
Dr. Leopold Lucero invests P 50,000 in a time deposit that yields 10% for his F = 1OO,OO0(1+ 0.12)s
retirement 30 years from now. lf the inflation rate is 5%, what will be the value of l

F =176,234.17
the account at maturity in terms of today's peso?

A. P 20'1,689.91 Solving for the equivalent future amount in today's peso due to inflation
(rate = 4ok) tP
B. P201,571.91
c. P 201,U5.91 D_ F
D. P 201,869.91 (1 + i)n
176,234.17
,V.2,*r*. ^
l--
(1+ 0.04)5

Solving for the future amount of the account, F P = 144,851.64

tF
f
F = P(1+ i)n
Profit = 144,851.64 - 100,000
F
Profit = 44,851.64
l;;rr
F=50,OOO(1+0.10)30 lrr i
.'. The profit realized, in terms of today's peso, is P 4,851.64.
F =872,470.11 l,i:rl
I
Solving for the equivalent future amount in today's peso due to inflation 'a
(rate = 5%) ,P I

A manufacturing firm contemplates retiring an existing machine at the end of I

F 2002. The new machine to replace the existing one will have an estimated cost of
P= P400,000. This expense will be partially defrayed by sale of the old machine as I
(1 + i)n
acrap for P30,000. To accumulate the balance of the required capital, the firm will ,i ,:l
872,47l.',t1 ,t(
^ depos[t the following sum in an account earning interest at 5% compounded
(1+ 0.05)30 quarterly:
P = 201,869.91
;i:l ,

P 60,000 atthe end of 1999 t,,.

P 60,000 at the end of 2000
.'. The value of the account at maturity.in terms of today's peso ia
P 80,000 at the end of 2001
P201,869.91.
What cash disbursement will be necessary at the end of 2002 to purchase the
new machine?

First Benchmark Publisher, lnc. invests P 100,000 today to be repaid in five A. P 155,890.12
years in one lump sum at 12o/o compounded annually. lf the rate of inflation is 4% B. P 153,085.56
compounded annually, how much profit, in today's pesos, is realized over the c. P 154,200.12
five-year period? D. P 156,930.38

A. P 44,512.89 ,Vzzr-
B. P 44,672.10
P+ + F2 +F3 + 30,000 = 400,000 -+ Eq. 1
c. P 44,851.64
F1

D. P 44,901.23
Note that SV = 30,000
-V"Zr*-

Solving for the future amount of the account, F

90 Question llank - Enginoering Economir:s by Jaime R. Tiong Compound lnterest and Continuous Compounding 91

F = P(1+ i)n 400,000

l F = P(1r i)n F1

F1 =oo,ooo(r.T)'"' I
I
Fr = 4,400(1+ i)l

F1 =69,645.27
1 999 2000 2001 2002
F2 = 4,400(1+ t)2 1 999 2000
.14(2)
o'05 30,004
F, = 60.00011*
\. 4, 60,000 60,000 Fs = 4,200(1+ i)s
F2 =66,269.17 80,000
0
F+ = 144,000(1+ i)a ::t
;il
P
F. = 8o.ooof1 +
o.o5 :il
::l
\ 4,)4(1) ', .Ft Substituting values in Eq. 1: :tt
152,000
F3 = 81000.00
1................r.r..),
F2 144, OOO(1 + i)a = 4, 999 * 1 52, OOO
i :
+ 4,400(1+ i)
'"'t F'
i................-
Substituting values in Eq. 1 F3
+ 4,400(1+ i)2 F2
P + 69,645.27 + 66,269.1 7 + 81,000 + 30,000 = 400,000 + 4,200(1+ i)3 .. Ft
P = 153,085.56
By trial and error:
,'. The cash disbursement necessary at the end of 2002 is p 153,095.56. i= 0.0426
i = 4.260/o (semi - annual)
NR = 4.26(2)
NR = 8.52%
on June 1 , 1998, Mrs. Emelie Roe purchased stock of San Miguel corporation
a total cost of P144,000. she then received the following semiannual dividends: The interest is 4.26% per semiannual period or 8.52Yo compounded
seminannually.
P 4,200 on December 1, 1998
P 4,400 on June 1, 1999
P 4,4OO on December 1, 1999
P 4,000 on June 1, 2000
Engr. Altarejos has P 13,760 in cash and he would like to invest it in business.
After receiving the last dividend, Mrs. Roe sold her stock, receiving p152,000 after His estimates of the year-by-year receipts and disbursements for all purposes
deduction of brokerage fees: what semiannual rate did thie dividend realize on are shown in the tabulation below:
investment? Year Receipts Disbursements
00 - P 13,760
A. '4.26% 4 P 5,000 + P 1,000
B. 4.54 o/o
5 P 6,200 + P 1,200
C. 4.87 o/o
6 P 7,500 + P 1,500
D. 4.91 o/o 7 P 8,800 + P 1,800

.l/"a*r- He estimates that his equipment will have a salvage value of P 2,000 at the end of
useful life. Find the rate of return of the prospective investment.
Fr = 4,000 + 152,000 +F.1+F2 + F3 -+ Eq. 1

A. 10.11o/o c.11.10%
B. 11.80% D.10.51 o/o
 E*ttF
9t {unlf|lllrlndneering Econornir:n by Jaime R. Tiong Compound Interesf. and Continuous Compounding 93

4*eq
.13.760_ 4'000 +9'=0q+ 6'009 9'009
' +
(1ri)* -(1+i)5 (1+i)o (1+i)'
ItltJt?low Equivalent (Reduced) Cash Flow

By trial and error:

'l- 'rl,2A0
i=
i
0.1011
= 10j1%
.

The rate of return of the investment is 10.11 ot

''What interest ra(e, compounded monthly, is equivalent to a 10% effective rate?

A. 9.45%
8.9.26o/o
c. 9.65 %
8,800 9,000
D. 9.56 %
fA
P3 dq
tI

' 2,000 Pa ER=(1+i)'-1

,tl

,ll
o.1o = (1+ i)12 - 1
ifffilng tolqulvalent cash flow:
1.10=(1+i)12
1.00797 = 1+
tlltsrPr +Pz +P3 +Pa -+ Eq.
i

..-L (l + l)n
i= 0.00797

Solving for nominal rate, NR

.NR
t=
Pl' m
NR
0.00797 =
,t.ffi 12
NR = 0.0956
NR = 9.56%
,n.fffi The interest rate is 9.56%.
9,ooo
pr
' - (1+l)'
tubrtltutc ln Eq. 1

10,7t0 -Pt+Pr+P. +Po

94 Quort,ion llank - lNngineering Economicr by Jaime R. 'l'iong Compound lnterest and Continuous Compoundins 95

Excel Flrct Rcvlew & Training Center, lnc. plans to purchase a piece of land Mr. Ramos owes Mr. Alarde the following amounts:
and to bulld a school building on this land. However, since the sehgol building is
not an lmmedlate requirement, the inetitute is considering whether it should P 40,000 due 2 years hence
purchaae th6 land and build the building now or defer this acti'on for 3 years. The P 60,000 due 3 years hence
current costs are as follows: P 72,000 due 4 years hence

Land : P 800,000 Building : P 12,000,000 Having won the loftery, Mr. Ramos decided to liquidate the debts at the present
tlme. lf the two parties agree on a 5% interest rate, what sum must Mr. Ramos
The purchase price of the land and the cost of the school building are expected to
Pay?
appreciate at the rate of 15% and 4o/o per annum, respectively. What will be the
total cost ofthe land and structure 3 years hence? A. P 147,520.20
B. P 147,U6.O2
A. P 14,520.120 c. P 147,902.89
B. P 14,715,068 D. P 147,021.81
c. P 14,902,189
D. P 15,021,781

,_y';Z;.,r.
Let A = Amount Mr. Ramos pay
at present time I'u'
Solving for total cost 3 year hence:
I'
A=Pt+Pz+Ps -+ Eq. 1
Total cost = F,r + Fz -+ Eq. 1
F
,lh

D_ I frl

Note: Rate of appreciation of land (1 + i)n ;t

and building and not the same. ril
40,000
^11' = ---------------- I:l
For land: (1+ 0.05)' Il
R = 36,281.18
60,ooo
F = P(1+ i)n 72,'000

Fl =8oo,0oo(1+0.15)3
_ 60.000
1=1,216,700 P^ :
' z ----------:--
(1+ o.o5)3

For building: Pz = 51,830.26

Fz = 12,00Q,000(1+ 0.04)3 72,000

^'
ra -_-
Fz = 13,498,368 1t + o.os;a
Po = 59,234.58
Substitute in Eq. 1

Substitute values in Eq. 1

Total cost = 1,216,700 + 1 3,498,368
Total cost = 14,715,068
A = 36,281 .18 + 51 ,830.26 + 59,234.58
.'. The tofal cost of land and structure A = 147,346.02
3 yearr hcnco lr P 14,71$068.
The sum that Mr. Ramos must pay to Mr. Alarde is P 147,346.02.
'rA lfrrr,rlIrtt llrrrrk l,)n1irrrr,r,r ing l,)r'orrorrrrlr lry ,l:rrrno ll. 'l'ronpi Oornpottrttl l nlcrt'sl rrrtrl Oottl,irrtrotts ()tlrnpounding 97

F2 = 8o,ooof 1-
qpl"
Mr lllnr I ubay working in the United States planned of returning to the
\.2)
I l,rlrlrlrtrrrr al lho end of 2001 . He established a fund starting in 1,995 with the Fz = 91,910's+
I'rll'rwltU rerordod deposits and withdrawals:
Fs=12,ooof1.oPul'
lirlity I ltm5 Deposit of P 40,000 [ 2)
lrrrllty I l(X)7 Deposit of P 80,000 Fs = 13,549.46
lrtly I lUtl/ Withdrawal of P 12,000
lrrly I lUUlt Deposit of P 64,000
ltrlrrV I llX)g Withdrawal of P 48,000 Note that starting 1998, the interest rate was augmented to 4%
compounded semiannually.
Irrr lrrrrl rrrnorl lnlerest at the rate of 3.54/o compounded semiannually until the
,.,',1,'l lltlt, nt lltat date, the interest was augmentedlo 4o/o compounded 0'04)5 ir.tt
F" =64.00011+
- iilrrilililtrlly What will be the principal in the fund at the end of 2001?
I 2)
l. ltn, tr3,08 c. P '146,846 92
F3 = 70,661.17 ';,r
il^ l, l{n utt2 09
;';t
D. P 146,02282 I

o'04)4 I
I
F, = 48.ooof1+
\ 2) I
I
Ft F+ = 51'956.74 I

I
F2 Substitute values in Eq. 1 I

64.000 """"""""'- F.1 F = 49,257.57 + 91 ,910.54 + 70,661 .17 - 51,956.74 - 13,549.46

I
10,000
F = 146,323.08
I
ra

,,,1
0 The principal in the fund at the end of 2001 is P 146,323.08. 'l
-
000
JRT Publishers is contemplating of installing a labor-saving printing equi
It has a choice between two different models. Model A will cost 1,460,000 while
T,'I nlodel B will cost 1,452;000. The anticipated repair costs for each model are as
follows:
t;t
Model A: P 60,000 at the end of Sth year
P 80,OOO at the end of 1Oth Year
I rl t - l']rlncipalat end of 2001
Model B: P 152,OOO at the end of 9th year

| .lr I Fr+Fs-F+-Fs -) Eq1 The two models are alike in all other respects. lf this publisher is earning a 7%
return of its capltal, which model should be purchased? How much savings will be
t_1,1trl)n accrued if the publisher will purchase the more economical model?

rr - ro,ooo(r *
e'912 5)" A. P 8,769.18
B. P 8,918.23
rt - 19,257.57
c. P 9,012.53
D. P 9,341.11
98 Engineering Economics by Jaime R' Tiong Compound Interest and Continuous Compounding 99
Question Bank -
,7"f-*r.".
What is the future amount of P 50,000 if the single payment compound amount
Analyzing model A: factor of this invegtment is 1.23?

Let A = Total present cost A. P 61,700 '

B. P 61,900
A = 1,460,000 + Pr + P2 + Eq. 1 c. P 61,200
D. P 61,500

ffiffi
ffi r=p(i+i)n
But (1 + i)n = single payment compound amount factor

F = 50,000(1.23)
F = 61,500

The future amount is P 51,500.

Substitute values in Eq. 1

A = 1,460,000 + 42,779.17 + 40,667.94

A= 1,il3,447.11
An investment indicates a single compound amount factor of 1.32 if invested for
up"years. lf the interest rale is 4.73o/o per annum, find the value of .ni.
Analyzing model B: O

Let B = Total present cost

B = 1,452,000 + P3 -+ Eq. 2

-P^=:
'r
152.000
(1+ o.o7)e
Ps =82,677 '93
(1 + i)n = single amount factor

Substitute in Eq. 2 (1+ 0.0473)n = 1.32

1 .0473n = 1.32
B = 1,452,000 + 82,677.93
B = 1,534,677.93
Take log on both sides
Difference=A-B
n log .0473 = log 1 .32
Difference = 1,543,447.11 - 1,534,677,9C 1

Difference = 8,769.18 log1.32

1o91.0473
The amount saved by purchasing tho motl
n=6
P8,769.18.
The value of n i5 6.
 tfi) - l!rrginooling lt)conornics by Jairne R' Tiorrg Oompound lnlcrusl irnd ()onlinuous Compounding
Qucltiorr llrrtk
'101

Mru, Tambangan invests P 50,000 today. Several years later it becomes Money is deposited in a certain account for which the interest is compounded
P6O,OOO, Wnit is the single payment present worth factor of this investment?
lf continuously. lf the balance doubles in 6 years, what is the annual percentage
rlale?
lhl amount was invested for 5 years, what is the rate of interest?
A. 3.1 o/o A. 11 .55 0/o

B, 3.3% B. 11.66%'
c. 3.5% c. 11.77 %
D. 3.7 o/o D. 11.88 o/o

/, /r/rr'.n

Solving for the single payment present worth factor F = Pe(NR)N

tr 2P = Pso(NR)
o- t

(1 + i)n 2 = s6(Nn1
1
But - = single payment present worth factor Take ln on both sides:
(1 + i)"
In2 = Ine6(NR)
60'00-0
5q000 -
(1 + i)"
1 ln2 = 6(NR)lne
= 0.833 ln2 = 6(NR)
(1 + i)n

lf the amount was invested for 5 years

NR =13
6
1 NR = 0.1155
=:0.833 NR = 11.5s%
(1 + i)5
1.20 = (1+ i)s .'. The annual percentage rate is 11.55%.
1.037 = 1+ i

i= 0.037
i=3.7Yo On January 1 , 1999, Mrs. Jocelyn De Gala opened an account at Bank of
Philippine lslands with an initial deposit of P 1,000,000.00. On March 1, 2000,
The rate of interest is 3.7 %. she opened an additional P 1 ,000,000.00. lf the bank pays 12% interest
compounded monthly, how much will be in the account on April 1,2OOO?

A. P 2,180,968.95
B. P 2,190,968.95
c. P 2,160,968.95
D. P 2,170,968.95

,9"2r--

?)1,7.
102 Question Bank - .Engineering Economics by Jaime R. Tiong

r = e(t+ if
Question Bank 4
15 months

Fr =1,ooo,ooo(,.+f)" .lan. I'99 Mar. l'00 Apr.1'00

Fr = 1,160,968.95

F2 :1,ooo,ooo(,.r#)' I,000,000

F2 = 1,010,000.00 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
Total amount =1 +Fz B. P 717.1V nlit
Total amount ='1, 1 60,968.95 + 1,01 0,000 c. P 714.71 ,,F.

Total amount = 2, 1 70,968.95 D. P 731.17 Tr

i:il
ft,

The amount in the account on April 1, 2000 is P 2,170,968.95. !

I
a

t
I
5oo[(1+ o.r)'z - r] I
^r=-;@ , t
'],
\ = 867.77 t,ra

E
;:lra
P= ' .
(1 + i)n
o
t1
o-
(1 + i)"

' _ (1+ 0.1)'z

o 867.77

P =717.17

J&,,-a.7;Zt*..
0
Present worth = Pr + Pz -+ Eq. 1

D_ F

..
' - (1 +'r)n
I

D_ 500
lr
''-{r*o.r;' Pt.'"""""""""" 500 500
tr
ri, a = 375.66 t" "" "" """""""""""";
I, .Pr',i,
f{
li
(

/
104 Quection Bank - l,]nginooring Economics by Jaime R. Tiong Annuit,y 105

^ 500
' (1+ 0.1)a
of
ty is required over 12 years to equate with a future amount
P2 = 341.51 i= 6% annually.
Assume

Substituting values of Pt anWz in Equation 1:

Present worth = 375.66 + 341.S.1
Present wo(h = 717.17

The present worth is P 117.17.

Today, a businessman borrowed money to be paid in 10 equal pavments for 10 f

quarters. lf the interest rate is 1OYo compounddrl quJrterly ano thaquarterlya F
payment is P 2,000, how much did he borrow? 7
I!i:I
i
A. P 17,304.78
irt

B. P 17,404.12
A = 1,185.54
tiil
c. P 17,5U.13 I
D. P 17,604.34 a

.'. The annuity required is P 1,185'54' I

A = 2,@0
FindtheannualpaymenttoextinguishadebtofPl0,000payablefor6yearsat
Amount borrowed = P 12% interest annuallY.
-+ Eq. 1

A. P 2,324.62
B. P 2,234.26
'i(t+i)' c. P 2,432.26
D. P 2,342.26

zoool(u9l!)" _,1
P- L( 4'l .J

(T)(,.T)' AAAAAAAAAA
P =17,504.13

Substituting in equation 'l:

Amount borrowed = P 17,504.13 n[tr*o.rz)'-r]

10,000= -;1r(d.o12(-
.'. The amount the businessman borrowed is p 17,604.i3.
A=2,432.26 ':"1

The annual PaYment is P 2,432.26'

_ - \-
106 Quosl,iorr lla,k I').girrooring Ecorr.rrrics by Jair,e It. 'l'i,rrg Annuity 107

D_ F
'z -,n;y
A manufacturer desires to set aside a certain sum of money to provide funds
cover the yearly operating expenses and the cost of replacing every year the _
p-- 100
dyes of a stamping machine used in making radio chassis aimooet changes for
a period of 10 years.
' (t + o.oof o

P2 -- 55.84

Operating cost per ye-ai = p 5OO.OO 6

Cost of dye Rmount to set aside = A + Pr - Pz
=p 1, 200.00 ^ Amount to set aside = 1,200 + 7,481.86
Salvage value of dye =p 600.00 L - 55.84
Amount to set aside = 8,626.02
The money will be deposited in a saving account which earns 6% interest.
Determine the sum of money that must be provided, including the cost of the initial ,'. The amount to set aside is P 8,626.02.
dye.
f,
A. P 8,626.02 F
B. P 8,662.02 A factory operator bought a diesel generator set for P 10,000.00 and agreed to !i
c. P 8,226.02 pay the dealer uniform sum at the end of each year for 5 years at 8% interest h
ll'll
compounded annually, that the final payment will cancel the debt for principal and
lr
interest. What is the'annual payment?
ri;
Fri

A. P 2,500.57 ,rl
'l

ln the cash flow shown: CCCCCCCCCC B. P 2,544.45 I

c. P 2,540.56 ll

A = 1,200
l= 500
11t11ltltt
0246810
D. P 2,504.57 l,l
,,.1
[''
lrl
Q= 600
rt[
LetD=A+B-C AAAAAAAAAA tt
prl
D=1,200+500-600
D = 1,100
ilililtilt
BBBBBBBBBB
But P = 10,000
i(1 + i)"
*tl

Using equivalent (reduced) cash flow:

n[{r*o.oa)'-r] AAAAA
t00 10,000 =
0.08(1+ 0.08)5

I
10
A =2,504.57

.'. The annua! payment is P 2,504.57.

Equivalenr cash flow

Pt
108 (lrr.sr i.rr llirrl< l,)rrgi.t,r,r'i.g 0trrrr.rrrir:s by .lairnt, R. ,l'i,rg Arrrrrrity 109

P 1,800,000
42.0346A : 1,800,000
A man paid 10% downpayment of p 200,000 for a house and lot and agreed to
pay the 90% balance on monthly installment for 60 months at an intereit A: 42,821.86
rate of
15% compounded monthry. compute the amount of the monthry payment.
.'. The monthly payment is P 42'821.86'
A. P 42,821.86
B. P 42,128.67
c. P 42,218.57
D. P 42,812.68 what is the present worth of a 3 year annuity paying P 3,000.00 at the end of
year, with interest at 8% compounded annually?

A. P 7,654.04
B. P 7,731.29
Bdruce c. P 7,420.89 p-
D. P 7,590.12
il!
l;il
iii,l
D-
nltr*if-r]
L r a

i(1 + i)n I
r AAA I
AL44444444L4AL4444L44AL4 AAA4AL4444L4 3,0001 (1 + 0.08,
tt -t'l
I
^ .l
0.08(1+ 0.08)3 .l
,P -.'"""""""''"""': t,a
:,
P. = 7,731 .29 llrt
Downpayment = 0.1O(Total Cost)
200,000 = 0.1 0(Totat Cost)
Total cost = 2,000,000
.'. The present worth is P 7,731.29. ,i u
'.'ra
Balance = Total Cost - Downpayment J
Balance = 2,000,000 is the accumulated amount of five-year annuity paying P 6,000 at the end
of
- 200,000 what
Balance = 1,800,000 each year, with interest al 15% compounded annually?

DL"l
Rlrt+ir"-r] A. P 40,519.21
B. P 40,681.29
i(1 + i)n c. P 40,454.29
D. P 40,329.10

P = 42.0346A

But: AAAA A
:
F
 110 (lrrrrsl,i,rr llrrrrk l,).grrt,r,rirrg r4r..rr.rrrit:s b.y J,i,r. [t. ,l'i,rrs Arrrrrrit.y 111
.'. The accumulated amount is p 40,454.29.

A debt of P 10,000 with 10 % interest compounded semi-annuaily

is to be \
amortized by semi-annuar payment ore," tirn"rt 5 years. The ...
first due in 6
months. Determine the semi-annual payment.

A, P 1,234.09
B. P 1,255.90
c. P 1,275.68 AA444A444LM
D. P 1,295.05 1*AAAA444LL4444
i
Ft=Fz -+ Eq. 1
,ttlllt
I
10,000 jts at
,_r] p!t
, _ n[(r * i) f., =e(t+i)" :;l
,l
g(r + i)" ' rl
i Fl = 3oo,ooo(1+ 0.12)10

where:i= o'10=0.05 \ =e31,754.46 ;I

2 t
n=2(5)=10 For annuity, the interest is 8% per annum. Since the payment is monthly,
a

t
solve the interest per month.
R[(r AAAAAAAAAA I

10,000= L' + o.os)10-rl ' J

: ERrontnty = ER"nnratty
I

I
(r + o.os)10 (o.os) p <-r.r.r.ii.ri.rr-...........................i

A = 1,295.05 (r+i)" -1:(1+o.oa)l-t Ir

1+ i= 1.00643
.'. The semi-annual payment is p 1,295.05 ,.(
i= 0.00643 'rt
.tl

a lending institution which willbe paid after 10

OO-0.t1-o.m
Fz:
.o!
lZV3 compounded annually lf mon-ey is worth g% per
ld he deposit to a bank monthly in ordei to discharge his But F2 = Fr = 931 ,754.46

A. P 5,174.23 n[{r * o.ooo+r)""0' -'']

B. P 5,162.89 931754.46
' 0 00643
c. P 5,190.12
D. P 5.194.23 A == 5,174.23

.7;7*,. .'. The monthly deposit in the bank is P 5,174.23.

Please refer to the cash flow on the next page

112 (lrrcnl iorr\lLrrrk l,)rrginr,r.r.irrg l,l:orrorrir:s by Jaimc Il.. 'l'itrng Annuity il
.'/n/-tr*
A man loans P 187,400 from a bank with interest at S% compounded an ually. He
agrees to pay his obligations by paying 8 equal annual payments, the fir n[(r * i) "-r]
due at the end of 10 years. Find the annual payments. , _
(t+i)"i
A. P 43,600.10
where:
'i= o'12=0.03
B. P 43,489.47 4
c. P 43,263.91 n=6
D. P 43,763.20

,9/2,n,, p=
Pz= 187,400 -+ Eq. 1

187,400 P = 10,834.38

.'. The amount initially borrowed was P 10,834.38.

ce of lot for P 1 00,000 downpayment and 10 diferred semi-

P 8,000 each, starting three years from now. WhaI is the
Pr = 6.643 A
A AAAAAA present value of the investment if the rate of interest is 12 % compounded semi-
i annually?
D- q Pt n""""""""""""""":
'z -,1*y A. P 142,999.08
_ 6.6434 P2 *""""'! B. P'143,104.89
' (1+ 0.05)'g c. P 142,189.67
D. P 143,999.08
Pz = 4'282A

Substitute values in Eq. 1:

I0 payments
4.2824 =187,400
A = 43,763.20

The annual payment is P 43,763.20.

Pr=

Pr = 58,880.69

Money borrowed today is to be paid in 6 equal paymenta et the end of 6 quarters. P1 =P2(1 +i)n
lf the interest is 12 o/o compounded quarterly. How much wer lnltlally borrowed if 58,880.69 = Pz (1+.0.06)5
quarterly payment is P 2,000.00? 'Pz n'
Pz = 43,999.078-
A. P 10,834.38
B. P 10,278.12 Total amount = 100,000 + Pz
c. P 10,450.00 Total amount = 100,000 + 43,999.08
D. P 10,672.90 Total amount = 143,999.08

)-
 114 Quest,i,n 13tr,k Ilrrgrrr.r,ri^g l,lt:,rrrruir:s by ,lairne ll. Ti'rrg Annuity 115

.'. The present value of the investment is p 143,999.0g.

.'. The annual dePosit is P 716.81 .

How much must you invest today In order to withdraw p 2,000 annually for\0
years if the interest rate is 9%? \. A piece of machinery can be bought for P 10,000 Lsn or for P 2,000 down and
payments of P 750 per year for 15 years. what is the annual interest rate for the
A. P 12,835.32 time payments?
B. P 12,992.22
c. P 12,562.Q9 A. 4.61 0/o

D. P 12,004.s9 B. 4.71 0/o

c. 4.41%
.1./;/;,.r,r,, D. 4.51 0/o

P = Amount invested today Amount invested 9;/,t.,.

p= {qrrl(t+i)"i
Cash price = 2,000 +

Solving for P:
P -+ Eq. 1

2ooo[(1+ 9.oe) 1o-1]

P_
(1+ o.oe)10 (o.oe) P=
AAAAAAAAAA
:
P = 12,835.32 P ..........................i
The arnount invested is P 12,835.32.

How much must be depo-sited at 60lo each year beginning on January 1, year 1, in 7so[(1+ i)'5 - r]
order to accumulate P 5,000 on the date of the lasi Oepolit, January .l y-ear 6?
,
1 0,000 = 2,000 +
--ilr;--
A. P 728.99 (1+i\15
r----l---1
B. P 742.09 10.6667
i(1 + i)''
c. P 716.81
D. P 702.00
By trial and error:
,9o/,2,rn
i= 0.0461
i= 4.61%

Since the mode of compounding is annually, the nominal rate i5 equal

u-r] to i = 4.610/o.
n + o.oo)
5,000 = [(r
0.06
A = 716.81

,F
116 Question llank -. I4nginecling hkxlnonrics by Jainrc [t. 'l'iorrg Annuity 117

. / /uz,;,,
Cash Price = 500,000 + Pz -+ Eq. 1

A company issued 50 bonds of P 1,000.00 face value each, redeemab[at par at

the end of 15 years to accumulate the funds required for redemption. Th{irm
establiqhed a sinking fund consisting of annual deposits, the interest rate df the
fund being 4 %. What was the principal in the fund at the end of the 12th

A.
B.
c.
P 38,120.00
P 37,520.34
P 37,250.34
-,-@
_ _'roo,ooo[{r*o.r+)'o-r]

D. P 37,002.00 Pt = 521,61't.56
500,000 AAAAA,AA
t-/o1rtrn. D :
Pr= '1
F = 50(1,000)
- (1+i)"
Pt

F = 50,0000 Pz '"""'-"'
^ _521.611.56
Solving for A: "- (1*oi4f
Pz = 308,835.92

F= AAAAAAAA AAA A Substitute values in Eq. 1:

I

n[tr+o.o+I'-r] F Cash price = 500,000 + Pz

50,000 = Cash price = 500,000 + 308,835.92
Cash price = 808,835.92
A =2,497.06
.'. The cash price of the property is P 808,835.92.

ilI t[fIIt
12
With A = 2,497.06

Solving for Fe:

A parent on the day the child is born wishes to determine what lump sum would
2,4e7.06[(1+ O.O+)1'? - r] AA/1,'1.'1,4A.4 AAAA have to be paid into an account bearing interest at 5 %,compoundedennually, in
Ftz = :..-.-...... ., -..-----....- Fp order to withdraw P 20,000 each on the child's 18'n, 19'n, 20'n and 21"' birthdays.
0.04
How much is the lumP sum amount?
7z = 37,520.34
A. P 30,119.73
.'. The principal in the fund at the end of the 120' yorr lr P 31 ,520.34. B. P 30,941.73.
c. P 30,149 37
D. P 30,419.73
tl/,,/,2,,.-
A house and lot can be acquired by a downpaymenl ol P 500,000 and a yearly
payment of P 100,000 at the end of each year for a porlod of 10 years, starting at Let: Pz = lumP sum amount
the end of 5 years from the date of purchase lf money ln worlh 14% compounded
annually, what is the cash price of the prope(y? Solving for Pr:

A. P 806,899 33
B. P 807,100 12 ,-
n[1r*i;"
a -rlI
c. P 807,778 12
r1-
i(1+i)"
D. P 808,835.92
118 lltnk

ru
Qrrostion I,lnginocling l,l<:onornir:s by Jairnc It. 'l'iorr11 Arrnui[y 119

,'t _- 20, ooo [(r + o.os)a - r] 1 ... l415 16 1718 19 2021

0---------+-
A manufacturing firm wishes to give each 80 employees a holiday bonus. How
03u,1*gp5y much is needed to invest monthly for a year al 12 % nominal interest rate
q = 70,919.01 compounded monthly, so that each employee will receive a P 2,000 bonus?

Solving for P2: : i : AAAA A. P 12,615.80

ii:: B. P 12,516.80
D
r1
: P, <"""""""'i c. P 12,611.80
Et
'2 -- D. P 12,510.80
(1+Dn
Pz '''""""""""""""j
70,919.01
^' ,'.y'n/1,1,-.
(1+ 0.05)''
F=80(2,000)=160,000
Pz =30,941.74
n[(r + i) "-r']) f,
E- L\ ' ul
.'. The lump sum amount is P 30,941 .73. [!r
it i"l
0'12)1,-1.l il
A[r1+
160,000 = L( 12) l ,I
il
o.12 I

An instructor plans to retire in exaclly one year and want an account that will pay
12
him P 25,000 a year for the next 15 years. Assuming a 6 % annual effective
A = 12,615.80
interest rate, what is the amount he would need to deposit now? (The fund will be
depleted after 15 years).
The amount needed to invest monthly"is P 12,615.80.
A. P 242,860.22
B. P 242,680.22
c. P 242,608.22 A man purchased on monthly installment a P 100,000 worth of-land. The interest
D. P 242,806.22 rate is 12 % nominal and payable in 20 years. What is the monthly amortization?

A. P 1,101.08
B. P 1,202.08
c. P 1,303.08
D. P 1,404.08

':*ir**..

P = 242,806.22

.'. The amount to deposit now is P 242,806.22.

', AAAAAAAAAAAAAL44A44+L4M AL44A4L4LLL4

....'.'...'.,....'.....' j
 1ZO Question Ilank - ltrnginooring Ecolrotni<:s by Jaime R. Tiong / Annuity 121

6,07 4.7O + 0.567F : 0,000

1

F = 6,922.93

The amount the engineer has to pay at the end of the 5th year is
o'12=0.01 P6,922.93.
where: i=
12
n=12QO)=24O

n[1t + o.or) '?40-r] An investment of P 350,000 is made today and is equivalent to payments of
100,000 = ---E- P200,000 each year for 3 years. What is the annual rate of return on investment
(1+ o.o1)240 (0.01) for the project?
A = 1,101.0d
A. 32.7 %
,'. The monthly amortization is P 1,101.08.
B. 33.8 %
c. 33.2%
D. 33.6 %

,?"e*r",
A young engineer borrowed P 10,000 al 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? . _ n[1r*i;"-r]
(r+i)"i
A. P 6,999.39 3-r]
B. P 6,292.93
.---
D_
2oo,ooo[(r + i)
c. P 6,222.39
(t + i)'(i)
D. P 6,922.93
But P = 350,000
ty';rs.*-..
zoo,ooo[(r+i)3
t'-' -r]J
B +Pz =10,000 -+ Eq. 1
10,000 350,000= AAA
i(1 + i)'
:
By trial and error:
i=0.327
i = 32.70/.

2,ooo[(1+ o.rz)a - r] .'. The annual rate of return of the investment is 32.7%.
^
=_
L
O.12(1+ 0.12)a
AAAA
:
Pt =6,074'70 Pt
Maintenance cost of an equipment is P 200,000 for 2 years, P 40,000 at the end
P2 of 4 years and P 80,000 at the end of g r,sars. €ompute the semi-annual amount
o-
,, - F
that will be set aside for this equipment. Money worth 10% compounded
(,t+0.12\5
annually.
Pz = 0'567F
A. P 7,425.72
Substitute values in Eq. 1: B. P 7,329.67
c. P7,245.89
D. P 7,176.89
I
 122- Quostiorr llrrrrk l')rtgirtt'trt'irlg l')<',rttotttit:s lly Jairntr ll'l'iorlg Annuity 123

/,/,2,,,,

Solving for interest semiannual:

ERsemiannuatly = ERmnratty
(1+i)2 -1=(1+0.10)1-1
1+ i = 1.0488
P2 i= 0.0488
i = 4.88o/o
Pl
Also, P = 81,170.06
Solving for present worth of maintenance cost, P
P=Pr+Pz+Pe -+ Eq. 1 Substituting values:

I
o- F n[1r+o.o+ea)'u -rl
I
(1 + i)n 81.170.06 L
= 0.0488(1+ r
0.0488)16
I
20'000-
P.
' =(1 + 0.1 0)' A =7,425.72

Pt =16,528'92 .'. The semi-annual amount that will be set aside is p 7,425.72.

40,000
^'
(1+ 0.10)"
Mr. cruz plans to deposit for the education of his 5 years old son, p 500 at the
Pz =27'320-54 end of each month for 1 0 years al 12o/o annual interest compounded monthly.
The amount that will be available in two years is
80,000
^
'r
Y^=-
(1+0.10)U
P 13,100.60
P 13,589.50
Pg = 37,320'59 P 13,982.80
P 13,486.7p
Substitute in Eq. 1

.Vbr,rn.
P = 16,528.93 + 27,320.54 + 37,320 59
P = 81,170.06

Solving for the semiannual amount to set aside for thc equipment' A

0123451r78
I II11,,lAA^,
AA44A44444L4
I I II-I
AAAAAAAA A.4

)
174 Qucst.ion Uank - lr)nginccl'ing lir:ottottrics[.ry Jaime lt.'l'iorrg Annuity 125

o.12 Equivalent (reduced) cash flow:

where: i= -"-=0.01
12
n=2(12)=24

5oo[(1+ o.or)'z4-r]
_
=
0.01 5500 5500 s50a ss00 5500
F = 13,486.70

.'. The amount that will be available in two years is P 13,486.70.

A small machine has an initial cost of P 20,000, a salvage value of P 2,000 and a
life of 10 years. lf your cost of operation per year is P 3,500 and your revenues
per year is P 9,000, what is the approximate rate of return (ROR) on the
investment?
Pr + Pz = 20,000 -+ Eq. 1

A 242o/o
Solving for Pr:.
B. 24.8 o/o
c. 25.1%
D 25.4 %

2000

I
9000 9000
o_- F
'z
*;y
0123
1l
9 10
_
P-:---:-
'2
2.000
(1+i)10

3500 3500
TI
3500.1500
Substitute values in Eq. 1:

5,500[(1+ i)10 - r]
i)10 - #F = 2o'ooo
.
20,000 i(1+

By trial and error:

i=0.248
i = 24.8o/o

.'. The rate of return on the investment is 24.8 %.

176 llank [,)ngirtccrirrg I']trtlttotttitrs Lrv .lairnc It. 'l'iorrg Annuity '|27
Question

AAAAAAAAAAA A
:
: .'.....'....>,|,-. F
D. P 1,263.71 n[1r*i;" -rl
F- L J

A --3,942.44
iAAAAA
;
The amount needed to invest monthly is P 3,942.44.

.'. The proceeds the employee obtains is P 1,263.71. Mr. Robles plans a deposit of P 500 at the end of each month for 10 years at
12o/o ennual interest, compounded monthly. What will be the amount that will be
available in two years?

The preside+t of a growing engineering firm wishes to give each of 50 employees A. P 13,941.44
a holiday bonus. How much is needed to invest monthly for a year al 12o/o B. P 13,272.22
nominal rate compounded monthly, so that each employee will receive a P c. P 13,486.73
1,000 00 bonus? D. P 13,089.32

A. P 3,942.44 9;1,,r,r",
B, P 3,271.22
c. P 3,600.12
D. P 3,080.32

A AAAAAAAAAAA A AAAAAAAAAAA AAAAAAAAAAAA

Let F = Total holiday bonus for 50 employees at P1,000 each, the firm will
:....,..,..,.....,,..
need at the end ofthe year (12 months)
F = 50(1,000)
F = 50,000 n[tr*i)"
F= L\') -t'l
Solving for monthly saving, A: I
128 Question tlank - It)ngineering Itrconornics by Jaime R. f iong Annuity 179

After paying 2 annual payments:

12
F = 13,486.73

.'. The amount that will be available in two years is P 13,486.73.

AAAA
Mr. Ramirez borrowed P 15,000 two years.ago. The terms of the loan are lOyo
interest for 10 years with uniform payments. He just made his second annual
payment. How much principal does he still owe? F = P(1+ i)"
Fl = 15,000(1+ 0.10)2
A. P 13,841.34
B. P 13,472.22 Fr = 18,150'00
c. P 13,286.63
D. P 13,023.52
Fz=
n[o+u" -r]
.V;/,tr... i

2,441.181(1+ o.r)'? - r]
Fz:
01
Fz ='5'126'48

Balance = Ft -Fz
Balance = 18,150.00 -5,126.48
Balance = 13,023.52
AAAAA/1//1/1/
.'. The amount Mr. Ramirez still owe is P 13,023.52.

Solving for the annual amortization, A

A man inherited a regular endowment of P 100,000 every end of 3 months for 10
years. However, he may choose to get a single lump sum payment at the end of
4 years. How much is this lump sum if the cost of money is 14% compounded
quarterly?

A. P 3,702,939.73
B. P 3,607,562.16
c. P 3,799.801.23
D. P 3,676,590.12
130 Question Bank - Engineering lJconornica by Jaime R. 'l'iorrg Annuity 131

I 6 payments 24 payments

A man paid 10% down payment of P 200,000 for a house and lot and agreed to
01 2 3 1515171819... 3940 pay the balance on monthly installments for "x" years at an interest rale ol 15o/o
compounded monthly. lf the monthly installment was P 42,821.87, find the value
of x?

A.3
A A,a A A A A A A B.4
: c.5
D
D.6
,.-F

Lumpsum amount= F + P -+ Eq.1

Solving for F:

_
L_
o[(''+i)" -r'l
I

0.035 A: 42,821 .87

F = 2,097,102.97

Solving for P:

Equivalent (reduced) cash flow:

,_n[(r*i)"-r]
i(1 + i)"

1 oo,ooo[(1 + o.oss)'?4 - r]
P=
0.035(1+ 0.035)24
P = 1,605,836.76

Substitute values in Eq. 1: AAA A A-- 42,821 .87

Lump sum amount = 2,097,102.97 + 1,605,836.76
Lump sum amount = 3,702,939.73

.'. The equivalent lump sum amount is P 3,702,939.73. Down payment = 10% of Cost of house and lot
200,000 = 01O(Cost)
Cost = 2,000,000

Balance = CosJ - Downpayment

Balance = 2,000,000 - 200,000
Balance = 1,800,000
 [l' 'lirtrtg Annuity 133
l')corrorrrir:s by Jaime
13i- Question Bank - Engintrcring
Solving for P:

5,000

where: i#=0.0125
n =12x AAA A
q =P,l(1+i)n
Also, P = 1,800,000 ;......,...,,,.,.,...'. "..t F2
F., = 5oo(1+ o.o7)21 i.... Fj
Substituting values: F1=2O,7O2'81

42,821 4z[1r + o'o1 25)l2'

1,800,000=ffi
(1 .01 25)12^ - 1 = 0.52543(1.025)1?' 4-1]
4ooo[(1+ o.o7)
(1.0125)12" --2.1072
-t z
E -
L-
o.o7
Fz= 17,759.77
Take logarithm on both sides:
Fg:Fz(1+i)"
1 2x log 1 .0125 = log2.1O72
x = 5 Years Fe = 17,759.72 (t + O.ozf
F3 = 19'002.95
The value of x'is 5 Years'
Money left = Fr - Fs
Money lefl=2O,7O2.81 - 19.002.95
Money left = 1,699.86
colleoe. Your father invested P
u *"16 born lf You withdraw The money left at the end of the 21"t year is P 1,699'86'
I Y ar ru zu h:+r-,,.ta,
birthday' hmrr much will be left
how mtteh
P4,0OO at the end of your 1 7. ,
1-6.
"i year't
in the account at the end ofthe 21"'

A. P 1,666.98 p1 Ayata borrows P 1oo,0oo al lOo/o effective annual interest. He must pay back
B. P 1,699.86 on the first day of
the loan over 30 y""r" *ith uniform monthly payments due
c. P 1,623.8e eatn montn. Wnit Ooes Mr. Ayala pay each month?
D. P 1,645.67
A. P 839.19
'/./rrl,i.n B. P 842.38
c. P 807.16
D. P 814.75
page
Refer to the cash flow on the next

A+P= 100,000 -+ Eq. 1

 134 Question Bank - Engineering Economics by Jaime R. Tiong Annuity 135

Solving for monthly interest rate:

A mdchine is under consideration for investment. The cost of the machine is

P25,000.00. Each year it operates, the machine will generate a savings of
P15,000.00. Given the effective annual interest rate of 18%, what is the
discounted payback period, in years, on the investment of the machine?

A. 3.15
B. 1.75
c. 2.15
D. 2.75

,'/n1r.rlrr,.,

f
Cost of machine = 25,000 r
U
Let P = Present worth of the ftl
ER=(1+i)'-t total amount generated bY the

o.to.=(r+i)12-1
machine iI
For machine to PaY off for
'f
1.19=(1+i)u ra

itself, P = 25,000 I
i = o.007974 :l

Solving for number of years, n il

Solving for P: for machine to pay off for itself: :i!
rI
ll,,

i(1 + i)" lru

r lll

l- .a<o 1 rtl
Al(1+0.007e74)"- -11 15,ooo[(1+ 0.18)" - r]
D_ L )
O.OO7 97 4(1 + 0.007974 )35e
25.0C0 = L
0.1 8(1 + 0. 1 8)"
P = 118.163A
0.3(.18)n = (1.18)" -1
Substitute values in Eq. 1: 0.7(1.18)n = 1

('18)" =1'428
A+118.163..A=100,000
1 19.163A = 100,000 Take log on both sides:
A = 839.19
nlog1.18 =1o91.428
.'. Mr. Ayala pays each month an amount of P ttC,ll, 1oo1.428
" logl .18
n = 2.15 years

The payback period of the machine is 2.15 years'

I ,-
136 Question Bank
Annuity 137
- Engineering .Economics by Jaime R. 'Iiorrg

n[tr*o.ro)'-r]
40,87178 = -L-10
A machine costs P 20,000.00 today and has an estimated scrap value of
P2,000.00 after 8 years. lnflation is 2o/o per year. The effective annual interest A = 3,573.99
rate earned on money invested is 8%. How much money needs to be set aside
each year to replace the machine with an identical model 8 years from now? .'. The money to set aside each year is P 3,573.99.

A. P 3,345.77
B. P 3,389.32
c. P 3,489.11 Engr. Sison borrows P 1OO,OO0.OO at10% effective annual interest. He must
pay
D. P 3,573.99
oaJr tne loan over 30 years with uniform monthly payment due on the first day of
each month. What does Engr. Sison pay each month?

Cosl = 20,000 A. P 838.86

B. P 849 12
c. P 850.12
D. P 840.21

Let F = future amount needed for the replacement of the old machine

F=Fr-2,000

r = p(1+ i)"
Fr = 20,OOO(1+ 0.'t0)B A L4444AA4 ALA A LL4LL4LMA A AAL4AL4L4L4
1= 42,871.78
P
Note that interest used was 10% instead of 8%. This is due to inflation rate
which was added to the regular rate. The inflation rate must be added A+P= 100,000 -+ Eq. 1
because money's purchasing power with inflation becomes smaller, thus
bigger amount is needed for the replacement of the old machine.

F = 42,871.78 -2,000
F = 40,871.78

Aiso, solving for the equivalent monthly interest,

Solving for the annual amount to be set aside for future replacement of the
machine, A
ER.on,L1, = ER
012
('1 + i)12 - 1: (1+ o.'10) -1
Fz= (1+i112 =1.16
AAA 1+ i= 1 .00797
But Fz = 35.018.60 i= 0.00797
138 (luosl.ion []tnk . l)nginccring .Economics by Jaime R. 'I.iong Annuity 139

Substitute values of P and i in Eq.
n [1r + o.oozoz)"' - r]
A* ' =i =100.000
0.00797(1 + 0.00797)""'
A+118.21A = 100,000
119.21A = 100,000
A = 83836
.'. Mr. Sison pays each month an amount of p 83g.g6.
1 solving for the annual income which is the 100,000 rental plus the interest
per year:
Annual income = 1 00,000(1 .18)
Annual income = 118,000
Difference = 128,205.13 - 118,000
Difference = 10,205.13
.'. The difference between the firm's annual revenue and expenses is
P10,205.13.

lnstead of ,000.00 in annual rent for office space at the beginning of
each year 0 years, an engineering firm has decided to take out a
10-year P loan for a new building at 6% interest. The firm will invest
P 100,000.00 of the rent saved and earn 18o/o annual interest on that amount.
what will be the difference between the firm's annual revenue and expenses?
A service car whose cash price was P 540,000 was bought with a downpayment
of P 162,000 and monthly installment of P 10,874.29 for 5 years. what was the
rate of interest if compounded monthly?

A. P 10,200.12
B. P 10,205.13
c. P 10,210.67
D. P 10,215.56

P+ 162,000 = 540,000
P = 378,000
The expenses will be that of
the amortization of the loan.

Solving for the equivalent

annual expenses, A
I ? 39
A + P = 100,000 -+ Eq. 1

n[1r*i1^ -r'lJ
ButP= L' tl / AA
i(1 + i)'

Substitute in Eq. 1

n[(r*o.oo)n-rl
4 .. ___u__t__J = 1 00o,ooo
0.06(1+ 0.06)'
A+6.84=1,000,000
A =128,2A5.12
i(1 + i)n
140 Quest,ion llank - Dngirrooring Economice by Jaime R. Tiong Annuity 141

10,874.291fi+ i)5(12) - 1'l

378.000
' - i(1
L'
+ i)5(12)
1t.,fiu"y"",",P18'000willbeneededtopayforabuildingrenovation.lnorderto
gl;Li"i"lni" .rr, sinkins fund consisting 9L1'::T:,?1"11T:1"J3. *,.oo
maOe aft-er three
By trial and error: " furthLr payment
established now. For tax pu-rposes' no ryt]lpe
is worth 15o/o pet annum?
V""ii. Wnrt payments ,r" n""".t"ry if money
i= 0.02
A. P 3,919.52
But B. P 3,871.23
.NR
t-_ c. P 3,781.32
m D. P 3,199.52

o.02 = IE .71;zn,
12
NR = 0.24
NR = 24% Fz = 18,000 -+ Eq. 1

.'. The rate of interest is 24Yo compounded monthly. Solving for Fr:

F=
annual amount should be deposited each year in order to
100,000.00 at the end of the 5'n annual deposit if money earns' AA A

F1>F2
A. P'16,002.18 1=3.47254
B. P 15,890.12
c. P 16,379.75 Solving for Fz:
D. P 15,980.12
F = P(1+ i)n
.V"zr*-
F, = Fl('l+ i)^
Fz = 3.4725A('l+ 0.15)2
Fz = 4'59244

nltt*o.ro)u -r'l Substituting value of Fz in Eq. 1

1 oo, ooo
4.5924A = 18,000
A = 16,379.75 A = 3,919.52
.'. The uniform annual amount to be deposited each year is p 16,379.75.
The annual Payment necessary is P 3,919.52'
 (lrrtrsliolr lllnk Iinginct,ring Uconomics by Jairnc ll.'l'iorrg Arrntrity 143

Find the present value in.pesos, of a perpftuity of pl 5,000 payable per

semi_ How much money must you invest today in order to withdraw P 1,000.00
annually if money is worth 8% compounOpO quarterfy
year for 10 years if the interest rale is 12o/o?
A. P 371,719.52 t
A. P 5,467.12
B. P 371,287.13 r

B. P 5,560.22
c. P 371,670.34
c. P 5,650.22
D. P 371,802,63
D. P 5,780.12
V1,.to,,
ERsemi annually = ERquarteay
LetP=amountinvested
I
(1 + i)2 - t =( t *o'08')4 -1
\ 4) f,

P= ,|
i_- 0.0404 rl
I
o-
looo[(1+o.tz)10 -t] I,f
P=4 AAA AA
I 0.12(1 + 0.1 2)10
D _ 15,000 AAA P = 5,650.22
0.0404
P =371,287.13
.'. The amount you must invest today is P 5,650'22'
.'. The present value of the perpetuity is p 371,2g1 .13. tl

irr

atl
Amanpaidal0%downpaymentofP200,000forahouseandlotandagreedto ll

pay the balance on .onit''tv installments f9r.5.vegr; rate of 15ok il

lf P 500.00 is invested at the end of each year for 6 years, at an annual
rate of 7Yo, what is the total peso amount available upon tne deposit
interest
;;;iil;;; monthly. Whit was the monthlv "t3i,il!"]::l
installment in pesos?
oi the sinth
payment?
A. P 42,821.87
A. P 3,671.71 B. P 42,980.00
B. P 3,712.87 c. P 43,102.23
c. P 3,450.12 D. P 43,189.03
D. P 3,576.64

.fu,ro.,

F=

,_soo[(r+o.oz)u-r]
o.07
F = 3,576.64 AAAAAAAAAAAAAAAAAAAAAAAA AAAAAAAAAAA4:
.'. The total peso amount avairabre upon the 6ir'dcpollt rr p 3,576.64.
144 Question Bank Engineering Economics by Jaime R. Tiong Annuity 145
-
2oo'ooo
Cost of house and 1ot =
0.10
Cost of house and lot = 2,000,000

Balance = Cost - Downpayment

Balance = 2,000,000 - 200,000 -+ Eq. 1
Balance = 1,800,000

But P = 1,800,000
t, -_ 3,702,939.80 t,
I
" (.+ 0.1414(4) 3,702,939.80
I
l. 4/ ,,

Ii.
1, 800,000 =
^[(,,.T)'"''-,] Pt =2,135,507.273 Pt n" .'....'......:
ti
0.15)5(1',) ll
[9]!)[.'*
(12r( 12.) Equating P and Pr:
il

A = 42,821.87

.'. The monthly installment is P 42,821.87 .

= 2,135,507 .273
I

li

A man inherited a regular endowment of P 100,000.00 every end of 3 months for (1.035)4" -1 =0.7474
x years. However, he may choose to get a single lump sum of P 3,702,93g.80 at (1.035)4"
the end of 4 years. lf the rate of interest was 14o/o compounded quarterly, what is
the value of x?
O'2526(1'035)4n = 1

A. 10 1'0354n = 3'9588
B. 11
c. 12
Take log on both sides:
D. 13
4n1og1.035 = 1o93.9588
,l%r,-" 1oo3.9588
" 41o91.035
n = 10 Years

.'. The value of x = n = 10 Years'

146 Queetion Bank - Engineering Econodics by Jaime R. Tiong Annuity 147

lf you obtain a loan of P 1M at the rate ol112Yo compounded annually in order to

Rainer wandrew borrowed P 50,000.00 from Social security System, in the form
build a house, how much must you pay rlnonthly to amortize the loan within a
period of ten years? of calamity loan, with interest at 8% compounded quarterly payable in equal
quarterly installments for 10 years. Find the quarterly payments'
P 13,994.17
P 14,801.12
A. P 1,590.83
P 13,720.15
B. P 1,609.23
P 14,078.78
c. P 1,778.17
D. P 1,827.79
9"zar-

AL44AL44L44A AAAAAAAA AA AA

Since money is compounded annually while payment is monthly, it is

necessary to determine first the interest rate per month.

ERmontnty = ERannuattv

1t + i1t' - 1 = (1 + o.tz)l - t
But P = 50,000
(t+i)" =0:tz
i= 0.009489 . 0.08\
1+_ |
411 0)

t( 4)
n=12(10)=120

h-
R [(r
L\
+ i) "-rl)
' A =\827.79
(t+i)"i
n[(r * o.oos+as)l'zo-r] The quarterly payment of Mr. Rainer Wandrew'is P 1,827 '79'
1,000,000 =
(1 + o.oo9a89;"0 1o.oos+ao1

A= 13,994.17

.'. The amount you must pay monthly is P 13,994.17.

148 Engineering Economit:s by Jaime lt. 'l'iorrg
Annuity 149
Question Bank -

1.000.000

For having been loyal, trustworthy and efficient, the company has offered a
supervisor a yearly gratuity pay of P 20,000.00 for 10 years with the first payment
to be made one year after his retirement. The supervisor, instead, requested that
he be paid a lump sum on the date of his retirement less interest that the But F = 4,000,000
company would have earned if the gratuity is to be paid on yearly basis. lf
interest is 15%, what is the equivalent lump sum that he could get? n[{r*o.rs)'o -r]
4,000,000= j___L15 A
A. P'100,357.37
B. P 100,537.73 A = 197,008.25 p
c. P 100,375.37
.'. The company's deposit each year is P 197,008.25.
'-/"2:2r,,

Equivalent lump sum = present worth of annuity, P A man purchased a car with a cash price of P 350,000. He was able to negotiate
with the seller to allow hinr to pay only a downpaymenl of 20o/o and the balance
Equivalent payable in equal 48 end of the month installment al'l .5% interest per month. One
Lump Sum the day he paid the 20th installment, he decided to pay monthly payment. How
P= much is his monthly payment?

A. P 8,929.29
B. P 8,225.00
c. P 8,552.00
D. P 8,008.20

AAA AA .'/,fr,>n
Total price = 350,000
Downpayment = 0.20(350,000)
Downpayment = 70,000

Balance to amortize = 350,000 - 70,000

Balance to amortize = 280,000
Solving for equivalent monthly payment, A

ln anticipation of a much bigger volume of business after 10 years, a fabrication 280,400

company purchased an adjacent lot for its expansion program where it hopes to
put up a building projected to cost P 4,000,000.00 when it will be constructed 10
years after. To provide the required capital expense, it plans to put up a sinking
fund for the purpose. How much must the company deposit each year if interest
to be earned is computed at 15%?

A. P 194,089.17
B. P 195,780.12 AAAAAA
c. P 196,801.56
D. P 197,008.25
150 Qut:sl.ion Ilrrnk I,)ttgirtcct'ittg [!txrnotnit:s by Jairnc It. 'l'irrrrg Arrnuitv 151

,. -t'l'
n[1t+o.ots;o8
280.000=--+
n[1t+o.otsyo8 -tl
280.000=
' ' (1 + 0.015)45(0.015) (1 + 0.01 5)"'(0.0'l 5)
A = 8,225.00 A =8,225.00

.'. The man's monthly payment is P 8,225.00. After the 20th payment:

280,000 ......-,'"F)
A man purchased a car with a cash price of P 350,000. He was able to negotiate
with the seller to allow him to pay only a downpayment of 20o/o and the balance t
payable in equal 48 end of the month installment at 1.SYo interest per month. One a

the day he paid the 20th installment, he decided to pay monthly payment. What is I
the remaining balance that he paid? I
I
I
A. P 186,927.24 J

B. P 188,225.00 AAA AAA I

c. P 187,701.26 a

D. P 185,900.20
:
i,.,.,.,..,...,.........,. t
1. Ft 't
;l
,7.L;,t2.,,
,l
rd
Fl= rl
Total price = 350,000 ri
Downpayment = 0.20(350,000) B,2zsl(1+ o.ors)'z. - r]
Downpayment = 70,000 rl
F,l= rl
0.015 tr
Balance to emortize = 350,000 - 70,000 Fr = 190,192.16
Balance to amortize = 280,000
Solving for equivalent monthly payment, A
Solving for F:

280,AAA Fz = P(1+ i)n

F2 = 280, 000('t + 0.01 5)20

Fz = 377,119.40

Balance to be paid = Fz- F.r

Balance to be paid = 377 ,119.40 - '1 90,192.16
Balance to be paid = 186,927.24

The remaining balance to be paid is P 186,927.24.

152 Quest,ion lllnk l,)ugineoring Flxrnomics by Jainre lt. 'l'rorrg Annuity 153

.?2a.,.

A company purchased for a cash price of P 500,000.00 a machine which is

estimated to have a salvage value of P 50,000.00 at the endott!110 years
economic life. How much yearly deposit must the company deposif in a sinking
fund that will pay 18% to accumulate the needed
fund to purchase the n 10th year economic life of the
machine it purchased if a new machine will cost 75o/o morc by that time?

A. P 34,859.78
B. P 35,890.12 AAAAAAAA'AAA
AA A A A A A A A'A A A A A
c. P 35,074.58
D. P 34,074.85
:

'/.Zz.ru.
Balance to amortize = cash price - downpayment
Balance to amortize = 280,000 - 0.15(280,000)
Let F = Amount needed to purchase the machine 10 years from now Balance to amoritze = 238,000

F = 500,000(1.75)
F = 875,000

F,+50,000=875,000
E = 825'000 But P = 238,000

Also, Substituting values:

AAA AA
:
E= 238,000 =

n[{r*o.ra)'' -r] A = 15,185.78

825,000 = ol8 I .'. The required monthly payment is P 15,185.78.
A = 35,074.58

The yearly deposit is P 35,074.58.

A car dealer advertises the sale of a car model for a cash price of P 280,000. lf
purchased on installment, the regular downpayment is 15% and balance payable
in 18 equal monthly installments at an interest rale oI 1.5o/o per month. How
much will be required monthly payments?
A machinery supplier is offering a certain machinery on a 10% downpayment and
the balance payable in equql end of the year payments without interest for 2
years. Under this arrangery'ent, the price is pegged to be P 250,000. However for
cash purchase, the machitle would only cost P 195,000. What is the equivalent
interest rate that is being charged on the 2-year payment plan if interest is
compounded quarterly?
A. 18.47 o/o

A. P 15,185.78 B. 19.21%
B. P 15,289.12 c. 19.47 %
c. P 15,783.90 D. 19.74%
D. P 15,632.11
154 Question Bank - Ilngineering lJconomics by Jaime R. 'l'iong Annuity 155

,72r.".,-
Cost of machine = 250,000
Downpayment = 0.1 0(250,000) A company has approved a car plan for its six senior officers in which the
Downpayment = 25,000 company will shoulder 25o/o of lhe cost and the difference payable by each officer
to a financing company in 48 equal end of the month installments at an interest
Since no interest is considered for the balance, the annual payment, A is rate of 1.5% per month. lf the cost of each car is P 350,000, determine the
amount each officer has to pay the financing company per month?
-
A=_
Balance
Cash A. P 7,523.90
2
Price B. P 7,619.22
^ 250,000 - 25,000 c. P 7,190.00
2 D. P 7,710.94
A = 112,500
,7"2*r-"
Solving for interest:
P + 25,000 = cash price
Let P = total amount each officer will shoulder
P+25,000=195,000
P = 170,000 AA P = 0.75(350,000)
P = 262,500

D_
n[1r*i;"
L
-rl J
Let A = monthly amortization of each officer
i(1 + i)"

112,500[(1*i)'-rl
170,000 262,504
i('1 + i)'

By trial and error:

i= 0.209
i=20.9%

NR = 20.9% compounded annually

P
Solving for NR compounded quafterly:

ERqr"rt".ty : ERannuatty

[',-Y)'
[ 4) - 1 = (1+ o 2oe)l
' -'r i('l + i)^

n[1r*oorsyou-rl
[,.,*rE)'=1.20s 262,500 L
- 0.015(1+ r
\ 4) 0.015)48
A =7,710.94
t+E = 1.0486
4
NR = 0.1947 .'. The amount each officer has to pay the financing company per month is
P 7,71094.
NR = 19.47% compounded quarterly

.'. The equivalent interest rate is 19.47 o/o.

 156 Question Bank - Engineering Economics by Jaime R. 'I'iorrg Annuity 157

F:P
lf P 1 ch year for g years, how much annuity can a person a[{r*o.r+)'-r]
get a every year for 8 years starting 1 year after the 9th 160.853.46 - L
0.14(1+ 0.14)B
depo oney is 14%.
B = 34,675.18
A. P 34,467.21
B. P 34,567.81 .'. The annuity the percon can get from the bank each year is P 34,675.18.
c. P 34,675.18
D. P 34,867.37

An employee is earning P 12,000.00 a month and he can afford to purchase a

car which will require a downpayment of P 10,000.00 and a monthly amortization
i" """""""""""" " ".'..'..t,1' |rfl-r r'
of not more than 30% of his monthly salary. What would be the maximum cash
:
value of a car he can purchase if the seller will agree to a downpayment of P
AAAAAAAAA 10,000.00 and the balance payable in four years at 18o/o per year payable on
monthly basis? The first payment will be due at the end of the first month?

A. P 135,267.21
B. P 135,507.42
c. P'135,605.48
.BBBBBBBB D. P 135,807.30
I

'P .""""" i .V"zr*-

Referring to the cash flow, F = P

Solving for F:

0.14 10,000
F = 160,853.46
P -'..
Solving for P:

Cash value = 10,000 + P -+ Eq. 1

,_n[(r*i)"-r] Downpayment = 10,000
i(1 + i)n

_- s[(''+ o r+)B - r'j Let A = Maximum monthly the employee can afford
' l14G or4f
D- L J

A = 0.30(12,000)
A = 3,600
Equating:

\
 \
158 Question llank - It)nginecring Economics by Jaime R. Iighg Annuity 159

8,ooo[(1+ o.os)5 - t'l

ELI
0.09
Solving for equivalent monthly interest F = 47,877.46 AAAA A
:
ERrontnty = ERannually
- 47877'46 F
No. of stocks
100
(r + i)1'z -1= (1+ 0.18)l -1 No. of stocks = 478.776 x 478
i = 0.0't389
.'. The employee will be able to purchase 478 shares of stocks.
3,600[(1+ o.orsse)a. - t]
P=
0.01389(1 + 0.01389)48
P = 125,507 .42 Mr. Pablo Catimbang borrows P 100,000 al 10o/o compounded annually,
agreeing to repay the loan in twenty equal annual payments. How much of the
Substitute in Eq. 1 original principal is still unpaid after he has made the tenth payment?

cash value = 10,000 + 125,507.42 A. P 69,890.42

Cash value = 135,507.42 B. P 72,000.80 .

c. P 72,173.90
The maximum cash value of the car is P 135,507.42. D. P 72,311.44

"'-/"/r,t rn

A new company developed a program in which the employees will be allowed to 100,000
purphase shares of stocks of the company at the end of its fifth year of operation,
when the company's thought to have gained stability already. The stock has a
par value of P 100.00 per shqre.

Believing in the good potential of the company, an employee decided to save in a

bank the amount of P 8,000.00 at the end of every year which will earn for hirn
9% interest, compounded annuallY.

How much shares of stocks will he be able to purchase at the end of the fifth year
of his yearly deposits?

A. 476
B. 478 Solving for the annual payment, A
c. 480

9,2**
n[(t+o't)20-l"l
Solving for the future worth of annuity: 100,000=#
(1+ 0.1)'"(0.1)
160 Question Bank - Engineering Economics by Jaime R. 'l'iong Annuiry 161

A = 11,745.96
A debt of P 12,000 with interest of 2Oo/o compounded quarterly is to be amortized
After the tenth payment is made; by equal semi-annual payments over the next three years, the first due in 6
months. How much is the semi-annual payments?
100,000
A. P 2,775.50
B. P 2,662.89
c. P 2,590.04
D. P 2,409.78

.'-/./r,,h..,.

AAA A
Solving for the equivalent semi-annual interest rate:
i
'n ERsemi = ERquarterty
,..,.,1,rt;:.,,ii
"nnratty
Solving for the future worth of the annuity, Fr (1+i\2 -1 o'20
\ , - 11+
\
)4
4) -
1

E_
nltr+lr
L -r']J 1+i = 1.1025
i = 0.1 025
't't,7 4s.96l
L'
(+ o. t)10
' - tl-l Solving for semi-annual payment, A
=-
0.1
E = 187,200.35 hL)
n ltr + il" - r'.l
(1+ i)ni
Solving for future worth of 100,000, Fz

Fz = P(1+ i)n 1 2,000 =

F2:1OO,OOO(1+0.1)10 A = 2,775.50
Fz = 259,374'25
.'. The semi-annual payment is P 2,775.50.
Balance = Fz-Ft
Balance = 259,37 1.25 - 187,200.35
Balance =72,173.90
A fund donated by a benefactor to PICE to provide annual scholarships to
The original principal that is still unpaid after the 1Oth payment is deserving CE students. The fund will grant P 5,000 for each of the first five years,
P72,173.90. P 8,000 for the next five years and P 10,000 each year thereafter. The
scholarship will start one year after the fund is established. lf the fund earns 8%
interest, what is the amount of the donation?

A. P 99,490.00
B. P 99,507.35
c. P 99,601.71
D. P 99,723.54

,'/;/,)r,ru
 Annuity 163
162 Question Ilank - Engineering Economics by Jaime R. 'I'xrrrg

D- P4
rE-.....-........:
" (1 + i)''
D _ 125'000
'5 - (1r+0.o8f
Ps = 57,899'186

The amount of donation, P is

P=?*P.+P.
P = 19,963.55 + 21,738.97 + 57,899.19
P = 99,601.71

.'. The amount of the donation is P 99,601.71.

Amount of donation = Pl + P3 + P5

lf a low cost house and lot worth P 87,000 were offered al 10o/o down payment
and P 500 per month for 25 years, what is the effective monthly interest rate on
5,ooo[(1+ o.oa)s - r] the diminishing balance?
P1
(1+ 0.08)5(0.08)
A. 0.492%
P,l :19,963.55 B. 4.92 o/o

C. O.O492 o/o

D. 49.2 o/o

(r+l)'l ,9*i**
8,ooo[(1+ o.oa)s - r]
P2 _
(1+ 0.08)5(0.08)
P2 = 31,941.68

IALL44444LLMAL444LL4LLM AL444LL4{4M
,

P4 -A I
Balance = 0.90(87,000)
10,000
P4 _
Balance = 78,300
0.08 Balance=P=78,300
P4 = 125,000

('1+ i)"i
164 Question Bank - Itrngineering Ucononrics by Jairnc ll. 'l'irrrrg Annuity 165

5oo[(1+i)12('z5) -1] 1o91.4164 = nlog1.08

78,300 = ,*-
----!(1 + i)''t"'; 1oo1.4164
n = ----:z--
log1.08
By trial and error: n= 4.523 years
i= 0.00492
.'. The dam will pay for itself in 4.5 years.
i = O.492oh

.'. The effective monthly interest rate is 0.492 %.

A businessman borrowed P 10,000.00 from a bank al 12Yo interest, and paid
P2,000.00 per annum for the flrst 4 years. What does he pay at the end of the
fifth year.in order to pay-off the loan?

The average annual cost of damages caused by floods at Dona Rosario Village A. P 6,812.54
located along Butuanon river is estimated at P 700,000. To build a gravity dam to B.
' c.
P 6,782.31
protect the area from the floods, would cost P 2,500,000 and would involve an P 6,917.72
annual maintenance cost of P 20,000. With interest at 8% compounded annually, D. P 6,660.90
how many years will it take for the dam to pay for itselP

A. 4.0 years
B. 4.5 years
C. 5.0 years P,,+Pr= 10,000 --+ Eq. 1

D. 5.5 years

BBB
tl1
B
x=A-B
^'t = -2,ooo [tr*o.rz)o -r]
x=700,000-20,000 1 (l*olz)\olz)
x = 680,000 0123 Pt =6'074'70
Using equivalent (reduced) cash flow:
D_ F
,r-{r*,1n
Cost of dam = 2,500,000 = P
E
o-'
[(t * i)" - t"l
''- (r+0.12)5
nLl ' (1+i)n Pz = 0'567427 F
i

2.500.000
680, OOo ftr * o.oal" - r] Substitute values in Eq. 1:
(1+ 0.08)"(0.08)
(1.08)" -1 = 0.294(1.08)"
P|+P2 = 10,000
6,07 4.70 + 0.567427 F = 1 0,000
1 = (1.08)n(0.706)
P F -- 6,917.72
1.4164 = (.1:08),
The amount the businessman will pay at the end of the 5th year is
Equivalent cash flow P6,917.72.
 Annuity 167
166 Question Bank - Dngineering Econo,mics by Jaime R. 'l'iorrg
_/
18000
nlrt*i)"
Engr Richard Flores agreed to pay the loan he is borrowing from a developmbnt
p= L' '- -t'lI --+Eq. 1
i(1 + i)"
bank in six annual end-of-the-year payments of P 71 ,477 .7O. lnterest is 18% per
annum compounded annually and is included in the yearly amount he will be
paying the bank. How much money Engr. Flores is borrowing from the bank? Solving for equivalent
monthly interest:
A. P 250,000
AAAAA :

B. P 260,000 ERmonmty = ERannuatly ; P

c. P 270,000
D. P 280,000
1+ i = 1.00949
i= 0.00949

Substitute the value of P and i in Eq' 1:

P = loan

n[(r*o.oos+uF'-1]
1 5' ooo =
P= olfur4r(1. ooo%nr
A:701.82
7 1,477 .7ol(+ o. r a)6 - r] AAAAAA
P= Solving for the monthly financing charge, B:
0.1 8(1 + 0.1 8)6
P = 250,000
^'1215,000(1.12)
H=

.'. The amount of money Engr. Flores is borrowing from the bank is
B = 150.00
P250,000.00
Total monthly installment = 7O1.82 + 150
Total monthly installment = 851 .82
Barbette wishes to purchase a 29-inch flat-screened colored W at Gillamac Solving for actual cost of money:
Appliance Center an amount of P 20,000.00. She made a lownpayment of
P5,000.00 and the balance payable in 24 equal monthly installments. lf financing
charge is 12% for each year computed on the total balance to be paid by
installment and interest rale 12Yo, how much would Barbette pay every month for
the colored TV? What will be the actual cost of the money?
851.82[(1+i)'?4 -1]
A. 36.71% 15,000 =
B. 36.21% i(1 + i)24
c. 35.89 %
D.35.23o/o By trial and error:

Zz"a) i=0.0264

Solving for the monthly installment without taking into account the But
financing: .NR
l=-
m
P = 15,000
'l 68 Question lJank - Engineering liconornics by Jairnc ll,. 'l'iorrs Annuity 169

Let SV = salvage value of the machine 5 years from now:

0.0264 = IE
12
F=P(1+i)"
NR = 0.3168
1,683,062.077
NR = 31.68% SV :80,oo0(1+ 0.07)5
sv=112,204.138
lf converted to annual effective rate;

ER"nnu"tty = ERmontny

(1 + i)i -.1 :
(t * o.ozu)l2 - t
i :0.3671 AAAA A
i:36.710/o i.................... F
.'. The actual cost (effective rate) of the money is 36.71 %. Referring to the constructed cash flow:

F +112,204.138 = 1,683,062.077 I
F = 1,570,857.939 !12244p8
Engr. Omayan of Main Engineering decided to purofrase a machine which is to
be used foi their refrigeration and airconditionlng wonfts at an amount of P But
'1
,200,000. The useful life of the machine is estimated b be 5 years with a
salvage value of P 80,000 as based on current prices. The average annual rate F
of inflation during the next 5 years will be 7%. The machine will be replaced with
a duplicate and the firm will accumulate the necessary capital by making equal
end-of-year deposits in a reserve fund that earns 6% per annum. Determine the
nftr*o.oo)'-r]
annual deposit.
1,570,857.939 = o06
A = 278,664.54
A. P 277,189.56
B. P 278,664.U
.'. The annualdeposit is P 278,664.54.
c. P 279,180.00
D. P 280.673.12

Engr. Omayan of Main Engineering decided to purchase a machine which is to

be used for their refrigeration and airconditioning works at an amount of P
Cost of the machine at present = 1 ,200,000 1,200,000. The useful life of the machine is estimated to be 5 years with a
salvage value of P 80,000 as based on current prices. The average annual rate
Let C = Cost of machine 5,years from now: of inflation during the next 5 years will be 7%. The machine will be replaced with
a duplicate and the firm will accumulate the necessary capital by making equal
F = P(1+ i)" end-of-year deposits in a reserve fund. lf money is worth 6% per annum,
determine the annual deposit.
C = 1,200,000(1+ o.o7)s
c = 1,683,062.077 A. P 367,890.12
B. P 366,062.33
Note that the interest used was due to inflation only since nothing was c. P 365,089.34
mentioned about its interest. The interest of 6% stated in the problbm was D. P 364,890.43
implied to be that of the annuity (fund) only.

Salvage value at present = 80,000

170 Quest,ion llank lt)ngincering !)conornics by Jairrru It. 'l'iorrg Annuity 171

This problem is similar to the previous problem only that all amounts this
time is to earn an interest of 6%.
, a car costing P 150,000 is to be purchased
Cost of the machine at present = 1 ,200,000 ad of paying cash. lf the buyer is required to pay
4,000 each month for 4 years, what is the
Let C = Cost of machine 5 years from now: effective interest rate on the diminishing balance?

F = P(1+ i)n A. 35.28%

B. 35.82o/o
C = 1,200,000 (1 + o. 1 3)s c. 34.89%
C =2,210,922.215 D. 34.29o/o

Note that the interest 13% used was actually the sum of the interest rate
and the inflation rate.
Balance = 1 50,000 - 40,000
Salvage value at present = 80,000 Balance = 1 10,000

Let SV = salvage value of the machine 5 years from now:

F = P(1+ i)"

SV = 80,000(1+ 0.13)5
SV = 147,394.81 . ira A.r.rE

Referring to the constructed cash flow:

0 i A AA,4AAAAAAAA A AA,UAAAAAAA AAA,+4AAAAAAA

F + 1 47,394.81 : 2,210,922.21 5
F = 2,063,527.40
AAAAA
:..,........................,.,....- F n[(r*i)" -r]
But, P=
I i(1 + i)"

I 4,ooo[(1+ i)4(12) - 1]
110,000=
n[{r*o.oo)u -r]
147,394.81 iffi
2,063,527.40 =
0.06 By trial and error:
A = 366,062.33
i= 0.0255
.'. The annua! deposit is P 356,062.33. .NR
m

0.0255 = !B
12
NR = 0.306
NR = 30.6%
172 Question llank -. llngineering Economics by Jaime R. ,l,iong Arrnrrity 173
Converting into effective rate: Present worth = Pr + Pz
Present worth = 1,277,O34.56 + '148,643.63
ER=(1*!)'-1 Present worth = 1,425,678.19

En=1,r+0.306)12_1 B. Leasing the building:

\ 12)
ER = 0.3528
ER = 35.28%
AAA
Effective rate is 35,28% or 30.6% compounded monthly

.'. The effective interest rate on the diminishing balance is 35.2g %.

Solving for the difference in present worth, D

Engr. Clyde Vasquez plans to purchase a new office building costing
P1,000,000. He can raise the building by issuing 10%,2}-year bond that would D = 1,425,678.1 I- 1,1 91,898.92
D = 233,779.27

... The difference in amount between buying the building and leasing the
building is P 233,779.27.

A. P 233,779.27
B. P 233,070.12
JJ Construction Firm had put up for sale of some of their heavy equipments for
c. P 234,070.U
construction works. There were two interested buyers submitting their respective
D. P 234,560.12 'bids for the heavy equipments. The bids are as follows:

.V.l,*rn P 10,000,000 PaY the balance PaYable

nually for 8 years. 00 payable P2,000,000
A. Buying the building: the balance PaYa allY for 7 Years.

How much is the difference between the two bids if money is worth 10%
effective?

A. P 346,520.05
B. P 346,980.12
c. P 347,019.45
D. P 347,733.29

C = 1.000.000
C
P2 - ------------:-
To compare the two bid, compare/their present worths:
(t + i)"
1,000,000
P2 -Gor, For Buyer A's Bid:

Downpayrnent = 0.20(1 0,000,000)

P2 = 148,643.63
Downpayment = 2,000,000
174 (lrrcstiou llunk l,)nginr-.ering lJconornir:s by.lairnc ll ,l,rorrg Anrruity 175

Solving for the semi-annual interest rate:

A's Bld
ER""r;.nnr"1 = 0 10
(1+i)2 -1=0.10
1+i =1.04881
i= 0.04881

hL)
n[1r*i;"-rl
2,000,000
i(1 + i)n

0.04881(1+ 0.04881)14
Present worth of A's Bid = 2,000,000 + p -+ Eq. 1 P = 4,987,192.91

Substitute the value of P in Eq. 2

P
present worth of B,s bid = 2,000,000 + 4,997,192.91
Present worth of A's bid = 6,987,1 92.91
1,ooo,ooo[(1+ o.ro)B r]
D- L' ' - l
0.10(1+ 0.'10)B Difference between two bids = 7 ,334,926.20 - 6,987,192.91
Difference between two bids = 347,733.29
P = 5,334,926.20
.'. The difference in amount between the two bids is P 347,733.29.
Substitute the value of P in Eq. 1

Present worth of A's bid = 2,000,000 + 5,334,926.20

Present worth of A's bid = 7 ,334,926.20
Excel First Review & Training Center, lnc. is expanding its school facilities
For Buyer B's Bid: starting 2001. The program requires the following estimated expenditures:

P 1,000,000 at the end of 2001

B's Bid P 1,200,000 at the end of 2002
P 1,500,000 at the end of 2003

To accumulate the required funds, it establish a sinking fund constituting of 15

uniform annual deposits, the first deposit has been made at the end of 1992. The
interest rate of the fund is 2o/o per annum. Calculate the annual deposit.

A. P 346,520.05
B. P 346,980.12
2,000,000 c. P 347,019.45
D. P 347,733.29
P <.............
. /).t

Present worth of B's Bid = 2,000,000 + p > l t1 2

176 Question Bank - Engineering Economics by Jaime R. Tions Annuity 177

Substitute values in Eq. 1

\21062A + A = 788,493.j2 + 927639.03 + 1,136,8j2.54

1 3. 1 062A = 2,852,944.69
A= 217,679.01
Solving for the balance on January 1 , 2002 (i.e. end of 2001)

The annual deposit is P 217,679.01

xcel First Review & Training Center, lnc. is expanding its school facilities
starting 2001. The program requires the following estimated expenditures:

P 1,000,000 at the end of 2001

P '1,200,000 at the end of 2002
P 1,500,000 at the end of 2003

Solving for annual deposit, A: To accumulate the required funds, it establish a sinking fund constituting of 15
uniform annual deposits, the fiist deposit has been made at the end of 1992. The
Po +A =P, +P, +P, -+ Eq. 1
interest rate of the fund is 2o/o pet annum. Calculate the balance in the fund on
January 1,2OO2.

o_ F A. P 2,185,902.11
(1 + i)" B. P 2,195,600.03
o_ 1000,000
c. P 2,165,399.54
'1- (+o.W D. P 2,175,380.00

P1 = 788,493.18 .%2r.,.

o_ 1,200,000
'2-(1+orop'f
Pz = 927,639.03
jPr,"i<"":.'"" t.2M
p. . <............. """""', l,M
D _ 1'500'000 al
'3 - (1+ooa14 .A
il,l
Ps = 1,136,812.54 :l
,t
,89 '91 '93 '9s ',97 '99 '0t 03
n[1r.i)'-r]
o_
t4-
i(1 + i)n
 178 fluestion llank - l!ngineering li]conornics bv Jairnc ll.'l'iorrg
Annuity 179
Solving for annual deposit, A
End of 2001, or
Po+A=P,,+Pr+P. -+ Eq. 1
Jan. 1, 2002

o_ F
(1 + i)n
1,000,000
^'
l-1i=-
(1 + O.02)''
q = 788,493.18 AA A A A A A A A A A A
i
^' 1,200,000
(1+ 0.02)'"
Pz = 927,639.03
Balance=F-1,000,000

1,500,000
P3
(1+ 0.02)1a
P3 = 1,136,812.54

0.o2
e[1r*i1'-rl
nL)
r, =- F = 3,195,600.03
' i11+i1"
Balance = 3,195,600.03 - 1,000,000
P-LJ
n[1r*o.oz;'o -rl Ealancs.- 2,1 95, 600. 03
'4 - o.o2(1+0.02)la
.'. The balance in the fund on January 1 , 2OO2 is 2,195,500.03.
P4 =12.10624

Substitute values in Eq. 1

J & N Pawnshop sells jewelries on either of the following arrangements:

12.1062A + A = 788,493.12 + 927639.03 + 1, 1 36,81 2.54
1 3. 1 062A = 2,852,944.69 price:
Cash Discount of 1Oo/o of the marked price
A= 217,679.01 lnstallment: Downpaymenl of 20o/o of the marked price and the'balance
payable in equal annual installments for the next 4 years.
Solving for the balance on January 1 ,2002 (i.e. end of 200'1):
lf you are buying a necklace with a marked price of P 5,000, How much is the
difference between buying in cash and buying in installment? Assume that
money is worth 5%.
I

A. P 40.76
B. P 41.90
c. P4354
D. P 45.95

,%l*on
Compare their present worths:
 Arrnui(,y 181
180 Queslion llank llngineoring Economics by Jaime R. 'l'iorrg

Cash basis: 01 The present worth of his earnings must be equal to the present price of the
property.

P = 0.90(5,000)
Prfue
P = 4,500
Present worth = 4,500.00 I,A00A A A A

lnstallment basis:
P -"""""""""""""""""'..
Downpayment = 0.20(5,000)
Downpayment = 1,000
AAAAA AA

r=-
hLJ

P=
n[1r*i;"
i(1 + i)n

r,ooo[(r+o.o.ef
-rl

0.05(l + 0.05)a
P = 3,545.95
-r]

Present worth = 3,545.95 + 1,000

PI

P2

Cash price = Pt + Pz
Solving for annual net income, A:
Eq.
h
Present worth = 4,545.95
A=350,000-135,000
Difference = 4,545.95-- 4,500
Difference = 45.95 A = 215,000

.'. Buying in cash is economical by P 45.95.

Bon Fing Y Hermanos, lnc. has offered for sale its two-storey building in the
commercial district of Cebu City. The building contains two stores on the ground
21 5,ooo[(1 + O.oz)10 - r]
P1
floor and a number of offices on the second floor. 0.07(1+ 0.07)10
P1 = 1,510,070.03
A prospective buyer estimates thai if he buys this property, he will hold it for
about 10 years. He estimates that the average receipts from the rental during this
period to be P 350,000.00 and the average expenses for all purpose in D_ F
connection with its ownership and operation (maintenance and repairs, janitorial 'z-,r*y
services, insuFance, etc.) to be P 135,000.00 He believes that the property can
D _ 2'000'000
be soid for a net of P 2,000,000 at the end of the 10'n year. lf the rate of return on '2 - (+o.W
this type of investment is 7oh, determine the cash price of this property for the
buyer to recover his investment with a 7o/o return before income taxes. P2 = 1,016,698.58

A. P 2,526,768.61 Substitute values in Eq. 1

B. P 2,490,156.34
Cash price = 1,5'10,070.03 + 1,016,698.58
c. P 2,390,189.00
Cash price = 2,526,768.61
D. P 2,230J20.56
.'. The cash price of the property is P 2,526,768.61.
182 Question Bank - Engineering Econornics by Jairne R. 'l'iorrg Annuity 183

E
P= ,

(1 + i)n
^r-- 36.000
(1+ 0.10)
P =32,727.27
net present value of the low price strategy.
.'. The net present value of the high price strategy is P 32,721.27.
A. P 34,389.12
B. P 34,490.10
c. P 34,518.89
D. P 34,710.74 Jan Michael plans to purchase a new house costing P 1,000,000. He can raise
the building by issuing a 1Oo/o,20 year old bond that would pay P '150,000
interest per year and repay the face amount at maturity. lnstead of buying the
new house, Jan Michael has an option of leasing it for P 140,000 per year, the
first payment due one year from now. The building has an expected life of 20
years. lf interest charge for leasing is 12o/o, which of the following is true?
+ i)n
i(1
A. Lease is morei economical than borrow and buy.
B. Lease has same result with borrow and buy.
P= slq
20; + 0. 1oF -11

0.10(1 + 0. 10)'
---"-= 20,000 C.
D.
Borrow and buy is half the value than lease.
Borrow and buy is economical by almost a hundred thousand than lease.
D_ 34,710.74
,9;2,r.,.

.'. The net present value of the low price strategy is P 34'710'74' Compare present worth of borrow and buy and lease..The Smaller the
present worth the better for Jan Michael.

For borrow and buy: (A = 150,000, i = '10%)

net present value of the high price strategy.

A. P 32,727.27
B. P 33,737.34
c. P 33,747.20
D. P 33,757.89

'/-/,2--
150,ooo[(1 + o.r o)'zo - r]
z= 0.10(1+ 0.10)20
P1=1,277,034.56
184 Qucst,ion 13rrrrk I!)rrginotrrirrg llt:onornics by Jaime It. 'l'iorrg Annuity 185
For lease: (A = 140,000, i = 12oh) Gross income per year = 150,000

Expenses per year = 40,000 + 70,OOO + 1O,OOO + 0.1 O(1 SO,OOO) + 5,000
Expenses per year = 140,000

Net income per year = 150,000 - 14O,OOO

Net income per year = 10,000
A

olz
Pz -'

AAAAAAA
;

P2 = 1,374,540.64

.'. The borrow and buy option is economical by 1,374,540.64 - 1,277,034.56

= P 97,506.08 than lease. 1 o,ooo[(1 + o.zo)15
/ - r'l'l
=' = L'
0.20(1+ 0.20)15
Pt = 46,754.73
Engr. Harold Landicho is considering establishing his own business. An
investment of P100,000 will be required which must be recovered in 15 years. lt CASE 2: He resigned his job.
is estimated that sales will be P 150,000 per year and that annual operating
expenses will be as follows: Gross income per year = 150,000

Materials P 40,000 The new annual operating expenses are now as follows:
Labor P 70.000
Overhead P 10,000 + 10% of sales Material =40,000-7,000 33,000
Sellino exDenses P 5,000 Labor = 70,000 - 10,000== 60,000
Overhead = 10,000-8,000 + 15,OOO = 17,000 + 10% of sates
Engr. Landicho will give up his regular job paying P 15,000 per year and devote Selling = 5,000
full time to the operation of the business. This will result in decreasing labor cost
Expenses per year = 33,000 + 60,000 + 17,000 + O.1O(150,000) +
by P 10,000 per year, material cost by P 7,000 per year and overhead cost by P S,OOO
Expenses peryear = 130,000
8,000 per year. lf he expects to earn at least 2Oo/o of his capital, is investing in
this business a sound idea?
o 1 2 3 4 s 1t 1s
A. Yes, it is a sound idea.
B. No, it is not a sound idea.
C. Neither yes nor no because it simply breakeven.
D. lt depends on the current demand of the market.
AAAAA AA
.VZ.*r,"
CASE 1: He does not resign from his job.
186 Question Bank - lt)ngineering Economics by Jaime R. '['iorrg Annuity 187

A=150,000-130,000
A = 20,000
A Civil Engineering student borrowed P 2,000.00 to meet college expenses
during his senior year. He promised to repay the loan with interest al 4.5 % in 10
equal semi-annual installments, the first payment to be made 3 years after the
date of the loan. How much will this payment be?

20,ooo[(1+ o.zo)15 - r] A. .P 252.12

Pz= B. P 261.89
0.20(1+ 0.20)15 c. P 273.90
P2 = 93,509'45 D. P 280.94

.'. lt is not a sound idea since the present worth of the income for both
case 1 and case 2 are less than the investment which is P 100'000.00.
P=F --) Eq. 1

n[(1. - 1]
A housewife bo\ght a brand new washing machine costing P 12'000 if paid in P= ')"
cash. However, she can purchase it on installment basis to be paid within 5 (1 + i)"
years. lf money is worth 8% compounded annually, what is her yearly
imortization if all payments are to be made at the beginning of each year?

A. P 2,617.65
B. P 2,782.93
c. P 2,890.13
D. P 2,589.90 P= 8.866A A AA I

Vi/,,2,-"
F = P(1+ i)n
-+ Eq. 1 I
0'045
F = 2.ooo( 1+
( 2) )5
F =2,235.355

Substitute values in Eq. '1

n[1r*o.oalo -r.l P=F

L J
'
P:
O.OS(1+ 0.08)a AAAA 8.866A =2,235.355
P = 3.312A :
A = 252.12

Substitute values in Eq. 1:

P ...'..".."""""""""""""i The paymentis P 252.12.

12,000=A+3.3124
12,000 = 4.312A.
A --2,782.93

.'. The yearly amortization of the housewife is P 2'782.93.

188 Question Bank - Engineering Economics by Jaime R- '['iong Annuity 189

The investment that gives a bigger rate of return is the better investment
Compare the rate of return of the two situations:
A father wishes to provide P 4O,OO0 for his son on his son'sZ1"t birthday. How
much should he deposit every 6 months in a savings account which pays 3% A. Domestic operation:
compounded semi-annually, if the first deposit was made when the son was 3 %
years old?

A. P 829.68
B. P 815.80
c. P 830.12
D. P 846.10

AAAAAAAAAA
0 1 2 l. 4 '.. 2g 21

40,000 =
^[(,.T)"-,i
--j3-5 Pt + Pz = 8,000,000 + Eq. 1
2
A = 846.10

.'. The deposit every six months in a saving account is P 846.10.

' A group of Filipino-[4echanical Engineers formed a corporation and the

opportunity to invest P 8,000,000 in either of the two situations. The first is to E
t
expand a domestic operation. lt is estimated that this P-=
net year end cash flow of P 2,000,000 each year for 1 ' ('t+i)"
that time, the physieal assets, which would no longer at
P 5,000,000. The alternative opportunity would involve building and operating a ^ 5,000,000
-'=
*,)*
Substitute values in Eq. 1

2,ooo,ooo[(1+ i)'o - r]
is true?
-----* Dt.-. Tffi = 8,ooo,ooo

A. Foreign operation yields bigger rate of return.

B. Domestic and foreign operations yield the same rate of return. By trial and error:
c. Domestic operation has double the rate of return of the foreign operation.
D. Foreign operation yields approximately 3% less rate of return than i= 0.2381
i = 23.81o/o
 190 Question Bank - Engineering Economics by Jaime It. 'l'iorrg Annuity 191

B. Foreign operation:

8,000;000
A I pay P 90,OOO cash, P 60,000 at
th nnual payments starting with one
at es as to the principal and interest
at ?yment which must be made for 6
years.

A. P 66,204.14
B. P 65,701.67
c. P 67,901.34
; . A AAAAAA D. P 68,900.12
:

Pa .""1 P' 1."

P+ = 8,000,000 -+ Eq.2

Solving for P1:

4,ooo,ooo[(1+ i)? - r]
P3
i(1 + i)7

P,+P.+90,000=400,000
P1 + P. = 310,000 --r Eq. 1

4,ooo,ooo[(1+i)? -r]
= 8,000,000
i(1 + i)7 (1 + i)3

By trial and error:

i= 0.2080
i=20.80%
o[t,+o oz)6 -r]
P2 _
0.07(1+ 0.07)6
The foreign operation has a rate of return whlch ls 3% less than the
P2 = 4.7665A
domestic operation.

I
192 Quostion Bank - [trnginoering Economics by Jaime ll. 'l'iorrg Annuity 193

o- - F
'3 (1 +Dn 15,ooo[(1+ o.oa)s - r]
_ 4,7665A P1

't - {t*0.97;'
I
-- 0.08(1+ 0.08)5
P1 = 59,890.65
Ps = 3'89094

o- F '
Substitute values in Eq. 1
'z-*y
52,4o6.32 + 3. 8ebeA
o _ 59,890.65
'z-,r*ooty
: :::::.,,.
Pz = 51,346.58
.'. The annual payment is P 66,204.14.
Fair prepayment = 51,346.58

.'. The fair prepayment to be made to the lessor is P 51,346.58.

Two years ago, the rental for the use of equipment and facilities as paid 5 years
in advance, with option to renew the rent for another years by payment of P
15,000 annually at the start of each year for the renewal period. Now, the lessor
asks the lessee if it could be possible to prepay the rental that wilt be paid
NCT Bui n additional building at the end of 10 years for
annually in the renewed 5 years period. lf the lessee will consider the request,
an estim 00. To accumulate the amount, it will have
whatwould be the fair prepayment to be made to the lessor if interest is now
figured alSo/o? .equal ye eaming 13%. However, at the end of the Sth
year, it was decided to have a larger building that originally intended to an
estimated cost of P8,000,000.00. what should be the annual deposit for the last
A. P 51,84330
5 years?
B. P 51,346.58
c. P 52,OO2.45
A. P 734,391.48
D. P 52,740.20
B. P 742,890jt0
c. P 738,900.45
,7"22*.. D. P 740,010.86

Let P2 = fair prepayment to the lessor

n[{r*i)" -r] F = 5,000,000

P=
i(1 + i)"
Solving for annual deposit to
accumulate 5,000,000 in 10
years, A:

AAAAA
n[{r*o.rs)'o -r]
5,000,000 =
0.13
A =271,447.78
194 Question Bank - Engineering Economics by Jaime R' 'I'iong

Let B = last 5 annual deposits

Question Bank 5
8,000,000
Fz+Fs=9000,000 -+ Eq. 1

n[{r*i)" -r] 89
1
F,r: 0 10
I

zt t,++t .tel(r + o. r s)5 - r]

F,r=
0.13 An investment, consisting.of deposits of P 1,000, P 1,500 and p2,000 are made a

Fr = 1;759'055'07 BBBBB the end of the 2nd year, 3-'d year and 4th year, respectively. lf money is worth 10%
what is the equivalent present wo(h of the investment?

F. =F,r(1+i)'
Ft t"'- """"n Fz
A. P 3,129.89
Fa = 1,759,055.07(1+ 0.13)5 i"""""""""'- l7.r
B. P 3,319.45
c. P 3,372.12
\ = 3,240,944.94 D. P 3,490.09

e[1r*i;"-rl
L J
E-
i

a[{r*o.ra)'-r]
Fz=
0.13
Fz =6480278

Substitute in Eq. 1

6.480178 + 3,240,944.94 = 8,000,000

B = 734,391.48

.'. The annual deposit for the last 5 years is P 734'391.48.

Let P = Equivalent present worth

P =Pt +Pz -+ Eq. 1

where: P1 = present worth of uniform arithmetic gradient

P2 = present worth of annuity
'l
., _ c [1- (1+ i)-" n
"-tL--(1-if]
D _ soo [r-(r*0.10)-4 4
'1- oroL olo -1r;oro)il
1
196 Question Bank - Engineering Economics by Jaime R. Tiong Ilnilbrnr Arithrnetic and Geometric Gradients 197

Pr = 2'189'06 ^ 1,500
" (1+ 0.10)'
0
Ps =1,126'97

D_ 2,000
500 500 500 '6 -
o+0.'to)a
;
P6 = 1,366.03

Substitute values in Eq. 2

P = 826.45 + 1,126.97 + 1, 366.03

P = 3,319.45 it checks!

5oo
[(1
+ o. r o)3 - r] .'. The equivalent present worth is P 3,319.45.
P3
0.10(1+ 0.10)3
P3 =1,243.42

D Miss Calledo deposited P 1,000, P 1 of the 2nd year, .

t3
o - 3'd year and 4th year, respectively in rned 10% per
'z - 11+i) annum. How much is in the account
1,243.42
^
r^=-
' (1+ 0.10) A. P 4,880.00
B. P 4,820.00
P2 = 1,130.39 c. P 4,860.00
D. P 4,840.00
Substitute values in Eq. 1

,177o/,.n.
P=2,189.06+1,130.39
P = 3,319.45 Let F = equivalent future worth

-ct*,no* S/Zor*. F=Fl+F2 -+Eq.3

Using compound interest where: Fr = future worth of uniform arithmetic gradient

formula: Fz = future worth of annuity

P=Pa+P.+Pu -+ Eq.2 -i =rl-i-"1

clrr+i)n -1 I

F
P4
.'' _- soo [(t+o.to)4 -t _ol
1,000
o.1o I o.to I
P4 =-(1 + 0.10)' Pa
I,500
Fl = 3'205

P4 =826.45 Pt
P6
198 Question Bank - Engineering Economics by Jaime R. Tiong
Llnifonrr Arithmetic and Geometric Gradients 199

Miss Calledo deposited p 1,000, 2nd year,

3'o year and 4h year, respectivel O% per
500 500 sa0 annum. What is the equivalent u only?
>F2 A. P 670.81
Solving for F2 B. P 690.58
c. P 660.53
D. P 680.12
.t2---_ o[(l+i)" -r]
i
-
5oo[(1+ o.ro)q - r]
. _
Fz= Let A = equivalent periodic payment for the
' o.10
uniform gradient
Fz = 1,655
n=cil-
I
n I
L (1+ i)n _ 1.1
Substitute valUes in Eq. 3

F=3,205+1,655
n=sool1 - 4 1
10.10 (1+0.r0)4 _1_l
F = 4;860 A = 690.s8

The equivalent uniform deposit is p 690.5g.

-M,& 9"2*r^
F=2,000+Fa+Fr -+ Eq.4
An amortization of a debt is in a
Fe = P(1+ i)n years, p 4,500 on masecono
fourth year. What is the equivale
ye ffil; J3""11T"
F3 = 1, 500(l + 0.10)1 fthe I Sy".
Fs = 1'6so
A. P 15,093.28
B. P 15,178.34
Fg = 1,000(1 + 0.1 0)1
c. P 15,890.12
D. P 15,389.82
Fz =1'210

Substitute values in Eq. 4

F :2,000 + 1,650.+ 1,210

F = 4,860 it checks !

.'. The equivalent future worth is P 4,860.00.

200 Question Bank - Engineering Economics by Jaime R. Tiong Uniform Arithmetic and G€ometric Gradients 201

The cash flow in the previous page is equivalent to the figure below:
n.=c[1-
' Li
"
(1+i)"
I
-1.1
'i
,t.
-<ir.r!...!.
ll,, '. rt 1-l
I I.500
10.05 (1+ 0.05)" - 1.1
Ar = 719'53

Let A = equivalent uniform payment of the. amortization:

A:5,000-A1
A=5,000-719.53
A = 4,280.47
s,000 5,000 s,000 s,000
:

P =Pt-Pz -+ Eq. 1

P,r=

, 4280.474280.474,280.47 4,28.0.47
:

P;:,<"""""' """""""j
7 =17,729.75

o_c[t-1t*i;" n-.|
''-TL i -fl.'r]
D_soo[t-1t*o.os)4
''- -
4 1
^'
4,280.47l
T. .a
(t+o.os) -t.1
1

oosL oJ5 (1+oGf] O.O5(1+ 0.05)a

Pz = 2'551'41 P = 1 5,1 78.3a it checks I

Substitute values in Eq. 1 The equivalent present worth of the debt is P tl5'178.34.

P = 17,729.7 5 - 2,55',t.4',1
P : 15,178.34

.92-24,. ,%:;*,.".

Let 41 = equivalent uniform payment due to uniform arithmetic series only

2OZ Question Bank - Engineering Econnmics by Jaime R. 'l'iong Unilbrm Arit,hnrot,ic and Geometric Gradients 203

n[1r*i;'-rl
L J
o-
I1-
An amortization of a debt is in a form of a gradient series of P 5,000 on the first i(1+i)n
year, P 4,500 on the second year, P 4,000 on the third year, P 3,500 on the
_ s, ooo
[(1
+ o.os)a - r]
fourth year. Determine future amount of the amortization if interest is 5%. t1-
o.o5(1+0.05)a
A. P 18,030.56
P1=17'729.75
B. P 18,290.12
c. P 18,621.89
D. P 18,449.37 F, =P,(1+i)"
Ft = 17,729.75(1+ 0.05)a
.t'l"Zz,i,u.
1=21,550.62
-l

o _c[t-(t+i)*-
''-iL "
i (1+i)".1

* o.o5)-4 4 I
-' - 5oo [t - (t o.os
' o.o5 [ (1+ o.o5)']

Pz =2'551'41

Fz = Pz(1+ i)n

Fz=2,551.41(1+0.05)a
Fz = 3'1O1'25

Solving for future worth, F:

F =1-Fz -+ Eq. 1

Substituting values to Eq. 1:

F =21,550.62-3,101.25
F = 18,449.37

.'. The future amount of the amortization is P 18'449'37'

ffiofadebtisinaformofagradientseriesofP5,oooonthefirst
G;; ilEoil; ",h "tn"
s"Lo no vqa r,. P g:. f :1 ?^what
1;999 :i -11i, pavment the "
l;lll"is ?l"tn
i;dh'G;;. wn"ri. equiialent u1it9r1 periodic
is 5%'
equirai"nt uniform periodic payment if interest

A. P 4,280.47
B. P 4,378.17
c. P 4,259.68
D. P 4,325.12
204 Question Bank - Engineering Economics by Jaime R. Tiong tlnif<rrm Arithmetic and Geometric Gradients 205

7"2r.,.'- Comparf the equivalent annual salary of the two ball clubs:

For LoqiAngeles Lakers, annual salary = $ 5,000,000

Solvir/q for the equivalent annual salary of Chicago Bulls:

o.=c[1- n
^t-"Li (r*D"-rl]
Ar=6oo,ooot#
f;jful]
\ =2,235,276.31

Let 41 = equivalent uniform payment due to uniform arithmetic series only Total annual salary of the NBA superstar with the Chicago Bulls, A:

n.=c[]- n l
A=3,000,000+Ar
A = 3,000,000 + 2,235,276.31
' Li
(1+i)" -1.1 A= 5,235,276.31
o.=uoo[ ' - + 'l
... The offer of Chicago Buits is $235,276.31 more annually'than that of LA
' 10.05 (1+ 0.05)4 _ 1_l Lakers'
Ar = 719'53

Let A = equivalent uniform payment of the amortization:

John Grisham, author of the best selling novel "The Chamber" sold its
A=5,000-41 copyright to warner Bros. for the rights to make it into a motion picture. Mr.
A=5,000-719.53 Cristram's nas options between the following Warner Bros' proposals:
A = 4,280.47
A. An immediate lump sum payment of $ 5'000'000.
B. An initial payment of $ 2,500,000 plus 4% of the movie's gross receipts for
the next 5 years which is forecasted as follows:
.'. The equivalent uniform payment is p 4,280.47.
End of year Gross Receipt 4% of Gross ReceiPt
1 $ 10,000,000.00 $ 400,000.00
2 $ 8,000,000.00 $ 320,000.00
3 $ 6,000,000.00 $ 240,000.00
4 $ 4,000,000.00 $ 160,000.00
5 $ 2,000,000.00 $ 80,000.00

lf money is worth 10% and Mr. Grisham will not receive any royalty after the fifth
year of Lxhibition of the movie, by how much is proposal A bigger than proposal
A. Chicago Bulls offer is smaller than that of l-A Lakers B?
B. Chicago Bulls offer is exactly the same as l-A Lakers,
ID. Chicago
chicago Bulls offer is just few dollars more p6r year than that of l-A Lakers,
Bulls offer is
A. P 1,532,630 c. P 1,478,100
over $150,000
per year than that of LA Lakers, B. P 1,390.090 D. P 1,289.450

9"2r2.,,
206 Question Bank - Engineering Economics by Jaime lt. 'l'iorrg Llnifurrn Alit,lrrnotic antl Geometric Gradients 207

Proposal A will provide the author a present worth of g 5M.

Solving for the present worth of proposal B: What is thq pregent worth of
Let 41 = equivalent uniform payment of the uniform arithmetic gradient the given cash flow diagram
if interest rate is i10%?

n.=c[1- n I A. P 2,200.34
i

Li (1+i)" -1l B. P 2,089.37

,1- 5= c. P 2,191.49
A.=8o,ooo[ I D. P 2,119.49
10.10 (1+0.10)5 _1j
Al :144,810.08

Let A = equivalent uniform payment of proposal B:

A = 400,000 -'144,81 0.08 680.24448

A = 255,189.92

This is an example of uniform geometric gradient since the next term in the
series is a fixed percentage of the previous term.

Solving for the fixed percentage, 1+ r:

.
1+l=-
540
500
'l+r=1.08
Solving for the present worth of the royalty Thus, r = 0.08

Since r is not equal to i, then x + 1 . Use the following formula:

D_

o_ G f1-x")
zss,r as.sz[(r + o.ro)5 - r]
' 1+i[ 1-x J
P=
0.01(1 + 0.1 0)5
1+r
P =967,370.57
1+i
Total present worth of proposal B = 2,500,000 + gOT,37O.S7 1+ 0.08

= 3,467,370.57 1+0.10
x= 0.9818 D

Solving for the difference between the two proposals: 5oo

-r = Ir - o.osreu I
Difference = 000 u*s!10)L 1-or818 ]
5, 000, - 3,467,37 0.57
Difference -- 1, 532, 629.4 P =2,191.49

Proposal A is P 1,532,630 bigger than propoeal B. .'. The presentworth of the given cash flow is P 2,191.49'
208 Question Bank - Engineering Economics by Jaime R. Tiong 1 [lrrrlbrrrr Arit,ltrno[it: ttnd (]oomettic Gradients 209

Solving fQr its future worth, F:

\
What isithe equfualent future F = P(1+ i)\
worth of'the-gi'ven cash flow
diagram if interest rate is F =2,19L+qt*O.tO;u
10o/o? F = 3,529.54"

A. P 3,529.54 o .'. The equivalent future worth of the given cash flow is P 3'529'54'
B. P 3,259.34
c. P 3,925.64
D. P 3,295.54

7;zt-,, the other sister?

This is an example of uniform geometric gradient since the next term in the A. Jocelyn, P 671.'18
series is a fixed percentage of the previous term. B. Jocelyn, P 763.27
C. Joan, P 671 .18
Solving for the fixed percentage, 1+ r:

1+r=540 ,9oz*r.,.
500
'l+r=1.08 To compare, solve the future amount of the two investments:

Thus, r = 0.08 For Joan:

Since r is not equal to i, then x + 1. Use the following formula:

D_ G (t-r"')
' - t+rIr-r.1

x=-1+r
1+i
1+ 0.08
x=
1+ 0.10
x = 0.9818

2,357.9s
'_
D 5oo [r - o.sar au I
- 0*olo)L 1-oss1s l Solving for the fixed percentage, 1+ r:
1.100
P =2,191.49 1+r - --:--
1,000
1+r=1.10
210 Question Bank - Engineering Economics by Jaime R. Tiong L.lnilbrnr Arithmotic and Goometric Gradients 211

Thus, r = 0.10

Since r = 0.10 is not equal to I = 0.14, then x+ 1. Use the following formula:
Engr. Herqro, be\eving that life begins at 40, decided to retire a1{ 1t{-e!!!!!
life-at ase +0. neVisnis to have upon his retirement the sum of P 5,000,000. On
- c (t-r")
H=-t his 21"t-birthday, he deposited a certain amount and increased his deposit by
1+i[ 1-x 15% each yeai until he will be 40. lf the money is deposited in a super savings
J
-l account which earns 15% interest compounded annually, how much was his
initial deposit?
1+r
1+i A. P 17,253.18
x=
1+0'10 B. P 17,566.33
1+O.14 c. P 17,672.77
x = 0.9&t9 D. P 17,490.21

o _ 1,000 [t - o.so+s,o I
(1.oJOL 1-0s64, ]
since the first deposit was made when Engr. Hermo was 21, then the value
P =7,508.45 of n is 20.

F = P(1+ i)n r --15%

F = 7,508.45(1+ 0.14)10 i=15%
F= 27,835.48
Since, r = i, then ,= = 1. Use the following formula:
For Jocelyn:
H
o-
'
Gn
+Eq.1
1+r

Solving for the present worth of P 5,000,000'

E
o- '
('1 + i)"
_
P==
5.000.000
(1 + 0.1 5)"
P = 305,501.39

F- Substitute values in Eq. 1

305,501 3e=dtrb
0.14
F =27,072.21
G:17,566.33
Joan has P 763.27 more than Jocelyn.
.'. Engr. Hermo's initial depositwas P 17'566.33.
212 Question Bank - Engineering Economics by Jaime R. Tiong
Question Bank 5
A newly-agq.uired equipment requires an annuar maintenance
costs of p 1or0o0.
lf the annubt rndintenance cost is increased by 2oo/o each
v"r, v"ar for 10
years, what is the estimated present worth of ihe maintenince "*w
costs it money is
worlh 15Yo?

A. P',t0,s,712.33
B. P 106,101.37
c. P 107,490.12
D. P 108,890.11 A company issued 50 bonds of P 1,000.00 face value each, redeemable at par at
the end of '15 years. To accumulate the funds required for redemption the firm
established a sinking fund consisting of annual deposits, the interest rate of the
fund being 4%. What was the principal in the fund at the end ol ,l2h year?

r= 2OVo A. P 37.002.54
B. P 37,520.34
i= 15o/o c. P 38,010.23
D. P 38,782.34
x=1+r
1+i 9;z*r...
, _1+ O.20
1+ 0.15 Amount needed by the company after fifteen years = 50(1,000) = 50,000
x =1.04348
LetA=annualdeposit
c
' - 1-l[t-r")
D_
i-r.,J
1o,ooo (t
' _- 1*ols[-1-l.rrn4l
D -t.o+s+a,o')
)
P = 106,101.37

.'. The estimated presentworth of the maintenance cost is p l06,1ol

.37. AAAAAAAAAAAAA AA
:

n[{r*i)'-r]
,F=
But F = 50,000

Substituting values:

n[1r*o.o+';'u -r'l
50,000

A=2,497.06

J
2'14 Question Bank - Engineering Economics by Jaime R. Tiong Bonds 21 5

Solving for the principal at the end of 12th year.

0 2 4 6 8 1011 12
A P 1,000,000 issue of 3%, 1S-year bond was sold at 95%. What is the rate of

A. 3.O o/o

B. 3.4%
C. 3.7 o/o

D. 4.O o/o

n[tr*i)"-r]
F'rz =
I

,, _rrl(+i)" -r]-(1+ir
c
+Eq.1
24e7.06[(1+ o.o+)1'? - r] "n-- ;6*y
Ftz =
0.04
Fe = 37,520'34

.'. The principal in the fund at the end of the 12th year is P 37 ,520-34.

A local firm is establishing a sinking fund for the purpose of accumulating a

sufficient capital to retire its outstanding bonds at maturity. The bonds are
redeemable in 10 years and their maturity value is P 150,000.00. How much Zr Zr Zr Zr Zr Zr Zr Zr Zr Zr Zr Zr
should be deposited each year if the fund pays interest at the rate of 3%?

A. P 13,084.58
B. P 13,048.85
c. P 13,408.58 Vn = 0.95(1,000,000)
D. P 13,480.58 Vn = 95,000

C = 1,000,000
.V"z*...
Zr = 1,000,000(0.03)
Zr = 30,000

Substituting values to Eq. 1

zr[1r * i)"]
150,000
0.03 ,"" =-lnY -
c
A = 13,084.58 (1+i)n

30, ooo
[(1
* iI
u
_ 1] ,,,
ooo, ooo
95,000
.'. The annual deposit is P 13,084.58. ------+
i(1+ i)15 -11;
Dl5-
216 Question Bank - Engineering Economics by Jaime R. Tiong Bonds 217

By trial and error:

i:0.03 %=
i =3Yo

.'. The rate of interest of the investment is 3%. \

\
vn = 90,614.93'.

.'. The man must pay the ceilificate the amount of P 90,614.93.
A man was offered a Land Bank c,ertificate with a face value of P 100,000 which is
bearing interest of 6% per year payable semiannually and due in 6 years. lf he
wants to earn 8o/o semiannually, how much must he pay the certificate?

A. P 90,123.09 A P 1,000 bond which will mature in 10 years and with a bond rate of 8% payable
B. P 90,614.93 annually is to be redeemed at par at the end of this period. lt is sold at p1,030.
Determine the yield at this price.
c. P 90,590.12
D. P 90,333.25 A. 7.56%,
B. 7.65 o/o
9"2a.". c. 7.75%
D. 7.86%
,,v"=-
zrf(r*i)" -1] , c
;1'1*;y -(1+ir
-+ Eq. 1

Zr ZrZr Zr Zr Zr Zr Zr Zr Zr
Zr ZrZr Zr Zr Zr Zr Zr Zr Zr Zr Zr
,, _rrl(*i)'-1] , c
-ll;;n--,r*;y, -+Eq 1
"n I
Zr = 1,000(0.08)
Zr=80
Zr = 3,000
C = 1,000
Substitute values in Eq. 1
Substitute the values in Eq. 1

vn-
\,
zrf1r * i;^l
:-
c
-______!__________ '(1+i)"
i(1+i)" ., _zr[{r*i)"]
"n --@!n--(t*n , c
2'l8 Question Bank Engineering Economics by Jaime R. Tiong Bonds 219
-
i - 0.0385
r, oooto.oe)
kr+
i)10 - r] 1009_ i= 3.85%
'
r..dao = +
i(1+i)" (1+i)''
of interest is 3.85 %.
By trial and error:

i= 0.0756
A P1,000, 6% Uond pays dividend semiannually and will be redeemed al 11Oo/o on
i--7.56% June 21, 2004. ll is bought on June 21,2OO1 to yield 4% interest. Find the price of
the bond.
The yield is 7.56 %.
A. P 1,122.70
B. P 1,144.81
c. P 1,133.78
You purchase a bond at P 5,100. The bond pays P 200 per year. lt is redeemable D. P 1,155.06
for P 5,050 at the end of 10 years. What is the net rate of interest on your
investment?

A. 3.56% Bought on Will be redeemed

B. 3.85 o/o
lune 21, 2001 June 21, 2004
c. 3.75% Fr=1,ooo[ry)
D. 3.68 %
Fr=30
,V/or,r-

Vn: 5,100
30 3A 30
I
I

I
C = 1,100
200 200 200

I V" = 1,144'81
C = 5,050
.'. The price of the bond is P 1 ,144.81.
220 Question Bank - Engineering Economics by Jaime R. 'l'iorrg
Question Bank 7
,-1;;

A voM has a sellingprice of P 400. lf its selling price is expected to decline at a

rate of 10o/o per 4nrfum due to obsolescence, what will be its selling price after 5
years?

A. P 222.67
B. P 212.90
c. P 236.20
D. P 231.s6

Using Matheson Formula:

k=',-,8
\lco
o.1o=1-FE
v 400
cu
4o0/ *T
:(o.gou

Cs =236'20

.'. The selling price at the end of the Sth year is p 236.20.

A machine costs 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
B. P 2,100.00
c. P 2,200.00
D. P 2.300.00

,9zo*-
Solving for annual depreciation charge, d
222 Question Bank - tr)ngineering Economics by Jaime R. 'l'iorrg l)trprcr:rnl iorr arrd Depletion 223

. Co-Cn
d=-
n
. 8.000-500 ABC Corporation makes it a policy that for any new equipment purchased, the
10
annual depreciation cost should not exceed 20% of the first cost at any time with
no salvage value. Determine the length of service life necessary if the depreciati
d=750 used is the SYD method.
/
Solving for book value after 8 years, C6 A. 7 years
C. =Co-Dm
,/
B. 8 years
c8 =8,000-750(8) C. '9 years ./
Ce = 2,000
D. 10 years ./

The book value after 8 years of using is P 2,000.00.

ln SYD method, the largest depreciation is on the first year.
Analyze first year depreciation, d1

A telephone company purchased a microwave radio equipment for P 6 million,

freight and installation charges amounted to 4% of the purchased price. lf the d, =(co -.")r,:"*
equipment will be depreciated over a period of 10 years with a salvage value of
8%, determine the depreciation cost during the 5"'year using SYD. But:rvear=n(n*1)
2
A. P 626,269.09
B. P 623,209.09 d, =(co -o)--! ^
c. P 625,129.09
2
D. P 624,069.89

../;/;r*,,
d" = c^r-?-)
"In+1]

Co =6,000,000 + 0.04(6,000,000) = 6,240,000 But: d1= 0.20C0

Cn= 0.08(6,240,000) = 499,200
o 2oc^ = c"
" r-r)
"[n+1]
Solving for d6preciation during the 5th year, ds
n+1=10
n= I years
du =(co -..)rEk
The length of service life necessary is 9 years.
But
- n(n+1I
Years = -:=-
company purchases an asset for P 10,000.00 and plans to keep it for 20 years.
2 the salvige value is zero althe end of 20th year, what is the depreciation in the
Substituting, third year? Use SYD method.

d5 = (6, 24o,ooo - 499'2OO)!# A. P 857.14

B. P 862.19
d5 = 626,269.09 c. P 871.11
D. P 880.00
The depreciation cost during the Sth year is P 626,269.09'
224 Question Bank - Engineering Economics by Jaime R. 'l'iong l)oplor:urliorr rrrtt.l l)cplution 225

'-/,./u1,;',, The total depreciation in the firCt three years is P 48,000.00.

Solving for depreciation at the end of 3'd year, d3

A machine has an initial cost of P 50,000 and a salvage value of P10,000 after 10
-+ Eq. 1
years. What is the book value after 5 years using straight line depreciation?

A. P 30,000.00
B. P 31,000.00
c. P 30,500.00
r vears -2o(2o
+1)
- r,o
D. P 31,500.00
2

Substitute values in Eq. 1

Solving for the annual depreciation charge, d

q =(1o,ooo -o)4-3 Co-Cn
6=
ds =857'14 n
.50.000-10.000
.'. The length of service life necessary is 9 years. '10
d = 4,000

Solving for the book value at the end of 5th year, Cs

An asset is purchased for P 500,000.00. The salvage value in 25 years is
P100,000.00. What is the total depreciation in the first three years using straight- Cs=Co-Ds
line method? cs =50,000-4,000(5)
A. P 45,000.00 c5 = 3o,ooo
B. P 46,000.00
c. P 47,000.00 The book value after 5 years is P 30,000.00
D. P 48,000.00

?).,r^n.
An asset is purchased for P 9,000.00. lts estimated life is 10 years after which it
Solving for the annual depreciation charge, d will be sold for P 1,000.00. Find the book value during the first year if sum-of-
years' digit (SYD) depreciation is used.
c^ -c_ A. P 7,545,45
n
B. P 7,320.11
.
ct =
500.000 - 100.000
' c. P 7,490.00
25 D. P 7,690.12
-=-
d = 16,000 V/,,t;"n..

Solving for the total depreciation in the first three Years, Dg Solving for depreciation on the first year, d1

Ds = 16,000(3) d,:(co-c")=+.-
years
Ds = 48'000
z
226 Question Bank - Engineering Economics by Jaime R. Tiong Deprocintion and Depletion 227

But
Cr=Co-D,
n(n + 1)
) vears cr =530,000-96,000(4)
2
1o(10 + 1) Ca = 146'000
r vears - 2
- au
.'. The book value at the end of the 4th year is P 146,000.00
Substituting,

d1 =(9,000-1,000)#
dt =1,454'54

Solving for the book value after first year, C1

C' = Co -d1 c. P 1,344.21

cr = 9,00o- 1,454.54 D. P 1,245.45
q --7,545.45
.V;z;r,,,,
The book value during the first year is P 7,545.45.
F
Let dr = first year depreciation

The cost of equipment is P 500,000 and the cost of installation is P 30,000. lf the
d, = (co -.")r#"*
salvage value is 10o/o ol the cost of equipment at the end of 5 years, determine the n(n +
book value at the end of the fourth year. Use straight-line method. r vear - 2
1)

10(1'1)
A. P 146,320.50 ) vear = ------:-----!'

B. P 146,000.00
2
c. P 146,230.50 )year = 55
D. P 146,023.50
Substituting;
Vt,,,,,, d1 = (2o,ooo - 12'ooo)r+l
't55/
Co = 500,000 + 30,000 = 530,000 dt = 1'454'54
Cn = 0.10(500,000) = 50,000

.'. The depreciation for the first year is P 1,454,54.

Solving for the annual depreciation charge, d:

. c^-c_
n
A machine has an initial cost of P 50,000 and a salvage value of P 10,000 after
_ _ 530,000-50,000 10 years. Find the book value after 5 years using straight-line depreciation.
5
d = 96,000 A. P 31,000.00
B. P 31,500.00
Solving for the book value at the end of the fourth !ear, Ca c. P 30,000.00
D. P 30,500.00
228 Question Bank - l)ngineering Econornics by Jaime R. 'l'iorrg
l)o;rrocint,iort and Depletion 229
.'ll,/,r.,
4'ooo
Yo= xtoo
Let Cs = book value after 5 years 50,000
o/o
= 8ok
Solving for annual depreciation charge, d:
.'. The straight line method depreciation rate is 8%.
r-"0
aa vn
n
_ 50,000 - 10,000
10 A machine costing P 45,000 is estimated to have a book value of P 4,350 when
d = 4,000

Solving for Cs :

Cs=Co-Ds
B. 32.25o/o
cs =50,000-4,000(5) c. 32.00%
C5 = 30'000 D. 32.75o/o
.'. The book value after 5 years of using is P 3O,OOO.OO

k=1-"8
A machine has an initial cost of P 50,000.00 and a salvage value of P 10,000.00 !co
after 10 years. What.is the straight line method depreciation rate as a percentage
of the initial cost?
k=1-u@
\145,000
k = 0.3225
A. 1O o/o

B. 8% k = 32.25o/o
c. 7% o/o.
D. I o/o .'. The annual rate of depreciation is 32.25

V;1itr..

Let d = annual depreciation An asset is purchased for P 120,000.00. lts estimated life is 1 0 years, after which
it will be sold for P 12,000.00. Find the depreciation for the second year using the
sum-of-years' digit method.
d-co-cn
n A. P 17,578.13
,{ _ 50,000 - 10,000 B. P 17,412.43
10 c. P 17,344.67
d = 4,000 D. P 17,672.73

Solving for the percentage of depreciation with respect to the initial cost: V;z*,,,

4x100
%=
co
d, =(co -c,).4
jyears
230 Question Bank - Engineering Economics by Jaime R. Tiong Depreciatiort and Depletion 231

n(n +
) vears
1)

2
10(1 An asset is purchased for P 9,000.00. lts estimated economic life is 10 years
) vears
1)
after which it will be sold for P 1,000.00. Find the depreciation in the first three
2
years using straight line method.
) years = 55
A. P 2,400.00
/o\
B. P 2,412.34
d2 = (120,000-12,000)l + c. P 2,250.OO
'\55/ I
D. P 2,450.00
dz =17,672'73
.%7i*--.
.'. The depreciation for the second year is P 17,612.73.

A machine costing P 720,000 is estimated to have a book value of P 40,545.73

when retired at the end of 10 years. Depreciation cost is computed using a
constant percentage of the declining book value. What is the annual rate of
depreciation in %? d=800
A. 25 o/o
Solving for total depreciation in the first three years, D:
B. 26 o/o

C. 27 o/o
D = d(3)
D. 28%
D = 800(3)
.V;/;r,,- D =2,400

Using Matheson Formula .'. The total depreciation in the firct three years is P 2'400.00.

k=1-"8
lco An engineer bought an equipment for P 500,000. He spent an additional amount
of P 3O,0OO for installation and other expenses. The estimated useful life of the
Y = 1-.o@'il\n equipment is 10 years. The salvage value is x % of the first cost. Using the
i/ 720,000
stiaight line method of depreciation, the book value at the end of 5 years will be
k = 0.25
P 291,500. What is the value of x?
k=25%
A. O.2
.'. The annual rate of depreciation is 25%. B. 0.4
c. 0.3
D. 0.1

Let Cs = book value at the end of 5 years

Cs=Co-Ds -r Eq'1
232 Question Bank Engineering Economics by Jaime R. Tiong Depreciation and DePletion 233
-
Co :500,000 + 30,000
co = 530,000 n

-
800.000 - 35,000
Solving for annual depreciation, d:
d ---ro
d = 76,500
,..-Co-Cn
n The annual depreciation charge is P 76'500'00'
r_ 530,000-x(530,000)
10
d:53,000-53000x The
The initial cost of a paint sand mill, including its installation, is P 800,000.
Bli approved tife oi this machine is 10 years for depreciatio.l.' Tle
Total depreciation for 5 years, Ds: "tl]'?lg9;
ill is P 50,000 and the cost of dismantling is estimated to
Ds = d(5)
""l"rri"
O" piS aight-line depreciation' what is the book value of the
machine at the end of six Years?
D5 =(53,000-53,000x)5
A. P 341,000.00
Book value at the end of 5 years, Cs B. P 343,Q00.00
c. P 340,000.00
Cs=Co-Ds D. P 342,000.00

291,500 = 530,00 - 5(s3,000 _ 53,000x)

5(53,000 - 53,000x) = 238,500 Co = 800,000
53,000 - 53,000x = 47,700 Cn = 50,000- 15,000 = 35,000
53,000x = 5,300
x=0.1 Solving for annual depreciation charge, d:

.'. The value of x is 0.1.

n
. 800,000 - 35,000
o= io
The initial cost of a paint sand mill, including its installation, is P 800,000. The
d = 76,500
BIR approved life of this machine is 10 years for depreciation. The estimated
salvage value of the mill is P 50,000 and the cqst of dismanfling is estimated to
Solving for book value at the end of 6 years' C6
be P 15,000. Using straight-line depreciation, what is the annual depreciation
charge?
Co = Co -Do
A. P 75,500.00 co =800,000-76,500(6)
B. P 76,000.00 Co = 341'000
c. P 76,500.00
D. P 77,000.00
The book value at the end of the 6th year is P 341,000'00'
.V.z*-.
Co = 800,000
Cn = 50,000- 15,000 = 35,000

Solving for annual depreciation charge, d:

234 Question Bank - Engineering Economics by Jaime R. Tiong Deprocial,ion and DePletion 235

6=Co-Cn
n
A unit of welding machine cost P 45,000 with an estimated life of 5 years. lts
. 410,000 - 60,000
salvage value is P 2,500. Find its depreciation rate by straight-line method. -20
A. 18.89 % d = 17,500
B. 19.21%
years, cro
c. 19.58% Solving for the book value (appraisal value) at the end of 10
D. 19.89 %
Cls=Co-D16
cro = 41o,0oo - 10(17,500)
Cro'= 235' o0o
6=Co-Cn
n ...Theappraisalvalueofthemillattheendofl0yearsisP235,000.00.
,_45,000-2,500
.J E

d = 8,500
An equipment costs P 1O,OOO with a salvage value of P 500 at the end of
10
years. catcutate the annual depreciation cost by sinking fund method at 4 %
Depreciation rate = -9
co interest.

Depreciation ,"t" = 9:590 x loOo/o A. P 234,000.00

45,000 B. P 235,000.00
Depreciation rate = 18.89 % c. P 234,500.00
D. P 235,500.00
.'. The depreciation rate is 18.89 %.
.V;z,t*,,

d = 791.26

.'. The annual depreciation cost is P 791'26'

A. P 234,000.00
B. P 235,000.00
c. P 234,500.00
D. P 235,500.00 year by 20% of its
A machine initially worth P 50,000 depreciates in value each
value at the beginning of that year. Find its book-value when it is 9 years old.

A. P 6,710.89
Co = 360,000 + 5,000 + 25,000 + 20,000 B. P 6,400.89
C" = 410,000 c. P 6,666.89
D. P 6,512.78
Solving for annual depreciation charge, d
236 Question Bank - Engineering Economics by Jaime R. Tiong L)oprecial,ion and Depletion 237

.V,z"ar-

since the percentage of depreciation is constant every year to be 20% life is 10 years
the book value, use the Matheson Formula
of An asset is purchased for P 9,000.00. lts estimated economic
1,000.00. Find the depreciation in the first three
aftei wnicn it will be sotd for P
years using sum-of-years' digit method'
*=1_.8 A. P 3,279.27
!Co
B. P 3,927.27
o.2o=1-'E c. P 3,729.27
50,000 v D. P 3.792.72

Vffi=ouo 722*-
,tn
50,000
= 0.80s Solving for depreciation in the first three years, Da

Cg = 6,710.89 Dg=dr+dr+d. -+ Eq. 1

.'. The book value when it is 9 years old is p 6,7i0.g9.

)years=ry
lyears '"t':''l=55
- 10(10 + 1)

A consortium of internationaltelecommunication companies contrActed

for the
purchase and installation of fiber optic cable linking [ianila (e,000-1,ooo)* = 1,454'54
citv anaCeou city at
a total cost of P 960 million. This amount includesireigtrt ana insiaiiaili:nehaiges
dl = (co -.^)t**" =

estimated at 10% of the above total contract'price. lf fie cable shal

depreciated over a period of 15 years withzero sarvage varue anJ money
be
is
d, = (co -"")thk = (e,ooo-1,ooo)* = 13oe.oe
worth 6% per annum, what isthe annual depreciation-charge?

A. P 41,04p'903.40 d. = (co -.,,)k = @,ooo - 1,000)* = 1163.64

B. P 41,211,158.40
c. P 41,254,000.40 Substitute in Eq. 1
D. P 41,24.253.40
Ds =1,454.54+ 1'309.09 + 1,163'64
Ds =3,927 '27

since a rate of interest is given in the probrem, use qinking fund method.
.'. The depreciation in the first three years is P 3,927 '27 '
Solving for annual d€preciation charge, d

,n_(Co-Cn)i resale value at the end of

(1+i)" -1 A radio service panel truck initially cost P 560,000. lts

_ (s60,000,009 - 0x0.06)
il?'-G;;fli" ui"irriir" is esiimated.at P 150,000 ?J T:iT,"l.declining
d oatancemethod,determinethedepreciationchargeforthesecondyear.
(1+ 0.06)15 - 1

d= 41,244,253.40 A. P 99,658.41
B. P 99,128.45
.'. The annual depreciation charge is p 41,241,253.40. c. P 99,290.00
D. P 99,378.45
238 Question Bank - Engineering Economics by Jaime R. Tiong l)r:prot:iat,iort anrl Depletion 239

9Z**
Using the Matheson formula: efinery developed an oil well which is estimated to
s of oil at an initial cost of $ 50,000,000. What is the
the year where it produces half million barrels of oil? Use
k= 1-"8 computing dePletion.
!Co
k = 1- uE!g,ogq
A. $ 500,000.00
\l 560,000
B. $ 510,000.00
k = 0.2316
c. $ 525,000.00
D. $ 550,000.00
Tabulating the depreciation charges:

Year Depreciation Book Value

0 0 $50'ooo'ooo
560.000 Unit depletion 121" =
1 6(560,000) =1 29,696
0.231 430,304 5,000,000
2 0.2316(430,304) = 99.658.41 330,645.59 Unit depletion 131s = $10.00 per barrel

.'. The depreciation on the second year is P 99,658.41. Totaldepletion during the year = (500'000)(10)
Total depletion during the year = $ 5,000,000

.'. The total depletion charge during the year is $5,000,000'00'

Shell Philippines, ome for a
particular y6ar of all deductions
except for depleti etion allowance
for that particular as 22o/o.

A. P 9,358.41
B. P 9,228.45
c. P 9,250.00
D. P 9,308.45

9,Zz*,"

iJsing Depletion Allowance Method:

Depletion charge = O.22(5O,000,000) = '1 1,000,000

Depletion charge = 0.50(18,500,000) = 9,250,000

Use the smaller value, P 9,250,000

,'. The allowable depletion allowance is P 9,250.00.

240 Question Bank - Engineering Economics by Jaime R. Tiong
Question Bank I
J,;*

The first cost of a certain equipment is P 324,000 and a salvage value of P 50'000
at the end of its life of 4 years. lf money is worth 6% compounded annually, find
the capitalized cost.

A. P 540,090.34
B. P 541,033.66
c. P 540,589.12
D. P 541,320.99
.7;za-.
Capitalized cost= Co+ P+ Eq. 1

The maintenance cost is due to the depreciation of the equipment only

Total depreciation = Co - Cn

Co -Cn =32a,000-50,000
Co - Cn =274,OOO
Since, there is a given interest rate,
use sinking fund method in solving
for annual depreciation charge.

i
'-[tr*ir-r]
^_(co-c")
\ '
.{- 274.000(0.06)
o.oo)' - r]
[t',.
d--62,634.07

Solving for the present worth of all depreciation charges, P

242 Question Bank - Engineering Economics by Jaime R. Tiong (lrrpit,rrliz,rrrl (bst & Anntral Cost 243

Capitalized cost = 325,000

P_
62,634.07[(1+0.06)4 -1] ,/ /
0.06(1+ 0.06)a .'. The capitalized cost is P 325,000.00.

P = 217,033.66

Another way to solve for the value of P t A piece of equipment was purchased for P 4,000,000. The useful life is
estimated at 5 years with no salvage value. The equipment is estimated to be
o[(r*i)'-r] used for 1,000 hours per year. Operating costs are as follows:
, _
+ i)"
i(1
Fuel : l0liters per hour, P 10 per liter
Oil : 1 liter Per hour, P 20 Per liter
Grease : 2 liters per hour, P 5 per liter
,_ffi[t'.'1"-'] i(1 + i)n ti
nt uses 6 P 60,000 each. Cost of money is 15% per
insurance, age, etc. is 15% per year. The interest tabie
is Problem the figure.

Determine the cost of using the equipment and tires, in pesos per hour.

^r-- 274.OOO A. P 2,202.90

(1+ 0.06)" B. P 2,101.80
P = 217,033.66
c. P 2,000.90
D. P 2,303.70

Substitute in Eq. 1
,7"2r*-
Capitalized cost = 324,000 + 217,033.66
Capitalized cost = 541,033.66 A. Annual cost of equiPment onlY

.'. The capitalized cost is P 541,033.66. P = 4,000,000

An item is purchased for P 100,000. Annual cost is p 1g,ooo. Using interest rate AAAAA
8%, what is the capitalized cost of perpetual service? n[{r*o.rs)u-r]
4.000.000 = r i

A. P 310,000 0.15(1+ 0.15)5

B. P 315,000 A = 1,193,262.21
c. P 320,000
D. P 325,000 ln terms of pesos Per hour,

Hourly cost of equiPment =

1,193,262.21
x-----.-.:--
Yeat
= 1.1 93.26
year 1,000hours

Capitalized cost = Co + I
I

1 8,000 B. Annual cost of insurance, taxes' storage, etc':

-
Capitalized cost = 100,000 +
0.08
Annual cost of insurance, etc = 1,193,262.21(0.15) = 178,989'33
 (lrrgrit,ulizorl Oont & Anrrual Cosl 245
244 Question Bank - Engineering Economics by Jaime R. Tiong
Total annual cost = 1 1193.26 + 178.99 + 130 + 593.26 + 107.39
ln terms of pesos per hour, Total hourlY cost = 2,202.90

178.989.33
-'-----x vear The total cost of using the equipment and tires is P 2,202.90 per hour.
Hourly cost of insurance, etc =
yeil '--' =178.99
1,000hours

c Hourly fuel, oil and grease costs:

A corporation uses a type of motor which costs P 5,000 with life 2 years and final
Fuel cost = 10('!0) = 100 per hour value of P 800. How much could the corporation 3fford-to pay.for another
Oil cost = 1(20) = 20 per hour ""tr"b"
typ" Jt motor of the same purpose whose life is 3 years with a final salvage value
Grease cost = 2(5) = 10 per hour of P 1,000. MoneY is worth 4%.

Hourly cost of fuel, oil and grease = 100 + 20 + tO =

130 A. P 7,892.13
hour B. P7,157.40
c. P7,489.21
D Annual cost of depreciation: D. P 7,300j2
Using sinking fund method since the interest is given
SlnZr,r."
, (co-c")i
The two types of motors must have the same annual cost'
ftt*i)"-t]
For Motor 1:

Using sinking fund method in computing depreciation:

d= 593,262.21
Annuar = + co(i) + o.c.
ln term of pesos per hour, ""o
ffi
Hourly cost of depreciation =
592.262.21 vear
year (5'-000 - 800)(0 94) + (5,oooXo.oa)
1,000hours Annuat cost -
E. Annual cost of tires (in pesos per hour):
Itt*o.o+)'-t.1
Annualcost = 2,258.82
P = 60,000(6)
P = 360,000 For Motor 2:

Using sinking fund method in computing depreciation:

AAA j"' - 9") I + co(i) + o.c.

n[(r*o.rs)'-_r] 'ffi. . .. i
Annuar
"or,
=
[tt*i)" -'11
360,000-
0.15(1+ 0.15)5 (?o - 1' 000X0 0j)
Annuat *"1 = + (co )(0.04)
A = 107,393.60
[(t+o'o+)" -t]
ln terms of pesos per hour, Annual cost = 0.32035C0 - 320.35 + 0.04C0
107'393'60x---yegl-- - 320.35
Hourty cost of tires - year = 107.39
Annual cost = 0.36035C0
1,000hours
 ()rrlritalizod Cost & Annual Cost 247
246 Question Bank - Engineering Economics by Jaime R. Tiong

Equating annual costs:

2,258.82 =.0.36035C0 - 320.35 At 6%, find the capitalized cost of a bridge whose cost is P 250M and life is 20
Co =7'157 '4O years, if the bridge drust be partially rebuilt at a cost of P 100M at the end of each
20 years.
,'. The corporation could afford to pay P 7,157.40 for anot[er motor.
A. P 297,308,323.10
B. P 298,308,323.10
c. P 296,308,323.10
D. P 295,308,323.10
A motorcycle costs P 50,000 and has an expected life of 10 years. The salvage
value is estimated to be P 2,000 and annual operating cost is estimated at P ,%h*.
1,000. What is the appropriate rate of return on the investment if the annual
revenue is P 10,000?

A. 12.12%
B. 12.54 o/o

C. 12.72o/o
D. 12.ggo/o

,:%b-
To get the rate of return, i, equate annual cost and annual revenue:

Using sinking fund method in computing depreciation:

Capitalized cost = Co +
i
*r, - c") I + c^(i) + o.c. Solving for the equivalent interest rate in 20 years, i
Annuat = Ico
l{t*i)"-tl i = (1+ NR)20 -1
r50. 000 2. 000) (i)
10,000=. - - ,=' -," +(50,000Xi)+1,000 i = (1+ 0.06)20 - 1
i--2.2071
l(1+i)'"-t]
i=220.71%
e, ooo = jg-qqq!= + 50, oooi
[(t.i[ - t] 109:qqq900
Capitalized cost = 250,000,000 +
2.2071
By trial and error: Capitalized cost = 295,308,323.10

i= o.1272 .'. The capitalized cost of the bridge is P 295,308,323.10.

i=12.72%

The appropriate rate of return of the investment is 12.72 %.

248 Question Bank - Engineering Economics by Jaime R. 'liorrg Cnpitalized Coet & Annual Cost 249

Total annual cost = 319,833.49(2)

Total annual cost = 639,666.98
A newly hired Mechanical Engineer of CPPI was made to evaluate on the
following condition. FOR SECOND EQUIPMENT:

A packing equipment that cost P 500,000 will last for 20 years and have a scrap -
value at that time of P 50,000. Repair will average P 30,000 per year in which the
Annuat
"o",
= Ico 9") i + co(i) + o.c. -r Eq. 2
e P 20,000 per month. The [tt*i)'-t.]
as many units per year. lt costs
25 years at a cost of P O.C. = 25,000 + 30,000(12)
1,OOO,OOO. Repairs for this machine will average P 25,000 per year and operating O.C. = 385,000
expenses will be P 30,000 a month.
Substitute values in Eq.2
lf money is worlh 8% effective, How much will be saved each year if the more
economical equipment is used?

A. P120,978.20
B.' P120,962.20
Annual cost = 518,678.78
c. P120,988.20
D. P120,999.20
Difference = 639,666.98 - 518,678.68 = 120,988.20

.'. The amount that will be saved each year if the more economical
Compare the annual cost of the two packaging equipments: equipment is used is P 120,988.20.
FOR FIRST EQUIPMENT:

Annual cost = depreciation + interest of first cost + operating cost

For its proposed expansion, an ice plant company is selectlng from two
offers of ice cans. The data on the offers are as follows:
Using sinking fund method in computing depreciation:
Offer A Offer B
- + co(i)+ o.c.
Annuar = Ico 9") i -+ Eq. 1 1.8 mm thick 1.6 mm thick
"o", -t.1 Total cost P 720,000.00 P 640.000.00
[(t*i)" Annual maintenance P 60.000.00 P 90.000.00
No. of vears. Life 12 I
Solving for total operating cost, O.C.
For their replacements, the company is putting up a sinking fund to eam 16%
o.c. = 30,000 + 20,000(12) interest compounded annually. lf the money to purchase the ice cans is to be
O.C. = 270,000 borrowed at 20% annual interest and the tax on the first cost is 2%, what is the
difference in the annual cost of the two offers?
Substituting values in Eq. 1

00, - 50'9-00)(9' 08)

A. P 34,489.01
Annuat =
(509
+ (500, 000)(0. 08) + 270, 000 B. P 34,OM.92
"o.t (r+o.oa)'?o -r c. P 34,320.12
I
D. P 34,617.22
Annual cost 1'tg,gsz.qg
//
,/ ,%)r,*.
Since the,(econd equipment can produce twice as many units than the first For Offer A:
equipmCnt, we will consider acquiring 2 units for the first equipment to Using sinking fund method in computing depreciation
balance the production, thus
250 Qtrestion llank Engineeling Dcortrlrnics by Jaime Il. 'l'iorrg ( lrrpilrrlizorl ()ost & Attttuitl (lrst 251
-
/
Annuatcost = jt'-:') l+co(i)+o.c.
r,,r,, ,.

f(t+r) -r] For alternative A:

(220'000 -0)-(0' 1 9)
Annual cost = + (720, 000)(0 .2o) + o.o2(7 20, 000) + 60, 000 Using sinking fund method in computing depreciation
(t * o.to)'' - t.]
|
Let x = number of days the equipment is used in one year period
Annual cost = 241,738.61

Annuat cost
-9") +co(i)+o.c.
= it'(1+i)
For Offer B: I
Using sinking fund method in computing depreciation
L") -1
I |

(700'000 -1 00'000X0' 1 8)

Annual 6ss1 =
(c^ -c_)
-t.1
i
+ Cn(i) + O.C.
Annual cost =
@
Annual cost = 151,508.78 + 500x
+ (700,000)(0.1 8) + 500x

l(t*i)
(6-40'000 -0X0' 1-6)
Annual cost -- + (6a0, 000)(0.20) + 0.02(6a0,000) + 90, 000 For alternative B
ftt*o.to)'-t.] Annual rental = 1,500x
Annual cost = 275,743.53
Equating:
Solving for the difference between the two offers:
151,508.78 + 500x = 1,500x
Difference = 27 5,7 43.53 - 241,7 38.61
1,000x = 151,508.78
Difference =34,004.92 x = 151.5 days

The difference between offer A and offer B is P 34,004.92.

.'. The equipment must be used lor 152 days per year.

A company is considering two alternatives with regards to an equipment

A new broiler was installed by a textile plant at a total cost of P 300,000 and
which it needs. The alternatives are as follows:
projected to have a useful life of 15 years. At the end of its useful life, it is
estimated to have a salvage value of P 30,000. Determine its capitalized cost if
Alternative A: PURCHASE
interest is 18% compounded annually.
Cost of equipment P 700,000.00
Economic life ............ .... 10 years
Salvage value ... P 100,000 A. P 323,500.33
Daily operating cost ........ P 500.00
B. P 322,549.33
c. P 332,509.33
Alternative B: RENTAL at P 1,500 per day
D. P 341,240.33

At 18% interest, how many days per year must the equipment be in use if .Vn/oln.' .
alternative A is chosen? Capitalized cost = Co + present worth of all depreciation charges

A. 152 days Let P = present worth of all depreciation charges using sinking fund method
B. 154 days
C. 156 days
252 Question Bank - Engineering Economics by Jaime R. Tiong Cepitalized Coet & Annual Coet 253

D _ 300'000-30'000 Annuatcost = 9-:") l+co(r)+o.c.

'- (1+Ol8f -t]
[(t+i)"
P =22,549.33
Annual cost = + ({200)(0'12) + 1'200(0'01)
Capitalized cost = 300,000 + 22,549.33
Capitalized cost = 322,549.33 Annualcost = 224.38
ffiffi
.'. The capitalized cost is P 322,549.33. FOR TREATED POLE:

Using sinking fund method in computing depreciation

A man planned of building a house. The cost of construction is P 500,000 while

annual maintenance cost is estimated at P 10,000. lf the interest rate is 6%, what Annuatcost = I?' ,!")l+co(i)+o.c.
is the capitalized cost of the house? f(t.r[ -t]
(co -0)(9--12)
A, P 666,000.00 Annuat cost =- - +(co)(0.12)+co(0.01)
B. P 666,666.67
[(t+o.tz)'" -t.]
c. P 633,333.33
Annual cost
D. P 650,000.00 = 0.14388 Co

Equating annual costs:

Capitalized cost = Co + 1
I
0.14388C0 =224.38
Co = 1'559'50
Capitalized cost = 5OO,0oO +
' ]lPqq
0.06
The maximum justifiable amount that can be paid'for the treated pole is
Capitalized cost = 666,666.67
P 1,559.50.
.'. The capitalized cost is P 666,666.67.

A granite quarry purchased for P 1,600,000 is expected to be exhausted at the

end of 4 years. lf the resale value of the land is P 100,000, what annual income
An untreated electrical wooden pole that will last 10 years under a ce(ain soil
is required to yield an investment rate of 12%o? Use a sinking fund rate of 3%.
condition, costs P 1,200.00. lf a treated pole will last for 20 years, what is the
maximum justifiable amount that can be paid for the treated pole, if the maximum
return on investment is 12o/o. Consider annual taxes and insurance amount to be
A. P 550,540.57
1 % of the first cost.
B. P 550,540.57
c. P 550,540.57
A. P 1,612.01
D. P 550,540.57
B. P 1,559.50
c. P 1,789.23 92b.".
D. P 1,409.38
Using sinking fund method in computing depreciation
,V./,ir,rn

FOR UNTREATED POLE:

Annuat
"o.1
= $5f") I + co(i)+ o.c.
Using sinking fund method in computing depreciation ftt.i[ -t1
254 Questiou Bank - Engineering Economics by Jaime R. Tiorrg ()npil,alizod Oost & Annual Cost 255

(1,600,ooo -1 00,000)(0.03) where: Q = discharge in cublc meter / second

,Annual cost = + (1,600,000X0.12)

[{r*o.os)'-r] or = density of water = 9810 +

Annual cost = 550,540.57 E = head in meters

For an assufance of rate of return of 12o/o,lhe one used in computing For full load operation, efficiency = 7Oolo
annual cost, the annual income must be equal to annual cost.
(e'810x43)
Annual income = Annual cost P_ 4s.5
3,600 0.70
Annual income = 550,540.57
P= 7,616.375 watts
.'. The annual income required is P 550,540.57. P= 7.6'16375 kw

cost of power = (7.616375 rw1[2a hours][tso oavs)rE!)

'( day /1. yeat./l.tw-nr/
An ice plant owner decided to install a water pump from a nearby clean fresh Cost.of.power = P 57,579.80 per year
water source to supply its water requirements. The capacity of the pump is 45.5
cubic meters per hour against a head of 43 m with an efficiency of 70% at full For half load operation, efficiency = 40yo
load an 40% al half load. The total cost of pumping unit including the piping
system to the plant is P 700,000 with zero salvage value at the end of its 45.5 (e,810X43)-
' _- 3,600 o4o
1
estimated life of 20 years. The prime mover of the pump is an electric motor and D
cost of power is P 2.10 per kw-hr. Taxes, insurance and maintenance cost is
^z
1.5% of the first cost per year. The pump will operate 200 days continuous P = 6,664.328 watts
operation per year at half load and 150 days at full load. lf the cost of money is P = 6.664328 kw
12o/o, how much will it cost the owner to operate the pump per cubic meter?

A. P 0.84 cost of power = (6,664.328 my[24 hours )[ zoo oavs )f - P2' 10

B. P 0.20 '( day /( year /(kw-hr/)
c. P 1.15 Cost of pow€r = P 67,'1 70.60 per year
D. P 1.35
Total cost of power = 57,579.80 + 67,170.60
9"2a... Total cost of power = 124,75O.4O
Using sinking fund method in computing depreciation
Solving for operating cost;

-9") I + co(i)+ o.c + Eq.1 O.C. = 1 24,7 50.40 + 0.0 1 5(7OO,O0O)

Annuar = Ico
"or1
f(t+i)" -t.l o.c. = 135,250.40
Analyzing operating cost, O.C.
Substituting values in Eq. 1

Operating cost = cost of power + cost of taxes, insurance and maintenance

Annuar cost = + (700,000)(0 .12) + 13s,2s0.40
Solving for cost of power:

Annual cost
tffiffi
P=QorE, = 228,965.546

Solving for the cost per cubic meter:

256 Question Bank - Engineering Economics by Jaime R. Tiong Oepitalizod Cost & Annual Coet 257

Let V = total volume pumped per year

Annualcost = 2,716.67
V = volume during full load + volume during half load
For Machine B:
( +s.sm')(z+nours)(rSodavs\ / t \(+s.sm3'\(z+nours\t. 200davs'l
]t v..-1.[zJ[ n' ]t *, ll.-y;)
Annual cost = depreciation + interest of first cost + operating cost
'=[--.](. d,y
a^ - vn
vo
., _ 273,000 m3
Annual cost = + c^i + o.c.
year n"
(20.000 - 6.000)
Therefore,
Annual cost =
---G-+(20,000)(0.08)+350
Annualcost = 4,283.33
228.965.546 P0.839
273,000 m3 Difference = 4,283.33 -2,716.67
Difference = 1,566.66
.'. The cost to operate the pump is 84 centavos per cubic meter.
.'. The machine to choose is machine A and the difference of annual costs
is P 1,566.66.

Make an economic analysis to determine which of the following two machines

capable of performing the same task in a given amount of time, should be
purchased. The minimum attractive return is 8%. A decision by the supervising mechanical engineer must be made whether to
replace a certain engine with a new one or to rebore the cylinders of the old
Machine A Machine B engine and thoroughly recondition it. The original cost of the engine 10 years ago
First cost P 10.000 P 20.000 was P70,000, to rebore and recondition it now will cost P 28,000 but would
Estimated life 6 years 14 vears extend its useful life for 5 years. A new engine will have a first cost of P 62,000
Salvaqe value 0 P 6,000 and will have an estimated life of 10 years. lt is expected that the annual costs of
Annual maintenance P 250 P 300 fuel and lubricants with the reconditioned engine will be about P 20,000 and this
cost will be 15% less with the new engine. lt is also believed that repairs will be P
Basing on annual cost, using straight line method of computing depreciation, 2,500 a year less with the new engine than with the reconditioned one. Assume
determine which machine you would choose and how much is the difference in that neither engine has any salvage value when retired. lf money is worth 10%,
its annual cost? how much money is saved each year if the old engine will be replaced?

A. Machine B, P 1,205.06 A. P 2,796.12

B. Machine B, P 1,566.67 B. P 2,123.45
C. Machine A, P 1,205.06 c. P 2,340.12
D. Machine A, P 1566.67 D. P 2,555.30

,'%h-.
Compare annual cost of either engine.
For Machine A:
For reconditioned engine:
Annual cost: depreciation + interest of first cost + operating cost
Using sinking fund method in computing depreciation
to tn
Annual cost = * coi + o.c.
-n (c^ -c-) i
(10.000 - 0) Annual cost = +O.C.
Annuat cost = #+(10,000)(0.08)+2S0 [(t. i)" - t]
6

-+C^i
258 Question Bank - Engineering Economics by Jaime R. Tiong
Capitalized Cost & Annual
(?8'000 0)-(0'1-0) Cost 259
Annuat cost = + (28,000)(0.10)+ (20,000 + 2,500) Using sinking fund method
in computing depreciation
ftr.o rof -rl
Annual cost = 29,886.33 Annual
^rrrru'rr uosl
cost = '(C" -C ) i
+o'c'
For new engine: FE+coi
$2,ooo _z
,2oo)(0.2o)
Using sinking fund method in computing depreciation
Annuat cost = ,
+ (52'000)(0 20) + (8'300
+ 27
'600)

Annuar =
jco - c") I + c^i + o.c.
Annuar cosr = .rl;',o"T-
"o.,
[{t.i)" -t 1
For diesel driven unit:
(9''ooo - o)(o'10)
Annuat
rr ruar = + (62' 000)(0' 1 0) + (20' 000)(0'85) Using sinking fund method
^r """'
"o., 0)fi-T in computing depreciation
I;;r
Annual cost = 27,090.21 Annual wo'(
cost = lco -C,) i

Difference = 29,886.33 -22,090.2i fGf-f+coi+oc'

Difference = 2,796.12 (98,_250 _ 1i,9oo)(0.20)
Annuat cost = + (e8'250)(0'20) + (5'800
ffr. ozol'o_l-
+ 18,800)
.'. The amount that witl be saved each year is the old engine is replaced
with a new one is P 2,796.12. Annualcost = 47,576.44

Solving for the difference:

' Excel Review Center is considering the purchase of a generating set to Difference = 52,320.21 _
47,S7 6.44
the electrical needs during brown outs. Difference = 4,243.22

The first offer he received is for a gasoline driven unit with an estimated life span
of 5 years and would cost the review center p 52,000. The annual maintenance ]ff ,1i:::llffi,U:5;"" ffiJ#;,,"f ", p 4,7 43 7 t c hea pe r tha n the
cost is estimated to be P 8,300, annual operating cost would be p 27,600 and
salvage value would be P 7,200. The second offer the review center received is
for a diesel engine driven unit with an estimated life span of l0 years. Annual
maintenance cost is P 5,800, annual operating cost is p 1g,goo and with salvage
value of P 1 1,900. The price of the unit is 98,250. sewa ge havin g .or"

How much cheaper is the annual cost of the diesel driven unit than the gasoline
"orro"r]h
crete, cast iron and steel.
Because of
-r 'J^^^ ^!,,
driven unit?

A. P 4,612.04
B. P 4,743.77
c. P 4,490.12
D. P 4,500j2

For gasoline driven unit:

q,,v vqDr rrun ptpe nave
____---.ljv the same annual costs.

/
260 Question Bank - -Ungineering Econotttit:s bv Jairne ll. 'liong

,7Lr,"- Question Bank 9

Compare annual cost of the three bids

For reinforced concrete PiPe:

Using sinking fund method in computing depreciation

Annuat cost = Jt' -:") I +coi+o.c.

ftr*i)'-t1 A manufacturer produces certain items at a labor cost per unit of p 315, material
cost per unit is P100, variable cost of P 3.00 each. lf the item has.a selling price of
P 995, how many units must be manufactured each month for the rnanufacturer to
Annuatcost = +(770,000)(0.05)+900
breakeven if the monthly overhead is P 461 ,600?

Annual cost = 40,417.64 A. 782

B. 800
c. 806
For cast iron piPe:

Using sinking fund method in computing depreciation ,7"2a,

Annuat cost : Itt -:") I + coi+ o.c Let x = number of units to be manufactured per month to break-even

ftt*i)" -t1 Material cost = 100x

(190 000 0)-(0'0-5) Labor cost = 315x
Annuar cosr = + (790,000)(0.05) + 600 Variable cost = 3x
[(t*o.os)" -t.] Total expensss = (100x + 315x + 3x) + 461,500
Annual e,ost = 40,402.68 Total expenses = 418x + 461,600

For steel piPe:

Using sinking fund method in computing depreciation

Annuar cost = f+"! + coi+ o.c.

[(t*i)'-t1 577x = 461,600

x=800
Annuatcost = +(580,000)(0,05)+3,600
.'. The number of units to be manufactured each month to breakeven is
Annual cost = 35,370.51 800 units.

The steel pipe has the least annual cost.

262 Question Bank - Engineering Economics by Jaime R. Tiong
Break-evenAnalysis 263
Expenses = 1 1Sx + 76x + 2.32x +42g,OOO
The annual maintenance cost of a machine shop is p 69,994:rf Expenses = .1g3.32x + 42g,O0O
the cost of
making a forging is p 56 per unit and its selling price is n f SS pei
the number of units to be forged to break_evei.'
fpffi unit, flnd To breakeven:
lncome = Expenses
A. 892
B. 870 600x=j93.32x+42g,000
c. 886 406.68x = 428,000
D. 862 x = 1,052.42 r 1,053 units
'. of units to be manufactured each
,tEJXXlfr month to breakeven !s

Let: x = number of units to be forged to break even

lncome = 135x
Expenses=69,994+S6x Steel yearly fixed operating cost of
drum produce and sells $ 200. What
$ 200,000.
- Each
To breakeven; manu
manU.--.-,-, e vreo^-Eve, sales volume
i" dr.;;;::;;
is the
lncome = Expenses
135x=69,994+56x A. 5,031
79x = 69,994 B. 5,0,17
x = 886 units c. 5,043
D. 5,000
.'. The number of units to be forged to breakeven is gg6 units.

Let: x = number of drums to be sold

out per year to breakeven
A manufacturer produces certain items at a labor cost of p 1 15 lncome = Expenses
each, material 200x=200,000+160x
cost of P 76 each and variabre cost of p2.32 each. rf the item
has a unit price of
P600, how many units must be manufactured each month tor 40x = 200,000
tn" ,anuticiiiel to x = 5,000 drums
break even if the monthly overhead is p 42g,000.

A. 1,033 "'
The number of drums to be sord
each year to breakeven is 5,000
drums.
B. 1,037
c. 1,043
D. 1,053
kcases that sell for p 65.00 each.
lt costs
to operate its plant. This sum inclules
rent,
,#il"ii,"^11[?,1ffi ;
Let: x = number of units to be manufactured per month to breakeven 11_oe"**,;;fii;o:#,x,;"JlUi"i;,;y.ffi
Ttoid taking a loss?
lncome = 600x
Expenses:
Labor = 115x
Materials = 76x
Variable = 2.32x
Overhead = 428,000
9;2r.,..

II
264 Question Bank - Engineering Economics by Jaime R. f iong Broak'cven Analysis 265

To avoid taking loss means that the minimum production must be enough to Let: x = number of units to be forged to breakeven
breakeven.
lncome = Expenses
Let; x = number of cases to be sold each year to breakeven 125x=56x+70,000
lncome = Expenses 69x = 70,000
65x=50x+35,000 x = 1,014.49 units e 1,015 units
15x = 35,000
x = 2,333.33 cases ! 2,334 cases The number of units to be forged to breakeven is 1,015.

.'. The number of cases to be sold each year to breakeven is 2,334.

A manufacturing firm maintains one product assembly line to produce signal

generators. Weekly demand for the generators is 35 units. The line oper-ates for
A company which manufactures electric motors has a production capacity of 200 7 hours per day, 5 days per week. What is the maximum production time per unit
motors a month. The variable costs are p 150.00 per motor. The average selling in hours required of the line to meet the demand?
price of the motors is P 275.00. Fixed costs of the company amount to p zo,ooo
per month which includes taxes. Find the number of motors that must be sold A. 1.0 hour per unit
each month to breakeven. B. 1.2 hours per unit
C. 1.4 hours per unit
A. 160 D. 1.6 hours per unit
B. 157
c. 153
,(y'.Z,,/*,,
D. 163

Let x = number of hours to produce 1 unit

v-l-ll-
/ lweek )/ Sdavs\(Thours)
ll-l
Let: x = number of motors to be sold each month to breakeven
\35units/\ week /\ day )
lncome = Expenses x = t hour per unit

275x= 150x + 20,000 .'. The maximum production time is t hour per unit.
125x = 20,000
x = 160 motors

.'. The number of motors to be sold each month to breakeven is 160.

Compute for the number of blocks that an ice plant must be able to sell per
month to break even based on the following data;

Cost of electricity per block - P 20.00

The annual maintenance cost of a machine is p 70,000. lf the cost of making a Tax to be paid per block - P 2.00
forging is P 56 and its selling price is p 125 per forged unit. Find the numbeiof Real Estate Tax - P 3,500.00 per month
units to be forged to break even. Salaries and Wages - P 25,000.00 per month
Others - P 12,000.00 per month
A. 1,000 Selling price of ice - P 55.00 per block
B. 1,O12
c. 1,015 A. 1.220
D. 1,018 B. 1,224
c. 1,228
.72,*,, D. 1,302
266 Question Bank - Engineering Economics by Jaime R. Tiong l}roak'even Analysis 267

.7'/u,,,,, ... The number of units to be producod and sold per month to breakeven is
120.
Let: x = number of blocks to be sold per month to breakeven

lncome = 55x

Expenses:
ElectricitY = 20x
Tax =2x
Fixed charges = 3,500 + 25,000 i tZ,OOO = 40,500

To breakeven:
A. 100
lncome = Expenses
B. 104
55x=20x+2x+40,500 C. 110
33x = 40,500
D. 112
x = 1,227 .3 blocks s 1 ,228 blocks

,'. The number of blocks to sel! per month to breafieven is 1,22g. ,92d,.,
Let x = number of motors to produce per month to break-even

Expenses=4000+78,000
JRT lndustries manufactures automatic voltage regulators at a labor cost of
Expenses = 82,000
P85.00 per unit and materi fixed charges on the
business are P 15,000 per e p 20.00 [er unit. lf lncome = 750x
the automatic voltage regu g0.00 each, how many
units must be produced an
To break-even,
lncome = Expenses
A. 120
B. 124
750x = 82,000
c. 128
D. 130 x=109.33*1'10 units

... The number of motors to produce each month to breakeven is 110.

.VZ,./,r,,.

Let: x = number of units to be produced per month to breakeven

lncome = 580x

Expenses:
Labor = 85x
Materials = 350x
Variable = 20x
Fixed charges = 15,000
A. 1,000 feet
To breakeven: B. 1,040 feet
lncome = Expenses C. 1,100 feet
580x = 85x + 350x + 20x+ 15,000 D. 1,120 feet
125x= 15,000
x = 120 units .V"Z*,*.
268 Question Bank - Engineering gconomics by Jaime R. Tiong
Break-evenAnalysis 269
For enameled wire: To breakeven,
lncome = Expenses
Let x = length of wire
1800x = 1,000x + 38,333.33
Cost of wire = 0.55x
800x = 38,333.33
Cost of soldering = '1.65(a00) = ggg
x = 47.92: 4Sunits
Total cost = 0.5Sx + 660
lf 200 units are produced per month, there wiil be profit since
it needs onry
For tinned wire: 48 units to break-even.

Let x = length of wire Solving for profit:

Cost of wire = 0.75x lncome = 200(1,800) = 360,000

Cost of soldering = 1.15(400) = 460
Total cost = 0.75x + 460 Expenses = 1,000(200) + 3g,333.33
Expenses = 238,333.33
ln order to get the rength of wire that wiil give the same cost,
equate totar
cost of enameled wire and total cost of tirined wire. Profit = lncome - Expenses
Profit = 360,000 - 238,333.33
0.55x+660=9.75r*460 Profit = 121,666.61
0.2x=200
.'. There is a profit of p 121,666.67..
x = 1,000

The length of cable to make cost of installation the same

is i,000 feet.
Nike shoes manufacturer produces a pair of Air Jordan shoes at
a labor cost of p
900.00 a pair and a material cost of p B0O.O0 a pair. The fixeri charoes.an
the
nth and the variaLle cos pair.
A local factory assembring carcurators produces 400 units per month 1,000 per pair of shoes
and sefls sell at
them at P 1,800 each. Dividends are 8% on the 8,000 snaiei wrn paivarue p must be produced each
ot
250 each. fp !1eO operating cost per month is p 2O,OOO. Other 6sts are p
'1
,000 per unit. lf 200 units weie produced per month, oetermine tne piont
or toss.
A. 2,590
A. Profit of P 121,666.67 B. 2,632
B. Profit of P 21,666.67 c. 2,712
C. Loss of P 121,666.67 D. 2,890
D. Loss of P 21,666.67
VZa-
Let x = number of pairs of shoes produced each month to break_even
Let x = number ofcalculators produced per month to break_even
Expenses = 900x + 800x + 400x + 1,000x + 5,OO0,O0O
Expenses = 3,1 00x + 5,0OO,OOO
Expenses = 1,000x + 2S,OOO + g,000(250)
(H)
Expenses = 1,000x + 38,333.33
lncome = 5,000x

To break-even,
lncome = 1,800x
lncome = Expenses

,iI
270 Question Bank - Engineering Economics by Jaime R. Tiong Break'evenAnalyeis 271

5,000x = 3,100x + 5,000,000

0.75n = 0.0417n + 0.50n + 2000
1,900x = 5,000,000
0.75n=0.5417n+2000
x = 2,631 .6 x 2,632 pairs of Air Jordan Shoes
0.2083n = 2000
.'. The number of pairs of Air Jordan shoes to produce each month to n = 9601.54 holes
breakeven is 2,632.
Sayn=9601 holes

The number of rivet holes for the multiple-punch machine to pay for
itself is 9,601.

minute. This method requires P0.50 per holes to set multiple punch machine and
an installation cost of P 2,000.00. lf all other costs are the same, for what number
of rivet holes will the multiple punch machine pay for itself?
'
A new Civil Engineer produces a certain construclion material at a labor cost of P
16.20 per piece, material cost of P 38.50 per piece and variable cost of P 7.4O per
piece. The fixed charge on the business is P 100,000.00 per month. lf he sells the
hnished product at P 95.00 each, how many pieces must be manufactured in eacl"
month to breakeven?

A. 9,601 A. 3,045
B. 9,592 B. 3,035
c. 9,581 c. 3,030
D. 9,566 D. 3,040

,V"z:ro,-. 9"2*""
Using first method, the Drill Press: Let x = number of pieces to be manufactured per month to breakeven

20:25 lncome = 95.00x

Cost of machinist per hole -
27
Cost of machinist per hole = 0.75 Expenses:
Labor = 16.20x
Using the second method, the Multiple punch Machine: Materials = 38.50x
Variable = 7.40x
Fixed charges = 100,000
Cost of machinist per hole = 8(60)
1-0--
=
To breakeven:
Cost of machinist per hole = 0.0417
lncome = Expenses
Additional cost for setting up th€ machine per hole = 0.50 95.00x = 16.20x + 38.50x + 7.40x+ 100,000
32.90x = 100,000
lnstallation cost = 2,000.00 x = 3039.5 say 3040 Pieces

Let n = number of rivets holes that will make the multiple punch machine The number of pieces to be manufactured each month to breakeven is
pay for itself
3,040.
\
Total cost using drill pr€SS = total cost using multiple puhph machine

\
 272 Question Bank - Engineering Economics by Jaime R. Tiong Break'evenAnalyeie 273

To breakeven,
n Transmission Co nt lncome = Expenses
ume is 500,000 uni 50) O.Sx = 80,000
Fixed expenses tot
a year? x = 160,000

A. P 168,000 The breakeven point is 160,000 units.

B. P 170,000
c. P 172,000
D. P 174,000
Pro&ction
pacity due to
portation of their
Solving for the total profit, P: costs are P
'l9O,0OO.O0 and variable costs are P 0.348 per unit. What is the current profit or
500,000 units P0.50 loss?
tncome year
x --
A. P 87,450
lncome = P250,000 B. P 88,960
c. P 88,450
Expenses = P80,000 D. P 87,960

Profit = lncome - Expenses ,7o/,sru.,..

Profit=250,000-80,000
Profit = 170,000
Solving for the current profit or loss:
.'. The present total profit is P 170,000.
Pr oduction : 0.62(700,000)
Production = €a,000

nsm sent rotat expens"r units)+ 1eo,ooo

s 50 O.SO)
= (ffi)(+s+,ooo
exp
Total expenses = 341,032
nt in

A. 160,000 Total income = 430,000

B. 162,000
c. 165,000 Pr qfit = total income - total expense
D. 170,000 Profit= 430,000 -341032
Profit = 88,960
.V./,:,r,r,,
.'. The current profit is P 88,960.
Let x = number of units produced to breakeven

lncome = 0.5x

Expenses = 80,000
274 Question Bank - Engineering Economics by Jaime R. Tiong I It'r'it k-rrvt'tt nnrilrll\ -275

At .,af
ation of an automobile part with a production A certain firm has the capacity to produce 650,000 units of product perl''
ear is only operating at62% of capacity due to present, it is operating al62% capacity. The firm's annual income is. . ,sts"r"
foreign currency to finance the importation of their P4,160,000.00. Annual fixed costs are P 1 920,000.00 and the variableni
me is P 430,000.00. Annual fixed costs are equal to P 3.56 per unit of product. What is the firm's annual profit or lo5)
P190,000.00 and variable costs are P 0.348 per unit. what is the breakeven
point? A. P 814,320
B. P 815,230
A. 294,560 c. P 816,567
B. 291,000 D. P 817.239
c. 290,780
D. 295,490
,%,n -.
.7;/)zr-. Pr oduction = 0.62(650,000)
Let x = number of units to breakeven
Production = 403,000
Solving for the expenses:
Total expenses = 1,920,000 + 3.56(403,000)
Variable cost = 0.348x Total expenses = 3,354,680
Fixed cost = 190,000
Total Income = 4, 1 69,000
Solving for the income:

Pr oduction = O.OZIzOO,OOO; Pr ofit = total income - total expenses

Production = 434,000 Profit = 4,169,000 - 3,354,680

Profit = 814,320
s+a)1oao,ooo
Totat expens"" = [0unrt units)+190,000
/ .'. The firm's annual profit is P 814,320.
\ ,\
Tqtal expenses = 341,032
,re?r.
Totalincome = 430,000 At
A certain firm has the capacity to produce 650,000 units of product peil
is op . The flrm's annual income is c0!
p r,gzo,oo'o.oo are
settins prics
0.00. in"
""0does ""ti"5;ec0sls
= i:9'999 = o.es1 per unit 3.56 at volume of sales the firdl
434,}Uo
breakeven?
Total income = 0.99x
A. P 3,354,680
To breakeven:
B. P 3,534,880
c. P 3,155,690

lncome: Expenses
D. P 3,254,680
__-
0.991x = 0.348x + 1 90,000
0.643x = 190,000 Solving for the flrm's annual profit or loss:
x = 295,490
Pr oduction = 0.62(650, 000)
The current breakeven point is 295,490. Pr oduction = 403,000
 Brenk'ovon Analyeis 277
276 Question Bank - Engineering Economics by Jaime R. Tiong
.'. The number of thresherg to be produced and sold annually to
Total expenses = 1,920,0Q + 3.56(403,000) breakeven is 25.
Total expenses : 3,354,680
\ \
Total income = 4,169,000 '\
The direct labor cost and material cost of a certain product are P 300 and P 400
ln as much as the total expenses is P3,354,680, then the volume of sales per unit, respectively. Fixed charges are P 100,000 per month and other variable
must be equal to this value in order breakeven. qosts are P 100 per unit. lf the product is sold at P 1,200 per unit, howmany
units must be produced and sold to breakeven?
Thus, volume of sales = P3,354,680
A. 280
.'. The firm's volume of sales to breakevpn is P 3,354,680. B. 250
c. 260
D. 270

A small shop in Bulacan fabricates threshers for palay producers in the locality.
The shop can produce each thresher at a labor cost of P1,800.00. The cost of
materials for each unit is P 2,500.00. The variable costs amounts to P 650.00 per Let x = number of units produced per month to breakeven
unit while fixed charges incurred per annum totals P 69,000.00. lf the portable
threshers are sold at P 7,800.00 per unit, how many units must be produced and Expenses:
sold per annum to breakeven? cost
Direct labor = 300x
Direct material cost = 400x
A. 28 Variablecost = 100x
B. 25 Fixed charges = 100,000
c. 26
D. 27 Total expenses = 300x + 400x + 100x + 100,000
Total expenses = 800x + 100,000
,7"22*^
Total income =1,200x
Let x = number of threshers produced and sold in 1 year
To breakeven:
Expenses: Total income = total expenses
Labdr cost = 1,800x
1,200x=800x+100,000
Materials cost = 2,500x
Variable cost'= 650x 400x = 100,000
Fixed charge = 69,000 x=25O
Total expenses = 1,800x + 2,500x + 650x + 69,000 .'. The number of units to be produced and sold monthly to breakeven is
Total expenses = 4,950x + 69,000 250.
Total income = 7,800x

To breakeven:

Total income =Total expenses

7,800x=4950x+69,000
2,850x = 69,000
x =24.2 say 25 threshers
278 Question Bank - Engincering Ilcouourir:s by Jairnc ll 'l'iorrg llrr'nk-cvon Analvsis 279

'-/nl,t;,,

The following data for year 2000 are drqllable for Cagayan Automotive Company
Let x = number of units produced per month to breakeven
which manufactures and sells a single arlto-motive product line:
Expenses:
Unit selling price ..... P 40.00
Unit variable cost ..... P 20.00
Labor cost = 230x
Material cost = 370x
Unit contribution margin ..... P 20.00
Variable cost = 10x
Total fixed costs ..... P 200,000.00
Fixed charges = 1,000,000
What is the breakeven point in units for the currentyear?
Total expenses = 230x + 370x + 10 x + 1,000,000
A. 10,000 Total expenses = 61 0x + 1,000,000
B. 10,100
c. 10,050 Total income = 750x
D. 10,200
To breakeven:
Total income = total expenses
Let x = number of units produced per month to breakeven 750x=610x+1,000,000
140x = 1,000,000
Expenses:
Variable cost = 2Ox
x=7,142.8 say 7,143 ynits
Fixed charges = 200,000
.'. The number of sets to produce per month to breakeven is 7,143.
Total expenses = 20x + 200,000

Total income = 40x

An item which can be sold for P 63.00 per unit wholesale is being produced with
To breakeven: the following coSt data:
Total income = totalexpenses
Labor cost = P 10.00 per unit
4Ox=2Ox+ 200,000
Material cost = P 15.00 per unit
20x = 200,000 Fixed charges = P 10,000.00
x = 10,000 Variable cost = P 8.00 per unit
.'. The breakeven point for the current year is 10,000. What is the breakeven point sales volume if one out of every 10 units produced is
defective and is rejected with only full recovery on materials?

A. P 25,011
The cost of producing a small transistor radio set consists of P 230.00 for labor B. P 25,111
and P 370.00 for material. The fixed charges in operating the plant is P c. P 25,121
1 ,000,000.00 per month The variable cost is P 10.00 per set. The radio set can D. P 25,132
be sold for P750.00 each. Determine how many sets must be produced per
month to break even.

Let x = number of units produced per month to breakeven

280 Question Bank - Engineering Economics by Jaime R. Tiong

Expenses:
Question Bank L0
Laborcost = 10x
Material cost = 15x
Variable cost = 8x ,/
Fixed charges = 10,990

Total expenses = 10x + 15x + 8 x + 10,000

A. Monopsony
Total expenses = 33x + 10,000 Post E(E Boord Exom B Oligopoly
The paper currency issued by the C Monopoly
Total income = 63x Central Bank which forms part of the D Oligopsony
country's money supply.
6. Post E(E Boord Exom
To breakeven: A. T-bills It is a series of equal payments
Total income = total expenses B. Bank note occurring at equal interval of time
63x=33x+10,000 C. Check where the first payment is made after
30x = 10,000
D. Coupon several periods, afterthe beginning of
the payment.
x = 333.33 say 334 units Post ECE Boord Exsm
Reduction in the level of national A. Perpetuity
Breakeven sates votume = [Pffi)(ss+ rnit")
income and output usually B. Ordinary annuity
\ unit /'
accompanied by the fall in the general
price level.
C. Annuity due
D. Deferred annuity
Breakeven sales volume --P4,042
A. Devaluation t. Posl lhE Boord Exom
lf 1 out of 10 (10%) is defective and rejected:
B. Deflation
The total income'equals the total
C lnflation
operating cost.
Number of units sold per month = 0.90x
D. Depreciation
A. Balanced Sheet
Total expenses = 10x + 15x +8 x + 10,000 - 15(0.10x)
Posl ME Boord Exom B. ln-place value
It is a series of equal payments C. Check and balance
Total expenses = 31.5x + 10,000 occurring at equal interval of time. D. Break even - no gain no loss

Total income = 63(0.90)x

A. Annuity 8. Post IllE Boord Exom
B. Debt Kind of obligation which has no
= 56.7x C. Amortization condition attached.
D. Deposit
To breakeven: A. Analytic
Posl illE Boord Exom B Pure
Total income = total expenses The place where buyers and sellers C. Gratuitous
56.7x = 31 .5x + 10,000
come together. D. Private
25.2x= 10,000 A. Market 9. Posl ftlE Boord Exonr
x = 396.8 say 397 B. Business
Direct labor costs incurred in the
C Recreation center
factory and direct material costs are
D. Buy and sell section
the costs of all materials that go into
Breakeven sates votume = (ffi)t nr r"*1 production. The sum of these two
Posr ECE Boqrd Exom direct costs is known as
A market whereby there is only one
Breakeven sales volume =P25,011
buyer of an item for which there are no A. GS and A expenses
The breakeven sales volume is P 25,011.00.
goods substitute. B. Operating and maintenance
costs
282 Question Bank - Engineering Economics by Jaime R. Tiong Mull;ipla Ohoico Test 283

C. Prime cost lf. Fost IilE Boord Exom D Depreciation 26. Porr E(E Boord Exom
D. OandMcosts A series of uniform accounts over an These are products or services that are
infinite period of time. 21. Posl lhE Bocrd Exom desired by human and will be
10. Posl tE Boord Exomm An association of two or more purchased if money is available after
An index of short tem paying ability is A Depreciation individuals for the purpose of operating the required necessities have been
called B Annuity a business as co-owners for profit. obtained.
c Perpetuity
A receivable turn-over D lnflation A. Sole proprietorship A. Utilities
B. profit margin ratio B. Company B . Necessities
C. current ratio I6. Posl tE Boord Exom C. Partnership C Luxuries
D. acid-test ratio The quantity of a certain commodity D. Corporation D. Product goods and services
that is offered for sale at a certain price
I I. Post ilE Boord lxom at a given place and time. 22. Posl ECE Boord Exom 27. Post ECE Boord Exom
An artificial expenses that spreads the We may classify an interest rate, which These are products or services that are
purchase price of an asset or another A. Demand specifies the actual rate of interest on required to support human life and
property over a number of years. B. Supply the principal for one year as activities, that will be purchased in
c. Stocks somewhat the same quantity even
A. Depreciation D. Goods A. nominal rate though the price varies considerably.
B. Sinking fund B. rate of return
C. Amnesty I7. Posl tE Boord Exom C. exact interest rate A. Utilities
D. Bond Work-in process is classified as D. effective rate B Necessities
C. Luxuries
12. Posl tlE Boord Exom A. an asset 23. Post E(E Boord Exom D. Product goods and services
Estimated value at the end of the B. a liability It is defined to be the capacity of a
useful life. c. an expenses commodity to satisfy human want. 28. Post ECE Boord Erom
D. an owner's equity A condition where only few individuals
A. Market value A. Discount produce a certain product and that any
B. Fair value 18. Post IllE Boord Exom B. Luxury action of one will lead to almost the
C. Salvage value What is the highest position in the G. Necessity same action of the others.
D. Book value corporation? D. Utility
A. Oligopoly
13. Post tlE Boord April Exom A. President 24. Post ECE Boord Exom B. Semi-monopoly
Consists of the actual counting or B. Board of Directors It is the amount which a willing buyer C. Monopoly
determination of the actual quantity of c. Chairman of the Board will pay to a willing seller for a property D. Perfect competition
the materials on hand as of a given D. Stockholders whbre each has equal advantage and
date. is under no compulsion to buy or sell. 29. Post ME Boord Exon
19. Posl tE Boord Exom Grand total of the assets and
A. Physical inventory Type of ownership in business where A. Fair value operational capability of a corporation.
B. Material update individuals exercise and enjoy the right B. Market value
C. Technological assessment in their own interest. C. Book value A. Authorized capital
D. Material count D. Salvage value B. lnvestment
A. Equitable C. Subscribed capital
14. Posl f,lE Boord Exom B Public 25. Posl E(E Boord Exom D. Money market
Additional information of prospective c Private This occurs in a situation where a
bidders on contract documents issued D. Pure commodity or service is supplied by a 30. Posl IIIE Boord Exom
prior to bidding date. number of vendors and there is nothing The worth of the property equals to the
20. Posl illE Boord Exom to prevent additional vendors entering original cost less depreciation.
A. Delict Decrease in the value of a physical the market.
B. Escalatory property due to the passage of time. A Scrap value
C. Technological assessment A. Perfect competition B Face value
D. Bid bulletin A. lnflation B. Oligopoly C. Market value
B. Depletion C. Monopoly D. Book value
c. Recession D. Elastic demand
284 Question Bank - Engineering Economice by Jaime R. Tiong Mult,iplo Choice Test 285
31. Posl tE Eoord Exom - - A---- profit margin
42. Qucrllon f7.Qucrtlon
Money paid for the use of borrowed B. gross margin A market situation where there are only The payment for the use of borrowed
capital. C. net income two buyers with many sellers. money is called
D. rate of return
A. Discount A. Duopoly A. loan
B. Credit 37. Posl tE
Boord Exom
B. Oligopoly B. maturity value
C. lnterest Worth of the property as shown in the C. Duopsony C. interest
D. Profit accounting records of an enterprise. D. Oligopsony D. principal

32. Post tE Boord Exom A. Fair value t[3. Queslion 48. Oueslion
Liquid assets such as cash and other B. Market value
The cumulative effect of elapsed time The interest rate at which the present
assets that can be converted quickly C. Salvage value
on the money value of an event, based work of the cash flow on a project is
into cash, such as accounts receivable D. Book value
on the earning power of equivalent zero ofthe interest earned by an
and merchandise are called invested funds capital should or will investment.
38. Posi tlE Boord [xom
earn.
A. total assets Those funds that are required to make A. Effective rate
B. fixed'assets the enterprise or project a going A. Present worth factor B. Nominal rate
C. current assets con@rn. B. lnterest rate C. Rate of return
D. none ofthe above C. Time value of money D. Yield
A. lnitial investment D. Yield
33.Posl tE Boord Exorn B. Current accounts 19. Question
The length of time which the property C. Woking capital ft[.Queslion The ratio of the interest payment to the
may be operated at a profit. D. Subscribed capital Defined as the future value minus the principal for a given unit of time and
present value. usually expressed as a percentage of
A. Physical life 39. Queslion
the principal.
B. Economic life A market situation where there is only A. lnterest
C. Operating life one seller with many buyer. B. Rate of return A. lnterest
D. All of the above C- Discount B. lnterest rate
A Monopoly D. Capital C. lnvestment
3f. Posr tE
Boord Exom B. Monopsony D. All of the above
The provision in the contract that C. Oligopoly 15. Question
indicates the possible adjustment of D. Oligopsony The flow back of profit plus 50. Oueslion
material cost and labor cost. depreciation from a given project is The true value of interest rate
tl0. Queslion called computed by equations for compound
A. Secondary clause A market situation where there are few interest for a 1 year period is known as
B. Escalatory clause sellers and few buyers. A. capital recovery
C. Cohtingency clause B. cash flow A. expected return
D. Main clause A. Oligopoly C. economic return B. interest
B. Oligopsony D. earning value C. norninal interest
35.Posr tlE Boord Exom C. Bilateral oligopoly D. effective interest
The present worth of all depreciation D. Bilateraloligopsony f5. 0ueslion
over the economic life of the item is The profit derived from a project or 51. Question
called {1. Queslion business enterprisg without The intangible item of value from the
A market situation where there is one consideration of obligations to financial exclusive right of a company to provide
A. book value seller and one buyer. contributors or claims of other based a specific product or service in a stated
B. capital recovery on profit. region of the country.
C. depreciation recovery A. Monopoly
D. sinking fund B Monopsony A. Economic return A. Market value
C. Bilateral monopoly B. Yield B. Book value
36. Post tlE Boord Exsm D. Bilateral monopsony C. Earning value C. Goodwill value
Gross profrt, sales less cost of goods D. Expected yield D. Franchise value
sold, as a percentage of sales is called
286 Question Bank - Engineering Economics by Jaime R. Tiong Multiple Choice Test 287

52. Oueslion A. Ordinary annuity 62. Questlon C Declining balance method

The recorded current value of an asset B. Annuity due A mathematical expression also known D SYD method
is known as c. Deferred annuity as the present value of an annuity of
D. Perpetuity one is called 67. 0ueslion
A. scrap value Which of the following depreciation
B. salvage value 58. Ouestion A. load factor methods cannot have a salvage value
C. book value It is a series of equal payments B. demand factor o'f zero?
D. present worth occurring at equal intervals of time c. sinking fund factor
where the first payment is made after D. present worth factor A. Declining balance method
53. Queslion several periods, after the beginning of B. Sinking fund method
Scrap value of an asset is sometimes the payment. 63. Queslion C. Straight line method
known as As applied to a capitalized asset, the D. SYD method
A. Deferred annuity distribution of the initial cost by a
A. book value B. Delayed annuity periodic changes to operation as in 68. Question
B. salvage value c. Progressive annuity depreciation or the reduction of a debt A method of depreciation where a fixed
C. replacement value D. Simple annuity by either periodic or irregular sum of money is regularly deposited at
D. future value prearranged program is called compound interest in a real or
59.Question imaginary fund in order to accumulate
51.Ouestion A type of annuity where the payments A annuity an amount equal to the total
What is sometimes called second hand are made at the start of each period, B. capital recovery depreciation of an asset at the end of
value? beginning from the first period. c. annuity factor the asset's estimated life.
D. amortization
A. Scrap value A. Ordinary annuity A. Straight line method
B. Salvage value B. Aniruity due 6f. Queslion B. Sinking fund rnethod
C. Book value c. Deferred annuity The reduction ofthe value of an asset C. Declining balance method
D. Going value D. Perpetuity due to crnstant use and passage of D SYD method
time
55. Queslion 60. Oueslion 69. Question
An intangible value which is actually Which is NOT an essential element of A. Scrap value The function of.interest rate and time
operating concern has due to its an ordinary annuity? B. Depletion that determines the cumulative amount
operation. C. Depreciation of a sinking fund resulting from specific
A. The amounts of all payments are D. Book value periodic deposits.
A. Book value equal.
B. Fair value B. The payments are made at equal 65. Queslion A. Sinking fund factor
C. Goodwill value interval of time A method of computing depreciation in B. Present worth factor
D. Going value c. The first payment is made at the which the annual charge is a fixed C. Capacity factor
beginning of each period. percentage ofthe depreciated book D. Demand factor
56.Question D. Compound interest is paid on all value at the beginning of the year to
The value which a disinterested third amounts in the annuity. which the depreciation applies. 70. Queslion
party, different from the buyer and The first cost of any property includes
seller, will determine in order to 61. Queslion A. Sfaight line method
establish a price acceptable to both A is a periodic payment and I is the B. Sinking fund method A. the original purchase price and
parties. interest rate, then present worth of a c. SYD method freight and transportation
perpetuity = D. Declining balance method charges
A. Market valu B. installationexpenses
B. Goodwill value A. Ai 65. Queslion C. initial taxes and permits fee
c. Fair value B. AiN A method of depreciation whereby the D. all of the above
D. Franchise vblue c. An/ amount to recover is spread uniformly
D. Ni over the estimated life of the asset in Tl.Oueslion
57. Question terms of the periods or units of output. ln SYD method, the sum of years digit
is calculated using which formula with
are made at the end ofeach payment A Straight line method n = number of useful years ofthe
period starting from the first period. B Sinking fund method equipment.
288 Question Bank Engineering Economics by Jaime R. Tiong Mult,iplo Choico Test 289
-
n(n -1) 76. Queslion 81. Oucrtion A. Dividend
"
n.
2 A distinct legal entity which can Which is TRUE about PartnershiP? B. Return
practically transact any business C. Share stock
o
o.t
n(n+1)
transaction which a real person could A. lt has a PerPetual life. D. Par value
2
C. do. B. lt will be desolved if one of the
n(n +1)
partners ceases to be connected 86. 0uestion
D. n(n -1) A. Sole proprietorship with the PartnershiP. A certificate of indebtness of a
B. Enterprise C. lt can be handed down from one corporation usually for a period not less
72. Queslion C. Partnership generation of Partners to than '10 years and guaranteed bY a
Capitalized cost of any property is D. Corporation another. mortgage on certain assets of the
equal to the D. lts capitalization must be equal corporation.
77.Question for each Partner.
A. annual cost Double taxation is a disadvantage of A. Bond
B. first cost + interest of the first which business organization? 82.-Queslion B. T-bill
cost Which is TRUE about corporation? C. Preferred stock
C. first cost + cost ofperpetual A. Sole proprietorship
D. Common stock
maintenance B. Partnership A. lt is the not best form of business
D. first cost + salvage value C. Corporation organization. 87. Queslion
D. Enterprise B The minimum number of A form of fixed-interest security issued
73. Ouestion incorPorators to start a by central or local governments,
The lessening ofthe value ofan asset 78. Question corPoration is three. companies, banks or other institutions.
due to the decrease in the quantity Which is NOT a type of business C. lts life is dependent on the lives They are usually a form of long-term
available (referring to the natural organization? of the incorPorators. security, buY maY be irredeemable,
resources, coal, oil, etc). D. The stockholders of the secured or unsecured
A. Sole proprietorship corPoration are onlY liable to the
A.
A. Depreciation B. Corporation extent of their investments.
B.
Bonds
B. Depletion C. Enterprise
C.
T-bills
C. lnflation D. Partnership 83. Ouestion
D
Certificate of dePosit
All of these
Represent ownershiP, and enjoYs
79. Queslion certain Preferences than ordinary
What is the minimum number of stock. 88. Queslion
incorporators in order that a A type of bond where the corporation
corporation be organized? A. Authorized capital stock pledges securities which it owns (i.e.
B. Preferred stock stocks, bonds of its subsidiaries).
4.3 C. Common stock
A
B. Partnership i
B.5 D. lncorporator's stock
B.
Mortgage bond
C. Enterprise c. 10 Registered bond
D. Corporation D.7 84. Queslion "C
D.
CouPon bond
Collateral trust bond
Represent the ownershiP of
75. Question 80. Ouestion stockholders who have a residual claim
An association of two or more persons I ln case of bankruptcy of a partnership, on the assets ofthe corporation after 89. Question
for a purpose ofengaging in a all other claims have been settled. A type of bond which does not have
profitable business. A the partners are not liable for the security except a promise to pay by the
liabilities of the partnership. A. Authorized caPital stock issuing corPoration.
A. Sole proprietorship B the partnership assets (excluding B. Preferred stock
B. Enterprise the partners personal assets) C. lncorPorators stock A. Mortgage bond
C. Partnership only will be used to pay the D. Common stock B. Register bond
D. Corporation liabilities. C. Collateral trust bond
the partners personal assets are 85. Question D. Debenture bond
attached to the debt of the The amount of comPanY's Profits that
partnership the board of directors of the
D the partners may sell stock to corporation decides to distribute to
generate additional capital. ordinary shareholders.
I

290 Question Bank Multiple ()hoice'l'est 291

- Engineering Econornics by Jaime R. Tiong

90. 0uestion A 4 years B. lnvestment in subsidiarY 106. Oucrtion

A type of bond issued jointly by two or B 5 years companles It denotes the fall in the exchange rate
more corporations. C 6 years C. Furnitures of one currency in terms of others The
D 7 years D. Patents term usuallY aPPlies to floating
A. Joint bond exchange rates.
B. Debenture bond 96.'Question l0I. Queslion
C. Registered bond fhe 72 rule of thumb is used to Lands, buildings, plant and machinery A. CurrencYaPPreciation
D. Collateral trust bond determine are examples of B. CurrencYdevaluation
C. CurrencY float
91. Question A. how many years money wlll triple A. current assets D. CurrencYdePreciation
A type of bond whose guaranty is in B. hew many years money will B. trade investments
lien on railroad equipments. dquble C. fixed assets 107. 0ueslion
C. how many years to amass 1 D. intangible assets The deliberate lowering of the price of
A. Equipment obligations bond million a nation's currency in terms of the
B. Debenture bond D. how many years to quadruple the 102. Oueslion accepted standard (Gold, American
C. Registered bond money An increase in the value of a capital dollar or the British Pound).
O. lnfrastructure bond asset is called.
97. Question A. CurrencY aPPreciation
92. Question To triple the principal, one musl,rse A. Profit B. CurrencY float
lf the security of the bond is a B. caPital gain C. CurrencY devaluation
mortgage on certain specified asset of A. integration C. caPital exPenditure D. CurrencYdePreciation
a corporation, this bond is classified as B. derivatives D. capital stock
C. logarithms 108. Queslion
A. registered bond D. implicit functions 103. 0ueslion The residual value of a comPany's
B. mortgage bond The reduction in the money value of a assets after all outside liabilities
C. coupon bond 98. Queslion capital asset is called (shareholders excluded) have been
D. joint bond A currency traded in a foreign allowed for.
exchange market for which the A. capital exPenditure
93. Queslion demand is consistently high in relation B. caPital loss A. Dividend
. A type of bond where the corporation's to its supply C. loss B. Equity
owners name are recorded and the D. deficit C. Return
interest is paid periodically to the A. Money mprket D. Par value
owners with their asking for it. B. Hard currency 104. 0uestion
C. Treasury bill It is a negotiable claim issued bY a 109. Question
A Registered bond D. Certificate of deposit bank in lieu of a term dePosit. A saving which takes Place because
B. Preferred bond goods are not available for
C. lncorporators bond 99. Queslion A. Time dePosit consumption rather than the consumer
D. All of these Everything a company owns and which B. Bond really want to save.
l
has a money value is classified as an C. CaPital gain
9tl. Question asset. Which of the following is" D. Certificate of dePosit A. ComPulsory saving
Bond to which are attached coupons classified as an asset? B. Consumer saving
indicating the interest due and the date 105. Queslion C. Forced saving
when such interest is to be paid. A. lntangible assets Any particular raw material or primary D. All of these
B. Fixed assets product (e.9. cloth, wool, flour,
A. Registered bond C. Trade investments coffee...) is called ll0. Question
B. Coupon bond D. All of these A document that shows proof of legal
C. Mortgage bond A. utility ownershiP of a financial securitY.
D. Gollateral trust bond 100. Queslion B. necessitY
Which an example of an intangible C. commoditY A. Bond
.95. Question ASSCT? D. stock B. Bank note
An amount of money invested at 12o/o
C. CouPon
interest per annum will double in A. Cash D. Check
approximately
 292 Question Bank - Engineering Economics by Jaime R. Tiong Multiple Choice Teet 293
II l. Question I 16. Question I2l. Oucclion D. Double declining balance
Defined as the capacity of commodity "When one of the factors of production dePreciation is indePendent of
An imaginary cost representing what
to satisfy human want. is fixed in quantity or is difficult to the salvage value.
will not be received if a particular
increase, increasing the other factors strategy is rejected
A. Discount of production will result in a less than 126. Quegtion
B. Necessity proportionate increase in output',. A. Sunk cost An artificial deductible operating
C. Luxuries
Opportunity cost expense designed to compensate
D. Utility A. Law of diminishing return
B.
c. Replacement cost mining organizations for decreasing
B Law of supply D. lnitial cost mineral reserves.
I 12. Question c. Law of demand
It is the proflt obtained by selling stocks D. Law of supply and demand 122. Quesrion A. Deflation
at a higher price than its original
ln replacement studies, the existing B. Reflation
purchase price. II 7. Qucstion process or Piece of equiPment is C. DePletion
An accounting term that represents an known as D. lnflation
A. Debenture inventory account adj ustment.
B. Goodwill
A. challenger 127. Queslion
C. Capital gain A. Cost of goods sold defender The change in cost per unit variable
D. lnternal rate of return B. Variance
B.
c. liability change is known as
C Overhead D. asset
I 13. Question D. Payback A. sunk cost
The quantity of a certain commoditv B. incrementa! cost
that is offered for sale at a certEin price
l23.0uestion
I 18. Ouostion ln replacement studies, the new c. fixed cost
at a given time and place. The simplest economic order quantity D. semi-variable cost
process or piece of equipment being
(EOQ) model is based on which of the considered for purchase is known as
A. Demand following assumptions? 128. Question
B. Suppty
A. challenger What type Qf cost increases step-wise?
C. Utility A. Shortages are not allowed. B. defender
D. Market B. Demand is constant with respect C. asset A. SuPervision cost
to time. D. liabilitY B. Direct labor cost
llf. Question C. Reordering is instantaneous. The C. Semi-vaiiable cost
The quantity of a certain commodity time between order placement 124. 0uestion D. Operating and maintenance cost
that is bought at a certain price at j and receipt is zero. mgans that the cost of the
given time and place. All of the choices 129. Oueslion
isset is divided into equal or unequal
parts, and olrly one of these parts is Which of the following is NOT a
A. Demand ll9. Question taken as an bxPense each Year. variable cost?
B. Supply ln economics, a "short-term,,
C. Market transaction usually has a lifetime of Capitalizing the asset A. Cost of miscellaneous suPPlies
D. Utitity
A.
B. Expensing the asset B. lncome taxes
A. 3 months or less c. Depreciating the asset C. Payroll benefit costs
I 15. Question B. 1 year or less D. Artificial expense D. lnsurance costs
" When free competition exists, the C. 5 years or less
price of a product will be that value D. 10 years or less 130. Oucstion
where supply is equal to the demand,,.
125. Question
lndicate the CORRECT statemenl Which of the following is NOT a fixed
l20.Ouestion about dePreciation. cost?
A. Law of diminishing return ln the cash flow, expenses incurred
B. Law ofsupply before time = 0 is called A. The depreciation is not the same A. Rent
C. Lawofdemand
each year in straight line method. B. Janitorial service exPenses
D. Law of supply and demand A. receipts B. The declining balance method C. Supervision costs
B. disbursements can be used even ifthe salvage D. DePreciationexPenses
c. sunk costs value is zero.
D. first costs c The sum-of-years' digit rnethod
(SYD), the digits 1 to (n + 1) is
summed.
294 Question Bank - Engineering Economics by Jaime R. 't'iong Multiplo Choicc'l'est 295

l3l. Question I36. Ouestion A. Joqrnal I{7. Qucction

The annual costs that are incurred due Which of the following is NOT a direct B. Lpdger What is considered as an index of
to the functioning of a piece of labor expense? c. Columnar short{erm paying abilitY?
equipment is known as D. Statement of account
A. lnspection A Current ratio
A General, selling and B. Testing 142. Queslion B. Acid test ratio
administrative expenses C. Supervision The following are ledger accounts C Gross margin
B. Prime cost D. Assembly EXCEPT: D. Return of investment
c. Operating and maintenance
COSTS 137. Question A Asset accounts I48. Oueslion
D. Total cost All are administrative expenses B. Bank accounts An acid test ratio is a ratio of
EXCEPT: C. Liability accounts
132. Queslion D. Owner's equitY accounts A gross profit to net sales
The sum ofthe direct labor cost and A. Marketing B. net income before taxes to net
the direct material cost is known as B. Accounting lf3. Ouestion sales
C. Data processing The journal and the ledger together are C. quick assets to current liabilities
A. prime cost D. Office supplies known simply as - of the D. net income to owner's equitY
B. total cost company.
c. indirect manufacturing expenses 138. Queslion 149. Oueslion
total cost One of the following is NOT a selling or A. accounting system The ratio of the net income to the
\ marketing expense. Which one? B. the books owner's equity is known as
I33. Oueslion C bookkeePing system
Resparch and development costs and A. Advertising D. balance sheet A. price-earning ratio
adm\nistrative expenses are added to B. Commission B. profit margin ratio
the fEctory cost to give the C lnsurance I44. Question C. return of investment
of the product D. Transportation The basic accounting equation is D. gross margin
A. total cost 139. Question A. Assets = Liability + Owner's I50. 0uestion
B. marketing cost Research and development expenses equitY Payback period is the ratio of
C. manufacturing cost includes all EXCEPT one. Which one? B. Liability = Assets + Owner's
D. prime cost equitY A. initial investment to net annual
A. Testing C. Owner's equity = Assets + profit
l3t[. 0uesrion B. Drafting LiabilitY B cost ofgoods sold to average
The sum of the prime cost and the C. Prototype D. Owner's equitY = LiabilitY - cost of inventory on hand
indirect manufacturing cost is known as D. Laboratory Assets C. gross profit to net sales
D. net income before taxes to net
A. factory cost 140. Queslion I tl5. Queslion sales
B. research and development cost Which is not a factory overhead The ability to convert assets to cash
c. manufqcturing cost expense? quickly is known as I 5l . Ouestion
D. total cobt A secondary book of accounts, the
A. Pension, medical, vacation A. solvency information of which is obtained from
I35. Question benefits B. liquidity the journal.
The manufacturing cost plus selling B. Expediting C. leverage
expenses or marketing expenses C. Quality control and inspection D insolvencY A. Balance sheet
equals D. Testing B. Ledger
I46. Queslion C. Worksheet
A. total cost l4L Queslion The ability to meet debts as theY D. Trial balance
B. indirect production cost Bookkeeping consists of two steps, become due is known as
c. administrative cost namely recording the transactions and 152. Queslion
D. miscellaneous cost categorization of transaction6 Where A solvencY The present worth of cost associated
are the transactions (receipts and B. leverage with an asset for an infinite period of
disbursements) recorded? C. insolvencY time is referred to as
D liquidity
296 Question Bank - Engineering Econornics by Jaime R. Tiong Mtrlt,iplo (lhoice'l'est 297

A. annual cost 158. Quesrion 163. 0ucstlon l67.0uortlon

B. capitalized cost Refers to the order quantity that To discount an amount F for n What is an annuity whose payments
C. increment cost minimizes the inventory cost per unit conversion periods means extend over a period of time whose
D. operating cost time. length cannot be foretold accurately?
A. to find the present value on a day
153. Oueslion A. Economic order quantity which is n periods after F is due A. Annuity ce(ain
A stock of a product which is held by a B. Social order quantity B. to find the present value on a day B. Annuity uncertain
trade body or government as a means C. Public order quantity which is n periods before F is C. lncremental annuity
of regulating the price of that product. D. Private order quantity due D. Contingent annuity
C. to find the present value on a day
A. Stock pile 159. Ouestion which is (n-1) periods before F is I68.Ouestion
B. Hoard stock What is referred to as an individual due What do you call the time between
C. Buffer stock who organizes factors of production to D. to find the present value on a day successive payment dates of an
D. Withheld stock undertake a venture with a view to which is (n+'l) periods before F is annuity?
proflt? due
154. Ouestion A. Period interval
A negotiable claim issued by a bank in A. Agent 164. Question B. Annuity period
lieu of a term deposit is called B. Enterpreneur ln the formula for compound interest, F C. Payment interval
C. Salesman = P(1 + i)n, the value (1 + i)n is called D. Annuity term
A. Cheque D. Commissioner
B. T-bills 169. Question
c. Currency l60.Ousstion A. discount factor The time from the beginning of the first
D. Certificate of deposit The money that is inactive and doeS B. interest factor
-C. payment interval to the end of the last
not contribute to productive effort in an accumulation factor one is called the_ of the annuity.
155. Question economy is known as D. increase factor
firm which is owned A. period
of individuals for
'
A. idle money 165. Oueslion B. term
B. hard money To find the present worth of a future C. nature
C. soft currency amount in compound interest, we use D. type
D. frozen asset
the formula P = F(1 + i)-n . What do you
B. Corporation 170. Question
C. Enterprise 16l. Qucstion calt the factor (1 + i)'n ? What iefers to the extinction of the debt
D. Partnership ln counting the number of days when by any satisfactory set of payments?
computing simple interest,
156. Queslion A. discount factor A. Liquidation
A document which shows the legal A. the first day is included B. accumulation factor B. Liability discharge
ownership of financial security and B. the last day is excluded C interest factor C. Discharging of debt
entitled to payments thereon. C. the first day is included and the D. reductioh factor D. Amortization of debt
last day is excluded
A. Coupon D. the first day is excluded and the 166. Queslion
I 71. Question
B. Contract last day is included What refers to an equation stating that
What do you call a fund, usually by
C. Bond the sum of the values, on a certain
periodic deposits, to insure the
D. Consol 162. Queslion comparison date, of one set of
obligations is equal to the sum of the accumulation of money to provide for a
ln the so-called "Banker's Rule", possible large payment?
value of another set of this date?
157. Queslion
A government bond which have an A. the number of days in 1 year is A. Equality of value A. Escrow fund
indefinite life rather than a specific 360 days
B. Equation of value B. Sinking fund
maturity. B. the number of days in 1 year is C. Equality equation C. Mutual fund
365 days
D. Similarity equation D. Corporate fund
A. Coupon C. the number of days in each
B. T-bi[ month is 30 days
C. Debenture D. the number of days in 'l year is
D Consol 366 days
298 Question Bank - Engineering Economics by Jaime R. Tiong Mrrlt,ipkr ()hoicc 'l'est 299

I 72. Queslion B. When the price of the bond is C and-interest price A sequence of payment for a
What is the term for the borrowed less than the redemption value D. coupon price certain person which stops when
principal usually mentioned in a typical C. When the price of the bond is the person dies
bond? equal to the redemption value. I8l. 0ueslion B A sequence of payment intended
D. When the price of the bond is The yield of a bond is obtained by for the life insurance of a person.
A. Bond rate either equal to or greater than which of the following formulas: C A sequence of payment for a
B. Face value or par value the redemption value. certain person which continues
C. Coupon rate
^ average investment indefinitely.
D. Coupon value I 77.Question
average annual interest
D It is the same as perpetuity
Which of the following will happen if a
average annual interest
I 73. Queslion bond is bough at a discoqnt? ^ 186. Sueslion
Any date on which a coupon of a bond average investment What term is usually used by the banks
becomes due will be referred to as a A par value to represent the effective interest rate
U. per period?
flat value
A. maturity date flat value A Yield
B. term of the bond quoted value B Nominal rate
C. coupon date C. Fixed rate
D. due date The unpaid interest on each 182. Question D Net rate
coupon date will not be What is a bond whose face value is
l7tl. 0ueslion considered as a new investment redeemable in installments, with 187. Question
lf P is the price of a bond and V is its in the bond. interest payable periodically as due on The acid test ratio is also known as
redemption value, what do you call the D The difference between the outstanding principal? quick ratio. Which one represents the
value P - V? coupon payment and the interest quick ratio?
due is a pa(ial repayment of A. Annuity bond
A. Par value principal. B. Serial bond A
quick assets
B. Face value C. Treasury bond current liabilities
C. Premium I 78. 0uestion D. Government bond net credit sales
D. Bond discount ln the sale of a bond, the actual B.
average net receivables
purchase price on any day is called 183. Queslion
I 75. Queslion What is the term for the sum of gross profit
C
When can we say that the bond is depreciation charges to date? current liabilities
purchased at a discount? A. Face value gross profit
B. Quoted price A. Accrueddepreciation ^
U.
net sales
A. When the price of the bond is C. Accrued price B. Applied depreciation
greater than the redemption D. Flat price C Accumulateddepreciation I88. 0ueslion
value. D. All of the above Which of the following represents the
B. When the price of the bond is I 79. Queslion
less than the redemption value What do you call the difference I84. Question - gross margin?
C. When the price of the bond is between the flat price of the bond and The difference between the value of an
the quoted price ofthe bond? net income
equal to the redemption value. asset and its salvage or scrap value at A
When the price of the bond is the end of n year is called owners'equity
either equal to or greater than A. Par value net credit sales
B
the redemption value. B Accrued interest A. depreciation average net receivables
c. Bond rate B accrued value
gross profit
I 76. 0ueslion D And-interest price C. book value C
When can we say that the bond is D. wearing value current liabilities
purchased at a premium? 180. Queslion gross profit
D
The quoted price of a bond is 185. Ouestion net sales
A. When the price of the bond is sometimes called What is a life annuity?
greater than the redemption
value. A Par value
B Face value
300 Question Bank - Engineering Economics by Jaime R. 'tiong Mult,iplo Ohoico Tost 301

189. Question A. Equilibrium market price

D Original price
A receivable turnover is calculated B. Fair market price
using which of the following formulas?
198. Question
C Real market price
A market where new entrants face
D. Exact market price
costs similar to those of established
net income
A. firms and where, on leaving, firms are
owners'equity 194. Queslion
able to recoup their capital costs, less
A principle that states that consumers
net credit sales depreciation.
will tend to spend an increasing
average net receivables proportion of any additional income
A. Free market
gross profit upon luxury goods and a smaller
^ current liabilities proportional on staple goods; so that a
B. Competitive market
rise in income will lower the overall
c Limited market
gross profit D Contestable market
U. share of consumer expenditures spent
net sales on stable goods (such as basic
foodstuffs) and increase the share of
199. Question
190. Ouestion consumer expenditures on luxury
What refers to a temporary grouping of
The percentage of each peso of sales goods (such as motor cars) independent firms, organization and
that is net income is called governments, brought together to pool
A. Placibo effect
their resources and skills in order to
A. price-earning ratio B. Luxury effect
undertake a particular project?
B. profit margin C. Engel's law
C. profit margin ratio D. Staple law
A. Consortium
D. return of investment ratio B. Cartel
C. Cooperative
l9l. Question D. Union
Which one represents that price-
earnings ratio? 200. Question
What refers to a market for buying and
market price per share selling of raw materials such as tea,
A coffee, iron ore, etc.?
earnings per share A. Th{ory of values
B. Ec5nometrics
B
earnings per share
c. Economatics A. Commodity market
market price per share D. Econoscience B. Raw market
net credit sales C. Natural market
C
average net receivables l96.Oueslion D. National market

gross profit What refers to the fall in the general

price level, frequently accompanied by
current liabilities a reduction in the level of national
income?
192. Ouestion
The book value per share of common A. lnflationary gap
stock is the ratio of the common B. Dissavings
shareholdersl equity to C. Disinflation
D. lnflation
A average shares
B. number of outstanding shares I97.Ouestion
C. total subscribed shares A price for a product which just covers
O. authorized capital stock its production and distribution costs
with no profit margin added.
I93. Question
What refers to the price at which the A. Cost price
quantity demanded of a good is exacfly B Actual price
equal to the quantity supplied? C Real price
302 Question Bank - Engineering Economics by Jaime R. Tiong
Chapter 1 to the definition of the subject "economics"
may vary, the main idea remained that in
every human activity, in one way or
ANSWERS another, ie connected with either money or
time or both.
1. B 41.C 81. B 121. B 161. D 'ln its simplest definition, economics is the
2. B 42.C 82. D 122. B 162. A
What is Economics?
wise use of both money and time.
3. A 43.C 83. B 123. A 163. B
4. A 44.C 84. D 124. A 164. C
Adam Smith (1723 - 1790), a Scottish
What is Monev?
5. A 45.B 85. A 125. D 165. A
professor of philosophy at Glasgow
6. D 46.4 86. A 126. C 166. B
University, whose writings "An lnquiry into
There are a lot of definitions of money.
7. D 47.C 87. A 127. B 167 Di the Nature and Causes of the Wealth of
However the most aceeptable was that of
8. C 48.C 88. D 128. C 168. C
Nations in 1776, formed the basis of
Geoffrey Crowther who describes the
9. C 49.B 89. D 129. D 169. B
classical economics defined economics as
major functions of money.
'10. D 50. D 90. A the study ofthe nature and causes of
130. C 170. D
11. A 51. D 91. A 131. 171.
national wealth or simply as the study of
12. C
C B According lo him, money is anything that is
52. C 92. B 132. A 172. B
wealth.
generally acceptable as a means of
13. A 53. B 93. A 133. C 173. C
14. D Alfred Marshall (1842 - 1924), an English exchange (i.e. as a means of settling
't5. c
54. B 94. B 134. A 174. C professor of politieal economy at debts) and at the same time acts as a
55. D 9s. c 135. A 't75. B measure and a store of value.
16. B 56. C 96. B 136. C 176. A
Cambridge University who depicted
't7. A 57. A 97. C 137. A 177. A
precise mathematical relationships
18. C The money which is now used as a
58. A 98. B 138. C 178. D between economic variables in his
medium of exchange on local, national and
19. C 59. B 99. D 139. D 179. B
textbook "Principles of Economics" in
20. D '1890, defined economics as the study of international markets has evolved from
60. c 't00. D 140. D 180. C
21. C man in the ordinary business of life. shells, elephant tusks, animal skins to
61. D 't01. c 141. A 181. B metallic money (i.e. coins) to paper money
22. D 62. D 102. B 142. B 182. B
23. B Arthur Cecil Pigou (1877 - 1959), an after the invention of printing press in 18tn
63. D 103. B 143. B 183. A century to finally bank money (i e.
24. B 64. C 104. D 144 A 184. D
English student of Professor Albert
25. A Marshall, who succeeded him as professor currency) with the development of the
65. D 105. C 145. B 185. A
26. C of political economy at Cambridge banking system.
66. A 106. D 't46. A 186. A
27. B 67. A 107. C 147. A 187. A
University and devefoped the theory of
28. A welfare economlcs in his book 'The With the currency system, a standard unit
68. B 108. B 148. C 188. D
29. A 69. A Economics of Welfare" in 1919, defined called "monetary unit" forms the basis of a
109. C 149. C 189. B
30. D 70. o economics as the study of economic country's domestic money supply ln the
110. C 150. A 190. C
31. C welfare which can be brought, directly or Philippines, the monetary unit is peso
71. B 111. B 15't. B 191. A
32. C 72. C indirectly, into relationship with the while dollar and pounds for the United
112. C 152. B 192. B
33. B 73. B 113. B 153. C 't93. A measuring-rod of money. States and United Kingdom, respectively.
34. B 74. A 114. A 154. D 194. C
35. C 75. C Lionel Robbins, an economist in the The physical form of the money supply
115. D 155. A 195. B (bank ncites, coins, etc.), the denomination
36. B 76. D 116. A 156. A 196. C
tradition of the English classical school
37. D defined economics as the science which of the values of monetary units (peso and
77. C 117. A 157. D 197. A
38. C 78. C studies human behavior as a relation centavos) and the total size of the money
118. D 158. A 't98. D
39. A 79. B 't19. C 159. B 199. A
between ends and scarce means have supply of the country are regulated
40. c 80. c other alternative uses. through the policies and guidelines of what
120. C 160. A 200. A is known aslhe "monetary system".
Collins dictionary of Economics defined
economics as the study of the problems of Money can fulfill the following functions:
using available factors of production as
efficiently as possible so as to attain the A. As a medium ofexchange.
maximum fulfillment of society's unlimited Goods and services can be
demands for goods and services. exchanged for money, which can be
exchanged for other goods and
While the standpoints of well-known servtces.
economists and professors of economics
 304 Question Bank - Engineering Economics by Jaime R. Tiong
As a unit of account.
The units in which money is
measured (pesos, dollars, pounds,
etc.) are used as the units in which
prices, financial assets, debts,
accounts, etc. are measured.
c As a store of value.
form in order to yield future
consumption. Since money grows
with time, the money held over a
period of time as a store of value or
purchasing power.
What is Enqineerino Economv?
Engineering economy may also be defined
What ar6 9o.nsumer and producer
Goods and Services?
Good or commodity is defined as any
tangible economic product (soap, cir,
shirts, tools, machines, etc.) that
contributes direcfly or indirecfly to the
satisfaction of human wants.
Seryice is defined as any tangible
economic activity (hairdressing, insurance,
banking, catering, etc.) that contribute
directly or indirecfly to the satisfaction of
human wants.
Econo nd seruices as
either services,'or
"produ s',.
Cowumer goods and services are those
satisfy
much as
goods and services. Exarnpres
"iJffJ"",
goods and services are factory builOings,
machine tools, airplanes, ships, busesl
etc.
What is the difference between
Necessitv and LuxuEf-
Goods and services are divided into two
types, necessities and luxuries.
Necessities refer to the goods and services
that are required to support human life,
needs and activities.
Necessity product or staple product is
defined as any product that has an
income-elasticity of demand less than one
This means that as income rises,
proportionately n government.
such products.
products includ
bread'and rice, clothing, etc.
Luxuries are those goods and services that
are de-sired by human and will be acquired
only after all the necessities have been
satisfied.
I.uxury producr is defined as any product
that has an income-elasticity of demand
greater than one. This means that as
income rises, proportionately more income
is spent on such products.
Examples of luxury products includes
consumer durables like electric
appliances, expensive cars, holidays and
entertainment, etc.
Necessities and luxuries are relative terms
because there are some goods and
seryices which may be cJnsidered by one
person as necessity but luxury to another
person.
For example, a man living in the
Metropolis finds a car as an absolute
necessity for him to be able to go to his
workplace and back to his home. lf the
same person lived and worked in another
city, less populated with adequate means
of public transportation available, then a
car will become a luxury for him.
@
Situalhons?
The term "market" refers to the exchange
mechanism that brings together the sellers
and the buyers of a product, factor of
production or financial security. lt may"also
refer to the place or area in which buyers
and sellers exchange a well-defined
commodity.
Biyer or consumer is defined as the basic
consuming or demanding unit of a
commodity. lt maY be an individual
purchaser of a good or seryice, a
household (a group of individuals who
make joint purchasing decisions)' or a
Selleris defined as an entity which makes
product, good or service available to buyer
or consumer in exchange of monetary
consideration.
The price of any commodity or product will
depend largely on the market situation.
The following is a tabulation of the differenl
market situations:
'l'hr'orir.s rttttl l'\rt'ntulas 305
l'rt'f tt'l t tnqrclition (also known as
ttlttttti:;lit' t'omltetitionl refers to the market
situation in which any given product is
supplied by a very large number of
vendors and there is no restriction against
additional vendors from entering the
market
Perfect competition is a type of market
situation characterized by the following:
A. Many sellers and manY buYers:
Since there is a large number of
sellers and a large number of
buyers, each seller and buYer will
become sufficientlY small to be
unable to influence the Price of the
Product transacted.
B. Homogeneous Products: The
products offered bY the comPeting
sellers are identical not only in
physical attributes but are also
regarded as identical by the buyers
who have no Preference between
the products of various producers.
C. Free market-entry and exit: There
are no barriers to entry or
impediments to the exit of the
existing sellers.
D. Perfect information: All buyers and
all sellers have complete information
on the prices being asked and
offered in all other Parts of the
market
E. Absence of all economic friction:
There is a total absence of economic
friction including transport cost from
one Part of the market to another.
This market situation Provides an
assurance of complete freedom on the
part of both the vendors and the buyers
though the latter benefits more from the
reduced prices brought about by the
competition while more and better services
are afforded by the vendors or players in
the industry.
 306 Question Bank - Engineering Economics by Jaime R. ,l,iorrg
Monopoly is the opposite of perfect
competition. This market situation is
characterized by the following:
A. One seller and many buyers: A
market comprised of a single
supplier selling to a multitude of
small, independenfl y-acting buyers.
B. Lack of substitute products: There
are no close substitutes for the
monopolist's product.
C. Blockaded entry: Barriers to entry
are so severe that it is impossible for
other sellers to enter the market.
There exists a perfect monopoly if lhe
single vendor can prevent the entry of all
other vendors into the market. The
monopolist is in the position to set the
market price.
A natural monopoly is a market situation
where economies of scale are so
significant that costs are only minimized
when the entire output of an industry is
supplied by a single producer so that
supply costs are lower under monopoly
than under perfect competition and
oligopoly.
Oligopoly exists when there are so few
suppliers of a product or service that the
action of one will inevitably result in a
similar action by the other suppliers. This
type of market situation is characterized by
the following:
A Few seller and many buyers: The
bulk of market supply is in the hands
of a relatively few sellers who sell to
many small buyers.
B Homogeneous or differentiated
products: The products offered by
the suppliers may be identical or
more commbnly, differentiated from
each other in one or more respects.
These differences may be of a
physical nature, involving functional
features, or may be purely
"imaginary" in the sense that artificial
differences are created through
advertising and sales promotion.
C. Difficult market entry: High barriers
of entry which make it difficult for
new sellers to enter the market.
What is demand?
Demandis the need, want or desire for a
oney to purchase
demand is always
d abitity to pay,,
want or need for
the product.
The demand for a product is inversely
proportional to its selling price, i.e. as the
selling price is increased, there will be less
demand for the product; and as the selling
price is decreased, the demand will
increases. Figure 1 below illustrates the
relationship between price and demand.
Figure 1
Assuming a linear function for the
relationship between price and demand, it
shows that at point 1, the selling price, pr
is high, thus there is less demand for the
product as compared to point 2, where the
demand, D2 is great because of lower
selling price, P2.
What is Suoolv?
Supply is the amount of a product made
available for sale.
'l'hr.orir,n irntl l,'ot'utttltts 307
lf the selling price for a product is high, supply and demand at a given Price
more producers will be willing to work
harder and risk more capital in order to
reap more profit. However if the selling
price for a product declines, capitalists will
not produce as much because of the
smaller profit they can obtain for their labor
and risk.
Therefore, the relationship between price
and supply is that they are directly Price
proportional, i.e. the bigger the selling
price, the more the supply; and the smaller
the selling press, the less is the supply.
Figure 2 below illustrates the price-supply
relationship.
Figure 3
When there is additional supply without an
additional demand, a new and lower price
is established as shown in Figure 4.
Previous supply
What is the Law of Supplv and
Demand?
Figure 4
The law of supply and demand maY be
stated as follows: When there is additional demand without
an additional supply, a new and higher
" Under conditions of perfect competition, price is established as shown in Figure 5
theprice at which any given product will be
supplied and purchased is the price that will
result in the supply and the demand being
equal."
The relationship between price-supply-
demand may be illustrated by combining
figures 1 and 2. For general application,
od
the curves for supply and demand are no
longer represented in linear function.
Figure 3 illustrates the price-supply-
demand relationship, showing equal
 308 Question lJank l!rrginot'rirrg l,it:orrornir:s by .laime
Chapter 2
Suppose a debtor loans money from a
creditor. The debtor must pay the creditor
the original amount loaned plus an
additional sum called interest. For the
debtor, interest is the payment for the use
of the borrowed capital while for the
creditor, it is the income from invested
capital.
Simple Interest (denoted as l) is defined as
the interest on a loan or principal that is
based only on the original amount of the
loan or principal. This means that the
interest charges grow in linear function
over a period of time. This is usually used
for short{erm loans where the period of
the loan is measured in days rather than
years. lt can be calculated using the
following formula:
l= Pin
where: P = principal / loan
| = interest
i = interest rate
n = period
The future amount of the principal may be
calculated by adding the interest (l) to the
principal (P).
F=P+l
F=P+Pin
Thus,
F = P(1+ in)
There are two types of simple interest
namely, ordinary simple interest and exact
simple interest.
Ordinary simple interesl is based on one
banker's year. A banker year is composed
of '12 months of 30 days each which is
equivalent to a total of 360 days in a year.
The value of n that is used in the
preceding formulas may be calculated as
I.1.. 'l'rorrg
d
" 360
where: d = number of days the principal
was invested
Exact simple interest is based on the exact
number of days in a given year. A normal
year has 365 days while a leap year
(which occurs once every 4 years) has 366
days. Unlike the ordinary simple interest
where each month has 30 days, in the
type of simple interest, the number of days
in a month is based on the actual number
of days each month contains in our
Gregorian calendar
To determine the year whether leap year
or not, one has to divide the year by 4. lf it
is exactly divisible by 4, the year is said to
be leap year otherwise it will be
considered just a normal year with 365
days. However, if the year is a century
year (ending with two zeros, e g. '1700,
I 800... ), the year must be divided by 400
instead of 4 to determine the year whether
or not a leap year Hence, year 1600 and
year 2000 are leap years
Under this method of computation of
interest, it must be noted that under
normal year, the month of February has 28
days while during leap years it has 29
days. Again, the values of n to be used in
the preceding formulas are as follows:
n=- d for normal years
365
n=- d for leap years
366
DISCOUNT
Consider the following cases where
discount is involved:
A person has a bond or financial security
that is not due yet but payable in some
future date, desires to exchange it into an
immediate cash. ln the process, he will
accept an amount in cash smaller that the
face value of the bond. The difference
between the amount he receives in cash
(present worth) and the face value of the
bond or financial security (future worth) is
known as discount. The process of
converting a glaim on a future amount of
money in the present is called discounting.
CASE 2:
ln a bank loan, a person borrows P 100 for
1 year with an interest of 10%. The interest
as computed is P 10. The bank deducts
the interest, which is P10 from P 100 and
gives the borrower only P 90. The
borrower then agreed to repay P100 at the
end of the year. The Pl0 that was
deducted represent the interest paid in
advance. ln this case, discount also
represent the difference between the
present worth (i.e. P90) and the future
worth (i.e. P 100).
Discqrnt = Fduevorth - peoentworttt
fhe rate of discount is the discount on one
unit of principal per unit time.
Let d = rate of discount
d=1-:-
'l'hcorics and I,brlnulas 309
Chapter 3
Compound interest is defined as the
interest of loan or principal which is based
not only on the oiiginal amount of the loan
or principal but the amdunt of loan or
principal plus the previous accumulated
interest. This means that aside from the
principal, the interest now earns interest as
well. Thus, the interest charges grow
exponentially over a period of time.
Compound interest is frequently used in
commercial practice than simple interest,
more especially if it is a longer period
which spans for more than a year.
The future amount of the principal may be
derried by the following tabulatlon:
Period Principal lnteresl Total Amount
P P P+Pi
= Pll + i'l
2 P(l + i1 P(1 + i)i P('!+i)(1+i)
= P (1 +i)z
3 P(1 + i)z P(1 +i)zi P(1 +i)z('l +i)
= P(1 + i):
n P(1 + i)"
The tabulation above shows that the future
amount (total amount) is just the value p(1
+ i) with an exponent which is numerically
equal to the period.
It is also observed that compound interest
is based on the principles of geometric
progression and using such method, the
total amount after each period are as
follows:
Firstterm, ar = P(1 + i)
Second term, a2 = P(1 + i)2
Third term, a3 = P('l + ;;3
and so on.
Solving for the common ratio, r:
310 Question Bank - Engineering Economics by Jaime R. Tiong Theorios and Formulas 31 1
a^
f =-L where: I ^ =single payment
present fhe present worth of continuous ChapEer 4
a,l (1 + i)n compounding is

P(1 + i)2 worth factor

E
P(l+ i) ts:'
'
What is the concept of continuous eNR(N)
r=1+i comDoundinq?
Annuity ls defined as a series of equal
What are the Tvpes of lnterest Rates? payments occurring at equal interval of
Using the formula for nth term of a G.P. The concept of continuous compounding is
based on the assumption that cash time. When an annuity has a fixed time
Rate of interest is the cost of borrowing span, it is known as annuity certain.The
?n :3tr"^t ' payments occur once per year but
money. lt also refers to the amount earned
compounding is continuous throughout the following are annuity certain:
an =P(1 +iX1 +i)n-l by a unit principal per unit time.
year.
an =P(1 +i)n
1. Ordinary annuity is a type of annuity
There are two types of rates of interest, where the payments are made at the
The basic equation for future worth of namely the nominal rate of interest and the
compound iryterest is end of each period beginning from the
a. FUTURE AMOUNT, F: effective rate of interest. first period.
F = P(1+ i)n Nominal rate of interest is defined as the Derivation of formula for the sum of
basic annual rate of interestwhile effective ordinary annuity:
but for m periods per year rate ofinteresf is defined as the actual or
the exact rate of interest earned on the Let A be the periodic or uniform
principal during a one-year period. payment and assuming only four
r =p(t*!E)'* payments:
I m,J For example: A principal is invested at 5%
m compounded quarterly.
Cash Flow let x=
NR
z , rx(NR)N
ln this statement, the nominal rate is 5%
F = P(1+ i)n F=Pl1+fl while the effective is greater than 5%
I x./ because of the compounding which occurs
four times a year. The following formula is
A A AA J8r
where: P = Principal
i = interest per period (in decimal)
.=,[1,.i)'l'.' used to determine the effective rate of
interest:
n = number of interest periods
;
: A(1+ D) dz
:
A(1+ iF _+
(1 + i)n = single PaYment but r-i, [r * 1)' =
"
:
A(1+ iro -+
a3

compound amount x -->o\ x) a4

factor where: m = number of interest period per Annuity is based on the principles of
therefore, year compound interest. Hence computation of
b. PRESENTWORTH,P i = interest per period the sum of annuity may be done using the
0123n F =PENR)N .NR formulas for geometric progression.
m
Solving for common ratio:
where: p = priniipal NR = nominal rate of interest
a-
e = 271828...
NR = nominal rate a1

F N = number of years .,/ - A(1+i)

I =-
e(NR)N - continuous ,/ A
E compounding / r='l +i
P= ' compound amouht Note: i = NR if the mode of compounding is annually
(1+i)n factor Solving for the sum:
312 Question Bank - Engineering Economics by Jaime R. Tiong 'l'ltcorics irrttl l,'ormrrlas 313

PRESENT WORTH OF PERPETUITY: l?34

n[1r*i1"-rl
I I I I--TI
n-1

But F= L r
I 12341
AAAA AA
Substituting the value of F:

a. SUM OF ORDINARY ANNUITYT

01 where:
ltr*if-rl
L - =uniformseries
+
i(1 i)n
P=+
present worth I
, factor
(n-2)G
where: i = interest per period
AAAA2 Annuity due is a type of annuity where A = uniform payment
the payments are made at the .'......-.......i
i.........................- F P -'...'.....'.-.
r. beginning of each period starting from
the first period. :.........,.......... .,.,.....,>, , F

ELf
nltr+if -r"l Chapter 5
The total present worth P is equal to sum
I
of Pr and P2, mathematically,

where: i = interest per period P = P1+P2

n = number of periods
A = uniform payment Unifurm arithmetic gradient is a series of
disbursements or receipts that increases Also, the total future worth is
or decreases in each succeeding period by
ltr*if-r'] uniform series compound
* i
= 3 Deferred annuity is a type of annuity
constant amount. F :FJ +Fz
amount factor where the first payment does not b'egin
until some later date in the cash flow
Analyzing the uniform arithmetic gradient
b. PRESENT WORTH OF ORDINARY cash flow only:
ANNUITY:
A. PRESENTWORTH:
A+(n-2)G
Let P = present worth of the following
: uniform arithmetic gradient
A

AAAA When an annuity does not have a fixed
time span but continues indefinitely,
then it is referred to as a perpetuity.
The sum of a perpetuity is an infinite
value.
The above cash flow can be converted into
Please refer to the cash flow in
the following page
its equivalent annuity and uniform
arithmetic gradient whose present worth
are Pr and P2, respectively

Using compound interest formula:

D_ F
(1 + i)n
314 'l'lroorics lr rrrl l'irlrrt trlas 31 5
Question Bank - Engineering Economics by Jaime R. Tiong
F P(1 r i)n
n_ n -l,.,*,,
P(1. )-P=G F cliI 1 (1iri) (1+i)"]'
4 ..' n-l n
0
r=eitr*iI-r_nl
rL ,
U -]
(J
(1+i)2
(n-2)G where: G = arithmetic gradient change in
2G
the periodic amounts at the
(1 + i)3 end of each period
JU
C. EQUIVALENT PERIODIC AMOUNT
(1 + i)a

Let A = equivalent periodic amount

(n - 2)G<. 234
(1 + i)n-1
(n-'l)G- b
Substitute values in Eq. 3 2G
('1 + i)n

Pi G[t-rt*il'n
' ',- n I (nJ)G
^G2G3G I

I i (1+i)"
..............-T-f
-=-f
(1 + i)' (1 + i)' (1 + i)*
'..
] P -""""""' """""''"""i
(n-2)G (n-l)G 1
"'-(1 -
+il'r (i*D" ' (1+i)
f .\-n
1-(1+i)" n 1
o_Gl The above cash flow is equivalent to the
'-iL i
I

-,r-rTl-lr
1 (1+i)n] figure below:
Factor out G: -
4)--
(1+i)'
01234...n-ln
I
where: G = arithmetic gradient change in
the periodic amounts at the
end of each period AAAAAA
P .,*..-.-........ ................-'i
So v ng for the common rat o r B. FUTUREWORTH:
1
Using formula for annuity:
Multiply Eq. 1 by (1 + i): t---
a. (1+il2
\ , 1
Let F = future worth of the uniform
arithmetic gradient
a1 I -(1+i)
-

(1+i)
0 1 2 3 4 ... n-l n
1

(1+i)3 _
'l
._clr-(1+i)n n
' -TI
1

(1 + i)2 -(1.,f
Subtract Eq. 1 from Eq. 2
Solving for the sum, S:
' I

./

t = "'('-'/)
ltr
316 Question Bank - Engineeling Economics by Jaime R. Tiong 'l'lrr.orrcs lrrtl l"orrurrlits 317
Substituting: A. PRESENTWORTH, P ot=X B. FUTURE
?z= *
0123 t?
II
33=x3 0

Solving for the common ratio, r:

t c(t.+
a. x2
*r)3
a1 x
(1 + i)2
-\'r'' : G1t*r1"2
l=X G(1+r)"2
G(1+r)z
(1-i)3
-.................i iclt G(1t)rt
I,", Sum of geometric progression, S:
i i i(l + i)n (1+ i[.]L(1+ ir _1
I
:
:
i
G(l + r)n-2 ! ^ a,(1 -rn)
n=9[r- ni I (1 + i)n-1
:
1-r
i (1+i)"-t]
L ,(t-x")
G(l + r)n 1

{..................
i Q_ \ / when x =1*' *1'.
(1 + i)n
'1
-x 1+i

iA=c[]- ^ I
(1+if_jl G G(1 +r), G(1 +r)2 Substitute in Eq. 1: F = P(1+ i)n
,/
.l: .
Li '1.':l
D_
' -(1+D- (i+D2 * (1+i)p +"'
o x(1-x" , =-9-[L{],,
(1+i)l 1-x
, ,r
Uniform geometrio gradient is a series "'r, G(t+ r)n-2 G(1 + r)n-1 ,- 1+r (1-x)
l'
consisting of end-of-period payments, (1 +ifr - (1 +rf
r = c1r * iY-'[1- )
x"
where each payment increases or p=9f tr)[t--l" I
1-,
decreases by a fixed percentage. 1+r\1rilf t-x ]
( J

P=G ,=erL{l
1+i( 1-x J
Whenx=1,r=l

F = P(1+ i)n

where: x=
1+r
*1.thusr +i F= Gn (1 +i)n
Multiply by 1+i (1 + i)'
;# G = first payment at the end of
the first period F =Gn('!+0n-l
(1 + r) = rate of increase or
decrease

Whenr=i,thenx=1.
Chapter 5
Substituting values in Eq. 1:

o- Gn
' 1+i
Bondis a financial security note issued by
businesses or corporation and by the
government as a means of borrowing long-
term fund. lt may also be defined as a
Geometric progression long-term note issued by the lender by the
 318 'l'htrorion and llorrnulns 319
Question Bank - Engineering Economics by Jaime R. Tiong

borrower stipulating the terms of Let Vn = value of bond n years before Typor of Depreclatlon:
repayment and other conditions. redemption
A. I'hysicol Deprecialion is due to the
Bonds do not represent ownership of a Vn=Pl+P2 -+Eq 1 reduction of the physical ability of
business or corporation and therefore not an equipment or asset to produce
entitled to share of the profits. The results.
Using formula for present worth of annuity
bondholder has no voice in the affair of the
business However the bondholder has a
{w
Lender
B. Functional Depreciation is due to
the reduction in the demand for the
more stable and secured investment than
does holder of common or preferred stock a function that the equipment or
of the business or corporation. asset was designed to render. This
z'[{r* )" -r] type of depreciation is often called
Bonds are issued in certain amounts q= obsolescence,
known as the /ace value or par value of the i(1 + i)n

bond. When the face value has been Methods of Gomputing Depreciation:
repaid, normally at maturity, the bond is Using the formula for present worth of
said to be redeemed or retired. Bond rate is compound interest: A. STRAIGHT LINE METHOD
the interest rate quoted in the bond ln this method of computing depreciation,
E

The following illustrates the normal life

P^= '
' 11+i1n
it is assumed that the loss in value is
directly proportional to the age of the
cycle of a bond. equipment or asset.
p.= C
' (1+i)n Annual depreciation charge, d
Value of a bond is the present worth of all
the amounts the bondholder will receive Substituting in Eq. 1 ,-Co-Cn
u--
through his possession ofthe bond. The n
two payments that the bondholder will
z'[(r*i)" -r]
, _
(1+i)n
*(1+i)n
c
where: Co = first cost
Cn = cost'after "n" years
(salvage/scrap value)
n = life of the property
where: Z = par value ofthe bond
r = rate of interest on the bond
per period Book value at the end of "m" years of
using, Cr:
C = redemption price of bond
i = interest rate per period
Derivation of the formula for the value of a n = number of years before
Cm : Co -Dm
bond: redemption
where: D, = total depreciation after "m"

fw
Lender
Chapter 7
years
D, = d(m)

B. SINKING FUND METHOD

ln this method of computing depreciation,
it is assumed that a sinking fund is
Zr Zr Zr Zr Depreciation is the reduction of fall in the established in which funds will accumulate
value of an asset or physical property for replacement purposes.
during the course of its working life and Annual depreciation charge, d
due to the passage of time.

Pz

I ,
 320 Engineering Economics by Jaime R. Tiong 'l'hooriott rtnd l'\lrmulus 321
Question Bank -
where: Co = first cost Book value at the end of "m" years of
C Uring decllning balance method
Cn = cost after "n" years using, C,.
(salvage/scrap value) 6-
n = life of the property
k=1-d+
C. = Co - (a,r + o, +'-'+ dr) \lUo
Book value at the end of "m" years of
using, C.: k=1-im
Sum of year's digit, ) years
o[(r*i)'-r] k = 1- 0.5493
;9, ='%tD., ,

s n(n+1)
oz= k = 0.4507

where: D. = total depreciation after "m"

ZYears =-n-
years Dz= Tabulation of book value:
COMPARISON BETWEEN THE
o[tr*if -1] Depreciatibn Book
^
n_- L DIFFERENT METHODS OF
DEPREGIATION:
Dz=3,267.7596 Period
value
I
0 '10,000.00
0.4507(10,000) 5,493.00
C. DECLINING BALANCE METHOD ln order to establish the comparison 1

between the depreciation methods = 4,507.00

ln this method of computing depreciation, 2 0:4507(5,493) 3,0'17.30
it is assumed that the annual cost of mentioned above, let us consider the
following data: 1,556 076[(1+o 1)3 -1] = 2,475.69
depreciation is a fixed percentage of the Dg= 3 0.4507(3,017.30) 1,657.40
book value at the beginning ofthe year. 0.1
= 1.359.90
This method is sometimes known as First cost, Co = P 10,000 Ds = 5,'t 50.61 16 4 0.4507(1,657.40) 910.41
Salvage value, Cn = P 500
constant percentage method or lhe
Matheson Formula. Lifeof property, n = 5 years = 746.99
5 0.4507(910.41) 500.09
Matheson Formula: A Using straight line method: = 410.32

Note; S/rght difference is a result of

k=1-"8 or
*='t-,8 6-'9u-C" rounding off of values.
!co !co --'- n

,_ 10,000_500 D. Using SYD method

The value k is the constant percentage. 5
d = 1,900
Hence k must be decimal and a value less
I,Year - 1Dt;+tl
than 1. ln this method, the salvage or
scrap value must not be zero. Tabulation of book value: (5X1+ 1)
I year = = '' u
D. SUM-OF-YEARS' DlclT (SYD) Period Depreciation Book 1,556.076[(1+0.05 -1]
METHOD value Ds=
Respective depreciation charges:
0
1 1,900.00
'10,000 00
8,100.00 Ds = 9'500 00
0.'1 q =(co -"")tk
2 '1,900 00 6.200.00
dl =(1o,ooo-5oo)*
First year: d1=(co-c.)---n 3 1.900.00 4,300.00 Tabulation of book value:
zyears 4 1,900.00 2.400.00 dr = 3'166'67
5 1.900.00 500.00 Period Depreciation Book
a4
value
Second year: d2=(co-c.)# B Using sinking fund method: 0 10,000 00 d2=(co-.^)#
zyears 1 1.556 08 8.443.92
Assume 10% interest rate 2 3.267 76 6.732.24
5,150.6',l 4.849.39 d2 =(1o,ooo-5oo)+
Third year: d3 = (co - c.)-
tr:2 3
'2.778.29
4 7.221.75 dz = 2'533'33
zyears o-(Co-C")i 5 9,500.00 500.00
and so on. ..
('l + i)n -'l

z
 322 Question llank - Dngineeriug Economics by Jaime R. ,I.iong 'l'huorior and l'lrrntulrrn 323
d3 =(co_c")+ depreciation charge while the sinkingJunr) Chapter 9
!year Natural Resource Maximttttt
method has the smallest annual Percentage'
d3 =(1o,ooo-5oo)* depreciation charges.
Sulfur, Cobalt, Lead, 22

ds = 1,900.00 Nickel, Zinc. etc

What is Deoletion Cost? 22
Oil and Gas wells
Gold, Silver, CoPPer, 15
Depletion cosl is the reduction of th€ value llrcttk-even analysis is used to determine
d4=(Co-c")a of certain natural resources such as
lron ore
1o the break-even cost, which is the cost at
Lyeat Sodium Chloride
mines, oil, timber, quarries, etc. due to the -Coal. which the total income is exactly equal
Gravel, Sand, CleY- 5
d4 =(1o,oo\-5oo)# gradual extraction of its contents to the total expenses incurred in the
* Based on Gross lncome business.
d4 = 1,266.61 Methods of Computing Depletion
Charge for a year: The diagram below is the most
ds = (co -c"[=i- convenient chart used in break-even
i Lyeat
l,
A. Unit or Factor Method
Chapter I analysis. This is known as the break-
ds = (1 0,000 L soo) even chart. lt represents the graphs of
This method is dependent on the initial
* cost ofthe prope(y and the number of
fixed costs, variable costs, the expected
ds = 633.33
units in the property. The depletion charge income, etc.
during any year is calculated using the
Tabulation of book value: following formula: ure or Ke!

and the
Period Depreciation Book Let: l.C. = initial cost of property cement,
value T.U. = total units in property long time
0 '10.000 00 U.S. = units sold
or forever, or
1 3.166.67 6.833.33
2 2,533 33 4,300 00 The depletion cost during any year is:
3 '1,900 00 2,400.00
CQ=Frntcrd+Cdd
4 1.266.67 1.133.33 lC'
cost _
Depletion __-. = rtts I
5 633.33 500.00 T_U \v.e., A Y structure or Ltr
p the annual

Book Values obtained by Various

d rest ofthe first cost
B. Percentage or Depletion Allowance a ing and maintenance
Depreciation Method Method costs, or Production

10,000 The depletion charge (or simply depletion) p = profit

Sinking Fund Method
under this method, is computed as follows: AC L = loss
8,000 Straight Line Method
Depletibn = Fixed % of gross income

6,000 SYD Method

or
Declining
4,000 Balance Depletion = 90 :%iof 1et ta;able incci4e
Method

2,000 Note: Use the smaller depletion charge

500 Fixed Percentages Allowed for Ce(ain

Natural Resources:
1 2 3 4 5Yrs
The diagram shows that ltrc declining
balance method has the largest annual
 324 Question Bank Engineering Economics by Jaime R. Tiong (lloannry 325
-
amalgamation (syn merger) lhe creation of a brlrncr rhcct an accounting statemenl of a
asset a property or item owned by an indlvldual
flrm's assel and llabilities on the last day of
new company by a combination of business or organization which has a monetary valuo
units a iradlng Period

auction the selling of goods or producls and

amortization as applied to capitalized cost, the services bY comPetitive bidding bank a commercial institution which receives

distributi I cost by periodic

deposits of money from the public and fulfils
charges leg its obligation to return that money to the
A the redu
in depreciation or
y either periodic or
audit the
compan
ndividual or
sheet and depositor when withdrawn
inegular gram trading ccount and
unOerlyi and records bank deposit an amount of money deposited
annual general meeting (AGM) the required by with the bank
examined bY a qualified auditor
law yearly meeting of shareholders of i bank loan credit made available to individuals or
corporation or organization auditor an accountant duly licensed by PRC
tasked to check the accuracy of a joint corporations bY commercial bank
annual ratb of return is the ratio of the annual stock company's ledger account and annual
accounls the financial slatements of bank note the paper currency issued by central
an net profit to the initial capital investment report and accounts, and to present an
individual or organization prepared from a
independent report to shareh0lders on bank which forms part of the country's
syslem of recorded financial transactions a true and moneY suPPlY
annuity a series ofpqual payments occurring at wheiher the accounts present
equal interval of time. Types of annuity are: fair vies of the comPanY's affair
acid-test hatio (syn. current ratio) the accounting bank rate the rate of interest charged by central
Ordlnary annuity, Annuity due, Deiened
measure of individuals, or company's ability
annuity and Perpetuity auth maximum amount bank to its bonowers, mainlY the
to pay its short{erm liabilities a corporation can commercial banks

actuary the chief executive of an assurance

annuity due a type of
annuity where the by the SecuritY and
payment is made al the beginning of each Exchange Commission (SEC) banke/s yeat ayeat. which is equivalent to-12
company whose job is to calculate period starting from the first period mont-hs of 30 days each and is equal to 360
premtums
automatic saving the unspent income of a daYs
anticompetitve prac{ice the practice which person if his net income is too large to
administered price the price for a product whish effect the restricting, distorting and spent bankruptcy (syn. insolvency) the condition
is set by an individual producer or group of eliminating competition in a market wnere an individual or company is
producers
in which human insolvent, i.e. unable to meet its debts on
automation the process
due dates.
applied economics the application of economic operations are substituted by mechanical or
administration costs the cost of maintaining a analysis to real world economic situations electronic oPeration or both
firm within which goods and services are barGr exchange of goods or services without the
produced. Administration costs includes use of moneY
appreciation (ant, depreciation) the increase in average cost is the ratio of the total cost to the
salaries, lease of space and offices the value of an assel. lt also refers to lhe total number of units
occupied, electricity and water utilities, increase in the value of a currency against bearer bond a financial security which are not
mailing costs and equipment costs registered under the name of a particular
other curencies under a floating exchinge_ average cost price the selling price for a good
rate system oi service which is equated to the average holder but where possession serves as
agent an individual or organization who acts iir proof of ownershiP
COSt
behalf of a client and buys or sells arbitrage the buying or selling of goods or
products/properties in return for a product between two or more markets in average revenue is the ratio of the revenue to bilaterat monopoly a market situation where
commission order to take profitable advantage of any there is only one seller with only one buyer
the unit of commoditY sold
differences in the prices quoted in these
aggregate supply the total amount of domestic markets bilatenl oligopoly a market situation where
goods and services supplied by. B there are few sellers and with few buyers
businesses, including both consumei articles of incorporation the legal constitution
products and capital goods
of a corporation which is submitted to the billion refers to one million million (1012) in the
BIR Bureau of lnternal Revenues United Kingdom and Germany - and one
Security and Exchange Commission (SEC)
thousand mlttion (10g) in the United States
bad debt money owed which is unlikely to be
paid due to the customer being insolvent