MG 6863 Engineering Economics –Puzzles

UNIT-IV
Choose the letter of the best answer in each question
26. You borrow P3,500.00 for one year from a friend at an interest rate of 1.5% per month
instead of taking a loan from a bank at a rate of 18% per year. How much lesser you will
pay by borrowing the money from the bank?
 A. P 62.44
 B. P44.55
 C. P54.66
 D. P37.56
27. What is the present worth of two P 100 payments at the end of the third year and fourth
year? The annual interest rate is 8%.
 A. P 150.56
 B. P 152.88
 C. P 153.89
 D. P 151.09
28. A firm borrows P2,000 for 6 years at 8%. At the end of 6 years, it renews the loan for the
amount due plus P2,000 more for 2 years at 8%. What is the lump sum due?
 A. P 3,260.34
 B. P 3,280.34
 C. P 3,270.34
 D. P 3,250.34
29. In year zero, you invest P 10,000.00 in a 15% security for 5 years. During that time, the
average annual inflation is 6%. How much in terms of year zero pesos will be in the account
at maturity?
 A. P 15,030.03
 B. P 20,113.57
 C. P 18,289.05
 D. P 16,892.34
30. The institute of Electronics and Communications Engineers of the Philippines (IECEP) is
planning to put up its own building. Two proposals being considered are:
A. The construction of the building now to cost P 400,000
B. The construction of a smaller building now to cost P300,000 and at the end of 5 years, an
extension to be added to cost P 200,000.
By how much is proposal B more economical than proposal A if interest rate is 20% and
depreciation to be neglected?
 A. P 19,122.15
  B. P 19,423.69
 C. P 19,518.03
 D. P 19,624.49
31. 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
 B. P 717.17
 C. P 714.71
 D. P 731.17
32. What annuity is required over 12 years to equate with a future amount of P 20,000?
Assume i= 6% annually.
 A. P 1,290.34
 B. P 1,185.54
 C. P 1,107.34
 D. P 1,205.74
33. A factory operator bought a diesel generator set for P 10,000.00 and agreed to pay the
dealer uniform sum at the end of each year for 5 years at 8% interest compounded
annually, that the final payment will cancel the debt for principal and interest. What is the
annual payment?
 A. P 2,500.57
 B. P 2,544.45
 C. P 2,540.56
 D. P 2,504.57
34. What is the present worth of a year annuity paying P 3,000.00 at the end of each year,
with interest at 8% compounded annually?
 A. P 7,654.04
 B. P 7,731.29
 C. P 7,420.89
 D. P 7,590.12
35. A man loans P 187,400 from a bank with interest at 5% compounded annually. He
agrees to pay his obligations by paying 8 equal annual payments, the first being due at the
end of 10 years. Find the annual payments.
 A. P 43,600.10
 B. P 43,489.47
 C. P 43,263.91
 D. P 43,763.20
36. A person buys a piece of lot for P 100,000 downpayment and 10 deferred semi-annual
payments of P 8,000 each, starting three years from now. What is the present value of the
investment if the rate of interest is 12% compounded semi-annually?
  A. P 142,999.08
 B. P 143,104.89
 C. P 142,189.67
 D. P 143,999.08
37. A young engineer borrowed P 10,000 at 12% interest and paid P 2,000 per annum for
the last 4 years. What does he have to pay at the end of the fifth year in order to pay off his
loan?
 A. P 6,999.39
 B. P 6,292.93
 C. P 6,222.39
 D. P 6,922.93
38. Miss Calledo deposited P 1,000, P 1,500 and P 2,000 at the end of the 2 nd year, 3rd year
and 4th year, respectively in a savings account which earned 10% per annum. How much is
in the account at the end of the 4th year?
 A. P 4,880.00
 B. P 4,820.00
 C. P 4,860.00
 D. P 4,840.00
39. A P 1,000,000 issue of 3%, 15-year bond was sold at 95%. What is the rate of interest
of this investment?
 A. 3.0%
 B. 3.4%
 C. 3.7%
 D. 4.0%
40. A P 1, 000, 6% bond pays dividend semiannually and will be redeemed at 110% on
June 21, 204. It is bought on June 21, 2001 to yield 4% interest. Find the price of the bond.
 A. P 1,122.70
 B. P 1,144.81
 C. P 1,133.78
 D. P 1,155.06
41. A VOM has a selling price of P 400. If its selling price is expected to decline at a rate of
10% per annum 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 231.56
42. A machine costs of P 8,000 and an estimated life of 10 years with a salvage value of P
500. What is its book value after 8 years using straight line method?
  A. P 2,000.00
 B. P 2,100.00
 C. P 2,200.00
 D. P 2,300.00
43. ABC Corporation makes it a policy that for any new equipment purchased, the 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 depreciation used is the SYD method.
 A. 7 eyars
 B. 8 years
 C. 9 years
 D. 10 years
44. An asset is purchased for P 9,000.00. Its estimated economic life is 10 years after which
it will be sold for P 1,000.00. Find the depreciation in the first three years using sum-of-
years digit method
 A. P 3,279.27
 B. P 3,927.27
 C. P 3,729.27
 D. P 3,792.72
45. Shell Philippines, a multinational company, has a total gross income for a particular year
of P 50,000,000. The taxable income after taking all deductions except for depletion is P
18,500,000. What is the allowable depletion allowance for that particular year? Take
percentage of gross income for oil as 22%.
 A. P 9,358.41
 B. P 9,228.45
 C. P 9,250.00
 D. P 9,308.45
46. The Saudi Arabian Oil Refinery developed an oil well which is estimated to contain
5,000,000 barrels of oil at an initial cost of $ 50,000,000. What is the depletion charge
during the year where it produces half million barrels of oil? Use Unit or Factor method in
computing depletion.
 A. $ 5,000,000.00
 B. $ 5,010,000.00
 C. $ 5,025,000.00
 D. $ 5,050,000.00
47. A manufacturer produces certain items at a labor cost of P 115 each, material cost of P
76 each and variable cost of P 2.32 each. If the item has a unit price of P 600, how many
units must be manufactured each month for the manufacturer to break even if the monthly
overhead is P428,000
 A. 1,033
 B. 1,037
  C. 1,043
 D. 1,053
48. A manufacturing firm maintains one product assembly line to produce signal generators.
Weekly demand for the generators is 35 units. The line operates for 7 hours per day, 5 days
per week. What is the maximum production time per unit in hours required of the line to
meet the demand?
 A. 1.0 hour per unit
 B. 1.2 hours per unit
 C. 1.4 hours per unit
 D. 1.6 hours per unit
49. A telephone switchboard 100 pair cable can be made up with either enameled wire or
tinned wire. There will be 400 soldered connections. The cost of soldering a connection on
the enameled wire will be P 1.65 on the tinned wire, it will be P 1.15. A 100- pair cable
made up with enameled wire cost P 0.55 per linear foot and those made up of tinned wire
cost P 0.75 per linear foot. Determine the length of cable run in feet so that the cost of each
installation would be the same.
 A. 1,000 feet
 B. 1,040 feet
 C. 1,100 feet
 D. 1,120 feet
50. A leading shoe manufacturer produces a pair of Lebron James signature shoes at a
labor cost of P 900.00 a pair and a material cost of P 800.00 a pair. The fixed charges on
the business are P 5,000,000 a month and the variable costs are P 400.00 a pair. Royalty to
Lebron James is P 1,000 per pair of shoes sold. If the shoes sell at P 5,000 a pair, how
many pairs must be produced each month for the manufacturer to break-even?
 A. 2.590
 B. 2,632
 C. 2,712
 D. 2,890

ANSWER KEY

26. P54.66
27. P 152.88
28. P 3,260.34
29. P 15,030.03
30. P 19,624.49
31. P 717.17
32. P 1,185.54
33. P 2,504.57
34. P 7,731.29
35. P 43,763.20
36. P 143,999.08
37. P 6,922.93
38. P 4,860.00
39. 3.0%
40. P 1,144.81
41. P 236.20
42. P 2,000.00
43. 9 years
44. P 3,927.27
45. P 9,250.00
46. $ 5,000,000.00
47. 1,053
48. 1.0 hour per unit
49. 1,000 feet
50. 2,632