ENGINEERING ECONOMY

PROBLEM SET 01 A. 13.64%

B. 16.43%
Simple and Compound Interest C. 18.37%
D. 10.32%
1. A price tag of P1200 is specified if paid
within 60 days but offers a 3% discount for 5. Agnes Abanilla was granted a loan of P20,000
cash in 30 days. Find the rate of interest. by her employer CPM Industrial Fabricator and
Construction Corporation with an interest at 6%
A. 37.11% for 180days on the principal collected in
B. 40.21% advance. The corporation would accept a
C. 38.51% promissory note for P20,000 non-interest for
D. 39.31% 180days. If discounted at once, find the
proceeds in the note.
2. It is the practice of almost all bank in the A. P18,800
Philippines that when they grant a loan, the B. P18,000
interest for 1 year is automatically deducted C. P19,000
from the principal amount upon release of D. P18,400
money to a borrower. Let us therefore
assume that you applied for a loan with the 6.) P4000 is borrowed for 75days at 16% per
bank and the P80000 was approved at an annum simple interest. How much will be due at
interest rate of 14% of which P11200 was the end of 75days?
deducted and you were given ac check of
P68800. Since you have to pay the amount A. P4186.43
of P80000 one year after, what then will be B. P4133.33
the effective interest rate? C. P5124.54
D. P5625.43
A. 16.28%
7. Mr. Almagro made a money market
B. 17.30%
placement of P1,000,000 for 30 days at 7.5%
C. 38.51%
per year. If withholding tax is 20%, what is the
D. 39.31%
net interest that Mr. Almagro will receive at the
end of the month?
3. Mr. J. Dela Cruz borrowed money from
the bank. He received from the bank A. P3,000
P1,340.00 and promised to pay P1,500.00 B. P6,000
at the end of 9 months. Determine the C. P4,000
simple interest rate and the corresponding D. P5,000
discount rate or often referred to as the
“Banker’s Discount”. 8. A bill for motorboat specifies the cost as
P1,200 due at the end of 100days but offers a
A. 15.92% ; 13.73% 4% discount for cash in 30days. What is the
B. 12.95% ; 17.33% highest rate, simple interest at which the buyer
C. 18.28% ; 13.12% can afford to borrow money in order to take
D. 19.25% ; 13.33% advantage of the discount?

A. 18.4%
4. A man borrowed from the bank under a
B. 20.9%
promissory note that he signed in the
C. 19.6%
amount of P25000.00 for a period of 1year.
D. 21.4%
He received only the amount of P21,915.00
after the bank collected the advance 9. In buying a computer disk, the buyer was
interest and an additional amount of P85.00 offered the options of paying P250 cash at the
for notarial and inspection fees. What was end of 30days or P270 at the end of 120days.
the rate of interest that the bank collected At what rate is the buyer paying simple interest
in advance? if he agree to pay at the end of 120days?
 A. 32% A. 19.61 %
B. 28% B. 19.44 %
C. 40% C. 19.31 %
D. 25% D. 19.72 %

10. On March 1, 1996 Mr. Almagro obtains a 16. What rate of interest compounded annually
loan of P1500 from Mr. Abella and signs a note is the same as the rate of interest of 8%
promising to pay the principal and accumulated compounded quarterly?
simple interest at the rate of 5% at the end of
120days. On May 15, 1996, Mr. Abella discounts A. 8.07 %
the note at the bank whose discount rate is 6%. B. 8.12 %
What does he receive? C. 8.16 %
D. 8.24 %
A. P2,201.48
B. P1,513.56 17. Which of these gives the lowest effective
C. P1,123.29 rate of interest?
D. P938.20 A. 12.35 % compounded annually
11. A farmer selling eggs at 50 pesos a dozen B. 11.90 % compounded annually
gains 20%. If he sells the eggs at the same price C. 12.20 % compounded annually
after the costs of the eggs rises by 12.5%, how D. 11.60 % compounded annually
much will be his new gain in percent? 18. An amount of P1,000 becomes P1,608.44
A. 6.89 % after 4 years compounded bimonthly. Find the
B. 6.65 % nominal interest.
C. 6.58 %
D. 6.12 % A. 11.89 %
B. 12.00 %
12. The exact simple interest of P5,000 invested C. 12.08 %
from June 21, 1995 to December 25, 1995 is D. 12.32 %
P100. What is the rate of interest?
19. How long will it take money to double itself
A. 3.90 % if invested at 5% compounded annually?
B. 3.92 %
C. 3.95 % A. 13.7 years
D. 3.98 % B. 14.7 years
C. 14.2 years
13. What is the ordinary interest on P1,500.50 D. 15.3 years
for 182 days at 5.2%?
20. By the condition of a will, the sum of
A. P39.01 P20,000 is left to a girl to be held in trust fund
B. P39.82 by her guardian until it amounts to P50,000.
C. P39.45 When will the girl receive the money if fund
D. P39.99 invested at 8% compounded quarterly?
14. A loan for P50,000 is to be paid in 3 years A. 11.23 years
at the amount of P65,000. What is the effective B. 11.46 years
rate of money? C. 11.57 years
A. 9.01 % D. 11.87 years
B. 9.14 % 21. A sum of P1,000 is invested now and left for
C. 9.31 % eight years, at which time the principal is
D. 9.41 % withdrawn. The interest has accrued is left for
15. What is the effective rate corresponding to another eight years. If the effective annual
18% compounded daily? Take 1 year is equal to interest rate is 5%, what will be the withdrawal
360 days. amount at the end of the 16th year?

A. P693.12
 B. P700.12 27. In year zero, you invest P 10,000.00 in a
C. P702.15 15% security for 5 years. During that time, the
D. P705.42 average annual inflation is 6%. How much in
terms of year zero pesos will be in the account
22. Mandarin Bank advertises 9.5% account at maturity?
that yields 9.84% annually. Find how often the
interest is compounded. A. P 15,030.03
B. P 20,113.57
A. Monthly C. P 18,289.05
B. Bimonthly D. P 16,892.34
C. Quarterly
D. Annually 28. A man is required to pay P200 at the end of
160days or P190 at the end of 40days.
23. A student plans to deposit P1,500 in the Determine the rate of interest.
bank now and another P3,000 for the next 2
years. If he plans to withdraw P5,000 three A. 18.4%
years from after his last deposit for the purpose B. 15.8%
of buying shoes, what will be the amount of C. 19.6%
money left in the bank after one year of his D. 16.4%
withdrawal? Effective annual interest rate is
10%. 29. Compute the discount if P2000 is discounted
for 6 months at 8% simple interest.
A. P1,549.64
B. P1,459.64 A. P29.67
C. P1,345.98 B. P76.92
D. P1,945.64 C. P67.29
D. P92.76
24. You borrow P3,500.00 for one year from a
friend at an interest rate of 1.5% per month 30. The amount of P12800 in 4years at 5%
instead of taking a loan from a bank at a rate of compounded quarterly is _____.
18% per year. How much lesser you will pay by A. P14,785.34
borrowing the money from the bank? B. P16,311.26
A. P 62.44 C. P15,614.59
B. P44.55 D. P15,847.33
C. P54.66 31. A man borrows money from a bank which
D. P37.56 uses a simple discount rate of 14%. He signs a
25. What is the present worth of two P 100 promissory note promising to pay P500.00 per
payments at the end of the third year and fourth month at the end of 4th, 6th, and 7th month
year? The annual interest rate is 8%. respectively. Determine the amount of money
that he received from the bank.
A. P 150.56
B. P 152.88 A. P1403.68
C. P 153.89 B. P1102.37
D. P 151.09 C. P1340.38
D. P1030.28
26. A firm borrows P2,000 for 6 years at 8%. At
the end of 6 years, it renews the loan for the 32. A nominal interest of 3% compounded
amount due plus P2,000 more for 2 years at continuously is given on the account. What is
8%. What is the lump sum due? the accumulated amount of P10,000 after
10years?
A. P 3,260.34
B. P 3,280.34 A. P13,610.10
C. P 3,270.34 B. P13,498.60
D. P 3,250.34 C. P13,500.10
D. P13,439.16
33. A man expects to receive P25,000 in 8 invest in a fund that will pay 6% compounded
years. How much is that worth now considering continuously?
interest at 8% compounded quarterly?
A. P24,751.34
A. P13,859.12 B. P28,864.36
B. P13,675.23 C. P36,421.44
C. P13,958.33 D. P30,468.42
D. P13,265.83
40. If the effective annual interest rate is 4%,
34. P500,000 was deposited at an interest of compute the equivalent nominal annual interest
6% compounded quarterly. Compute the compounded continuously.
compound interest after 4 years and 9 months.
A. 3.92%
A. P163,475.37 B. 3.80%
B. P158,270.37 C. 4.10%
C. P178,362.37 D. 4.09%
D. P183,327.37
41. What is the nominal rate of interest
35. If the nominal interest rate is 3%, how much compounded continuously for 10 years if the
is P5000 worth in 10 years in a continuously compound amount factor is equal to 1.34986?
compounded account?
A. 3%
A. P5750 B. 5%
B. P7500 C. 4%
C. P6750 D. 6%
D. P6350
42. American Express Corp. charges 1.5%
36. P200,000 was deposited for a period of 4 interest per month, compounded continuously
years and 6 months and bears on interest of on the unpaid balance purchases made on this
P85649.25. What is the rate of interest if it is credit card. Compute the effective rate of
compounded quarterly? interest.

A. 8% A. 19.72%
B. 7% B. 21.20%
C. 6% C. 20.25%
D. 5% D. 19.90%

37. How many years will P100,000 earn a 43. If a sum of money triples in a certain period
compound interest of P50,000 if the interest of time at a given rate interest, compute the
rate is 9% compounded quarterly? value of the single payment present worth
factor.
A. 3.25 years
B. 5.86 years A. 0.333
C. 4.55 years B. 0.292
D. 2.11 years C. 3.000
D. 1.962
38. Find the time required for a sum of money
to triple itself at 5% per annum compounded 44. If the single payment amount factor for a
continuously. period of 5 years is 1.33822. What is the nearest
value of the interest rate?
A. 21.97 years
B. 18.23 years A. 8%
C. 25.34 years B. 5%
D. 23.36 years C. 7%
D. 6%
39. A man wishes to have P40,000 in a certain
fund at the end of 8 years. How much should he
45. If the single payment present worth factor to pay his obligations by paying 8 equal annual
for a period of 8 years is equal to 0.58201, payments, the first being due at the end of 10
compute the nearest value of the rate of interest years. Find the annual payments.
for that period.
A. P 43,600.10
A. 6% B. P 43,489.47
B. 5% C. P 43,263.91
C. 7% D. P 43,763.20
D. 8%
6. A person buys a piece of lot for P 100,000
down payment and 10 deferred semi-annual
payments of P 8,000 each, starting three years
PROBLEM SET 02 from now. What is the present value of the
ANNUITY investment if the rate of interest is 12%
compounded semi-annually?
1. What is the present worth of a P500 annuity A. P 142,999.08
starting at the end of the third year and B. P 143,104.89
continuing to the end of the fourth year, if the C. P 142,189.67
annual interest rate is 10 %? D. P 143,999.08
A. P 727.17 7. A young engineer borrowed P 10,000 at 12%
B. P 717.17 interest and paid P 2,000 per annum for the last
C. P 714.71 4 years. What does he have to pay at the end of
D. P 731.17 the fifth year in order to pay off his loan?
2. What annuity is required over 12 years to A. P 6,999.39
equate with a future amount of P 20,000? B. P 6,292.93
Assume i= 6% annually. C. P 6,222.39
A. P 1,290.34 D. P 6,922.93
B. P 1,185.54 8. Mr. Armenion deposited P 1,000, P 1,500 and
C. P 1,107.34 P 2,000 at the end of the 2nd year, 3rd year and
D. P 1,205.74 4th year, respectively in a savings account
3. A factory operator bought a diesel generator which earned 10% per annum. How much is in
set for P 10,000.00 and agreed to pay the dealer the account at the end of the 4th year?
uniform sum at the end of each year for 5 years A. P 4,880.00
at 8% interest compounded annually, that the B. P 4,820.00
final payment will cancel the debt for principal C. P 4,860.00
and interest. What is the annual payment? D. P 4,840.00
A. P 2,500.57 9. A man inherited a regular endowment of
B. P 2,544.45 P100,000 every end of 3 months for x years.
C. P 2,540.56 However, he may choose to get a single lump of
D. P 2,504.57 P3,702,939,80 at the end of 4 years. If the rate
4. What is the present worth of a year annuity interest was 14% compounded quarterly, what
paying P 3,000.00 at the end of each year, with is the value of x?
interest at 8% compounded annually? A. 13 years
A. P 7,654.04 B. 12 years
B. P 7,731.29 C. 10 years
C. P 7,420.89 D. 11 year
D. P 7,590.12 10. A service car whose car price was P540,000
5. A man loans P 187,400 from a bank with was bought with a down payment of P162,000
interest at 5% compounded annually. He agrees and monthly installments of P10,847.29 for 5
years. What was the rate of interest if A. P84.61
compounded monthly? B. P45.76
C. P94.24
A. 30% D. P78.68
B. 20%
C. 24% 16. An employee obtained a loan of P100,000 at
D. 15% the rate of 6% compounded in order to build a
house. How much must he pay monthly to
11. What is the present worth of a 3 year amortize the loan within a period of 10 years?
annuity paying P3000 at the end of each year,
with interest at 8% compounded annually? A. P8,322.07
B. P2,494.04
A. P7,731.29 C. P1,101.80
B. P7,371.29 D. P3,452.90
C. P9,731.79
D. P9,371.79 17. If money is worth 5% compounded semi-
annually, find the present value of a sequence
12. A man paid a 10% down payment of of 12 semi-annual payments of P500 each, the
P200,000 for a house and lot and agreed to pay first of which is due at the end of 4.5 years.
the balance on monthly installments for 5 years
at an interest rate of 15% compounded A. P4,209.51
monthly. What was the monthly installment on B. P6,240.62
pesos? C. P5,602.62
D. P7,161.42
A. P44,528.34
B. P43,625.92 18. An annual deposit of P1270 is placed on the
C. P42,821.87 fund at the end of each year for 6 years. If the
D. P45,825.62 fund invested has a rate of interest of 5%
compounded annually, how much is the worth
13. A man inherited a regular endowment of of this fund at the end of 9 years?
P100,000 every end of 3 months for 10 years.
However, he may choose to get a single lump A. P12,000
sum payment at the end of 4 years. How much B. P11,000
is this lump sum if the cost of money is 14% C. P10,000
compounded quarterly? D. P14,000

A. P3,702,939.73 19. A fund for replacement of a machinery in a

B. P3,502,546.23 plant must have P30,000 at the end of 9 years.
C. P3,802,862.23 An equal deposit of P2,965 was made on the
D. P3,602,431.73 fund at the end of each 6 months for 4 years
only. How much is the rate of the fund invested
14. A man paid 10% down payment of P200,000 if it is compounded semi-annually?
for a house and lot and agreed to pay the
balance on monthly installments for x years at A. 3.5%
an interest rate of 15% compounded monthly. B. 5.5%
If the monthly installment was P42,821.87, find C. 4.5%
the value of x. D. P6.5%

A. 5 years 20. In purchasing a house, a man makes a cash

B. 8years payment and takes out a mortgage for P10,000
C. b 9 years on which he agrees to pay P200 at the end of
D. 7 years each month for 5 years. At what interest rate
compounded monthly was interest charged on
15. A father wishes to provide P4000 for his son the mortgage?
on his 21st birthday. How much should he
deposit every 6 months in a savings bank which A. 8.41%
pays 3% compounded semi-annually if the first B. 7.68%
deposit is made when the son is 3.5 years old? C. 7.42%
 D. 9.60% offered under the same condition with 0.75%
interest per month for 12 months of the unpaid
21. How much money must you invest in order balance. Which offer should the engineer choose
to withdraw P2000 annually for 10 years if the and what is the rate of interest?
interest rate is 9%?
A. 0.62%
A. P12,853.32 B. 0.75%
B. P12,835.32 C. 1.66%
C. P12,881.37 D. 0.40%
D. P12,385.32
27. If a low cost house and lot worth P87,000
22. If interest is at rate of 8% compounded were offered at 10% down payment and P500
semi-annually, what sum must be invested at per month for 25 years. What is the effective
the end of each 6 months to accumulate a fund monthly interest rate on the diminished
of P10,000 at the end of 8 years? balance?
A. P458.20 A. 0.492%
B. P498.23 B. 0.531%
C. P532.11 C. 0.687%
D. P753.10 D. 0.683%
23. A Corporation will invest P5000 in a fund at 28. A house and lot can be acquired with a down
the end of each 6 months to accumulate payment of P500,000 and a yearly payment
P100,000 to initiate a plant overhaul. If the fund P100,000 at the end of each year for a period of
is invested at 6.5% compounded semi-annually, 10 years, starting at the end of 5 years from the
how may years will the fund contain at least date of purchase. If the money is worth 14%
P100,000? compounded semi-annually, what is the cash
A. 8 years price of the property?
B. 10 years A. P810,000
C. 6 years B. P801,900
D. 9 years C. P808,836
24. A piece of machinery can be bought for D. P805,902
P10,000 cash, or for P2000 down and payments 29. A man bought a brand new car for P650,000
of P750 per year for 15 years. What is the on installment basis at the rate of 10% oer
annual interest rate for time payments? annum on the unpaid balance. If he paid a down
A. 4.61% payment of P120,000 cash and proposed to pay
B. 5.71% the balance in equal monthly payment for 2
C. 3.81% years, what should be his monthly payment?
D. 11.00% A. P54,323.03
25. To accumulate a fund of P8000 at end of 10 B. P24,447.03
years, a man will make equal annual deposit of C. P34,532.94
P606.94 in the fund at the end of each year. D. P83,534.32
How much is the rate of interest if it is 30. A parent on the day the child is born wishes
compounded annually? to have to determine what lump sum would
A. 6% have to be paid into an account bearing interest
B. 10% at 5% compounded annually, in order to
C. 8% withdraw P20,000 each on the child’s 18th,
D. 12% 19th, 20th, and 21st birthdays.

26. A purchasing engineer of a certain firm is to A. P35,941.73

purchase a second hand truck fro P75,000. A B. P30,941.73
dealer offers cash payment of P5,000 and P6486 C. P33,941.73
per month for 12 months. Another dealer D. P25,941.73
31. If money is worth 5% compounded semi- the rate of 5.5% quarterly, find the sum to his
annually, find the present value of a sequence credit just after the last deposit.
of 12 semi-annual payments of P500 each, the
first of which is due at the end of 4.5 years. A. P9236
B. P9563
A. P4,209.51 C. P9363
B. P3,958.48 D. P9684
C. P5,038.29
D. P4,936.39 37. At what interest rate payable quarterly will
payments of P500 at the beginning of each 3
32. A businessman borrowed P300,000 with months for 7 years discharge a debt of P12500
interest at the rate of 6% compounded semi- due immediately?
annually. He agrees to discharge his obligation
by paying a series of 8 equal semi-annual A. 3.44%
payments, the first being due at the end of 5.5 B. 5.44%
years. Find the semi-annual payment. C. 4.33%
D. 6.33%
A. P69,475.53
B. P73.083.59 38. A man was offered a Land Bank certificate
C. P57,434.78 with a face value of P100,000 which is baring
D. P40,922.40 interest of 8% per year payable semi-annually
and due in 6 years. If he wants to earn 6% semi-
33. A man borrowed P300,000 from a lending annually, how much must he pay the certificate?
institution which will be paid after 10 years at
an interest rate of 12% compounded annually. A. P90,614.92
How much should he deposit to a bank monthly B. P90,061.49
in order to discharge his debt 10 years hence? C. P96,041.92
D. P99,814.92
A. P2,798.52
B. P4,672.31 39. An oil well which could produce a net income
C. P3,952.50 of P15,000,000 per year for 25 years is being
D. P5,093.06 considered to be purchased by a group of
businessman. If the return on investment is
34. What is the accumulated amount of the five targeted to be 20% out of the net income and
year annuity paying P6000 at the end of each the sinking fund at 18% interest is to be
year, with interest at 15% compounded established at recover of investment, how much
annually? must be paid to the oil well?

A. P40,454.29 A. P73,921,184.58
B. P41,454.29 B. P70,215,276.17
C. P41,114.29 C. P73,297,198.28
D. P40,544.29 D. P75,973,209.26

35. A man owes P12,000 today and agrees to 40. An investor pays P1,100,000 for a mine
discharge the debt by equal payments at the which will yield a net income of P200,000 at the
beginning of each 3 months for 8 years, where end of each year for 10 years and then will
this payments include all interest at 8% payable become useless. He accumulated a replacement
quarterly. Find the quarterly payment. fund to recover his capital by annual
investments at 4.5%. At what rate(%) does he
A. P501.30 receive interest on his investment at the end of
B. P498.20 each year?
C. P602.40
D. P701.60 A. 10.04%
B. 11.5%
36. A man will deposit P200 with a savings and C. 8.5%
loan association at the beginning of 3 months D. 14.5%
for 9 years. If the association pays interest at
PROBLEM SET 03
DEPRECIATION
5. A printing equipment costs P73,500 has a life
expectancy of 8 years and has a salvage value
1. An engineer bought an equipment for of P3,500 at the end of its life. The book value
P500,000. Other expenses including at the end of x years is equal to P38,500. Using
installations amounted to P30,000. At the end straight line method of depreciation, solve for
of its estimated useful life of 10 years, the the value of x.
salvage value will be 10% of the first cost. Using
straight line method of depreciation, what is the A. 5 years
book value after 5 years? B. 6 years
C. 4 years
A. P291,500 D. 3 years
B. P242,241
C. P282,242 6. The cost of the printing equipment is
D. P214,242 P500,000 and the cost of handling and
installation is P30,000. If the book value of the
2. A small machine costing P80,000 has a equipment at the end of the 3rd year is
salvage value of x at the end of its life of 5 years. P242,000 and the life of the equipment is
The book value at the end of the 4th year is assumed to be 5 years, determine the salvage
P22,400. What is the value of x using the value of this equipment at the end of 5 years.
straight line method depreciation?
A. P50,000
A. P6000 B. P53,000
B. P8000 C. P60,000
C. P7000 D. P64,000
D. P9000
7. An engineer bought an equipment for
3. A machine has a salvage value of P12,000 at P500,000. He spent an additional amount of
the end of its useful life of 6 years. The book P30,000 for installation and other expenses. The
value at the end of 5 years is P30,833.33. Using salvage value is 10% of the first cost. If the
a straight line method of depreciation, what is book value at the end of 5 years will be
the first cost of the machine? P291,500 using straight line method of
depreciation, compute the useful life of the
A. P125,500 equipment in years.
B. P125,000
C. P135,500 A. 10 years
D. P135,000 B. 6 years
C. 8 years
4. A manufacturing plant was built at a cost of D. 15 years
P5M and is estimated to have a life of 20 years
with a salvage value of P1M. A certain 8. The cost of equipment is P500,000 and the
equipment worth P570,000 was installed at a cost of installation is P30,000. If the salvage
cost of P80,000 is expected to operate value is 10% of the cost of equipment at the end
economically for 15 years with a salvage value of 5 years, determine the book value at the end
of P50,000. Determine the book value of the of the fourth year. Use straight line method.
plant and equipment after 10 years, use straight
line depreciation method. A. P155,000
B. P146,000
A. P3,250,000 C. P140,000
B. P4,250,000 D. P132,600
C. P3,750,000
D. P4,500,000 9. The purchase of a motor for P6000 and a
generator for P4000 will allow the company to
produce its own energy. The configuration can C. P2,980.24
be assembled for P500. The service will operate D. P6,259.98
for 1600 hours per year for 10 years. The
maintenance cost is P300 per year, and cost to 14. A telephone company purchased a
operate is P0.85 per hour for fuel and related microwave radio equipment for P6M. Freight
cost. Using straight line depreciation, what is and installation charges amounted to 3% of the
the annual cost for the operation? There is a purchased price. If the equipment shall be
P400 salvage value for the system at the end of depreciated over a period of 8 years with a
10 year. salvage value of 5%, determine the depreciation
charge during the 5th year using the Sum of
A. P2,710 Year Digit Method.
B. P2,630
C. P2,480 A. P756,632.78
D. P2,670 B. P652,333.33
C. P957,902.56
10. A machine has an initial cost of P50,00.00 D. P845, 935.76
and a salvage value of P10,000.00 after 10
years. What is the straight line method 15. A consortium of international
depreciation rate as a percentage of the initial communications companies contracted for the
cost? purchase and installation of a fiber optic cable
linking two major Asian cities at a total cost of
A. 10% P960M. This amount includes freight and
B. 12% installation charges at 10% of the above total
C. 8% contract price. If the cable depreciated over a
D. 9% period of 15 years with zero salvage value, what
is the depreciation charge during the 8th year
11. A machine has an initial cost of P50,00.00 using the sum of year digits method?
and a salvage value of P10,000.00 after 10
years. What is the book value after 5 years A. P64M
using straight line method depreciation rate? B. P80M
C. P23M
A. P35,000 D. P76M
B. P15,500
C. P25,000 16. A machine cost P7,350 has a life of 8 years
D. P30,000 and has a salvage value of P350 at the end of 8
years. Determine its book value at the end of 4
12. A machine has a first of P80,000 and a years using sum years digit method.
salvage of P2,000 at the end of its life of 10
years. Find the book value at the end of the 6th A. P3,476.90
year using straight line method of depreciation. B. P6,543.21
C. P2,294.44
A. P33,200 D. P5,455.01
B. P34,300
C. P35,400 17. A certain equipment costs P7,000 has an
D. P32,900 economic life of n years and a salvage value
P350 at the end of n years. If the book value at
13. An asset is purchased for P90,000.00. Its the end of 4 years is equal to P2197.22,
estimated life is 10 years after which it will be compute for the economic life of the equipment
sold for P1,000.00. Find the book value during using the sum of years digit method.
the first year if Sum of the Years Digits(SYD)
depreciation is used. A. 10 years
B. 8 years
A. P7,545.45 C. 16 years
B. P5,245.92 D. 11 years
18. A company purchased an asset for P10000 A. P679,454.27
and plans to keep it for 20 years. If the salvage B. P532,825.73
value is zero at the end of the 20th year, what C. P432,725.45
is the depreciation in the third year? Use sum of D. P764,243.33
years digit method.
23. An earth moving equipment that cost
A. P1000 P90,000 will have an estimated salvage value of
B. P938 P18,000 at the end of 8 years. Using double-
C. P857 declining balance method, compute the book
D. P747 value and the total depreciation at the end of
the 5th year.
19. An equipment costs P7000 and has a life of
8 years and salvage value of x after 8 years. If A. P21,357.42 ; P68,642.58
the book value of the equipment at the 4th year B. P24,362.48 ; P65,637.52
is equal to P2197.22, compute the salvage value C. P15,830.34 ; P74,169.66
x using the sum of years digit method. D. P19,442.78 ; P70,557.22

A. P594 24. A certain office equipment has a first cost of

B. P350 P20,000 and has a salvage value of P1,000 at
C. P430 the end of 10 years. Determine the depreciation
D. P290 at the end of the 6th year using Sinking fund
method at 3% interest.
20. ABC Corporation makes it policy that for
every new equipment purchased, the annual A. P10,720
depreciation should not exceed 20% of the first B. P11,680
cost at any time without salvage value. C. P12,420
Determine the length of service if the D. P9,840
depreciation used is the SYD Method.
25. An equipment which cost P200,000 has a
A. 9 years useful life of 8 years with a salvage value of
B. 12 years P25,000 at the end of its useful life. If the
C. 10 years depreciation at the first year is P21,875, what
D. 19 years method is used in the calculation of
depreciation?
21. A machine having a certain first cost has a
life of 10 years and a salvage value of 6.633% A. Straight Line
of the first cost at the end of 10 years. If it has B. Declining Balance
a book value of P58,914 at the end of the 6th C. Sinking Fund
year, how much is the first cost of the machine D. Sum of Years Digit
if the constant percentage of declining value is
used in the computation for its 26. An equipment costs P8,000 has an economic
depreciation.(Matheson’s Method) life of 8 years and salvage value of P400 at the
end of 8 years. The first year depreciation
A. P600,000 amounts to P1,688.89. What method is used in
B. P100,000 the calculation of the depreciation?
C. P300,000
D. P900,000 A. Straight Line
B. Declining Balance
22. A machine costing P720,000 is estimated to C. Sinking Fund
have a life of 10 years. If the annual rate of D. Sum of Years Digit
depreciation is 25%, determine the total
depreciation using a constant percentage of the 27. The original cost of a certain machine is
declining balance method. P150,000 and has an economic life of 8 years
with a salvage value of P9,000 at that time. If
the depreciation of the first year is equal to B. P190,000
P44,475, what method is used in the calculation C. P160,000
of the depreciation? D. P150,000

A. Straight Line
B. Declining Balance 32. A certain machine cost P40,000 and has a
C. Sinking Fund life of 4 years and a salvage value of P5000. The
D. Sum of Years Digit production output of this machine in units per
year is 1000 units for the first year, 2000 units
28. A machine has a first cost of P140,000 and for the second year, 3000 units for the third
a life of 8 years with a salvage value of P10,000 year, and 4000 units for the fourth year. If the
at the end of its useful life. If the depreciation units produced are in uniform quality, what is
at the first year amounts to P35,000, what the depreciation charge at the end of the fourth
method is used in the calculation of year.
depreciation?
A. P14,000
A. Double Declining Balance B. P15,000
B. Straight Line C. P13,000
C. Declining Balance D. P16,000
D. Sum of Years Digit
33. A lathe machine costs P300,000 brand new
29. A hydraulic machine cost P180,000 and has with a salvage value of x pesos. The machine is
a salvage value of P15,000 at the end of its expected to last for 28500 hours in a period of
useful life which is 12 years. If the depreciation 5 years. In the first year of service it was used
at the first year is P9,780.71, what method is for 8000 hours. If the book value at the end of
used in computing the depreciation. Assume the first year is P220,000, compute for the
money is worth 6% annually. salvage value x in pesos.

A. Straight Line A. P15,000

B. Declining Balance B. P12,000
C. Sinking Fund C. P18,000
D. Sum of Years Digit D. P20,000

30. An equipment costs P480,000 and has a 34. A certain machine cost P40,000 and has a
salvage value of 10% of its cost at the end of its life of 4 years and a salvage value of P5000. The
economic life of 35,000 operating hours. In the production output of this machine in units per
first year, it was used for 4,000 hours. year is first year 1800 units, second year2200
Determine its book value at the end of the first units, third year 3000, and fourth year 4000
year. units. If the units produced are of uniform
quality, what is the depreciation charge at the
A. P430,629.00 end of 4th year?
B. P418,360.00
C. P380,420.00 A. P12,727.27
D. P376,420.00 B. P16,420.43
C. P15,350.23
31. An equipment costs P480,000 and has a D. P17,200.98
salvage value of 10% of its cost at the end of its
economic life of 36,000 operating hours in a 35. A lathe machine cost P300,000 with a
period of 5 years. In the first year of service, it salvage value of P15,000 is expected to last for
was used for 12,000 hours. If at the end of the 285000 hours in a period of 5 years. In the first
2nd year it was used for 15,000 hours, find the year of service it was used for 8000 hours.
depreciation at the second year. Compute the book value of the machine at the
end of the first year.
A. P180,000
 A. P292,000
B. P250,000
C. 200,000 4. A contractor can purchase a heavy-duty truck
D. P323,000 for P500,000. Its estimated life is 8 years and
estimated salvage value of P6000. Maintenance
PROBLEM SET 04 is estimated to be P2500 annually including the
CAPITALIZED COST, BOND, B/C RATIO cost of driver and fuel maintenance. The
contractor can hire a similar unit and driver for
1. The first cost of a certain equipment is P750 a day. If interest is taken at 8%, how
P324,000 and a salvage value of P50,000 at the many days per year must be services of a dump
end of its life of 4 years. If money is worth 6% truck be required to justify the purchase of a
compounded annually, find the capitalized cost. truck? Use annual cost method.

A. P1,367,901.15 A. 112 days

B. P936,431.16 B. 132 days
C. P1,427,846.17 C. 121days
D. P843,916.27 D. 211 days

2. A multi million project can purchase heavy 5. It cost P50,000 at the end of each year to
duty trucks for P600,000 each. It is estimated maintain a section of Kennon road. If money is
to have a salvage value of P60000 at the end of worth 10%, how much would it pay to spend
its life which is 10 years. Maintenance and immediately to reduce the annual cost to
operating cost including the driver is estimated P10,000?
to cost an average of P3000 per year. The
contractor however can hire a similar truck and A. P410,000
its operator for P420 per day. If money is worth B. P400,000
12%, how many days per year must the service C. P554,000
of the truck be required to justify the buying of D. P453,000
the trucks. Use annual cost method.
6. A bond issue of P50,000 in 10 years, bonds
A. 252 days in P1000 units paying 10% interest in annual
B. 243 days payments, must be retired by the use of sinking
C. 225 days fund which earns 8% compounded annually.
D. 255 days What is the total cost for the interest ad
retirement of the entire bond issue.
3. Each removal from a ditch in city streets is
accomplished by a machine loading into trucks. A. P82,241
This machine will cost P20,000 with labor, fuel, B. P82,214
oil, and maintenance amounting to P5000 per C. P84,150
year. Life of the machine is estimated to be 5 D. P84,510
years and no salvage value. The contractor
however can hire a similar machine and its 7. Determine the amount of interest you would
operator at P340 per day. How many days per receive per period if you purchase a 6%, P5000
year must the services of the machine be bond which matures in 10 years with interest
required to justify the purchase of their new payable quarterly.
machine of the money is worth 10%. Use annual
cost method. A. P24
B. P75
A. 248 days C. P98
B. 284 days D. P52
C. 428 days
D. 482 days 8. A corporation floats callable bonds amounting
to P100,000 each having a par value of P500,
the bond rate is 7.5% and the bonds are to be
retired in 5 years, the annual payments being Opening Cost = P6,000 per year
as nearly equal as possible. What is the total Salvage Value = 0
payment for the whole period of 5 years? Life of Project = 10 years
Rate of Interest = 12%
A. P123,625
B. P214,124 A. 1.34
C. P124,241 B. 2.23
D. P923,124 C. 1.78
D. 1.11
9. A P 1,000,000 issue of 3%, 15-year bond was
sold at 95%. What is the rate of interest of this
investment? PROBLEM SET 05
BREAK EVEN
A. 3.0%
B. 3.4% 1. A plywood manufacturer produces a piece of
C. 3.7% plywood at a labor cost of P0.50 and material at
D. 4.0% P3.00. The fixed charges on business are
P50,000 a month and the variable cost is P0.50
10. A P 1, 000, 6% bond pays dividend per piece. If one plywood sells for P6.00 each,
semiannually and will be redeemed at 110% on how many pieces must be produced each month
June 21, 204. It is bought on June 21, 2001 to for the manufacturer to break even?
yield 4% interest. Find the price of the bond.
A. 25,000
A. P 1,122.70 B. 24,000
B. P 1,144.81 C. 27,000
C. P 1,133.78 D. 22,000
D. P 1,155.06
2. The profit on a product selling for P8.20 is
11. A businessman invested in a medium scale 10% of the selling price. What percentage
business which cost him P47,000. The net increase in production cost will reduce the profit
annual return estimated is P14,000 for each of by 60%?
the next 8 years. Compute the benefit cost ratio
if the annual rate of interest is 18%. A. 6.67%
B. 7.66%
A. 1.21 C. 6.76%
B. 2.23 D. 7.66%
C. 1.76
D. 1.11 3. A local company assembling stereo radio
cassette produces 300 units per month at a cost
12. A project costs P100,000. The benefit at the of P800 per unit. Each stereo radio cassette sells
end of each year for a period of 5 years is equal for P1,200. If the firm makes a profit of 10% on
to P40,000. Assuming money is worth 8% with its 10,000 shares with a par value of P200 per
no salvage value, compute the benefit cost share, and the total fixed cost is P20,000 per
ratio. month. What is the break even point and how
much is the loss or profit if only 100 units are
A. 1.597 produced in a given month?
B. 1.875
C. 2.124 A. 92 ; P3,333.33
D. 1.125 B. 91 ; P4,333.44
C. 90 ; P3,444.33
13. Compute the benefit cost ratio of the D. 93 ; P4,444.33
following project:
Project cost = P80,000 4. A certain operation is now performed by
Gross income = P25,000 per year hand, the labor cost per unit is P0.54 and the
annual fixed charge for tool used is estimated at C. P850,330 ; P3,543,683
P100 per year. A machine that is being D. P800,286 ; P3,186,586
considered for this job will cost P2,400, have a
salvage value of P100 at any time and a fixed 8. The direct labor cost and material cost of a
annual cost of P200. With it, labor cost is P0.22 certain product are P300 and P400 per unit,
per unit. For what number of units of product respectively. Fixed charges are P100,000 per
per year at zero interest and life of 6 years for month and other variable costs are P100 per
the machine will the annual cost of the two unit. If the product is sold at P1,200 per unit,
methods break even? how many units must be produced and sold to
break even?
A. 1510 units
B. 1150 units A. 250 units
C. 1050 units B. 300 units
D. 1551 units C. 200 units
D. 260 units
5. A shoe manufacturer produces a pair of shoes
at a labor cost of P9.00 a pair and a material 9. XYZ Corporation manufacturers book cases
cost of P8.00 a pair. The fixed charges on the that it sells for P65.00 each. It costs XYZ
business is P90,000 a month and the variable P35,000 per year to operate its plant. This sum
cost is P4.00 a pair. If the shoes sells at P30 a includes rent, depreciation charges on
pair, how many pairs must be produced each equipment and salary payments. If the cost to
month for the manufacturer to break even? produce one bookcase is P50.00, how many
cases must be sold each year for XYZ to avoid
A. 10,000 taking a loss?
B. 11,000
C. 12,000 A. 2334
D. 13,000 B. 750
C. 539
6. An item which can be sold for P36.00 per unit D. 2233
wholesale is being produced with the following
cost data; labor cost, P10 per unit; material 10. A telephone switchboard 100 pair cable can
cost, P15.00 per unit; fixed charges, P10,000; be made up with either enameled wire or tinned
variable cost, P8.00 per unit. What is the break wire. There will be 400 soldered connections.
even point sales volume and the break even The cost of soldering a connection on the
sales volume if one out of every ten units enameled wire will be P1.65, on the tinned wire,
produced is defective and is rejected with only it will be P1.15. A 100 pair cable made up with
full recovery on materials? enameled wire cost P0.55 per lineal foot and
those made up to tinned wire cost P0.76 per
A. 333.33 ; 397 lineal foot. Determine the length of cable run in
B. 353.33 ; 333 feet so that the cost of each installation would
C. 345.33 ; 379 be the same.
D. 322.33 ; 377
A. 1121.06 ft
7. A certain firm has the capacity to produce B. 864.92 ft
650,000 units of product per year. At present, it C. 1001.25 ft
is operating at 62% capacity. The firm’s annual D. 952.38 ft
income is P4,160,000. Annual fixed cost is
P1,920,000 and the variable cost is equal to 11. A company which manufactures electric
P3.56 per unit of product. What is the firm’s motors has a production capacity of 200 motors
annual profit or loss and what volume of sales a month. The variable costs are P150 per motor.
does the firm break even? The average selling price of the motor is P275.
Fixed costs of the company amounts to P20,000
A. P805,320 ; P3,354,680 per month which included taxes. The number of
B. P803,550 ; P3,276,398
motors that must be sold each month to break PROBLEM SET 06
even is closest to: SELECTION OF ALTERNATIVES

A. 40 1. 1. An investment of P10,000 can be made in

B. 80 project that will produce a uniform annual
C. 150 revenue of P5310 for five years and then have
D. 160 a salvage value of P2000. Annual expenses will
P3000 each year. The company is willing to
12. Steel drums manufacturer incurs a yearly accept any project that will earn 10% per year
fixed operating cost of P200,000. Each drum or more on all investment capital. Show whether
manufactured cost P160 to produce and sells for this is desirable investment. ( Using ROR
P200. What is the manufacturer’s break even method )
sales volume in drum per year? If they could
manufacture 7,000 drums per year, determine Answer: ROR = 10%
the amount of profit or loss.
2. An investment of P10,000 can be made in
A. 1250 ; P70,000 project that will produce a uniform annual
B. 5,000 ; P80,000 revenue of P5310 for five years and then have
C. 2500 ; P60,000 a salvage value of P2000. Annual expenses will
D. 1,000 ; P75,000 P3000 each year. The company is willing to
accept any project that will earn 10% per year
13. A new Mechanical Engineer produces a or more on all investment capital. Show whether
certain construction ,material at a labor cost of this is desirable investment. ( Using annual cost
P16.20 per piece, material cost of P38.50per method )
piece and variable cost of P7.40 per piece. The
fixed charges on the business is P100,000 a Ans. D=P5310
month. If he sells the finished product at P95.00
each, how many pieces must be manufactured 3. An investment of P270, 000 can be made in
each month to break even? a project that will produce a uniform annual
revenue of P185, 400 for 5 years and then have
A. 3040 a salvage value of 10% of the investment. Out-
B. 3004 of-pocket costs for operation and maintenance
C. 3400 will be P81, 000 per year. Taxes and insurance
D. 4300 will be 4% of the first cost per year. The
company expects capital to earn not less than
14. A manufacturer produces certain items at a 25% before income taxes. Is this a desirable
labor cost per unit of P315, material cost per investment? ( USE ROR METHOD)
unit of P100, variable cost of P3.00 each. If the
item has a selling price of P995, how many units Ans. ROR = 23.70%
must be sold to break even if the monthly
overhead is P461,600? 4. a businessman is considering building a 25-
unit apartment in a place near a progressive
A. 800 commercial center. He felt that because of the
B. 700 location of the apartment it will be occupied
C. 600 90% at all time. He desires a rate of return of
D. 900 20%.
Other pertinent data are the following:
Land investment P5,000,000
Building investment P7,000,000
Study period 20 years
Cost of land after 20 years 20,000,000
Cost of building after 20 years 2,000,000
Rent per unit per month 6,000
Upkeep per unit per year 500
Property taxes 1%
Insurance 0.50%
Is this a good investment? USE ROR method

Ans. ROR = 12.55%, the businessman

should not invest

5. A firm is considering purchasing equipment

that will reduce cost by P 400, 000. The
equipment costs P300, 000 and has a salvage
value of P50,000 and a life of 7 years. The
annual maintenance cost is P6, 000. While not
in use by the firm, the equipment can be rented
to others to generate an income of P10, 000 per
year. If money can be invested for an 8 per cent
return, is the firm justified in buying the
equipment? USE ROR method

Ans. ROR = 5.33%