MODULE 4

ORDINARY
You borrowed $15,000 from your credit union to
purchase a used car. The interest rate on your loan is DUE
2% per month and you will make a total of 36 monthly
payments. What is your monthly payment? Eight annual deposits of $1,500 were made at the
beginning of each year in an account that pays 10%
compound interest.

a. What will be the accumulated amount at the end of

eight years?

b. What is the present worth of the deposits?

Ms. Paige has acquired a new printing press machine.

Due to insufficient funds, she agreed to pay the seller
equal $150 every month for 13 months. The company
charges an annual interest rate of 3.4% compounded
monthly. How much does the machine cost?

Sarah wants to have $10,000 on her account at the end

of 5 years. If she plans to place it on a bank having an
interest rate of 5% compounded annually and make
deposits at the beginning of each year for five years,
what should be her annual deposits?

Martin wanted to have Php100,000 on his bank account

at the end of five years. The bank charges 8%
compounding quarterly. Martin plans on placing the
deposits every end of month. How much should he
deposit?

DEFERRED
A man, on the day that his son was born, wishes to
determine what lump amount would have to be paid
into an account bearing interest of 12% per year to
provide withdrawals of $2,000 on each of the son’s 18th You want to avail a life insurance that will entitle your
, 19th , 20th , and 21st birthdays. beneficiaries Php 100,000 every end of three months.
The company gives 15% interest compounded
semiannually. How much should you pay for the
insurance now?

During your first job, you opened an account having an

interest rate of 8% per year wherein you made annual
deposits of $5,000. Five years later, you moved into a
new job and opened another bank account. How much INCREASING GRADIENT CASH FLOW
can you withdraw from the first account 35 years later?
An EOY cash flows are expected to be $1,000 for the
second year, $2,000 for the third year, and $3,000 for
the fourth year. If the interest is 15% per year, it is
desired to find

a. Present equivalent value at the beginning of the first

year

b. Uniform annual equivalent value at the end of each

of the four years.

PERPETUITY
You won a prize that entitles you to receive Php 10,000
every month for the rest of your life. If the interest rate
is 12% compounded monthly, what is the present worth
of perpetuity? If the interest is compounding every
three months?

A series of end-of-year cash flows are given on the table

below. At an interest rate of 15% year, determine the
present and future worth of the cash flow.

End of year Cash Flow

1 $5,000

2 $6,000

3 $7,000
4 $8,000

GEOMETRIC SEQUENCE OF CASH FLOWS

A series of cash flows starting at year 1 with $1,000
having a rate of increase of 20% per year after the first
year, and interest per year is 25%. Determine P, A, and F
in 5 years.
A series of end-of-year cash flows are given on the table
below. At an interest rate of 15% year, determine the
present and future worth of the cash flow.

End of year Cash Flow

1 $8,000

2 $7,000

3 $6,000

4 $5,000

Jenny started her account with an initial deposit of

P50,000. If her deposits decrease by 5% each month for
six months, how much can she withdraw at the sixth
month if interest rate is 24% per year?

A student expects that her savings will increase by P500

each month. She deposits her savings in a bank having
an interest rate of 3% per month. She made her
deposits for 10 months straight, having an initial deposit
of P1,000. How much can she withdraw 5 months after
her last deposit?
MODULE 5
Suppose that a lump sum of $100 is invested for 10 MODULE 6
years at a nominal interest rate of 5% compounded
quarterly. How much is it worth at the end of the 10th A laser surgical tool has a cost basis of $200,000 and a
year? five-year depreciable life. The estimated salvage value
of the laser is $20,000 at the end of five years.
Determine the annual depreciation amounts and the
book value of the laser at the end of each year.

You have $10,000 to invest for two years, Your bank

offers 5% interest, compounded continuously for funds
in a money market account. Assuming no additional
deposits or withdrawals, how much money will be in
that account at the end of two years?

A machine has an initial cost of P45,000 and the salvage

value is P5,000 after 10 years. Find the book value after
5 years using SL method.

Suppose that one has a present loan of $1,000 and

desires to determine what equivalent uniform EOY A machine costing P720,000 is estimated to have a book
payments, A, could be obtained from it for 10 years value of P40,545.73 when retired at the end of 10 years.
if the nominal interest rate is 20% compounded Depreciation cost is computed using a constant
continuously. percentage of the declining book value. What is the
annual rate of depreciation?
A new electric saw for cutting small pieces of lumber in
a furniture manufacturing plant has a cost basis of
A piece of equipment used in a business has a basis of
$4,000 and a 10-year depreciable life. The estimated SV
$50,000 and is expected to have $10,000 salvage value
of the saw is zero at the end of 10 years. Use the DB
when replaced after 30,000 hours of use. Find its
method to calculate the annual depreciation amount
depreciation rate per hour of use, and find the BV after
when R = 2/N
10,000 hours of operation.

An equipment costs P10,000 with a SV of P500 at the

Temple Inland Corporation has negotiated the rights to
end of 10 years. Calculate the annual depreciation cost
cut timber on privately held forest acreage for
by sinking fund method at 4% interest.
$700,000. An estimated 350 million board feet of
lumber is harvestable.

a.Determine the depletion amount for the first 2 years if

15 million and 22 million board feet are to be removed.

b.After 2 years the total recoverable board feet was

reestimated upward to be 450 million from the time the
rights were purchased. Compute the new cost depletion
factor for 3 years and later.

A company purchases an asset for P10,000,000 and

plans to keep it for 20 years. If the salvage value is zero
at the end of the 20th year, what is the depreciation in
the third year?

A gold mine was purchased for $10 million. It has an

anticipated gross income of $5.0 million per year for
years 1 to 5 and $3.0 million per year after year 5.
Assume that depletion charges do not exceed 50% of
taxable income. Compute annual depletion amounts for
the mine. How long will it take to recover the initial
investment at i = 0%? (p=.15)