Engineering Economics sample problemms

Engineering (032797)

1. You loan from a bank the amount of P100,000 with a rate of simple interest of 20% but the
interest was deducted from the loan at the time the money was borrowed. If at the end of 1 year,
you have to pay the full amount of P100,000, what is the actual rate of interest?

2. Mr. Dee Jay borrowed money from the bank and he received the amount of P18,420 and
promised to repay P20,000 at the end of 10 months. Determine the rate of simple interest.

3. Assume you put $10,000 into a bank account. How much will your investment be worth after
10 years at an annual interest rate of 5% compounded monthly?

4. Find the nominal rate compounded monthly which is equivalent to 16% compounded
quarterly. What is the corresponding effective rate?

5. Mr. Reyes borrows P600,000 at 12% compounded annually, agreeing to repay the loan in 15
equal payment. What is the value of equal payment and the accumulated amount?

6. If P25,000 is deposited now into a savings account that earns 6% per year, what uniform
amount could be withdrawn at the end of each year for 10 years so that nothing would be left on
the account after 10th withdrawal.

7. A man invests P50,000 now for the college education of his son. If the fund earns 14%
effective, how much will the son get each year starting from his 17th to 22nd birthday?

8. You loan from a bank the amount of P500,000 with an interest rate of 12% compounded daily
for 5 years. Determine the amount of periodic payment.

9. Zach’s Corporation purchased a Jacquard machine for P6M, freight and installation charges
amounted to 3% of the purchase price. If the machine will be depreciated over a period of 10
years with a salvage value of 6%, determine the depreciation cost during the 5th year using the
SLM method.

10. An asset for drilling was purchased and place in service by a petroleum production company.
Its initial investment is P60,000 and it has an estimated salvage value of P12,000 at the end of an
estimated useful life of 14 years. Compute the depreciation amount in the third year and the book
value at the end of the 5th year of life using SLM.

11. An electric sewing machine costs P10,000 with a salvage value of P500 at the end of 10
years. Calculate the annual depreciation cost by the sinking fund method at 5% interest.

12. CMM Company was constructed at a first cost of P8M and with estimated salvage value of X
at the end of 25 years. Find the value of X using sinking fund if the book value amounted to
P5,480,093.88 at the end of 15 years with an interest rate of 10% annually.

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14. An asset for drilling was purchased and place in service by a petroleum production company.
Its initial investment is P50,000 and it has an estimated salvage value of P15,000 at the end of an

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estimated useful life of 10 years. Compute the book value at the end of the 5th year of life using
SFM at 10% interest, using DBM and DDBM.

15. The large profitable corporation has purchased a jet plane for use by its executives. The cost
of the plane is P76M. It has a useful life of 5 years. The estimate resale of the plane is P6M.
Determine its book value at the end of 3 years. Using DBM and DDBM

16. Julie’s Bakeshop bought a loaf bread machine for P500,000 on June 1, 2010. It is estimated
that it will have a useful life of 10 years, a scrap value of P10,000, production of 400,000 loaves
of bread and working hours of 150,000. The company uses the machine for 15,000 hours in 2010
and 20,000 hours in 2011. The machine produces 40,000 loaves in 2010 and 50,000 loaves in
2011. Compute the depreciation in 2011 using (a) output method (b) working hours/service
method.

17. If P50,000 is borrowed for 90 days at 8% per annum simple interest. How much will be due
at the end of 90 days?

18. On his recent birthday on April 18, 2012, Cai was given by his mother a certain amount of
money as a birthday present. He decided to invest the said amount on a 12% exact simple
interest. If the investment will mature on Christmas day at an amount of P15,000, how much did
Cai receive from his mother on his birthday?

19.Carle borrowed money from Cy with simple interest of 12%. Find the present worth of
P50,000 which is due at the end of 6 months.

20. A loan of P5,000 is made for a period of 15 months at a simple interest rate of 15%. What
future amount is due at the end of the loan period?

21. If the sum of P15,000 is deposited in an account earning interest at the rate of 8%
compounded quarterly, what will it become at the end of 5 years?

22. An employee has a promissory note, due 5 years hence, whose maturity value is P70,000. If
the rate of interest is 12% compounded semi-annually, what is the value of this note now?

23. JPIIE is planning to expand its operations and plans to purchase a parcel of land on which to
construct a building for their review center, which they will need 5 years hence. The current costs
are: land: P2M; building: P3.5M. Since these are not needed immediately, the company plans to
defer the purchase of the land and the construction of the building until they are needed. If the
value of the land and the cost of the building are expected to appreciate at the rates of 10% and
8% per annum, respectively. What will be the total cost of the investment after 5 years?

24. A debt of P150,000 was paid for as fo llows: P40,000 at the end of 3months, P50,000 at
the end of 12 months, P30,000 at the end of 15 months, and a final payment F at the end of 21
months. If the rate of interest is 12% compounded quarterly, find the final payment F.

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25. If P500,000 is invested at 8% interest compounded quarterly, how many years will it take for
this amount to accumulate to P900,000?

26. Charlie wishes to bequeath his youngest son P200,000 ten years from now. What amount
should he invest now if it will earn interest of 6% compounded annually during the first 5 years
and 8% compounded quarterly during the next 5 years?

27. Find the nominal rate compounded monthly which is equivalent to 16% compounded
quarterly. What is the corresponding effective rate?

28. What payment X 10 years from now is equivalent to a payment of P500,000 7 years from
now, if interest rate is 12% compounded semi-annually?

29. Compare the accumulated values at the end of 5 years if P100,000 is invested at the rate of
12% per year compounded annually, semi-annually, quarterly, monthly, daily, and continuously.
Which gives the highest return interest.
30. Carle buys a piece of property for a P100,000 down payment and 10 deferred semi-annual
payments of P10,000 each starting three years from now. What is the present value of the
investment if the rate of interest is 8% compounded semi-annually?

31. It costs P500,000 at the end of each year to maintain a section of Kennon Road in Baguio
City. If money is worth 10%, how much would it pay to spend immediately to reduce the annual
cost to P100,000?

32. A machine costsP80,000 and an estimated life of 10 years with a salvage value of P5,000.
What is the book value after 5 years using the straight line method?

33. The cost of a Tajima embroidery machine is P1.2M and the cost of installation is P50,000. If
the salvage value is 10% of the cost of the machine at the end of 10 years, determine the book
value at the end of the 3rd year. Use SLM.

34. A stop watch used for TMS has a selling price of P1,500. If its selling price is expected do
decline at a rate of 10% per year due to obsolescence, what will be its selling price after 3 years?

35. A circular linking machine costing P45,000 has a book value of P4,500 when retired at the
end of 10 years. The depreciation cost is computed using a constant percentage of the declining
book value. What is the annual rate of depreciation in %?

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