ENGINEERING ECONOMICS

ES 223

Type ES Project / Plate

Duration 3 to 4 Weeks Prior
Part 1 of 2
Grade, Weighted
Total of 1/2 of 50% (Prelim-Midterm) of 40% in General
%
Deadline of
Before the Midterm Examination (Possible May 19, 20 and 21)
Submission

(1) Paper: A4 Size, White Bond paper

(2) Margin: ½ Inch, Red or Blue in color
(3) Heading:
➢ Name (Surname, First Name, MI)
➢ Course/Year / Sched Code / Schedule Time
Template
➢ Instructor
➢ Date of Submission / No. of Pages
➢ Pages at the bottom part of the paper
(4) Font: Hand-written
(5) Layout Orientation: Portrait

(1) Uploaded Videos for Engineering Economics

Reference
(2) Engineering Economy, 3rd Edition by Hipolito B. Sta. Maria

Solve the problems from 1 to 25;

Answers are already provided but show your solution in each problem;
Instruction
Provide cash-flow diagram.
And avoid erasures.

(Option 1)
Scanned Plates or Photos
Send to Google Classroom
Submission
(Option 2)
Submitting via hard copy
 ENGINEERING ECONOMICS
ES 223

Based on Engineering Economy, 3rd Edition by Hipolito B. Sta. Maria

Page 51 to 55

Problems

1. What is the annual rate of interest if ₱265.00 is earned in four months on an investment of ₱15,000.00?
Answer: 5.3%

2. A loan of ₱2,000.00 is made for a period of 13 months, from January 1 to January 31 the following year at a
simple interest rate of 20%. What future amount is due at the end of the loan period?
Answer: ₱2,433.33

3. If you borrow money from your friend with simple interest of 12%, find the present worth of ₱20,000.00, which
is due at the end of nine months?
Answer: ₱18,348.62

4. Determine the exact simple interest on ₱5,000.00 for the period from January 15 to November 28, 1992, if the
rate of interest is 22%.
Answer: ₱955.74

5. A man wishes his son to receive ₱200,000.00 ten years from now. What amount should he invest if it will earn
interest of 10% compounded annually during the first 5 years and 12% compounded quarterly during the next
5 years?
Answer: ₱68,758.67

6. By the conditions of a will, the sum of ₱25,000.00 is left to a girl to be held in trust by her guardian until it
amounts to ₱45,000.00. When will the girl receive the money if the fund is invested at 8% compounded
quarterly?
Answer: 7.42 years

7. At a certain interest rate of compounded semiannually, ₱5,000.00 will amount of ₱20,000.00 after 10 years.
What is the amount at the end of 15 years?
Answer: ₱40,029.72

8. Jones Corporation borrowed ₱9,000.00 from Brown Corporation on January 1, 1978 and ₱12,000.00 on January
1, 1980. Jones Corporation made a partial payment of ₱7,000.00 on January 1, 1981. It was agreed that the
balance of the load would be amortized by two payments, one of January 1, 1982 and the other on January 1,
1983, the second being 50% larger than the first. If the interest rate is 12%, what is the amount of each payment?
Answer: ₱9,136.91; ₱13,705.36

9. A woman borrowed ₱3,000.00 to be paid after 1½ years with an interest of 12% compounded semiannually and
₱5,000.00 to be paid after 3 years at 12% compounded monthly. What single payment must she pay after 3½
years at an interest rate of 16% compounded quarterly to settle the two obligations?
Answer: ₱12,627.59

10. Mr. J. dela Cruz borrowed money from a bank. He received from the bank ₱1,324.00 and promise to repay
₱1,500.00 at the end of 9 months. Determine the simple interest rate and the corresponding discount rate or
often referred to as the “Banker’s discount.”
Answer: 11.7%; 10.53%

11. A man deposits ₱50,000.00 in a bank account at 6% compounded monthly for 5 years. If the inflation rate is
6.5% per year continues for this period, will this effectively protect the purchasing power of the original
principal?
Answer: No, ₱49,225.00

12. What is the future worth of ₱600.00 deposited at the end of every month for 4 years if the interest rate is 12%
compounded quarterly?
Answer: ₱36,641.00
 ENGINEERING ECONOMICS
ES 223

13. A young woman, 22 years old, has just graduated from college. She accepts a good job and desires to establish
her own retirement fund. At the end of each year thereafter she plans to deposit ₱2,000.00 in a fund at 15%
annual interest. How old will she be when the fund has an accumulated value of ₱1,000,000.00
Answer: 53 years old

14. Mr. Reyes borrows ₱600,000.00 at 12% compounded annually agreeing to repay the loan in 15 equal annual
payments. How much of the original principal is still unpaid after he has made the 8th payment?
Answer: ₱402,040.00

15. M purchased a small lot in a subdivision, paying ₱200,000.00 down and promising to pay ₱15,000.00 every 3
months for the next 10 years. The seller figured interest at 12% compounded quarterly.

(a) What was the cash price of the lot?

(b) If M missed the first 12 payments, what must he pay at the time the 13th is due to bring himself up to date?

(c) After making 8 payments, M wished to discharge his remaining indebtedness by a single payment at the
time when the 9th regular payment was due, what must he pay in addition to the regular payment then due?

(d) If M missed the first 10 payments, what must he pay when the 11th payment is due to discharge his entire
indebtedness?

Answers:
(a) ₱546,722.00
(b) ₱234,270.00
(c) ₱300,006.00
(d) ₱479,948.00

16. A man approaches the ABC Loan Agency for ₱100,000.00 to be paid in 24 monthly installments. The agency
advertises an interest rate of 1.5% per month. They proceed to calculate the amount of his monthly payment in
the following manner.

Amount requested ₱100,000.00

Credit investigation 500.00
Credit risk insurance 1,000.00
Total ₱101,500.00

Interest: (₱101,500.00) (24) (0.015) = ₱36,540.00

Total Owed: ₱101,500.00 + ₱36,540.00 = ₱138,040.00

Payment = ₱138,040.00 ÷ 24 = ₱138,040.00

What is the effective rate of interest of the loan?

Answer: 38.83%

17. A new office building was constructed 5 years ago by a consulting engineering firm. At that time the firm
obtained the bank loan for ₱10,000,000.00 with a 20% annual interest rate, compounded quarterly. The terms
of the loan called for equal quarterly payments for a 10-year period with the right of prepayment at any time
without penalty.
Due to internal charges in the firm, it is now proposed to refinance the loan through an insurance company.
The new loan is planned for a 20-year term with an interest rate of 24% per annum, compounded quarterly. The
insurance company has a one-time service charge of 5% of the balance. This new loan also calls for equal
quarterly payments.

(a) What is the balance on the original mortgage (principal) if all payments have been through a full five
years?
(b) What will be the difference between the equal quarterly payments in the existing arrangement and the
revised proposal?
 ENGINEERING ECONOMICS
ES 223

Answer: (a) ₱7,262,733.00; (b) ₱120,862.00

18. An asphalt road requires no upkeep until the end of 2 years when ₱60,000.00 will be needed for repairs. After
this ₱90,000.00 will be needed for repairs at the end of each year for the next 5 years, then ₱120,000.00 at the
end of each year for the next 5 years.
If money is worth 14% compounded annually, what was the equivalent uniform annual cost for the 12-year
period?
Answer: ₱79,245.00

19. A man wished to provide a fund for his retirement such that from his 60th to 70th birthdays he will be able to
withdraw equal sums of ₱18,000.00 for his yearly expenses. He invests equal amount for his 41st to 59th birthday
in a fund earning 10% compounded annually. How much should each of these amounts be?
Answer: ₱2,285.00

20. Juan Reyes inherited ₱280,000.00 on his birthday. This he placed in his own pension fund (bank account),
which earns interest at 12% compounded annually. He withdraws ₱450,000.00 on his 35th birthday to make the
initial payment on a house. He drew his annual uniform payments for the pension fund on his 65th birthday and
planned to make 20 such withdraws so as to just exhaust the fund. He died at the age of 71, however, just before
withdrawing the amount due on that date. How much is left in the fund to be passed on to the heirs at the time
of Juan’s death?
Answer: ₱1,155.980.00

21. Determine the present worth and the accumulated amount of an annuity consisting of 6 payments of ₱120,000
each, the payments are made at the beginning of each year. Money is worth 15% compounded annually.
Answer: ₱52,226.40; ₱120,801.60

22. Calculate the capitalized cost of a project that has an initial cost of ₱3,000,000.00 and additional investment
cost of ₱1,000,000.00 at the end of every ten years. The annual operating cost will be ₱100,000.00 at the end of
every year for the first four years and ₱160,000.00 thereafter. In addition, there is expected to be a recurring
major rework cost of ₱300,000.00 every 13 years. Assume, i = 15%.
Answer: ₱4,281,990.00

23. The will of a wealthy philanthropist left ₱5,000,000.00 to established a perpetual charitable foundation. The
foundation trustees decided to spend ₱1,200,000.00 to provide facilities immediately and to provide
₱100,000.00 of capital replacement at the end of each 5-year period. If the invested funds earned 12% annum,
what would be the year-end amount available in perpetuity from the endowment for charitable purposes?
Answer: ₱440,529.00

24. The surface area of a certain plant that requires painting is 8,000 sq. ft. Two kinds of paint are available whose
brands are A and B. Paint A cost ₱1.40 per sq. ft. but needs renewal at the end of every 4 years, while paint B
costs ₱1.80 per sq. ft. If money is worth 12% effective, how often should paint B be renewed so that it will be
as economical as Paint A?
Answer: 5.58 years

25. A contract has been signed to lease a building at ₱200,000.00 per year with an annual increase of ₱1,500.00 for
8 years. Payments are to be made at the end of each year, starting one year from now. The prevailing interest
rate is 7%. What lump sum paid today would be equivalent to the 8-year lease-payment plan?
Answer: ₱147,609.00