POST-LECTURE EXAM 11.

An asphalt road requires no upkeep until the end

of 2 years when P 60,000 will be needed for repairs.
TOPIC: ENGINEERING ECONOMICS After this P 90,000 will be needed for repairs at the
end of each year for the next five years, then P
INSTRUCTION: Select the correct answer for each of 120,000 at the end of each year for the next five
the following questions. Mark only one answer for each years. If money is worth 14% compounded annually, what
item by shading the box corresponding to the letter was the equivalent uniform annual cost for the 12 year
of your choice on the answer sheet provided. STRICTLY period?
NO ERASURES ALLOWED. A. P 79,246 B. P 79,462
C. P 79,264 D. P 79,426
Situation: Albert borrowed money from a bank. He
received P 1340.00 from the bank and promised to pay 12. In the purchase of a rice cooker, a buyer pays P
P 1500.00 at the end of 9 months. 200 cash. He will discharge the balance, principal,
and interest included at 18% payable monthly on the
1. Determine the simple interest rate. unpaid balance, by payments of P 75.00 at the end of
A. 16.90% B. 15.92% each month for a year. Find the cash value of the rice
C. 17.70% D. 17.89% cooker.
A. P 1180.60 B. P 1018.60
2. Determine the corresponding discount rate. C. P 1180.06 D. P 1018.06
A. 15.50% B. 14.78%
C. 13.73% D. 15.35% 13. A man inherited regular endowment of P 100,000
every end of 3 months for 10 years. However, he may
3. In buying a computer disk, the buyer was offered choose to get a single lump sum payment at the end of
the options of paying P 250.00 cash at the end of 30 4 years. How much is this lump sum if the cost of
days or P 270.00 at the end of 120 days. At what rate money is 14% compounded quarterly?
is the buyer paying a simple interest if he agree to A. P 3,320,771 B. P 3,702,940
pay at the end of 120 days? C. P 3,183,679 D. P 3,563,099
A. 32% B. 28%
C. 40% D. 25% 14. Maintenance cost of an equipment is P 20,000 at
the end of 2 years, P 40,000 at the end of 4 years,
4. A businessman bought a P 1000 taxable corporation and P 80,000 at the end of 8 years. Compute the semi-
bond in which he will receive P 150 a year in interest annual amount that be set aside for this equipment.
and his P 1000 back when the bond becomes due in 5 Money worth 10% compounded annually.
years. If the income tax rate is 28%, compute the A. P 7954 B. P 9032
after-tax rate of return for this investment. C. P 8098 D. P 7426
A. 9.6% B. 7.8%
C. 10.8% D. 11.2% 15. To prepare his retirement for 20 years, a self-
employed engineer deposits P 6000 every end of 3
5. What is the exact simple interest of a loan months in a fund that earns 10% compounded quarterly.
amounting to P 12,000 borrowed from June 12, 2020 to How much could he get after his retirement?
be paid until September 13, 2020 when the annual A. P 1,490,296 B. P 1,856,288
interest is 25%? C. P 2,300,320 D. P 2,002,497
A. P 750.00 B. P 762.30
C. P 764.38 D. P 775.00 16. A man borrowed P 400,000 from a lending
institution which will be paid after 10 years at an
6. Find the equivalent of 6% compounded semi-annually interest rate of 6% compounded annually. If money is
in a rate compounded quarterly. worth 3% compounded monthly, how much should he pay
A. 5.56% B. 6.21% monthly in order to discharge this debt 10 years
C. 5.96% D. 6.05% hence?
A. P 3486.87 B. P 3280.26
7. A nominal annual rate of interest of 7% compounded C. P 4371.14 D. P 5126.18
continuously is equivalent to an effective annual rate
of interest of: Situation: A man purchased a car with a cash price of
A. 7.25% B. 7.39% P 350,000. He was able to negotiate with the seller
C. 7.93% D. 7.52% to allow him to pay only a down payment of 20% and
the balance payable in equal 48 end of the month
8. P 200,000 was deposited at an interest of 24% installment at 1.5% interest per month. On the day he
compounded semi-annually. After how many years will paid the 20th installment, he decided to pay the
the sum be P 621,170? remaining balance.
A. 10 yrs B. 8 yrs
C. 16 yrs D. 5 yrs 17. How much is the monthly payment?
A. P 8522 B. P 8252
9. A business man invested P 1,000,000 to an account C. P 8225 D. P 5822
that earns 8% compounded continuously. Determine the
amount of his money at the end of 20 years. 18. What is the remaining balance that he paid?
A. P 4,953,026 B. P 3,320,117 A. P 189,627 B. P 186,927
C. P 4,660,957 D. P 3,172,169 C. P 198,627 D. P 168,927

10. A manufacturing firm contemplates retiring an 19. Peter loan an amount of P 100,000 at a local
existing machine at the end of 1982. The new machine commercial bank at 10% compounded annually. How much
to replace the existing one will have an estimated is his monthly payment if he is required to pay at
cost of P 10,000. This expense will be partially the beginning of the first day of the month for a
defrayed by sale of old machine as a scrap for P 750. period of 30 years?
To accumulate the balance of the required capital, A. P 839.20 B. P 854.90
the firm will deposit the following sums in an account C. P 845.90 D. P 839.20
earning interest at 5% compounded annually.
P 1500 at the end of 1779 Situation: The purchase of a new car requires P
P 1500 at the end of 1780 100,000 downpayment and the balance to be paid at P
P 2000 at the end of 1981 300,000 after two years and P 600,000 after five
What cash disbursement will be necessary at the end years. The rate of interest is 18% compounded monthly.
of 1982 to purchase the new machine?
A. P 4830.58 B. P 3760.00 20. Find the present worth of the car.
C. P 3952.60 D. P 4583.31 A. P 455,441 B. P 629,590
C. P 555,441 D. P 729,590
21. Find the lump sum payment if the car is paid after 34. Ten years ago a small steam plant of 2000 KW
five years. capacity costing P 125 per kW was erected. The life
A. P 1,538,225 B. P 1,782,547 was estimated at 15 years and the salvage value is
C. P 1,357,063 D. P 1,112,742 5%. At present, abandoning the old plant in favor of
a new diesel plant is being considered. A market has
22. With a downpayment of P 100,000 and monthly been found for the old engine and boiler equipment at
interest of 1.50%, find the monthly amortization for P 15,000. The remainder of the old plant can be
five years. utilized in the new and has a valuation of P 8500.
A. P 15,460 B. P 11,565 Depreciation has been figured on a straight line
C. P 14,105 D. P 13,328 basis. What is the difference between the depreciated
book value of the old plant and its sale value?
23. A man borrows P 100,000 at the rate of 6% A. P 67,667 B. P 37,667
compounded continuously for 5 years. How much must he C. P 76,667 D. P 73,667
pay annually?
A. P 23,895 B. P 32,859 35. A certain machinery costs P 50,000, last 12 years
C. P 23,859 D. P 32,895 with a salvage value of P 5,000. Money is worth 5%.
If the owner decides to sell it after using it for 5
24. Find the present value of a perpetuity of P 15,000 years, what should his price be so that he will not
payable semi-annually if money is worth 8% compounded lose or gain financially in the transaction? Use
quarterly. sinking fund method of depreciation.
A. P 375,443 B. P 358,106 A. P 43,387.25 B. P 34,387.25
C. P 362,187 D. P 371,287 C. P 43,378.25 D. P 34,378.25

25. A new generator has just been installed. It is 36. A machine costs P 80,000 and has an estimated
expected that there will be no maintenance charges salvage value of P 20,000 at the end of 20 years
until the end of the sixth year, when P 300 will be useful life. Compute the book value at the end of
spent at the end of each successive year until the second year using sinking fund method of depreciation
generator is scrapped at the end of the fourteenth based on 8% interest rate.
year of service. What sum of money set aside at the A. P 78,346 B. P 77,273
time of installation of the generator at 6% will take C. P 73,423 D. P 69,842
care of all maintenance expenses for the generator?
A. P 1542.79 B. P 1245.79 37. An asset is purchased for P 9,000. Its estimated
C. P 1524.79 D. P 1254.79 life is 10 years, after which it will be sold for P
1,000. Find the book value during the third year if
26. Find the present value of an annuity of P 30,000 the sum-of-the-years digit depreciation is used.
payable annually for 10 years, with the first payment A. P 6100 B. P 5073
at the end of the tenth year, if money is worth 8% C. P 4500 D. P 4800
compounded annually.
A. P 97,568 B. P 88,038 38. ABC Corporation makes its policy that for every
C. P 100,701 D. P 93,242 new equipment purchased, the annual depreciation cost
should not exceed 20% of the first cost at any time
27. The maintenance of a room air conditioner is without salvage value. Determine the length of service
expected to be P 2000 at the end of the first year if the depreciation used is SOYD method.
and is expected to increase by P 100 each year for A. 7 years B. 10 years
the following 7 years. Assuming rate of interest is C. 8 years D. 9 years
6%, compute the equivalent uniform annual maintenance
cost. 39. A machine costing P 45,000 is estimated to have a
A. P 2139.52 B. P 2319.52 salvage value of P 4350 when retired at the end of 6
C. P 2193.52 D. P 2391.52 years. Depreciation cost is computed using a constant
percentage of the declining boo value. What is the
28. What is the nominal value of interest compounded annual rate of depreciation?
continuously for a period of 5 years of an equal A. 32.25% B. 44.24%
payment series if the capital recovery factor is equal C. 37.33% D. 28.38%
to 0.2385787?
A. 6% B. 5% 40. A machine having a certain first cost has a life
C. 7% D. 8% of 10 years and a salvage value of 6.633% of the first
cost at the end of 10 years. If it is has a book value
Situation: For a nominal rate of 6% compounded semi- of P 58,914 at the end of the 6th year, how much is
quarterly for 8 years in an ordinary annuity, compute the first cost of the machine if the constant
the following: percentage of declining value is used in computation
for its depreciation.
29. Sinking fund factor. A. P 600,000 B. P 900,000
A. 0.027518 B. 0.012231 C. P 300,000 D. P 1,000,000
C. 0.017192 D. 0.023283
41. A machine costing P 720,000 is estimated to have
30. Present worth factor. a life of 10 years. If the annual rate of depreciation
A. 39.424630 B. 48.320643 is 25%, determine the total depreciation using
C. 42.316481 D. 50.680979 Matheson’s Method.
A. P 679,454.27 B. P 532,845.27
31. Capital recovery factor. C. P 432,725.45 D. P 764,243.33
A. 0.025500 B. 0.023631
C. 0.019731 D. 0.020695 42. A machine costing P 140,000 has a salvage value
of P 10,000 after its useful life of 8 years.
32. A machine costs P 8000 and an estimated life of Determine the fourth year depreciation using the
10 years with a salvage value of P 500. What is its Double Declining Balance Method.
book value after 8 years using straight line method? A. P 18,056 B. P 16,250
A. P 1500 B. P 2500 C. P 14,766 D. P 15,130
C. P 3000 D. P 2000
43. A machine has a first cost of P 270,000 with a
33. A dump truck was bought for P 30,000 six year ago. salvage value of P 30,000 at the end of its useful
It will have a salvage value of P 3000 four years from life of 10 years. Find its book value after 6 years
now. It is sold now for P 8000. What is its sunk cost using the double declining balance method.
if the depreciation method used is Straight Line A. P 72,246.74 B. P 88,473.60
Method? C. P 70,778.88 D. P 90,000.00
A. P 5,800 B. P 21,800
C. P 13800 D. P 8,500 44. An equipment cost P 480,000 and has a salvage
value of 10% of its cost at the end of its life of
36,000 operating hours in a period of 5 years. In the
first year of service, it was used for 12,000 hours. net profit is expected to be P 20 million and
If at the end of the second year, it was used for depreciation amounts to P 3 million.
15,000 hours, find the depreciation at the end of the
second year. 53. Compute for the payout period.
A. P 180,000 B. P 324,000 A. 2.17 years B. 4.45 years
C. P 144,000 D. P 160,000 C. 6.41 years D. 1.22 years

45. A machine was purchased at an original cost of P 54. Determine its recovery period.
400,000 with a salvage value of P 20,000. Life of the A. 4 years B. 6 years
machine is expected to last for 6 years. It was used C. 5 years D. 3 years
for 4000 hours in the first year and 6000 hours on
the second year. Compute the book value at the end of Situation: A P 250,000, 14% bond pays dividend
the second year if the machine is expected to last semiannually for 12 years. The bond is redeemable at
for P 38,000 hours in a period of 6 years. par.
A. P 300,000 B. P 320,000
C. P 240,000 D. P 340,000 55. What is the dividend semiannually?
A. P 17,500 B. P 18,000
46. An equipment has a first cost of P 500,000 and C. P 17,200 D. P 18,500
the cost of installation is P 30,000. If the salvage
value is 10% of the equipment cost at the end of its 56. If you want to make 20% nominal interest
useful life of 5 years. Compute the book value at the compounded semi-annually on this bond investment, how
end of third year. Use Modified Acceleration Cost much are you willing to pay for this bond now?
Recovery System Method. A. P 154,251 B. P 196,365
A. P 125,640 B. P 152,640 C. P 198,632 D. P 182,614
C. P 251,640 D. P 122,640
57. If the bond is redeemable at 110%, what is the
47. A manufacturer produces certain items at a labor annual rate of return of the bond?
cost per unit of P 315, material cost per unit of P A. 16.32% B. 15.63%
100, variable cost of P 3.00 each. If the item has a C. 17.54% D. 14.34%
selling price of P 995, how many units must be
manufactured each month for the manufacturer to break 58. An investor paid P 1,100 for a P 1,000 bond that
even if the monthly overhead is P 461,600. pays P 40 a year in 20 years, the bond will be redeemed
A. 800 B. 700 for P 1,050. What net rate of interest will the
C. 600 D. 900 investor obtain on his investment?
A. 3.540% B. 4.240%
48. If the manufacture of a certain product, two C. 3.475% D. 5.340%
processes are available. One will produce 80 units of
the finished product per P 100 worth of raw materials 59. A 200 hp generator is being considered for
and will cost P 0.42 per unit of the finished product. purchase. The generator will cost P 320,000 with a
The other will produce 87 units of the finished life expectancy of 10 years, with an efficiency of
product per P 100 worth of raw materials and will cost 82%. The maintenance cost per year is P 5000. This
P 0.56 per unit of the finished product. What is the generator is used for 300 hours per year and the cost
break-even point in unit value of the finished product of fuel, oil is P 0.12 per kilo-watt hour (1 hp =
below which the low efficiency should be used and 0.746 kW). Assuming the generator will have no salvage
above which high efficiency should be used? value, what will be the monthly cost of maintaining
A. P 3.15 unit value B. P 2.70 unit value the generator?
C. P 2.16 unit value D. P 3.12 unit value A. P 842.40 B. P 786.40
C. P 962.52 D. P 695.40
49. A small entrepreneur invested a capital of P
80,000 for a buy and sell business. He estimated to 60. The local hospital has just implemented a totally
have a gross income of P 25,000 annually and an automated switchboard that cost $ 205,000 to install.
operating cost of P 6,000 annually. It is assumed the The switchboard replaced four operators who were paid
business to have a life of 10 years. If the rate of $ 15,000 annually. Fringe benefits (vacation, sick
interest is 12%, compute the benefit-cost ratio. leave, insurance, etc.) cost the hospital 42% of each
A. 1.34 B. 3.08 annual salary. Determine the payback period for the
C. 2.96 D. 1.05 new switchboard.
A. 2.8 years B. 2.4 years
50. A contractor can bur trucks for P 800,000 each or C. 3.2 years D. 1.9 years
rent them for P 1,200 per truck per day. The truck
has a salvage value of P 100,000 at the end of its
useful life of 5 years. The annual maintenance cost
is P 20,000 per truck. Using the annual cost method
and 14% interest rate, determine the minimum number
of days per year that each truck must be used to
warrant its purchase.
A. P 203 B. P 196
C. P 205 D. P 199

Situation: Having bought additional equipment for his

company, the business owner estimates the annual
expenses to be cut by 20%. The price of the equipment
is P 90,000 and its annual operating cost is P 4,500.
The company's annual expenses before the installation
amount to P 180,000.

51. Find the rate of return of purchasing the

equipment, given that after 6 years, the equipment
will be worthless. Interest rate is 12%.
A. 20.6% B. 24.4%
C. 22.7% D. 26.2%

52. Determine its recovery period.

A. 5.2 years B. 4.4 years
C. 6.5 years D. 2.5 years

Situation: A company has a working capital of P 30

million and a fixed capital of P 50 million. Annual