ANNUITY, GRADIENT SERIES, DEPRECIATION

1. A chemical engineer wishes to set up a special fund by making uniform semiannual end-of-period deposits
for 20 years. The fund is to provide P100,000 at the end of each of the last five years of the 20-year period. If
interest is 8% compounded semiannually, what is the required semiannual deposit to be made?

2. A man purchased a house for P425, 000. In the first month that he owned the house, he spentP75, 000 on
repairs and remodeling. Immediately after the house was remodeled, he was offered P545, 000 to sell the
house. After some consideration, he decided to keep the house and have it rented for P4, 500 per month
starting two months after the purchase. He collected rent for 15 months and then sold the house for P600, 000.
If the interest rate was 1.5% per month, how much extra money did he make or lose by not selling the house
immediately after it was remodeled?

3. An asphalt road requires no upkeep until the end of 2 years when P60, 000 will be needed for repairs. After
this P90, 000 will be needed for repairs at the end of each year for the next 5 years, then P120, 000 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?
4. A new office building was constructed 5 years ago by a consulting engineering firm. At that time the firm
obtained the bank loan for P 10,000,000 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 any time without
penalty. Due to internal changes 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 onetime service charge 5% of the balance. This new loan also calls
for equal quarterly payments. a.) What is the balance due on the original mortgage (principal) if all payments
have been made through a full five years? b.) What will be the difference between the equal quarterly
payments in the existing arrangement and the revised proposal?

5. A man loans P187,400 from a bank with interest at 5% compounded annually. He agrees to pay his
obligations by paying 8 equal annual payments, the first being due at the end of 10 years. Find the annual
payments.

6. Engr. Sison borrows P100,000.00 at 10% effective annual interest. He must pay back the loan over 30 years
with uniform monthly payment due on the first day of each month. What does Engr. Sison pay each month?
7. An investment consisting of deposits of P1,000, P1,500 and P2,000 are made at the end of the 2 nd year, 3rd
year and 4th year, respectively. If money is worth 10%, what is the equivalent present worth of the
investment?

8. Engr. Hermo, believing that life begins at 40, decided to retire and start enjoying life at age40. He wishes
to have upon his retirement the sum of P5,000,000. On his 21st birthday, he deposited a certain
amount and increased his deposit by 15% each year until he will be 40. If the money is deposited in
a super savings account which earns 15% interest compounded annually, how much was his initial
deposit?

9. Using a compound interest of 8%, find the equivalent uniform annual cost for a proposed machine that has a
first cost of P100,000 an estimated salvage value of P20,000 an estimated economic life of 8 years. Annual
maintenance will amount to P2,000 a year and periodic overhaul costing P6,000 each will occur at the end of
the second and fourth year.
10. A man purchased a house for P425,000. In the first month that he owned the house, he spent P75,000 on
repairs and remodeling. Immediately after the house was remodeled, he was offered P545,000 to sell the
house. After some consideration, he decided to keep the house and have it rented for P4,500 per month
starting two months after the purchase. He collected rent for 15 months and then sold the house for P600,000.
if the interest rate was 1.5% per month, how much extra money did he make or lose by not selling the house
immediately after it was remodeled?

11. Today, you invest P100,000 into a fund that pays 25% interest compounded annually. Three years later,
you borrow P50,000 from a bank at 20% annual interest and invest in the fund. Three years later, you withdraw
enough money from the fund to repay the bank loan and all interest due on it. Three years from this withdrawal
you start taking P20,000 per year out of the fund. After five withdrawals, you withdraw the balance in the fund.
How much was withdrawn?

12. A certain property is being sold and the owner received two bids. The first bidder offered to pay P 400,000
each year for 5 years, each payment is to be made at the beginning of each year. The second bidder offered to
pay P 240,000 first year, P 360,000 second year and Php540,000 each year for the next 3 years, all payment
will be made at the beginning of each year. If money is worth 20% compounded annually, which bid should the
owner of the property accept?
13. On the day his grandson was born, a man deposited to a trust company a sufficient amount of money so
that the boy could receive five annual payments of P10,000 each for his college tuition fees, starting with his
18th birthday. Interest at the rate of 12% per annum was to be paid on all amounts on deposit. There was also
a provision that the grandson could elect to withdraw no annual payments and receive a single lump amount
on his 25th birthday. The grandson chose this option. A. How much did the boy receive as the single payment?
B. How much did the grandfather deposit?

14. A debt of P 40,000 whose interest rate is 15% compounded semiannually, is to be discharged by a
series of 10 semiannual payments, the first payment to be made 6 months after consummation
of the loan. The first 6 payments will be P 6,000 each, while the remaining 4payments will be equal and of such
amount that the final payment will liquidate the debt. What is the amount of the last 4 payments?

15. What amount of money is invested today at 15% interest can provide the following scholarships: P 30,000
at the end of each year for 6 years; P 40,000 for the next 6 years and P 50,000 thereafter
16. A debt of P40,000, whose interest rate is 15% compounded semiannually, is to be discharged by a series
of 10 semiannual payments. The first 6 payments will be P6,000 each, while the remaining 4 payments will be
equal and of such amount that the final payment will liquidate the debt. What is the amount of the last 4
payments?

17. A woman borrowed P3, 000 to be paid after 1.5 years with interest at 12% compounded semiannually and
P5, 000 to be paid after 3 years at 12% compounded monthly. What single payment must she pay after 3.5
years at an interest rate of 16% compounded quarterly to settle the two obligations?

18. A contract has been signed to lease a building at P20,000 per year with an annual increase ofnP1,500 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?
19. A machine shop purchased 10 years ago a milling machine for P60,000. A straight-line depreciation reserve
had been provided based on a 20-year life of the machine. The owner of the machine shop desires to replace
the old milling machine with a modern unit having many advantages costing P100,000. It can sell the old unit
for P20, 000. How much new capital will be required for the purchase?

20. A tax and duty-free importation of a 30-horsepower sand mill for paint manufacturing costs P360,000, CIF
Manila. Bank charges, arrester and brokerage cost P5,000. Foundation and installation costs were P25,000.
Other incidental expenses amount to P20,000. Salvage value of the mill is estimated to be P60,000 after 20
years. Find the appraisal value of the mill using straight-line depreciation at the end of
a.) 10 years, b.) 15 years
21. An industrial plant bought a generator set for 90,000. Other expenses including installation amounted to
10,000. The generator set is to have a life of 17 years with a salvage value at the end of life of 5,000.
Determine the depreciation charge during the 13th year and the book value at the end of13 years by the (a)
declining balance method, (b) double declining balance method, (c) sinking fund method at 12%.

14. A company issued 100 bonds of P1,000 face value each, redeemable at par at the end of 15 years to
accumulate the funds required for redemption. The firm established a sinking fund consisting of annual
deposits, the interest rate of the fund being 4%. What was the principal in the fund at the end of 12th year?
15. A dump truck was bought for P 30,000 six years ago. It will have a salvage value of P 3,000 four years from
now. It is sold now for P8,000. What is its sunk cost (a cost that can’t be recovered due to certain reason) if the
depreciation method used is the sinking fund method at 6 %?

16. A machine has just been purchased for P1.2 million. It is anticipated that the machine will be P80 000 as
based on current prices, and that the annual rate of inflation during the next 5 years will be 7 percent. The
machine will be replaced with a duplicate and the firm will accumulate the necessary capital by making equal
end-of-year deposits in a reserve fund that earns 6 percent per annum. Determine the amount of annual
deposit.

17. The original cost of a certain piece of equipment is P150 000 and it is depreciated by a 10 % sinking fund
method, determine the annual depreciation charge if the book value of the equipment after 10 years is the
same as if it had been depreciated at P14,000 each year by straight line formula.
18. A consortium of international telecommunication companies contracted for the purchase and installation of
fiber optic cable linking Manila City and Cebu City at a total cost of P 960 M. This amount includes freight and
installation charges estimated at 10% of the above total contract price. If the cable shall be depreciated over a
period of 15 years with zero salvage value and money worth 6% per annum, what is the annual depreciation
charge?

19. Money borrowed today is to be paid in 6 equal payments at the end of 6 quarters. If the interest is 12 %
compounded quarterly. How much was initially borrowed if quarterly payment is P 2000.00?

20. You need P 4,000 per year for four years to go to college. Your father invested P 5,000 in 7 % account for
your education when you were born. If you withdraw P 4,000 at the end of your 17th, 18th, 19th and 20th
birthday, how much will be left in the account at the end of the 21st year?
21. A P110,000 chemical plant had an estimated life of 6 years and a projected scrap value of P10,000. After 3
years of operation, an explosion made it a total loss. How much money would have to be raised to put up a
new plant costing P150,000, if a depreciation reserved have been maintained during its 3 years of operation by
sinking fund method at 6%.

22. What is the accumulated amount of five-year annuity paying P 6,000 at the end of each year, with interest
at 15 % compounded annually?

23. How much must be deposited at 6% each year beginning on January 1, year 1, in order to accumulate P
5,000 on the date of the last deposit, January 1, year 6?

24.A young engineer borrowed P 10,000 at 12 % interest and paid P 2,000 per annum for the last 4 years.
What does he have to pay at the end of the fifth year in order to pay off his loan?
25. Mr. Cruz plans to deposit for the education of his 5 years old son, P 500 at the end of each month for 10
years at 12% annual interest compounded monthly. The amount that will be available in two years is?

26. How much must you invest today in order to withdraw P 2,000 annually for 10 years if the interest rate is
9%?

27. A person buys a piece of lot for P 100,000 down payment and 10 deferred semiannual payments of P
8,000 each, starting three years from now. What is the present value of the investment if the rate of interest is
12 % compounded semi-annually?

28. A man loans P 187,400 from a bank with interest at 5% compounded annually. He agrees to pay his
obligations by paying 8 equal annual payments, the first being due at the end of 10 years. Find the annual
payments.
29. Mr. Ayala borrows P 100,000 at 10% effective annual interest. He must pay back the loan over 30 years
with uniform monthly payments due on the first day of each month. What does Mr. Ayala pay each month?

30. A house and lot can be acquired by a downpayment of P 500,000 and a yearly payment of P 100,000 at the
end of each year for a period of 10 years, starting at the end of 5 years from the date of purchase. If money is
worth 14% compounded annually, what is the cash price of the property?

31. A man inherited a regular endowment of P 100,000 every end of 3 months for 10 years. However, he may
choose to get a single lump sum payment at the end of 4 years. How much is this lump sum if the cost of
money is 14% compounded quarterly?

32. A piece of machinery can be bought for P 10,000 cash or for P 2,000 down and payments of P 750 per
year for 15 years. What is the annual interest rate for the time payments?
33. A parent on the day the child is born wishes to determine what lump sum would have to be paid into an
account bearing interest at 5 % compounded annually, in order to withdraw P 20,000 each on the child's 18,
19, 20 and 21" birthdays. How much is the lump sum amount?

34. An instructor plans to retire in exactly one year and wants an account that will pay him P 25,000 a year for
the next 15 years. Assuming a 6 % annual effective interest rate, what is the amount he would need to deposit
now? (The fund will be depleted after 15 years.

35. A manufacturing firm wishes to give each 80 employees a holiday bonus. How much is needed to invest
monthly for a year at 12 % nominal interest rate compounded monthly, so that each employee will receive a P
2,000 bonus?

36. Find the present value in pesos, of a perpetuity of P15,000 payable semiannually if money is worth 8%
compounded quarterly.
37. A fund donated by a wealthy person to IIEE to provide annual scholarships to deserving EE students. The
fund will grant P 5,000 for each of the first five years, P 8.000 for the next 5 years and P 10,000 for each year
thereafter. The scholarship will start one year after the fund is established. If the fund earns 8% interest, what
is the amount of the donation?

38. A company issued 50 bonds of P 1,000.00 face value each, redeemable at par at the end of 15 years to
accumulate the funds required for redemption. The firm established a sinking fund consisting of annual
deposits, the interest rate of the fund being 4 %. What was the principal in the fund at the end of the 12 years?

39. A unit of welding machine cost P 45,000 with an estimated life of 5 years. Its salvage value is P 2,500. Find
its depreciation rate by straight-line method.

40. A machine has an initial cost of P 50,000 and a salvage value of P 10,000 after 10 years. Find the book
value after 5 years using straight-line depreciation.
41. 32. The initial cost of a paint sand mill, including its installation, is P 800,000. The BIR approved life of this
machine is 10 years for depreciation. The estimated salvage value of the mill is P 50,000 and the cost of
dismantling is estimated to be P 15,000 Using straight-line depreciation, what is the annual depreciation
charge and what is the book value of the machine at the end of six years?

42. The cost of equipment is P 500,000 and the cost of installation is P 30,000. If the salvage value is 10% of
the cost of equipment at the end of 5 years, determine the book value at the end of the fourth year. Use a
straight-line method.

43. An asset is purchased for P 500,000.00. The salvage value in 25 years is P 100,000.00. What is the total
depreciation in the first three years using the straight-line method?

44. An equipment costs P 10,000 with a salvage value of P 500 at the end of 10 years. Calculate the annual
depreciation cost by sinking fund method at 4% interest.
45. A machine costing P 45,000 is estimated to have a book value of P 4,350 when retired at the end of 6
years. Depreciation cost is computed using a constant percentage of the declining book value. What is the
annual rate of depreciation in %?

46. Engr. Carl Renzey owes Engr. Rachelle P25,000.00 due in 1 year and P75,000 due in 4 years. He agrees
to pay P50,000.00 today and the balance in 2 years. How much must he pay at the end of two years if money
is worth 5% compounded semi-annually?

47. Super Mario deposited Php5,000,000 on a bank that earns 10% compounded annually. Five years later he
died. His will states that his beneficiary is an orphanage which will be receiving the money in perpetuity a year
after he died. How much is the yearly fund the orphanage will be receiving?

48. Engr. Javier owes Engr. Raf the following amounts:

P 40,000 due 2 years hence

P 60,000 due 3 years hence
P 72,000 due 4 years hence
Having won the lottery, Mr. Javier decided to liquidate the debts at the present time if the parties agree on 5%
interest rate, what sum must Mr. Javier pay?

49. A group of Civil Engineering Students formed a corporation and the opportunity to invest P8,000,000 in
either of the two situations. The first is to expand a domestic operation. It is estimated that this investment
would return a net year end cash flow of P2,000,000 each year for 10 years and at the end of that time, the
physical assets, which would no longer be needed, could be sold at P5,000,000. The alternative opportunity
would involve building and operating a plant in a foreign country. This operation would involve no net cash flow
during the first 3 years, but it is believed that, beginning with the end of the fourth year, an annual flow of
P4,000,000 would be received, running through the end of the 10thyear. After that time, it is believed that the
operation and facilities might be expropriated with little if any compensation being paid. Which investment
would you recommend?

50. Metro Batangas Allied Contractors Inc. had put up for sale of some of their heavy equipment for
construction works. There were two interested buyers submitting their respective bids for the heavy equipment.
The bids are as follows:

Engr. Dulotan offers Php10,000,000 payable 20% down payment, the balance payable Php1,000,000 annually
for 8years
Engr. Solomon offers 9,000,000 payable 2,000,000 down payment, the balance payable 500,000 semiannually
for 7years
Which bid is more beneficial to Metro Batangas Allied Contractors Inc. and by how much is the difference if
money is worth 10% effective?

51. Hayashida and Leynes Company is considering replacing an old machine today. If the new machine will
cost P500,000 in the next 4 years. The machine has an estimated life of eight years. The estimated salvage
value of the equipment at the end of its lifetime is 3% of the initial investment. Determine the depreciation
charge at the end of the 5th year and the book value at the end of the 7th year using the sinking fund method
of depreciation with an interest rate of 8% compounded quarterly.

52. A Civil Engineering student borrowed P2,000 to meet college expenses during his senior year. He promised
to repay the loan with interest at 4.5% in 10 semi-annual installments, the first payment to be made 3 years
after the date of the loan. How much will this payment be?
53. A man paid 10% down payment of P200,000 for a house and lot and agreed to pay the 90% balance on
monthly instalment for 60 months at an interest rate of 15% compounded monthly. Compute the amount of the
monthly payment.

54. What is the present worth of a 3 years annuity paying P3,000,000 at the end of each year, with interest at
8% compounded annually?

55. A manufacturing firm wishes to give each 80 employees a holiday bonus. How much is needed to invest
monthly for a year at 12% nominal interest rate, compounded monthly, so that each employee will receive a
P2,000 bonuses?
56. Money borrowed today is to be paid in 6 equal payments at the end of 6 quarters. If the interest is 12%
compounded quarterly. How much was initially borrowed if quarterly payment is P2,000?

57. A man borrowed P300, 000 from a lending institution which will be paid after 10 years at an interest rate of
12% compounded annually. If money is worth 8% per annum. how much should he deposit to a bank monthly
in order to discharge his debt 10 years hence?

58. A lathe for a machine shoo costs P60. 000 if paid in cash. On the instalment plan. a purchaser should nav
P20, 000 down payment and 10 quarterly instalments, the first due at the end of the first year after purchase. If
money is worth 15% compounded quarterly, determine the quarterly instalment.
59. A man loans P18,400 from a bank with interest at 5% compounded annually. He agrees to pay his
obligation by paying 8 equal annual payments, the first being due at the end of 10 years. Find the annual
payments.

60. A house and lot can be acquired by a down payment of P500,000 and an early payment of ten P100, 000
at the end of 5 years from the date of purchase. If money is worth 14% compounded annually. what is the cash
price of the property?

61. A man invested P 1,000.00 per month on a bank that offers 6% interest. How much can he get after 5
years?