@ Intropuction SERRRRRRRARRARARAR > Interest CONTE Introduction Simple Interest Compound Interest Discount Effective and Nominal Rates ” Annuity Certain Ordinary Annuity Annuity Due Differed Annity Perpetuity Capitalized Cost Depreciation: Methods Selection among Alternatives Bonds + Break-Even Analysis Te fest economist inthe tse “Economy” was the Sectemsn 1790), He is cher seen as the mast eBicert use of resources ina raten’s cae wth pubic wetare coming 25a bynes, The mathematics of business and finance is based on the time value of money. The analysis and evaluation of the factors that will affect. the economic success of any engineering project is the very essence of Engineering Economy. The best used of borrowed capital is the fundamental concept behind of Investments, Interest is a fee paid for the use of money. Interest can be smple or Compound. In simple interest , the interest is based on the prinapal only while compound interest Is calculated on the principal plus the interest per interest period. ty1. Simple Interest : , Sima cc where: raeet 1 = interest | =P(i4i) 1. Ordinary Simple Interest : “= Pin where: n= <2. 360 dis the no. of days invested ( borrowed) Mi. Exact Simple interest : | LsPin. where: n = <2. + for ordinary year . 365 omy” 1996; Is a leap year for 96 ( the last 2 digits is divisible by 4) 2000; is @ leap year for 2000 is exactly divisible by 400. i 2100; is a not a leap year for this is a century year divisible by 4, but, divisible by 400. IV. Compound Interest : Fe p(isiy® P= F(1+iy" where: (1 +1)" isthe single payment compound amount factor . (1 +i) isthe single payment present worth factor,Chapter 12 — Engineering Economics Nominal r = Sciences Reviewer by Mandawe & where: i Is the rate of interest per ir r isthe nominal rate ofinterest at ‘mis the number of compounding periods per year Mi. Effective rate (ER): where: F isthe future worth P is the present r isthe Fominal interest rate nis the number of Interest periodA discount refers to an interest charge that is collected at the beginning of term of @ loan. © Discount (D) = Future worth - Present worth D=F-P @ Rateof discount (d): e208) . Getemay Principal ‘@ Relation between rete of discount (d) and rate of interest (i): ia aa DL Annuities : Annutiy is the series of equal payment occurring at equal interval of time. This includes enything involving fixed weekly, monthly, or yearly psyments. > Ordinary Annuity is one where the payments are made at the end of each period. 2. Present worth (P) of annuity : P= a | eat b. Future worth (F) of annuity : es [er : 4 AAA AW A A > Annuity Due is one where the payments are made at the beginning of each period. Pp nd om Itt YChapter 12 - Engineering Economics 2 —________ 5 2 Enginoering Sciences Reviewer by Mandawe & Capote > Deferred Annuity is one where the first payment is made several periods after the beginning of the annuity. P fas?) Ee peat ye aiy™ O1rzgmi2 mn v J AA AS | mperieds «~ n periods > Perpetuity is an annuity in which the payment continue indefinitely . X. Uniform Arithmetic Gradient : nae [iis 2g 3G Pa‘The totat eccumulated amount F: FoR ‘ a+) r= \G ‘The Present Worth P can be solved: PEE(1+i)" « P=P.2P5 Xl. Geometric Gradient Gas! Fume ecosmuietes emort F y commen Teen 7 rate oF nerease oo cere © Coe IBVBET. ITE Ww fre worChapter 12 - Engineering Economics BS 7 >——_____ er Ss Revie by anda cet iatio lecrease in the value of a Property with the passage of time to provide recover ton TY Of ‘capital which has been invested. Depreciation is also used to recover the cost of Producing products or Services that results from the use of the property, Depreciation Methods: Straight Line Depreciation Sinking Fund Formula Declining Balance Double Declining Balance Method 5. Sum of the Years Digit Service Output Working hours AWNE NS 1. Straight Line Depreciation: “ v The annual cost of depreciation (d): i ee 2. Sinking Fund Method : oe Y The annual cost of depreciation (4): a {dae \ in? year: v “The total depreciation (D,) at up to the= sciences for Engineers Licensure Exams ¥ The book value (C,) at the end of the n™” year: C,=C-D, where: Cis the original cost cis the scrap value Listhe useful life of the property 3. Declining Balance Method or Matheson Formula ¥ The depreciation at any n™ year (d,): Ih = kC(L-k)™ where: k is the constant rate of decline = Ge IG k= 1- fai -f fe-ye ¥ The book value (C,) at the of n® year period : felt lee or C= G(i-k* G=G ¥ The scrap (C.) value at the end of its life (L™ year): G=GG-K* Y The tote! depreciation (D_) at the end of n™ year : = Oo where: & is the rate of depreciation ¢. is the depreciation during the nth year. 4. Double Declining Balance Method (DDB) : ¥ The cepreciztion at any n® year (d.): Hai, 2)" a= caf 2°"Chapter 12 - Engineering Economics a cf Engineering Scionces Reviewer by Mandawe & Capote Y The book value (C,) atthe n’™ . c= elt Ye 4 ¥ The scrap value (C,) at the end of its ite (L year): iS 2’ L Cy A= ae ba The total depreciation (D,) at the end of the n® year: ee a ‘Note: Formulas in Declining Balance Method (DBM) becomes Formulas in Double Declining Balance Method if k is replaced by ( 2/L). 5. SUM OF THE YEARS DIGIT METHOD (SYD): Y The depreciation at any n year (d,): year period : The total depreciation at the end of lie (L year) ' B= G-G reversed digit E digits Note: Depreciation Factor =Chapter 19 - Engineering Economics - Engineering Sciences Reviewer by Mand: x1. BONDS The value of a bond is the pri expected to be recei resent worth of all future amounts that are ved through ownership of the bond bond value before redemption face value redemption price bond rate investment rate no. of periods before redemption Xil. Basic Methods for Making Economic Studies: @ Rate of Return Method ( ROR ) @ Annual Worth Method ( AW ) @ Present Worth Method ( PW ) @ Future Worth Method ( FW) Example: [ Basic Method for Making Economic Studies ] ‘An investment of P 270,000 can be made ina project that will produce @ uniform annual revenue of P185,400 for S years and then have a salvage value of 10% of the investment. Out of pocket costs for operation and maintenance will be P81,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25 % before income taxes .Is this a desirable investment?Example: (Sum of the Years Digit Method) For property whose life is 3 years : 1 7 | Year | Reverse Digit | Depreciation Factor | Depreciation during the Year 3 3 hoa 3 z 5 (Cor) 7 2 2 2 2 : or G) 3 i 4 1 [3 Bor) 6 Sum of Digit 6. Service Output Method: (Oe T where: Q. is the total number of units of output during the nth year. T isthe total units of output up to the end of life. 7. Working Hours Method: {Co -G) EK, A where 5 H, is the total number of hours during the nth year. H is the total number of hours up to the end of the LifeChapter 12 - Engineering Economics " Engineering Sciences Reviewer by Mandawe & Capote XI. BONDS The value of a bond is the present worth of all future amounts that are expected to be received through ownership of the bond . Fro Fr Fr Fr Fr Fr| bond value before redemption “face value redemption price ond rate investment rate no. of periods before redemption Xl. Basic Methods for Making Economic Studies: © Rate of Return Method ( ROR ) @ Annual Worth Method ( AW ) © Present Worth Method ( PW ) @ Future Worth Method (FW) Example: [ Basic Method for Making Economic Studies } An investment of P 270,000 can be made ina project that will produce a uniform annual revenue of P185,400 for 5 years and then have a salvage value of 10% of the investment. Out of pocket costs for operation and maintenance will be P81,000 per year. Taxes and insurance will be 4% of the first cost per year. The company expects capital to earn not less than 25% before income taxes .Is this a desirable investment?Soletion: a.Rate of Return Method ( ROR ) Annual Revenue ---- P 185,400.00 Annual Expenses; ® Depreciation = °270,000-P 27,000 _____....p 29,609.00 (1.25)° 0.25 ® Operation and Maintenance -—~ —- P 81,000.00 © Taxes and Insurance, (0.04)(270,000) = 10,800.00 7 P 8 P 121,409.00 then: 7 N RoR = Net Annual Profit 99 P 270,000 ROR = P6399 199 - 93.70% P 270,000 = since ; 23.70 % < 25 % ( investment is not justified ) b.Annual Worth Method( AW): Annual Revenue ----- P 185,400.00 a Annual Costs: © Depreciation = 270,000 - £27,000 ---- P 29,609.00 0.25 @ Operation and Maintenance saoens -- P 81,000.00 @ Taxes and Insurance , (0.04)(270,000) @ Interest on Capital = 0.25(P 270,000)= P 10,800.00 P 67,500.00 P 188,909 .00 © since; Annual Costs > Annual Revenue (Investment is not justified)ee Chapter 12 - Engineering Economics — ——_ 3 6. Engineering Sciences Reviewer by Mandawe & Capote c. Present Worth Method : ( PW ) Cash Inflow Diagram: ae 185,400 185,400 185,400 185,400 | 185,400 —ttttd 0 1 2 3 4 5 Pi = pss on| 22ST +P 27,000 (1.255 02 Pi = P506,370.00 Cash Outflow Diagram: 91,800 91,800 91,800 91,800 91,800 P 270,000 P, = P270,000.00 +.P 91,800 [uz |) Py = P 516,880 ° ® since; Py > P, (investment isnot justified ) .Future Worth Method ( FW): Cash Inflow Diagram: 27,000 185,400 185,400 185,400 185,400 185400 Oo 1 nS ARERR, Fi = 27,000 + 185,00 [=e Fi = P 1,548,580.00 .v Future Worth: Net The alternative that ha: Is 8 futut , future worth of cash o re worth cash inflow greater than the ut low is tobe chosen . XIV, Break — Even Analysis: Break—Even Point is the value of a certain two alternatives are equal . invariable for which the costs of the break-even oft _, expanses costs &revenue ! Production or Onetput | Income = selling price per unit x no. of units Material cost per unit + Labor Cost per unit + Variable cost per unit ) + Fixed cost * To Break Even: INCOME = EXPENSES= MATH REVIEWER 18 : Sciences for Engineers Licensure Exams Cash Outflow Diagram : 0 ! 2 91,800 91.80 91800 91.800 91,800 P27n.000 os = p91,800| (251). p 270,00 (1.25) § 0.25 Fo = P 1577 390.00 since; Fe > Fi (investment is not justified ) XIll. Selection of Alternatives: Studies on selection of alternatives are made to determine in what manner an investment should be undertaken based on any of the following methods v Present Economy: ‘This involves selection of alternatives in which interest is not a factor. Studies usually involve the selection between alternative designs, mater or methods . ¥ Rate of Return: Net Profit Rate of Return = —Ot Pront 2 Of Rebun = at iavesinente Nex The alternative vihich gives a higher rate of return is justifiable... Pay out Period : Total Investment - Salvage Value Net Annual Cach flow Nex The alternative which has a shorter pay out period is to be chosen. Pay out period = Y Annual Cost: fanuzl Cost = Depreciation + Interest on Capital + Operation and Maintenance + Other out of pocket expenses . Ha The alternative in which the annual revenue is greater than the annual Wst is to be chosenrs | chapter 12 - Engineering Economics 45 z I Ei ner des . maineoring Sciences Reviewer by Mandawe & Capote v Future Worth: Nets The alternative that has a future wi i orth future worth of cash out fon too ash ite greater than the XIV. Break - Even Analysis: Break—Even Point is the value of a ‘ certain variable for whi two alternatives are equal . which the costs of the gross income costs &revenue Production or Output Income = selling price per unit x no. of units * To Break Even: INCOME = EXPENSES.Solved Problems in ENGINEERING ECONOMICS 4. Past Board Problem Abank charges 12 % simple interest on 2 P 300.00 loan. How such wil be repaid if the loan is paid back in one lump sum after three years 7 P 408.00 P 415.00 P 551.00 P 450.00 F poser P(1+in). = 300 [1 +(0.12)(3)} exthus ; ‘F = P 408.00 2. Past Board Problem If P 5000.00 shall accumulate for 10 years at 8 % compounded quarterly. Find the compounded interest at the end of 10 years . P 6,005.30 ° P 6,000.00 P 6,040.20 P 6,010.20 Fe 0m P(i+iy’ ; \o = 5,000 (1) . «a iiiser> 11,040.20 then; 1 = 11,040.20 ~ 5,000 ‘ % thus ; 1 = P 6,040.20sciences for Engineers Licensure XV. Benefit to Cost Rat aa) (itis? as | i egal At | © = annual equivalent of Cost G = original Cost = salvage value n = useful life £. where: Benefit to Cost ratio = B2m c where: ® © annual benefits © annual operation and maintenance cost Kew Benefit to cost ratio should be greater than 1 for the project to be justifiable .OEE Solved Problems in ENGINEERING ECONOMICS - 1. Pe ard Problem Abank charges 12 % simple interest on a P 300.09 loan. How repaid if the loan is paid back in one lump sum after thr wuch will be 5? A. P.408.00 B. P 415.00 C. P551.00 D. P 450.00 Solution: F = P(1+in). = 300[ 1 +(0.12)(3) J evthus;F = 408.00 2. Past Board Problem If P 5000.00 shall accumulate for 10 years at 8 % compounded quarterly. Find the compounded interest at the end of 10 years . P 6,005.30 ° ” P 6,000.00 P 6,040.20 P 6,010.20 = P (iti = 5,000 (a-008)" F = 11,040.20 then; a BF sear 1 = 11,040.20 - 5,000 . thus ;1 = P 6,040.206 — PRIME REVIEW CENTER. Sciences for Engincirs Licensure Brame, 3. Past Board Problem XYZ corporation manufactures bookcases that it sells for P 65.00 each, It costs XYZ P 35,000.00 per year to operate its plant. This sum includes rent, depreciation charges on equipment, and salary payments. If the cost to produce one bookcase is P 50.00 , how many cases must be sold each veer for XYZ to avoid taking a loss ? AL 2,334 cases B. 539 cases C. 750 cases D. 2,333 cases Soletion : Let ; No. of books cases that must be sold each year Income = 65 x Expenses = 50x + 35,000 To break-even ; Income = Expenses : 65x = 50x +35,000 , x = 2,333.34 thus; x = 2,334 bookcases 4, Past Board Problem 3 ‘An asset is purchased for P 9 000.00. Its estimated life is 10 years , after which it will be sold for P 1000.00. Find the book value during the third year if the: sum of the years digit (SYD) depreciation is used. P 6,100.00 P 4,500.00 P 5,072.00 P 4,800.00 Dop> Sum of years = $2(i+10) = 55 Sum of reversed years = 10+9+ 8= 27 Dy = 2 (0000 - 1000) = 3,927.28 = thus; C; = 9000 - 3927.28 = p50r2Chapter 12 - Engineering Econnomics 9 4% Mechanical Engineering Mathematics Reviewer by Mandawe & Capote 5. Past Board Problem ‘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" year? A. P 35,938.00 B. P 38,378.00 C. P 41,453.00 ‘ D. P 37,519.00 Solution: pe alos (140.04). = aor 50,000 = 0.04 A = 2,497.00 then ; 12. Fu = 240 as ] 0.04 = thus; Fy. = P 37,519.00 6. Past Board Problem . An asset is purchased for P 500,000.00. The salvage value in 25 years is P 100,000.00. What are the depreciation in the first three years using straight line method? ‘A. P-48,000.00 B. P 24,000.00 C. P-32,000.00 D. P 16,000.00 “OL soon 16,00 =P 16,000.00 thus; D = 3(16,000) = P 48,000.0020 — PRIME REVIEW CENTER. Sciences for Engineers Licensure Exams 7. Past Board Problem ‘A house and a lot can be acquired a downpayment of P 500,000.00 and a yearly payment of P 100,000.00 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 the money is worth 14% compounded annually, what is the cash price of the property? A. P 810,100.00 567 Bu B. P 808,811.00 — ~ CP 801,900.00 i D. P 805,902.00 sooo AAA Aad Cash Price (P) aan Selon 10 P = 100,000 | FAL"! ~ sor etise 0.14 Cash Price = 500,000 + 521,611.56(1.14)* = thus; Cash Price = P 808,835.00 &. Past Beard Problem How much must be deposited at 6 S% each year beginning on Jan. 1, year 1, in order to accumulate P 5000.00 on the date of the last deposit, Jan 1, year 6 ? P75: 23 456 F enue | :| Chapter 12 - Engineering Econnomics a £5 Mechanical Engineering Mathematics Reviewer by Mandawe &: 9. Past Board Problem ‘An instructor plans to retire in exactly one year and want an account that will pay him P 25,000.00 a year for the next 15 years. Assuming @ 6% annual effective interest rate, what is the amount he would need to deposit now ? (The fund will be depleted after 15 years ) A. P-249,000.00 P. A= 725.000 B. P 242,806.00 “TT OT TM “C. P.248,500.00 | 4 AAA A AA D. P 250,400.00 | I j t t i tt es oO 12345 MIS es P = 25,000 ae = thus; P = 242,806.00 10.Past Board Problem P 1,500.00 was deposited in a bank account 20 years ago. Today it is worth P’3,000.00. Interest is paid semi-annually . Determine the interest rate paid on this account ? 20 A 3% B. 29% C. 35% | D. 4% P= 1500.00 F= 300003 Selatan: : F = P(i+i)* e 3000 = 1500 (48) = thus; NR = 3.49% compounded semi-annually22 PRIME REVIEW CENTER. Sciences for Engineers Licensure Exams 11.Past Board Problem If the nominal interest rate is 3%, how much is P 5000.00 worth in 10 years in @ continuously compounded account ? A. P 5,750.00 B. P6,750.00 Cc. P7,500.00 D. P-6,350.00 Selatin F= Pe" F = 5000 e000 thus; F = P 6,750.00 18.Past Board Problem A piece of machinery can be bought for P 10,000.00 cash or for P 2,000.00 down and payments of P 750.00 per year for 15 years . What is the annual interest rate for the time payments? A. 461% B. 3.81% C. 5.71% D. 110% Solution : efi’ A= P750.00 Pea [Ee] vihere: P = 10,000 - 2,000 = 8,000 then: as 8000 = 750 [see] @ thus; i = 4.61%| cee _ Chapter 12 - Engineering Econnomics ” 4. Mechanical Engineering Mathematics Reviewer by Mandawe & Capote 13.Past Board Problem ‘A machine has an initial cost of P 50,000.00 and a salvage value of 10,000.00 after 10 years. What is the book value after 5 years using straight line depreciation ? ‘A. P35,000.00 B. P 25,000.00 c. D. P 15,000.00 P 30,000.00 50,000 - 10,000 10 Ds = 5( 4,000) =P 20,000.00 G thus ; Cs= P 30,000.00 Sclation: d P 4,000.00 50,000 - 20,000 "ast Board Problem It is the practice of almost all bank in the Philippines that when they grant 2 loan, the interest for one year is automatically deducted the principal amount _ Upon release of money to a borrower. Let us therefore assume that you applied for a loan with a bank and the P 80,000.00 was approved at an interest rate of 14% of which was deducted and you were given a check of P 68,800.00. Since you have pay the amount of P 80,000.00 one year after, what then will be the effective interest rate? 15.90 % 16.28 % 16.30 % 16.20 % i goe> Fo = P(1+i)° 80,000 = 68,800(1 +i) thus; 1 = 16.28%a“ — PRIME REVIEW CENTER ‘eunnnessamnssensasmsosnassnenseemasss Sciences for Engineers ‘Licensure Exams 15, Past Board Problem Accompany purchases an asset for P 10,000.00 and plans to keep it for 20 years. If the salvage value is zero at the end of the 20" year, what is the depreciation in the third year? Use sum of the years digits depreciation. P 1000.00 P 857.00 P 937.00 P 747.00 F gos ‘Sum of the years = zen) = 210 D, = 28 (10000 - 0) x0 = thus ; D3 = P 857.00 16.Past Board Problem An asset is purchased for P 9,000.00. Its estimated life is 10 years afer which — it will be sold for P 1,000.00. Find the book value during the first year if sum — of the years digit ( SYD ) depreciation is used. Q A. P8000.00 B. P6 500.00 Cc. P7 545.00 D. P 6,000.00 Soletion + Sum of the years = 2iss0) = 55 D, 2 9000-1000 ) = P 1,454.54 C, = 9000 - 1,454.54 = thus; C, = P 7,545.00Chapter 12 - Engineering Econnomics i £5 Mechanical Engineering Mathematics Reviewer by Mandawe & Capote 17. Past Board Problem A parent on the day the child is born wishes to determine what lumpsum would have to be paid into an account bearing interest at 5 % compounded annually, in order to withdraw P 20,000.00 each on the child's 18”, 19,20" and 21* birthdays. A. P 35,941.73 A= P 20000 BP 33,941.73 C. 30,941.73 D . P 25,941.73 17:18 19 20 2 Lump Sum = P(1+i)7° Lump Sum = P(1+0.05)"” where: 4 P= zon | 8) |- P 70,919.00 Lump Sum = 70,919 ( 1.05)-” = thus; Lump Sum = P 30,941.73 18. Past Board Problem ‘A merchant puts his P 2000.00 to a small business for a period of 6 years. ‘With a given interest rate on the investment of 15 % per year, compounded annually, how much will he collect at the end of the 6° year ? A. 4,400.00 B. P4,390.15 C. P4,200.00 D. P4,626.00 - Solution : Fe P(iti)" 4 2000( 1 + 0.15) ® © thus; F " P 4,626.00i a - PRIME REVIEW CENTER. Sciences for Engineers Licensure Exams .19.Past Board Problem Amanufacturina 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 2000.00 bonus ? A. P 12,608.00 1238 UR B. P 12,615.00 .° | j | | - td C.P 12,600.00 D. P 12,300.00 4444 44 > F = 80/2000) Selation ae [| i _ (140.0121 80(2000) = A (aa ew thus; A = P 12,615.80 20.Past Board Problem The sum of P 1000.00 is invested now and left for 8 years, at which time, the principal is withdrawn. The interest that has accrued is left for another eight years. If the effective annual interest rate is 5 %,what will be the withdrawal @mount at the end of the 16” year? P 706.00 P 500.00 P 774.00 P 779.00 F oom Fe = 1000(1.05)° = 1,477.45 Pe = Fe-P Py = 1,477.75- 1000 = 477.45 then ; a - 1b Fu, = 477.45 (1.05) ® |: $s Fw wr Thus; Fy, = P 705.42Chapter 12 - Engineering Econnomics a7 25 Mechanical Enginoering Mathomatics Roviewer by Mandawe & Capote ist Board Problem A company which manufactures electric motors has a production capacity of 200 motors a month. The variable costs are P 150.00 per motor. The average selling price of the motors is P 275.00. Fixed costs of the company amount to P 20,000.00 per month which includes taxes. The number of motors that must be sold each month to break even is closest to : A. 240 B. 150 c. 280 D. 160 Solution: Let; X = no. of motors to be sold per month To Break-even : Income = Expenses where: Income = 275 x Expenses = 150x + 20,000 then ; 275x = 150x + 20,000 = thus; x=160 | 82. Past Board Problem By the condition of a will, the sum of P 20,000 let toa gil to be held in ust fund by her guardian until it amounts to P 50,000. When will the girl received the money if the fund is to be invested at 8 % compounded quarterly. A. 17.98 yrs B. 10.34 yrs C. 11.57 yrs D. 10.45 yrs Soletinn F = P(i+i)? an 50,000 = 20,000 (+28) (1.02) = 2.5 “thus; n= 11,57 yearsae : = PRIME REVIEW ¢; Sciences for Engineers Licensure Exams 23. Past Board Problem How much money must you invest today in order to withdraw P 2000 annually for 10 years if the interest rate is 9 % ? A= P2,000 A. P 12,853.32 P - BP 12,881.37 | Pod bd ii C. P 12,385.32 \ A A A A A aoa D. P 12,835.32 | _ 1- (1.09)"° P = 2000 [se @ thus; P = P 12,835.32 28. Past Board Problem 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. A. P 10,834.38 B. P 10,382.90 C. P 10,586.99 D. P 10,200.56 Solatinn “ thus; P = P 10,834.38 elChapter 12 - Engineering Econnomics # Se sae Mechanical Engineering Mathematics Reviewer by Mandawe & Capote 95.Past Board Problem What will be the future worth of money after 12 months, if the sum of P 25,000 is invested today at simple interest rate of 1% per year ? P 30,000 P 29,000 P 28,000 P 27,859 gopP F=P(1+in) F = 25,000 [ 1 + 0.01(12)] = thus ; F = P 28,000 ‘26, Past Board Problem . Aman expects to receive P 25,000 in 8 yrs. How much is that money Now considering interest at 8 % compounded quarterly ? P 13,859.12 13,958.33 P 13,675.23 P 13,265.63 pomp Fe p(i+iy 25,000 = P ( = thus; P= 13,265.63 27.Past Board Problem ABC Corporation makes it a policy that for every new equipment purchased, the annual depreciation cost should not exceed 20% of the first cost at any time without salvage value. Determine the length of service life if the depreciation used is the SYD method. 9 yrs 10'yrs 12 yrs 19 yrs gnoeP> me aaayx O00 EEE 30 — PRIME REVIEW CENTER. Sciences for Engin eers Licensure. Solution : g= MG) zinth) onc, = MG) pie) . 2 n+1 = 20 © thus;n = 9 years ‘28. Past Board Problem At an interest rate of 10% compounded annually, how much will a deposit of P 1,500 be in 15 years 7 0 IS 7 g P 6,100.00 P 6,234.09 P 6,265.87 P 6,437.90 SoOm> F = P(i+i)" ! F = 1500(1+ 0.10)" thus; F = P 6,265.87 29.Past Board Problem What is the accumulated amount of five year annuity paying P 6,000.00 at the end of each year, with interest at 15% compounded annually. P 40,454.29 pg P 41,114.29 P 41,454.29 P 40,544.29 1 Ya A B. c D. 4 Sola Poy | >F Fe a [asta]Chapter 19 - Engineering Econnomics — * SS or ‘Mechanical Engineering Mathematics Reviewer by Mandawe & Capote fF = 600 [(1.15)°-4 0.15 = thus; F = P 40,454.29 30. Past Board Problem A debt of P 10,000 with 10% interest compounded semi-annually is to be amortized by semi-annual payments over the next 5 years. The first due is 6 months. Determine the semi-annual payment. P 1,200.00 P 1,295.05 P 1,193.90 P 1,400.40 A. B. Cc. D. 4 = (14 p= = } i a(t - (4.057) 1000 = — 9.05) co thus; A = 1295.05 oT poard Problem 34. Pae efectve rate of 14% compounded semi-annually is: 14.49 % B. 12.36 % c, 14.94% D. 14.88 % solution Let : ERI 3 04) ent = (! ot) = 0.1449 = effective rate of interest ERI 2 14.49 % . ERI =! o thus 1 0 cea —PRIME REVIEW CENTER. oh Sciences for Engineers Licensure Exams 32. Past Board Problem How many years will P 100,000 earned a compound interest of P 50,000 if the interest rate is 9 % compounded quarterly? A. 4.55 B. 3.55 Cc. 5.68 D. 2.35 Soletine Fe Pp(i4+i)™ where : . 0.09 = = = 0.0225 "4 Fe Pat then; 100,000 + 50,000 = 100,000 ( 1.0225 )** 4n tog (1.0225) = log 1.5 © thus; n = 4.55 years 33. Past Board Problem A machine costing P720,000 is estimated to have a life of 10 years. If the annual rate of depreciation is 25%, determine the total depreciation using the constant percentage or declining balance method. 352,845.34 785,437.23 679,454.27 764,243.33 com> G = G(1-k)" Cw = 720,000 (1 - 0,25)” Cio = P 40,545.73 D, = Go-G, Dy = 720,000 ~ 40,545.73 w thus | Dy = P 679,454.27Chapter 19 - Engineering Econnomics_ ~— Mechanical Engineering Mathematics Peviewer by Mandawe & Capote 34. Past Roard Problem ‘A man borrowed P 300,000 from a lending institution which wil 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 yrs hence ? A. 2,798.52 B. P 3,952.50 c. P4672.31 D. P5,093.06 Solution Fx = P(1+4i)? Fy, = 300000( 1.12)” F, = ALG+i"-1) ooo i then; Fa = Fe 300 000 (1.12) = = thus; A= P5,093.06 35. Past Board Problem Mr. Cruz plans to deposit for the education of his 5 year 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; A. P 13,000 B. P 14,500 Cc. P13,500 D. P 14,000 Solution: ee ALaep 1] 24 0.12 500) (+22) O12 2 wr thus; F = 13,486.73— PRIME REVIEW CENTER Ee Exams 36.Past Board problem. ace cost of 3 machine shop is P 69,994.00 If the cost of » The annual mainterer or unit and its selling price is P 135 per forged unit, i jing is P mown ae ‘of units to be forged to break-even. 886 units 985 units 688 units 68 units fF goa» To break-even ; Income = expenses 135x = 56x + 69,994 we thus ; x = 886 units ‘37.Past Board Problem 5 The machine has an initial cost of P 50,000 and salvage value of P 10,000 after 10 years, Find the book value after 5 years using straight line depreciation. A. P 30,000.00 8. P 20,000.00 C. P 10,000.00 D. P 40,000.00 = 50,000 - 10, 4 ee = 4000 D, = nd Ps = §( 4000) = 20,000 G=q-p, - = 50,000 - 20, thus; C= 30,099 000YF Chapter 12 - Engineering Econnomics — 4 Mechanical Engineering Mathematics Reviewer by Mandawe & Capote 35 Board Problem A young engineer borrowed P 10,000 at 12 % interest and paid P 2000 per annum for the first 4 years . What does he have to pay the end of the 5” year in order i in order to pay off his loan?» jyyqq A. P 6,922.93 B. P6,292.93 C. P9,622.93 b. 75,262.83 Py +P, = 10,000 where : ie ia) Py = ao | OD Py = 6074,699 Pp =x ( 1.12)7* Pp = 0.567 x then ; 0.567x + 6,074.70 = 10,000 thus; x = P 6,922.93 39.Past Board Problem Asmall machine has an initial cost of P 20,000 , a salvage value of P 2000 and a life ef 10 years, Determine the annual depreciation. ye 20000 2000 » 1 g00.00 «» thus ; P 1,800.00ast Board Problem Mandarin Bank advertises 9.5% accounts that yield 9.84 % annually. Find how often is the interest compounded ? monthly quarterly semi-annually continuously gos Solution ERI =(1+ i)"-1 0.095 = ( .¢ 0:0884" ™ ew thus;m = 4 41.Past Board Problem John borrowed P 50,000.00 from the bank at 25 % compounded semi-annually. - ‘What is the corresponding effective rate of interest ? 25.56 % 26.56 % 21.66 % 12.56 % F one> 2 ERI = 0.2656 2 ERI = (92) “1 thus; ERI = 26.56% ‘42.Past Board Problem Find the present worth of a future payment of P 300,000 to be made in 5 years with an interest rate of 8 % per annum. P 200,174.96 P 204,174.96 P 240,174.96 P 217,404.96 cop>Chapter 12 - Engineering Econnomics a. 5 Mechanical Engineering Mathematics Reviewer by Mandawe & Capote P= F(14i)7 P = 300,000( 1+0.08)* w thus; P = P 204,174.96 3. Past Board Problem ‘The corporation purchased a machine for P 1 million . Freight and installation charges amounted to 3 % of the purchase price. If the machine shall be depreciated over a period of 8 years with a salvage value of 12 %. Determine the depreciation charged during the 5” year using the sum of the years digit method. A, P 101,107.11 B. P 170,110.11 C. P 107,110.11 D. P 100,711.11 Solotion: Sum of the Years = Se8) =36 Original Cost = 1,000,000 + 0.03 ( 1,000,000 ) Original Cost = P1, 030,000 Salvage value = 0.12 ( 1,030,000) = P 123,600 YEAR DEPRECIATION FACTOR 8 1 & 36 Ul : 6 3 & 36 4 3 36 5 ce ' 36 Depreciation = 3 (1,030,00 - 123,600) thus; Depreciation = P 100,711.11 Dee38 —PRIME REVIEW CENTER. Sciences for Engineers Licensure Exams 48.Past Board Problem How long will it take money to double itself if invested at 5% compounded annually ? A 7 years 28 years & 14 years D. 21 years Solution FeP(itiy . 2P = P(1+0.05)° 2 = (1.05)" _ _lin2 In 1.05 = thus; n = 14.2 years say 14 years ‘45.Past Board Problem What is the present worth of a 3 years annuity paying P 3,000.00 at the end of each year, with interest at 8% compounded annually. A. P 7,731.29 B. P9,731.79 C. P7,371,29 D. P9,371.79 Selatan é ‘A= P 3000.00 ' ] p= afc" _ 4-(1.08)" = 3000 [se 2 = thus; P = P 7,731.29 ‘46.Past Board Problem Aman borrowed P 2000 from a bank and Promise to pay the amount for one ' year. He received only the amount of P1,920 after the bank collected an advance interest of 80.00. What was the rate of discount and the rate of interest that the bank collected in advance ?Chapter 12 - Engineering Economics — 3» #_ Mechanical Engineering Mathematics Reviewer by Mandawe & Capote AL 4%, 4.17% B. 3% , 3.17% C. 4% , 4.71% D. 3%, 3.71% rate of discount = rate of interest then; g =. Interest Orig. Principal a = _P.90.00 P 2,000.00 @thus;d = 0.04 or 4% i = —lnterest__ Actual Principal @ thus; | = 0.0417 or 4.17% VY Alternate Solution : al = _0.04 1-0.04 = thus; | = 0.0417 or 4.17% 47,Past Board Problem The original cost of a certain piece of equipment is P 150,000 and it is depreciated by 10% sinking fund method. What is the annual depreciation charge if the book value of the equipment after 10 years is the same as if it had been depreciated at P 14,000.00 each year by straight-line formula A. P 8784.36 . B. P 5645.57 C. P 6454.54 D. P 3484.23a PRIME REVIEW CENTER. - Scrences for Engineers Licensure Beams, Seletien: a The book value at the end of 10 years Using Straight Line Method: biz 5 yp = 150,000 — 10 (14,000) Pod @ Cie = 10,000.00 Pg i 4, i Dre Using Sinking Fund Method: . > Dy = G- Go 414i)" 41 where :Dio =d [oy i . Cy Cro = 450,000 - 10,000 = 8,784.36 , (* 40)'°-1 0.10 ° [: a i thus; P 8,784.36 48.Past Board Problem ‘An engine is expected to have a maintenance cost of P1000 the first year. It is believed that the maintenance cost will increase P 500 per year. The interest rate is 6% compounded annually. Over 2 10-year period, what will be the approximate effective annual maintenance cost? A. P3011.00 B. P 2450.00 cc. P 3452.00 D. P 1345.00 Slaton: Solve first the present worth with the uniform arithmetic gradient: p- Marrs] | 6 [asian (+7 7 [qari (4? 1,000[(1+0.06)"°-1] 500 + (1+0.06)'(0.06) P = 22,161.247 (140.061 __40 (1+0.06)"°(0.06) aaa]Chapter 12 - Engineering Econnomics dol 4 Mechanical Engineering Mathematics Reviewer by Mandawe & Capoto Considering uniform payment: Ale (+iy" Aft - (140.06) ve 22,161.247 = " (0.06) A=P 3011.00 thus; P 3011.00 ‘A9.Past Board Problem A computerized machine shop will require a fixed capital investment of P8 million and an estimated working capital of P1.5 million. Upon evaluation, the annual depreciation is estimated to be 8% of the fixed capital investment. If annual profit is P2 million, what is theegte'gf retum on the total investment? A. 14.31% B. 12.24% C. 10.23 % D. 11.24% Solutions’ __ Net annual profit ROR.= otal investment = 2,000,000 - 0.08(8,000,000) 8,000,000 + 1,500,000 & thus; ‘ROR = P14.31% 50. Past Board Problem . Amnachine shop installs new lathe machine that costs of P 1,800,000. The machine shop expects annual gross revenue to increase P 500,000 while it incurs an annual expense of P 50,000 for the machine operations and maintenance. What is the pay back period? A. 4yts B. 3yrs Cc. Syrs D. 2yts Ssttions fog = Initial Investment Pay-back period = U2 OVESInent By-Dack Period’ = “Net annual profit _ __1,800,000 500,000-50,000 “ thus; pay-back period = 4 years