PRACTICE PROBLEM No. 4 (Engineering Economy)

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC. International Internatio nal Charter No. I-07

PRACTICE PROBLEM: SET No. 4 – Choose the letter that corresponds to the correct answer.

1. AED 4,000 is borrowed for 75 days at 16% per annum simple interest. How much will be due at the end of 75 days? a. AED 4,133.33 b. AED 4,333.33 c. AED 4,166.67 d. AED 4,150.00 2. A deposit of $ 110,000 was made for 31 days. The net interest after deducting 20% tax is &890.36. Find the rate of return annually. a. 11.95% b. 12.75% c. 11.75% d. 12.25% 3. Agnes Abanilla was granted a loan of P20, 000 by her employer RMM Industrial and Construction Corporation with an interest of 6% for 180 days on the interest collected in advance. The corporation would accept a promissory note for P20, 000 non-interests for 180 days. If discounted at once, find the proceeds of the note. a. P 18,600 b. P 18,800 c. P 19,000 d. P 19,200 4. If you borrowed money from your friend with simple interest of 12%, find the present worth of P50,000, which is due at the end of 7 months a. P 46,200 b. P 44, 893 c. P 46, 730 d. P 45, 789 5. A bank charges 12% simple interest on P300M loan. How much will be repaid if the loan is paid back in one lump sum after three years? a. P 408M b. P 415M c. P 551M d. P450M

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC. International Charter No. I-07

6. A man borrowed AED 100,000 at an interest rate of 12% per annum, compounded quarterly. What is the effective rate? a. 3% b. 13.2% c. 12% d. 12.55% 7. What is the corresponding effective rate of 18% compounded semi-quarterly? a. 19.25% b. 19.48% c. 18.46% d. 18.95% 8. Find the present worth of a future payment of P100,000 to be done in 10 years with interest of 12% compounded quarterly a. P 30,444.44 b. P 30,000.00 c. P 30,655.68 d. P 30, 546.01 9. The amount of P 50,000 was deposited in the bank earning at interest of 7.5% per annum. Determine the total amount at the end of 5 years, if the principal and interest were not withdrawn during the period? a. P 71, 781.47 b. P 72, 475.23 c. P 70, 374.90 d. P 78, 536.34 10. Lizqen Aldab owes P25, 000 due in one year and 75,000 due in 4 years. He agrees to pay P50, 000 today and the balance in 2 years. How much must she pay at the end of two years if the money is worth 5% compounded semi-annually? a. P 38,025.28 b. P 35,021.25 c. P 30,500.55 d. P 39,021.28


11. How long (in years) will it take money to quadruple if it earns 7% compounded semiannually? a. 7 b. 8 c. 9 d. 10 12. A company invests P 10,000 today to be repaid in 5 years in one lump sum at 12% compounded annually. How much profit in present day in pesos is realized? a. P 7, 632 b. P 7,226 c. P 7,326 d. P 7,362 13. A Cardo Dalisay borrows P 2,000 for 6 years at 8%. At the end of 6years, he renews the loan for the amount due plus P2, 000 more for 2 years at 8%. What is the lump sum due? a. P 5,355 b. P 5,892 c. P6,035 d. P6,135 14. If P500, 000 is deposited at a rate of 11.25% compounded monthly, determine the interest after 7 years and 9 months. a. P 660,550 b. P 670,650 c. P 680,750 d. P690,850 15. Ms. Toralba purchased on a monthly installment a P100, 000 worth of land. The interest rate is 12% nominal and payable in 20 years. What is the monthly amortization? a. P1,101.08 b. P1,121.01 c. P1,152.15 d. P1,128.12


16. 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 the quarterly payment is P2, 000? a. P 10,834.38 b. P10,382.90 c. P 10,586.99 d. P 10,200.56 17. Maxine needs AED4, 000 per year for four years to go to college. Her father invested AED 5,000 in 7% accounts for her education when she was born. If she withdraw AED 4,000 at the end of her 17 th, 18 th, 19 th and 20th birthday, how much will be left in the account at the end of 21 st year? a. AED 1,700 b. AED 2,500 c. AED 3,400 d. AED 4,000 e. 18. A debt of P10,000 worth 10% compounded semi-annually is to be amortized by semiannual payment over the next 5 years. The first due in 6 months. Determine the semiannual payment a. P 1,200.00 b. P1,293.05 c. P1,193.90 d. P1,400.45 19. A young engineer borrowed $ 10,000 at 12% interest and paid $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? a. $ 6,919.28 b. $ 5,674.00 c. $ 6,074.00 d. $ 3,926.00 20. How much must you invest today in order to withdraw P 2,000 annually for 10 years if the interest rate is 9%? a. P 12,853.32 b. P 12,881.37 c. P 12,385.32 d. P 12,835.32


21. A person buys car for P100, 000 down payment and 10 deferred semi-annually payments of 8,000 each, starting three years from now. What is the present value of the car if the rate of interest is 12% compounded semi-annually? a. P 134, 666.80 b. P 143,999.08 c. P 154,696.80 d. P 164,969.80 22. A house and lot can be acquired by a down payment of P500, 000 and a yearly payment of P100, 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 the money worth is 14% compounded annually, what is the cash price of the property? a. P 810, 100 b. P 808,811 c. P 801,900 d. P 805,902 23. A man loans P18, 400 from a bank with interest rate at 5%compounded annually. He agrees to pay his obligations by paying 8 equal payments, the first being due at the end of 10 years. Find the annual payments. a. P 44, 982.04 b. P 56, 143.03 c. P 62,334.62 d. P 38,236.04 24. A housewife bought a brand new washing machine costing P12, 000 if paid in cash. However, she can purchase it on installment basis to be paid within 5 years. If the money worth 8% compounded annually, what is her yearly amortization if all payments are to be made at the beginning of each year? a. P 2,782.85 b. P 2,872.58 c. P 2, 400.00 d. P 2,827.58


25. Mr. Gentoo borrows P 100, 000 at 10% effective annual interest. He must pay back the loan over 30 years with uniform payments due on the first day of each month. What does Mr. Gentoo pay each month? a. P 870.00 b. P 846.00 c. P 878.00 d. P 839.00 26. A unit of welding machine cost P45, 000 with an estimated life of 5 years. Its salvage value is P2, 500. Find its depreciation rate by straight-line method a. 17.75% b. 19.88% c. 18.89% d. 15.56% 27. A machine has initial cost of P50,000 and salvage value of P10, 000 after 10 years. Find the book value after 5 years of using straight-line depreciation. a. P 12,500 b. P 30,000 c. P 16,400 d. P 22,300 28. The cost of a paint stand mill, including its installation is P800,000. The BIR approved life of this machine is 10 years for depreciation. The estimated salvage value of mill is P50, 000 and cost of dismantling is estimated to be P15, 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? a. P74,500; P340,250 b. P76,500; P341,000 c. P76,500; P342,500 d. P77,500; P343,250 29. An equipment costs P10, 000 with salvage value of P500 at the end of 10 years. Calculate the annual depreciation cost by sinking fund method at 4% interest. a. P 791.26 b. P 950.00 c. P 971.12 d. P 845.32


30. A machine cost P720, 000 is estimated to have a book value of P40, 545.73 when retired at the end of 10 years. Depreciation cost is computed using a constant percentage of the declining book value. What is the annual rate of depreciation in %? a. 28 b. 25 c. 16 d. 30 31. PICE Corporation makes it a policy that for any new equipment purchased the annual depreciation cost should not exceed 20% of the first cost at any time with no salvage value. Determine the length of service life necessary if the depreciation used is the SYD method. a. 9 years b. 10 years c. 11 years d. 19 years 32. A company purchases an asset for P 10, 000 and plans to keep it for 20 years. If the salvage value is zero at the end of 20 th year, what is the depreciation in the third year? Use SYD method. a. P 1,000 b. P 857 c. P 937 d. P 747 e. 33. An asset purchased for P9, 000. Its estimated life is 10 years after which it will be sold for P1, 000. Find the book value during the first year if SYD depreciation is used. a. P 8,000 b. P 6,500 c. P 7,545 d. P 6,000 34. At 6%, find the capitalized cost of a bridge whose cost is P250M and life is 20 years, if the bridge must be partially rebuilt at a cost of 100M at the end of each 20 years. a. P275.3M b. P265.5M c. P295.3M d. P282.1M


35. A corporation uses a type of motor truck which costs P 5,000 with life of 2 years and final salvage value of P 800. How much could the corporation afford to pay for another type of truck of the same purpose whose life is 3 years with the final salvage value of P1, 000? Money is worth 4%. a. P 8,450.66 b. P 7,164.37 c. P 6,398.24 d. P 9,034.56 36. A company must relocate one of its factories in three years. Equipment for the loading dock is being considered for purchase. The original cost is P20, 000; the salvage value of the equipment after three years is P8, 000. The company s rate of return on money is 10%. Determine the capital recovery rate per year. a. P 5,115 b. P 4,946 c. P 5,625 d. P 4,805 ’

37. A manufacturer produces certain items at a labor cost of P115 each, material cost of P76 each and a variable cost of P2.32 each. If the item has a unit price of P600, how much number of units must be manufactured each month for the manufacturer to break even if the monthly overhead is P428, 000? a. 1053 b. 1136 c. 946 d. 1232 38. Steel drum manufacturer incurs a yearly fixed operating cost of $200,000. Each drum manufactured cost $160 to produce and sells $200. What is the manufacturer breakeven sales volume in drums per year? a. 1250 b. 2500 c. 5000 d. 1000


39. The annual maintenance cost of machine is P70, 000. If the cost of making a forging is P56 and its selling price is P125 per forged unit. Find the number of units to be forged to break even. a. 1015 units b. 985 units c. 1100 units d. 1000 units 40. RMM Corporation manufactures bookcases that sell for P65 each. It costs RMM Corporation P35, 000 per year to operate its plant. This sum includes rent, depreciation charges on equipment, and salary payments. If the cost to produce one book case is P50, how many cases must be sold each year for XYZ to avoid taking a loss? a. 2334 b. 539 c. 750 d. 2333

PRACTICE PROBLEM No. 4 (Engineering Economy)

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