PROBLEMS IN ENGINEERING ECONOMICS
1. A
machine has an initial cost of P50,000 and a salvage value of P10,000 after 10 years. Using
the straight-line method:
a. What is the depreciation rate as a percentage of the initial cost?
b. What is the book value after five years?
2. A P1000 face-value bond pays dividends of P110 at the end of each year. If the bond matures
in 20 years, what is the approximate bond value at an interest rate of 12% per year,
compounded annually?
3. A machine that costs P20,000 has a 10-year life and a P2000 salvage value. If straight line
depreciation is used, what is the book value of the machine at the end of the second year?
4. An engineer wishes to borrow $20 000 in order to start his own business. A bank will lend him
the money provided he agrees to repay $920 per month for two years. How much interest is
he being charged?
5. A student borrows $3000 from his uncle in order to finish school. His uncle agrees to charge
him simple interest at the rate of 5½% per year. Suppose the student waits two years and
then repays the entire loan. How much will he have to repay?
6. A student deposits $1000 in a savings account that pays interest at the rate of 6% per year,
compounded annually. If all of the money is allowed to accumulate, how much will the
student have after 12 years?
7. An economy is experiencing inflation at the rate of 6% per year. An item presently
costs $100. If the 6% inflation rate continues, what will be the price of this item in five years?
8. The ABC Company deposited $100 000 in a bank account on June 15 and withdrew a total of
$115 000 exactly one year later. Compute: (a) the interest which the ABC Company received
from the $100 000 investment, and (b) the annual interest rate which the ABC Company was
paid.
9. What is the annual rate of simple interest if $265 is earned in four months on
an investment of $15000?
10. Determine the principal that would have to be invested to provide $200 of simple
interest income at the end of two years if the annual interest rate is 9%.
11. At what annual interest rate is $500 one year ago equivalent to $600 today? 12. Suppose that
the interest rate is 10% per year, compounded annually. What is the minimum amount of money
that would have to be invested for a two-year period in order to earn $300 in interest?
13. A student plans to deposit $600 each year in a savings account, over a period of 10 years. If the
bank pays 6% per year, compounded annually, how much money will have accumulated at the
end of the 10-year period?
14. Find the present value, in pesos, of an annuity of 25,000 pesos payable annually for
8 years, with the first payment at the end of 10 years, if money is worth 5%. 15. A man
receives P145,000.00 credit for his old car when buying a new model costing P375,000.00.
What cash payment will be necessary so that the balance can be liquidated
by payments of P12,500.00 at the end of each month for 18 months when interest
is charged at the rate of 6% compounded monthly?
16. Find the value after 20 years, in pesos, of an annuity of P20,000 pesos payable annually for
8 years with the first payment at the end of 2 years, if money is worth 5%. 17. A machine is to be
purchased for P155,000; it has an estimated life of 8 years and a salvage value of P6,000. A
sinking fund is to be established so money will be available to purchase a replacement when the
first machine wears out at the end of 8 years. An amount of P13,030 is to be deposited at the
end of each year during the lifetime of the first machine into the sinking fund. The interest rate
(%) this fund must earn to produce sufficient funds to purchase the replacement machine at the
end of eight years is closest to:
18. An employee is earning P18,000 a month and he can only afford to purchase a car which will
require a down payment of P85,000 and a monthly amortization of 30% of his monthly salary.
What would be the maximum cash value of a car he can purchase if the seller will agree to a
down payment of P85,000 and the balance payable in four years at 18% per year payable in a
monthly basis. The first payment will be due at the end of the first month.
19. A man wants to make 14% nominal interest compounded semi-annually on a
bond investment. How much should the man be willing to pay now for a 12%, P40,000
bond that will mature in 10 years and pays interest semi-annually?
20. Compute the interest for an amount of P200,000 for a period of 8 yrs. if it was made at 16%
compounded continuously.
21. A machine costs P900,000 and will have a salvage value of P450,000 when retired at the end of
5 yrs. Using the sum of years digit method, what is the sum of the depreciation cost in the first
two years.
22. . A man wished to have P40,000 in a certain fund at the end of 8 years that will pay
a nominal rate of 6% compounded continuously. What is the value of the
compound amount factor for this rate?
23. An equipment installation job of Diego Construction in the completion stage can be completed
in 40 days of 8 hrs. per day of work with 40 men working. With the contract expiring in 30 days,
the contractor decided to add 10 men on the job, overtime not being permitted. If the
liquidated damages P20,000 per day of delay, and the men are paid P580 per day, compute the
total cost if he will add 10 more men to finish the job.
24. In 1940, the average value of a house is P290,000. In 1990, the average value of a house of
the same model is P7,910,000. What was the rate of inflation for the house? 25. An equipment
costs P325,000 and has a life of 4 yrs. With a salvage value of P50,000. Determine the
capitalized cost of using the machine if the rate of interest is 16% per annum.
26. A woman deposits $2000 in a savings account that pays interest at 8% per
year, compounded annually. If all the money is allowed to accumulate, how much will
she have at the end of (a) 10 years? (b) 15 years?
27. The new model of the lathe machine (200LX) cost P200,000 to buy and P30,000 per year to
operate will save labor expenses of P65,000 per year for 8 years. The machine will be purchased
if its salvage value at the end of 8 years is sufficiently large to make the investment
economically attractive. If the interest rate of 10% is used, compute the minimum salvage value.
P28,462
28. If P1000 accumulate to P1500 when invested at a simple interest for three years, what is the
rate of interest? 16.67%
29. You loan from a loan firm an amount of P100,000 with a rate of simple interest of 20% but the
interest was deducted from the loan at the time the money was borrowed. If at the end of one
year, you must pay the full amount of P100,000, what is the actual rate of interest? 25%
30. If you borrowed P10,000 from a bank with 18% interest per annum, what is the total amount
to be repaid at the end of one year? 11,800