SOLVED PROBLEMS IN ENGINEERING ECONOMY
1. Determine the ordinary simple interest on P10,000 for 9 months and 15 days if the
rate of interest is 6%.
a. P475
c. P467.21
b. P468
d.NOTA
2. Determine the exact simple interest on P20,000 for the period from January 15 to
November 15, 2012 if the rate of simple interest is 5%
a. P847.22
c.P833.33
b. P835.16
d.NOTA
3. You loan from a bank the 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 1 year, you have to pay the full amount of P100,000, what is the
actual rate of interest?
a. P80,000
c. i = 20%
b. i = 25%
d. NOTA
4. Mr. Dee Jay borrowed money from the bank and he received the amount of
P18,420 and promised to repay P20,000 at the end of 10 months. Determine the
rate of simple interest.
a. i = 10.29%
c. i = 8.58%
b. P = 1,580
d. NOTA
5. If P50,000 is borrowed for 90 days at 8% per annum simple interest. How much
will be due at the end of 90 days?
a. P50,986
c. P51,000
b. i = 8%
d. NOTA
6. On his recent birthday on April 18, 2012, Cai was given by his mother a certain
amount of money as birthday present. He decided to invest the said amount on a
12% exact simple interest. If the investment will mature on Christmas day at an
amount of P15,000, how much did Cai receive from his mother on his birthday?
a. P13,859.37
c. P15,000
b. P13,841.47
d. NOTA
7. Carle borrowed money from Cy with simple interest of 12%.
worth of P50,000 which is due at the end of 6 months.
a. P74,691.18
c. P47,169.81
b. P50,000
d. NOTA
Find the present
8. A loan of P5,000 is made for a period of 15 months at a simple interest rate of
15%. What future amount is due at the end of the loan period?
a. P5,750.00
c. P5,600.00
b. P5,937.50
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
9. Ciel borrowed P20,000 from the bank and promised to pay the amount after one
year. He received the amount of P19,200 after the bank collected an advance
interest of P800. What was the rate of discount and the rate of interest that the
bank collected in advance?
a. d=4%; i=4.17%
c. P19,200; P20,000
b. i=4%; d=4.17
d. NOTA
10. You pawned your PSP for P5,000 and agreed to pay the amount at the end of 9
months. The pawnshop gave you P4,000 cash after deducting the interest in
advance. What was the rate of discount?
a. i = 20%
c. d = 20%
b. d = 25%
d. NOTA
11. What was the rate of interest for the problem in # 10?
a. i=20%
c. d=25%
b. i=25%
d. NOTA
12. If the sum of P15,000 is deposited in an account earning interest at the rate of
8% compounded quarterly, what will it become at the end of 5 years?
a. P22,039.92
c. P22,289.21
b. P32,866.85
d. NOTA
13. An employee has a promissory note, due 5 years hence, whose maturity value is
P70,000. If the rate of interest is 12% compounded semi-annually, what is the
value of this note now?
a. P39,720.82
c. P96,675.79
b. P39,087.63
d. NOTA
14. IEdeas is planning to expand its operations and plans to purchase a parcel of land
on which to construct a building for their review center, which they will need 5 years
hence. The current costs are: land: P2M; building: P3.5M. Since these are not
needed immediately, the company plans to defer the purchase of the land and the
construction of the building until they are needed. If the value of the land and the
cost of the building are expected to appreciate at the rates of 10% and 8% per
annum, respectively. What will be the total cost of the investment after 5 years?
a. P8,580,275.74
c. P8,363,668.27
b. P7,244,668.37
d. NOTA
15. A debt of P150,000 was paid for as follows: P40,000 at the end of 3months,
P50,000 at the end of 12 months, P30,000 at the end of 15 months, and a final
payment F at the end of 21 months. If the rate of interest is 12% compounded
quarterly, find the final payment F.
a. P15,774.56
c. P12,359.52
b. P157,745.58
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
16. Adriste Philippines, Inc. expects to retire an existing machine at the end of 2013
and will replace it with a new machine for the same task at an estimated cost of
P600,000. The old machine can be sold for P50,000 when it is replaced. To
provide for replacement, the company intends to deposit the following amounts in
an account earning interest at 8% compounded quarterly:
P200,000 at the end of 2010
P150,000 at the end of 2011
P100,000 at the end of 2012
What additional amount is needed at the end of 2013 to purchase the new machine?
a. P15,774.56
c. P12,359.52
b. P35,952.12
d. NOTA
17. If P500,000 is invested at 8% interest compounded quarterly, how many years will
it take for this amount to accumulate to P900,000?
a. 29.68
c. 14.84
b. 7.42
d. NOTA
18. Charlie wishes to bequeath his youngest son P200,000 ten years from now. What
amount should he invest now if it will earn interest of 6% compounded annually
during the first 5 years and 8% compounded quarterly during the next 5 years?
a. P200,000
c. P100,576.67
b. P134,594.27
d. NOTA
19. Find the nominal rate compounded monthly which is equivalent to 16%
compounded quarterly. What is the corresponding effective rate?
a. r=15.79% ; Eri = 16.98%
c. r=16.98% ; Eri=15.97%
b. i=15.97% ; r=16.98%
d. NOTA
20. What payment X 10 years from now is equivalent to a payment of P500,000 7
years from now, if interest rate is 12% compounded semi-annually?
a. P221,150.05
c. P709,259.56
b. P155,902.36
d. NOTA
21. At a certain interest rate compounded annually, P100,000 will become P450,000
in 15 years. What is the amount at the end of 10 years?
a. P272,638.68
c. P100,000.00
b. P450,000.00
d. NOTA
22. Compare the accumulated values at the end of 5 years if P100,000 is invested at
the rate of 12% per year compounded annually, semi-annually, quarterly, monthly,
daily, and continuously. Which gives the highest return interest.
a. ANNUALLY
c. CONTINUOUSLY
b. DAILY
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
23. In preparation for the college education of his son, DJ plans to deposit equal
amounts money for five consecutive years starting one year from now. If he wants
his son to be able to withdraw P1,000,000 ten years from now at 8% interest
compounded annually, what is the amount of each deposit?
a. P190,651.28
c. P116,010.09
b. P161,010.09
d. NOTA
24. A farmer bought a farm and he paid P100,000 cash and agreed to pay P20,000 at
the end of each 6 months for 5 years. He failed to pay the first 5 payments. At the
end of 3 years, he is required to pay the seller the entire debt consisting of his
accumulated and future liabilities, otherwise the farm will be foreclosed. What must
he pay if money is worth 14% compounded semi-annually?
a. P200,863.70
c. P68,661.62
b. P197,018.73
d. NOTA
25. IEDeas constructed its building 6 years ago financed by a 10-year bank loan of
P10M with 12% annual interest rate compounded monthly. The company has paid
all the monthly instalments for the past 6 years. However, to reduce the amount of
instalment payments, it was decided to refinance the balance of the loan through
an insurance company. The new loan is for 10 years with interest at 8%
compounded quarterly. A service charge of 5% will be added to the loan amount.
Determine the balance on the original mortgage and the amount of the quarterly
payments to the insurance company.
a. P209,119.55; P5,448,161.75
c. P5,448,161,75
b. P5,448,161.75; P209,119.55
d.NOTA
26. Bright Futures Inc. will make the following disbursements for their retiring
employees:
P500,000 on Dec. 31, 2011
P1,000,000 on Dec. 31, 2012
P2,000,000 on Dec. 31, 2013
To accumulate these sums, a sinking fund was established by making equal yearend deposits starting Dec. 31, 2006 up to the end of 2013. If the fund earns 8%
compounded annually, what is the required amount of the annual deposits?
a. P344,395.77
c. P106,366
b. P3,633,200
d. NOTA
27. Ceila invests P100,000 for the college education of her 3-year old son, Ciel. If the
fund earns 12% effective interest rate, how much will Ciel get each year starting
from his 18th to his 22nd birthday?
a. P324,486.82
c. P324,483.37
b. P135,574.26
d. NOTA
28. Carle buys a piece of property for P100,000 down payment and 10 deferred semiannual payments of P10,000 each starting three years from now. What is the
present value of the investment if the rate of interest is 8% compounded semiannually?
a. P166,665.65
c. P60,165.45
b. P691,665.56
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
29. Sir DJ spent the following amounts for the maintenance of the machine he bought:
P4,000 each year for the 1st five years, P6,000 each year for the next five years.
In addition, he spent P15,000 for overhauling at the end of the 4 th year and another
P20,000 for overhauling at the end of the 8th year. If money is worth 6%
compounded annually, what was the equivalent uniform annual cost for the 10year period?
a. P8,174.54
c. P60,165.45
b. P16,849.46
d. NOTA
30. UST Hospital purchased a CT Scan machine on the basis of guaranteed
performance. However, initial tests indicate that the operating cost will be
P5,000 more per year than guaranteed. If the expected life of the machine is 20 years
and money is worth 15%, what deduction from the purchase price would compensate UST
for the additional operating cost?
a. P13,269.99
b. P84,590.92
c. P31,296.66
d. NOTA
31. A brand new car can be purchased with a down payment of P150,000 and equal
instalments of P18,000 each paid at the end of every month for the next 36 months.
If money is worth 12% compounded monthly, determine the equivalent cash price
of the car.
a. P150,000
c. 168,000
b. P691,935.09
d. NOTA
32. A brand new house and lot costs P5M if paid in cash. On the instalment plan, the
buyer should pay 30% down and 20 quarterly instalments. The first payment due
at the end of the 1st year. If money is worth 12% compounded quarterly, determine
the amount of quarterly instalments.
a. P257,069.41
c. P3.5M
b. P4.85M
d. NOTA
33. You have a building for rent and you were offered two options by a prospective
client:
A) P1.2M a year for 6 years, the rent being paid at the beginning of each year.
B) P300,000 for the 1st year, P400,000 for the 2nd year, P500,000 for the 3rd year,
and P600,000 a year for the next three years. All rentals are paid at the beginning
of each year.
If money is worth 12%, which is the better offer?
a. OFFER A
c. SAME OFFER
b. OFFER B
d. NOTA
34. It costs P500,000 at the end of each year to maintain a section of Kennon Road in
Baguio City. If money is worth 10%, how much would it pay to spend immediately
to reduce the annual cost to P100,000?
a. P4M
c. P1M
b. P5M
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
35. For its maintenance, a bridge in NLEX requires P250,000 at the end of 3 years and
annually thereafter. If money is worth 8%, determine the capitalized cost of all
future maintenance.
a. P214,334.71
c. P3,125,000
b. P2,679,183,81
d. NOTA
36. API installed a new steam boiler at a total cost of P1.5M and is estimated to have
a useful life of 10 years. It is estimated to have a scrap value of P50,000 at the
end of its life. If interest is 8% compounded annually, determine its capitalized
cost.
a.P1.5M
c. P1.45M
b. P2,751,159.48
d. NOTA
37. The capitalized cost of a certain piece of equipment was found to be P1.42M. The
rate of interest is 12% with a salvage value of P100,000 at the end of its useful life
of 10 years. Assuming that the cost of perpetual replacement remains constant,
determine the original cost of the equipment.
a. P994,973.76
c. 1.42M
b. P47,487.89
d. NOTA
38. DJ & Charlie Foundation wishes to set-up a trust fund to provide the following
expenditures: P15M for the lot and the building and P5M for the initial equipment
of a Methods and Ergonomics Laboratory; P1M for the annual operating costs
every year; and P3M for the purchase of new equipment and replacement of some
equipment every 5 years beginning 5 years from now. If money is worth 10%
compounded annually, how much money should be put into the fund?
a. P34,913,924.42
c. P24M
b. P30M
d. NOTA
39. A fund is to be donated by APIEMS Foundation to provide annual scholarships to
deserving Industrial Engineering students. The fund will grant P500,000 each for
the first 5 years, P800,000 for each of the next 5 years, and P1M 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?
a. P1,996,355.02
c. P2,173,897.09
b. P9.96M
d. NOTA
40. IEdeas signed a contract to lease a building at P60,000 a year with an annual
increase of P1,000 a year for 5 years. Payments are to be made at the end of
each year, starting one year from now. If money is worth 8%, what lump sum paid
today is equivalent to the 5-year lease-payment plan?
a. P246,935.03
c. P7,372.43
b. P239,562.60
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
41. Find the equivalent annual payment of the following obligations at 12% interest:
End of Year
1
2
3
4
5
a. EUAC = 127,940.32
b. EUAC = 360,477.62
Payment (Pesos)
100,000
80,000
60,000
40,000
20,000
c. P64,507.68
d. NOTA
42. Two brothers, Cy and Ciel decided to save money in a fund that earns 8% interest
compounded annually but on different ways. Cy decided to save money by making
an end of year deposit of P10,000 on the 1st year, P11,000 on the 2nd year, 12,000
on the 3rd year, and so on increasing the next year’s deposit by P1,000 until the
end of 10 years. Ciel decided to save by just making annual deposits of P14,000
annually for 10 years. Who has more savings at the end of 10 years?
a. CY
c. SAME
b. CIEL
d. NOTA
43. As an IE consultant for the World Bank you are earning an average annual salary
of $5M for 10 years. A private company would like to acquire your services and
offers you an initial salary of $3M but is increasing at the rate of $400,000 annually.
If money is worth 10%, are your going to accept the offer?
a. YES, ACCEPT THE OFFER
c. P93,941.14
b. NO, Don’t accept the offer
d. NOTA
44. An Industrial Engineer wrote a best selling book in IE and was offered two
alternatives by a publishing company for the rights to publish and sell his book.
The 1st offer was a single lump sum payment of P3.5M. The 2nd offer was an initial
payment of P2.5M plus 4% of the gross receipts for the next 5 years estimated to
be as follows:
End Of Year
Gross Receipts (Pesos)
1
2
3
4
10M
8M
6M
4M
4% of Gross
Receipts(Pesos)
400,000
320,000
240,000
160,000
5
2M
80,000
After the 5th year, the author will not receive further royalties. If money is worth
10%, which alternative should he select?
a. Choose Offer 1
c. Get them both
b. Choose Offer 2
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
45. APIEMS Corporation is establishing a sinking fund for the purpose of accumulating
a sufficient capital to retire its outstanding bonds at maturity. The bonds are
redeemable in 10 years and their maturity value is P10M. How much should be
deposited each year if the fund pays interest at the rate of 4%.
a. P10M
c. P832,909.44
b. P400,000
d. NOTA
46. PIIE Corporation issued 5,000 bonds of P1,000 face value each, redeemable at
par at the end of 10 years. To accumulate the funds required for redemption, the
company established a sinking fund consisting of annual deposits, the interest of the fund
being 5%. What was the principal in the fund at the end of 7 years?
a. P397,522.64
b. P3,236,632.68
c. P5M
d. NOTA
47. You were offered a Land Bank certificate with a face value of P1M. The bond is
bearing an interest of 6% per year payable semi-annually and due in 5 years. If
you want to earn 8% semi-annually, how much are you willing to pay for the
certificate?
a. P1M
c. P30,000
b. P918,891.04
d. NOTA
48. A P100,000, 6% bond pays dividend semi-annually and will be redeemed at 120%
on December 31, 2015. If you bought this bond on December 31, 2011 to yield
5% interest compounded semi-annually, find the price of the bond.
a. P120,000
c. P21,510.41
b. P98,489.59
d. NOTA
49. You want to make 14% nominal interest compounded quarterly on a bond
investment. How much are you willing to pay now for a 12%, P100,000 bond that
will mature in 5 years and pays interest quarterly?
a. P100,000
c. P92,893.80
b. P50,256.59
d. NOTA
50. You bought a bond having a face value of P10,000 for only P9,000. The bond rate
was 14% nominal and interest payments were made to you semi-annually for a
total of 7 years. At the end of this period, you sold the bond at a price that yielded
16% nominal on your investment. For how much did you sell the bond?
a. P9,484.30
c. 410.453.66
b. P26,434.75
d. NOTA
DEPRECIATION AND DEPLETION
51. A machine costsP80,000 and an estimated life of 10 years with a salvage value of
P5,000. What is the book value after 5 years using the straight line method?
a. P42,500
c. P7,500
b. P75,000
d. NOTA
52. A knitting machine is purchased for P500,000. The salvage value in 10 years is
P100,000. What is the total depreciation in the first 6 years using the SLM?
a. P40,000
c. P400,000
b. P240,000
d. NOTA
SOLVED PROBLEMS IN ENGINEERING ECONOMY
53. The cost of a Tajima embroidery machine is P1.2M and the cost of installation is
P50,000. If the salvage value is 10% of the cost of the machine at the end of 10
years, determine the book value at the end of the 3rd year. Use SLM.
a. P339,000
c. P1.25M
b. P911,000
d. NOTA
54. A linking machine is purchased for P20,000. It is estimated to have a useful life of
10 years and a salvage value of P10,000. Find the depreciation for the 1st year
using the SYD method.
a. P10,000
c. P1,818.18
b. P18,812
d. NOTA
55. Zach’s Corporation purchased a Jacquard machine for P6M, freight and
installation charges amounted to 3% of the purchase price. If the machine will be
depreciated over a period of 10 years with a salvage value of 6%, determine the
depreciation cost during the 5 th year using the SYD method.
a. P633,730.91
b. P6.18M
c. 360,000
d. NOTA
56. Kaizen Corporation makes it a policy that for any new equipment purchased, the
annual depreciation cost should not exceed 20% of the 1 st cost at any time with no
salvage value. Determine the service life necessary if the depreciation method
used is the SYD.
a. 7 YEARS
c. 9 YEARS
b. 8 YEARS
d. NOTA
57. A stop watch used for TMS has a selling price of P1,500. If its selling price is
expected do decline at a rate of 10% per year due to obsolescence, what will be
its selling price after 3 years?
a. P1,093.5
c. P150.50
b. P1,500
d. NOTA
58. A circular linking machine costing P45,000 has a book value of P4,500 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. P4,500
c. K=20.57%
b. P45,000
d. NOTA
59. A generator costing P750,000 depreciates in value each year by 20% of its
value. Find its book value when the generator is 5 years old.
a. P245,760
c. 750,000
b. P150,000
d. NOTA
60. An electric sewing machine costs P10,000 with a salvage value of P500 at the end
of 10 years. Calculate the annual depreciation cost by the sinking fund method at
5% interest.
a. P755.29
c. P500
b. P755,293.5
d. NOTA