101 Engineering Economy Problems with Solutions PDF

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100 Solved Problems inEngineering Economy Simple Interest (p. 1) Compound Interest (p. 1-2) Effective Rate of interest (p. 2-3) Continuous Compounding (p. 3) Comparing of Alternatives (p. 3-4) Discount (p-5) Inflation (p. 5) Geometric Gradient (p-6) Service output method (p. 6-7) Straight ...

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100 Solved Problems in Engineering Economy                    

Simple Interest (p. 1) Compound Interest (p. 1-2) Effective Rate of interest (p. 2-3) Continuous Compounding (p. 3) Comparing of Alternatives (p. 3-4) Discount (p.4-5) Inflation (p. 5) Geometric Gradient (p.5-6) Service output method (p. 6-7) Straight line method (p.7-8) Sinking Fund Formula (p.8) Declining Balance Method (p. 9-10) Double Declining Balance method (p. 9-10) Sum of the year digits (p. 10-11) Arithmetic Gradient (p.11-15) Annuity (p.11-15) Deferred Annuity (p.11-15) Annuity due (p.11-15) Perpetuity (p.11-15) Capitalize Cost (p.15-16)

CE DEPARTMENT HOLY ANGEL UNIVERSITY

1|Page HOLY ANGEL UNIVERSITY – CE DEPARTMENT

*INSERT SUBJECT HERE “Simple Interest” 1.) Ariel takes a loan of P8,000 to buy a used truck at the rate of 9 % simple Interest. Calculate the annual interest to be paid for the loan amount. a. P 720

c. P 820

b. P 722

d. P 822

2.) 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. P 5,937.50

c. P 5,837.50

b. P 5,637.50

d. P 5,937.50

3.) What is the interest due on a P 1500 note for 4 years and 3 month, if it bears 12% ordinary simple interest? a. P 795

c. P 765

b. P 785

d. P 756

4.) A total of P1,200 is invested at a simple interest rate of 6% for 4 months. How much interest is earned on this investment? a. P 21 b. P 22

c. P 23 d. P 24

5.) Find the simple interest on P10,000 at the rate of 5% for 5 years. Also find the total amount after this time. a. P 12,500 c. P 12,300 b. P 13,500

d. P 13,300

“Compound Interest” 6.) An investment earns 3% compounded monthly. Find the value of an initial investment of P5,000 after 6 years. a. P 5924.74

c. P 5783.74

b. P 5984.74

d. P 5874.74

7.) What is the value of an investment of P3, 500 after 2 years if it earns 1.5% compounded quarterly? a. P 3706.39

c. P 3606.39

b. P 3805.39

d. P 3906.39

2|Page 8.) Mrs. Lalic purchased an antique statue for P450. Ten years later, she sold this statue for P750. If the statue is viewed as an investment, what annual rate did she earn? a. 0.0524

c.

0.0425

b. 0.0542

d.

0.0515

9.) How many years will it take for an investment to double in value if it earns 5% compounded annually? a. 12.2 years

c.

13.2

b. 14.2 years

d.

15.2

10.) Find the compound amount and compound interest on the principal P20,000 borrowed at 6% compounded annually for 3 years. a. P 3812.32 c. P 3820.32 b. P 3281.32

d. P 3720.32

“EFFECTIVE RATE OF INTEREST” 11.)What rate of interest compounded annually is the same as the rate of 8% compounded quarterly a. P b. P

c. P 8.24%

d. P

12.) A man approaches the ABC Loan Agency for P100, 000 to be paid in 24 monthly installments. The agency advertises an interest rate of 1.5% per month. They proceed to calculate the amount of his monthly payment in the following manner.

a. 38.64%

c. 37.64%

b. 39.64%

d. 36.64%

13.) Mr. Smith plans to deposit money in a bank that pays 10% interest per year, compounded daily. What effective rate of interest will he receive yearly? a. 11.615%

c. 10.515%

b. 10.615%

d. 11.515%

14.) What is the nominal interest rate compounded monthly?

if the effective annual interest rate

a.5.5%

c. 6%

b.6.5%

d. 5%

is 6.1678%,

3|Page 15.) What rate of interest compounded annually is the same as the rate of interest of 12% compounded bimonthly? a. 12.60%

c. 12.62%

b. 12.61%

d. 12.63%

“CONTINIOUS COMPOUNDING” 16.) What is the accumulated amount after 3 years of P1000 invested at the rate of 8% per year compounded continuously? a. 1721.25

c. 1712.25

b. 1217.25

d. 1271.25

17.) How many years are required for your money to triple if it is invested at 9% compounded annually? a. 12.21 years

c. 12.48 years

b. 12.75 years

d. 12.34 years

18.) If you invest $1,000 at an annual interest rate of 5% Compounded continously, calculate the final amount you will have in the account after five years. a. 1248.03

c. 1203.48

b.

d. 1230.48

1284.03

19.) If you invest 500 at an annual interest rate of 10% compounded continuously, calculate the final amount you will have in the account after five years. a. 826.36

c. 824.36

b. 825.36

d. 823.36

20.) If you invest 2,000 at an annual interest rate of 13% compounded continuously, calculate the final amount you will have in the account after 20 years. a. 26,927.47

c. 26,972.47

b. 29,627.47

d. 29,972.47

“COMPARING OF ALTERNATIVES” 21.) A company purchases a piece of construction equipment for rental purposes. The expected income is P3100 annually for its useful life of 15 years. Expenses are estimated to be P355 annually. If the purchase price is P25,000 and there is no salvage value, what is the prospective rate of return, neglecting taxes? a. 5.2%

c. P 6.8%

b. 6.4%

d. P 7.0%

4|Page 22-24.) An industrial firm uses an economic analysis to determine which of two different machines to purchase. Each machine is capable of performing the same task in a given amount of time. Assume the minimum attractive rate of return is 8%. Use the following data in this analysis.

Initial cost Estimated life Salvage value Annual maintenance cost

Machine X P6,000 7years none P150

Machine Y P12,000 13years P4,000 P175

22) What is the approximate equivalent uniform annual cost of machine X? a. P 1000

c. P 1190

b. P 1120

d. P 1300

23.) What is the approximate equivalent uniform annual cost of machine Y? a. P 1160

c. P 1490

b. P 1300

d. P 1510

24.) Which, if either, of the two machines should the firm choose, and why? a. machine X because (EUAC)x < (EUAC)y

c. machine Y because (EUAC)x < (EUAC)y

b. machine X because (EUAC)x > (EUAC)y

d. machine Y because (EUAC)x > (EUAC)y

25.) A company produces a gear that is commonly used by several lawn mower manufacturing companies. The base cost of operation (rent, utilities, etc.) is P750,000 per year. The cost of manufacturing is P1.35 per gear. If these gears are sold at P7.35 each, how many must be sold each year to break even? a. P 65,000 per year

c. P 100,000 per year

b. P 90,000 per year

d. P 125,000 per year

“DISCOUNT” 26.) Find the sale price for an item that has a list price of P100 and a discount rate of 25% a. P 85

c. P 75

b. P 72

d. P 82

27.) Find the sale price of an item that has a list price is P24 dollars and a discount rate of 50% a. P 12

c. P 21

b. P 24

d. P 42

28.) Find the sale price of an item that has a list price is P27 and a discount rate of 33.33333% a. P 18.0000002

c. P 17.0000002

b. P 17.0000001

d. P 18.0000001

5|Page 29.) Miss Evilla borrowed money from a bank. She receives from the bank P1,340.00 and promised to pay P1,500.00 at the end of 9 months. Determine the corresponding discount rate or often referred to as the “banker’s discount” a.

12.94%

c. 13.94%

b.

11.94%

d. 14.94%

30.) Mr. J. Dela Cruz borrowed money from a bank. He received from the bank P1,400 and promise to pay P2,000 at the end of 11 months. What is the rate of discount or Banker’s discount a.

30%

c.

20%

b.

40%

d.

25%

“INFLATION” 31.) What is the uninflated present worth of P2000 in 2 years if the average inflation rate is 6% and i is 10%? a. P 1271

c.P 1471

b. P 1472

d.P 1272

32.) What is the future worth value of an amount of P1000 after 10 periods and 4% of inflation rate a. P 500

c. P 665

b. P 755

d. P 555

33.)The bank Pays 5.5% interest compounded annually. Inflation is expected at 2%. What is the Real interest rate ? a. 3.3%

c. 3.5%

b. 3.4%

. 3.6%

34.)A stadium was built in 1955 at P2.4m. At the same year a gift of the same amount was invested at a market rate 8% per year. Inflation is 6% from 1955 to 2010.What is the Real Interest rate ? a. 1.967%

c. 1.525%

b. 1.799%

d. 1.887%

35.)How much the gift will worth in 2010 in terms of 1955 purchasing power? a. P 6,600,440

c. P 6,820,230

b. P 6,710,330

d. P 6,310,410

“GEOMETRIC GRADIENT ” 36.) A mechanical contractor is trying to calculate the present worth of personnel salaries over the next five years. He has four employees whose combined salaries thru the end of this year are ₱150,000. If he expects to give each employee a raise of 5% each year, the present worth of his employees' salaries at an interest rate of 12% per year is nearest to: a. P 591,000

c. P702,900

b. P 816,100

d. P429,300

6|Page 37.) Suppose that the maintenance for a piece of equipment costs ₱300 EOY1 and increases by 15% every year for 5 years. The value of money is 9%. What is the equivalent present cost over the time horizon? a P = ₱2022.71

c. P = ₱1536.22

b. P = ₱1175.16

d. P = ₱1166.90

38.) Determine the present worth of a geometric gradient series with a cash flow of ₱50,000 in year 1 and increases of 6% each year through year 8. The interest rate is 10% per year. a. P 500,546,64

c. P 440,820.64

b. P 315,645.64

d. P 320,572.64

39.) 4. A coal-fired power plant has upgraded an emission control valve. The modification costs only $8000 and is expected to last 6 years with a P200 salvage value. The maintenance cost is expected to be high at $1700 the first year, increasing by 11% per year thereafter. Determine the equivalent present worth of the modification and maintenance cost by hand and by spreadsheet at 8% per year. a. – P17,999

c. -P19,999

b. – P18,999

d. –P20,999

40.) g = 5% i = 7% N = 25 years A= P50,000 what is P? a. P 940,969

c. P 940,696

b. P 940,669

d. P 940,996

“SERVICE OUTPUT METHOD” 41.) Company A purchases a backup generator for $200,000. The estimated serviceable life of the generator is expected to be 5,000 hours. The generator is projected to have a scrap value of $50,000 at the end of its serviceable life. In the current accounting period, the generator ran for approximately 300 hours. determine the depreciation expense a. P8,000

c. P10,000

b. P9,000

d. P11,000

42.) Oil PLC installs a crude oil processing plant costing P12 million with an estimated capacity to process 50 million barrels of crude oil during its entire life. Production during the first year of operation is 2 million barrels. Expected residual value of the processing plant is P2 million. Calculate the Depreciation using service output method. a. P 200,000

c. P 400,000

b. P 300,000

d. P 500,000

43.) A plant costing P110 million was purchased on April 1, 2010. The salvage value was estimated to be P10 million. The expected production was 150 million units. The plant was used to produce 15 million units till the year ended December 31, 2010. Calculate the depreciation on the plant for the year ended December 31, 2011. a. P 10,000,000

c. P 100,000,000

b. P 1,000,000

d. P 100,000

7|Page 44.) A coal mine was purchased by X Corporation for P16 million. It was estimated that the mine has capacity to produce 200,000 tones of coal. The company extracted 46,000 tones during its first year of operation. Calculated the depreciation. a. P 3,980,000

c. P 3,900,000

b. P 3,600,000

d. P 3,680,000

45.) Plastic LTD purchases a steel mould costing $1 million to be used in the production of plastic glasses. The mould could be used in 8 production batches after which it will have a scrap value of $.2 million. During the first year, the company manufactures 2 batches of glasses. Calculated the year Depreciation charge a. P 200,000

c. P 600,000

b. P 400,000

d. P 800,000

“STRAIGHT LINE METHOD” 46.) ABC 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 SL method. a. 4.5 Years

c. 5.5 Years

b. 5 Years

d. 6 Years

47-48.) A tax and duty free importation of a 30HP sand mill (for a paint manufacturing) cost P360,000, CI manila. Bank chargers, arreastre and brokerage cost P5,000. Foundation and installation cost were P25,000. Other incidental expenses ampunted 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 47.) 10 years? a. P 225,000

c. P 245,000

b. P 235,000

d. P 255,000

48.) 15 years? a. P 147,000

c. P 149,000

b. P 148,000

d. P 150,000

49.) The Eastern company provides the following information regarding one of its fixed assets that has been purchased on January 1, 2015: Cost of the asset: $35,000, Salvage value: $3,000, Useful life: 10 years. Calculate annual depreciation expense of this asset using straight line method. a. $3,200

c. $3,300

b. $3,100

d. $3,400

8|Page 50.) A fixed asset having a useful life of 3 years is purchased on 1 January 2013. Cost of the asset is $2,000 whereas its residual value is expected to be $500. Calculate depreciation expense for the years ending 30 June 2013 and 30 June 2014. a. $245 and $500

c. $250 and $450

b. $250 and $500

d. $245 and $450

“SINKING FUND FORMULA” 51.)A certain office equipment has a first cost of P20,000 and has a salvage value if P1,000 at the end of 10 years. Determine the depreciation at the end of the 6th year using sinking fund method at 3% interest. a. P10,720

c. P12,420

b. P11,680

d. P9,840

52.) Power to a remote transmitting station is provided by a Diesel-generator unit. The original cost of the unit is P65,000. It costs P2,000 to ship the unit to the job site. An additional cost of P3,000 was incurred for installation. Determine the annual depreciation cost by the sinking fund method, if the unit has an expected life of 10 years. The salvage value of the unit at the end of its life was estimated at P5000. a. P6,500

c. P6,600

b. P6,700

d. P6,400

53.) 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 by the sinking fund method at 12% . a. 54,741.00

c. 54,414.00

b. 54,471.00

d. 57,471.00

54-55) Power to a remote transmitting station is provided by a Diesel-generator unit. The original cost of the unit is P65,000. It costs P2,000 to ship the unit to the job site. An additional cost of P3,000 was incurred for installation. 54.) Determine the annual depreciation cost by the sinking fund method, if the unit has an expected life of 10 years. The salvage value of the unit at the end of its life was estimated at P5000. a. P 5,500

c. P 6,500

b. P 6,000

d. P 7,000

55.) Determine the annual depreciation cost by the sinking fund method. Assume that the annual charge for depreciation was deposited in a fund drawing compound interest at the rate of 5% a. P 5,167.80

c. P 5,197.80

b. P 6,167.80

d. P 6,190.80

9|Page “DECLINING BALANCE METHOD/CONSTANT PERCENTAGE/MATHESON” & “DOUBLE DECLINING BALANCE METHOD” 56.) An asset costing $20,000 has estimated useful life of 5 years and salvage value of $4,500. Calculate the depreciation for the first year of its life using double declining balance method. a. $8000

c. $8500

b.$7000

d. $7500

57.) An asset costing $20,000 has estimated useful life of 5 years and salvage value of $4,500. Calculate the depreciation of the asset for the second year of its life. a. $4700

c. $4900

b. $4800

d. $4600

58.) An asset costing $20,000 has estimated useful life of 5 years and salvage value of $4,500. Calculate the depreciation of the asset for the 3rd year. a. $2600

c. $2700

b. $2900

d.$2800

59.) The Farma company provides the following information: Cost of the equipment: $500,000, Salvage value: $50,000, Useful life: 5 years. What is the Declining balance rate? a. 35%

c. 30%

b. 45%

d. 40%

60.) The book value of the equipment at the beginning of year 5 is $64,800 whose 40% is $2,592. If this depreciation is used, the book value of the equipment at the end of year 5 will be $38,880 ($64,800 – $25,920) that is less than the salvage value. As stated earlier, the asset is depreciated only to its salvage value under declining balance method. Therefore, the depreciation in year 5 is? a. $14,800

c. $14,600

b. $14,700

d. $14,900

61.) An earth moving equipment that cost P90,000 will have an estimated salvage value of P18,000 at the end of 8 years. Using double-declining balance method, compute the book value and the total depreciation at the end of the 5th year. a. P 10,720

c. P 15,674

b. P 23,183

d. P 21,357

62.) An asset is purchased for P10,000. Its estimated economic life is 10 years after which it will be sold for P1,000. Find the depreciation in the first three years using sum-of-years digit method. a. P 4505

c. P 5120

b. P 5210

d. P 6250

10 | P a g e 63.) Littlefield Company recently purchased a machine at a cost of $12,000. The machine is expected to have a residual value of $2,000 at the end of its useful life in five years. Calculate depreciation expense for 3 years using the double-declining balance (DDB) method. a. year1:$4,800, year2:$2,880, year3:$1,728

c. year1:$4,888, year2:$2,870, year3:$1,708

b. year1:$4,880, year2:$2,800, year3:$1,708

d. year1:$4,808, year2:$2,888, year3:$1,768

64.) An asset has a useful life of 3 years. Cost of the asset is $2,000, residual Value is $500, r...