Plate 2 - Lecture notes 2 PDF

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Plate 2 – CEE109 – ENGINEERING ECONOMICSOrdinary Annuity For having been loyal, trustworthy and efficient, the company has offered a superior a yearly gratuity pay of P 20,000 for 10 years with the first payment to be made one year after his retirement. The supervisor, instead, requested that he be ...

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Plate 2 – CEE109 – ENGINEERING ECONOMICS Ordinary Annuity 1. For having been loyal, trustworthy and efficient, the company has offered a superior a yearly gratuity pay of P 20,000.00 for 10 years with the first payment to be made one year after his retirement. The supervisor, instead, requested that he be paid a lump sum on the date of his retirement less interest that the company would have earned if the gratuity is to be paid on yearly basis. If interest is 15%, what is the equivalent lump sum that he could get? 2. In anticipation of a much bigger volume of business after 10 years, a fabrication company purchased an adjacent lot for its expansion program where it hopes to put up a building projected to cost P 4,000,000.00 when it will be constructed 10 years after. To provide for the required capital expense, it plans to put up a sinking fund for the purpose. How much must the company deposit each year if interest to be earned is computed at 15%? Annuity Due 1. A farmer bought a tractor costing P 25,000 payable in 10 semi-annual payments, each installment payable at the beginning of each period. If the rate of interest is 26% compounded semi-annually, determine the amount of each installment. 2. A certain manufacturing plant is being sold and was submitted for bidding. Two bids were submitted by interested buyers. The first bid offered to pay P 200,000 each year for 5 years, each payment being made at the beginning of each year. The second bid offered to pay P 120,000 the first year, P 180,000 the second year, and P 270,000 each year for the next 3 years, all payments being made at the beginning of each year. If money is worth 12% compounded annually, which bid should the owner of the plant accept? Perpetuity 1. 1. If money is worth 8%, determine the present value of a perpetuity of P 1,000 payable annually with the 1st payment due at the end of 5 years. 2. 2. It costs P 50,000 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 by P 10,000? Deferred Annuity 1. 1. A lathe for a machine shop costs P 60,000, if paid in cash. On the installment plan, a purchaser should pay P 20,000 down payment and 10 quarterly installments, the first due at the end of the first year after purchase. If money is worth 15% compounded quarterly, determine the quarterly installment. 2. 2. A man invests P 10,000 now for the college education of his 2 year old son. If the fund earns 14% effective interest rate, how much will his son get each year starting from his 18th to the 22nd birthday? Continuous Compounding for Discrete Payments

1. A boy deposited an amount of P600 each year in a local bank that pays a nominal interest of “i”% per annum compounded continuously. If he receives a total amount of P3323.81 after % years, a. Compute the value of “i” b. What is the effective interest rate? 2. For a uniform series of payments, what is the value of (P/A, 8%, 4) if it is compounded continuously. Uniform Arithmetic Gradient 1. A contract has been signed to lease a building at P20,000 per year with an annual increase of P1,500 for 8 years. Payments are to be made at the end of each year, starting one year from now. The prevailing interest rate is 7%. What lump sum paid today would be equivalent to the 8year lease-payment plan?...