Republic of the Philippines

Mindanao State University - Iligan Institute of Technology

Department of Mechanical and Engineering Sciences
College of Engineering
Tibanga, 9200 Iligan City, P.O. Box No.5644 Tel. Nos. (063) 221-4050 Loc.130
Direct line: Facsimile(063) 223-2351
Homepage:http://www.msuiit.edu.ph/coe

Engineering Economy

PROBLEM SET 3
Problem 1

A house and lot was offered for Php Amount A with a rate R % down
payment and a monthly payment of Php Amount B per month for N years.
What is the monthly interest rate and the effective rate?

Group Php Amount A rate R % Php Amount B N years

#1 100, 000.00 10.00 500.00 25
#2 110, 000.00 9.50 550.00 24
#3 105, 000.00 9.00 600.00 23
#4 115, 000.00 10.50 650.00 22
#5 120, 000.00 11.00 800.00 21
#6 100, 000.00 10.50 600.00 20
#7 110, 000.00 9.00 550.00 21
#8 105, 000.00 9.50 550.00 22
#9 115, 000.00 11.00 500.00 23
#10 120, 000.00 10.00 700.00 24

Problem 2

The average annual cost of damages caused by floods to a certain

subdivision located along the Pasig River is estimated at Php Amount
A. To build a gravity dam to protect the area from floods would cost
Php Amount B and would involve an annual maintenance cost of Php 20,
000. With interest at R% compounded annually, how many years will it
take for the dam to pay for itself?

Group Php Amount A rate R % Php Amount B

#1 700, 000.00 10.00 2.5 M
#2 710, 000.00 9.50 2.4 M
#3 705, 000.00 9.00 2.6 M
#4 715, 000.00 10.50 2.7 M
#5 720, 000.00 11.00 2.4 M
#6 700, 000.00 10.50 2.7 M
#7 710, 000.00 9.00 2.8 M
#8 705, 000.00 9.50 2.5 M
#9 715, 000.00 11.00 2.6 M
#10 720, 000.00 10.00 2.5 M

Problem 3
A man wishes to have Php Amount A when he retires 15 years from now.
If he can expect to receive rate R% annual interest, how much he set
aside beginning at the end of each of the 15 years?

Group Php Amount A rate R % N years

#1 700, 000.00 10.00 25
#2 710, 000.00 9.50 24
#3 705, 000.00 9.00 23
#4 715, 000.00 10.50 22
#5 720, 000.00 11.00 21
#6 700, 000.00 10.50 20
#7 710, 000.00 9.00 21
#8 705, 000.00 9.50 22
#9 715, 000.00 11.00 23
#10 720, 000.00 10.00 24
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Problem 4

An investor deposits Php Amount A per year in a bank which offers an

interest of 18% per annum for the time deposits of over 5 years.
Compute how much the investor can collect at the end of N years
assuming that he never withdraws any amount before the Nth year.

Group Php Amount A rate R % N years

#1 1, 200 10.00 25
#2 1, 300 9.50 24
#3 1, 000 9.00 23
#4 1, 100 10.50 22
#5 1, 400 11.00 21
#6 1, 200 10.50 20
#7 1, 300 9.00 21
#8 1, 000 9.50 22
#9 1, 100 11.00 23
#10 1, 400 10.00 24

Problem 5

A man wishes to prepare the future of his ten-year old son. Determine
the monthly savings that he should make with interest at rate R % per
annum to amount to Php Amount A at the time his son will be 18 years
old.

Group Php Amount A rate R %

#1 900, 000.00 10.00
#2 910, 000.00 9.50
#3 905, 000.00 9.00
#4 915, 000.00 10.50
#5 920, 000.00 11.00
#6 900, 000.00 10.50
#7 910, 000.00 9.00
#8 905, 000.00 9.50
#9 915, 000.00 11.00
#10 920, 000.00 10.00

Problem 6

A building and loan association requires that loans be repaid by

uniform monthly payments which include monthly interest calculated on
the basis of nominal interest of rate R % per annum. If Php Amount A
is borrowed to be repaid in 10 years, what must the monthly payment
be?

Group Php Amount A rate R %

#1 900, 000.00 10.00
#2 910, 000.00 9.50
#3 905, 000.00 9.00
#4 915, 000.00 10.50
#5 920, 000.00 11.00
#6 900, 000.00 10.50
#7 910, 000.00 9.00
#8 905, 000.00 9.50
#9 915, 000.00 11.00
#10 920, 000.00 10.00

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Problem 7

You want to start saving for your ten-year old sons college
education. If you are guaranteed rate R % interest compounded
quarterly, how much would you have to save each month to amount to Php
Amount A by the time he is 18 years old?

Group Php Amount A rate R %

#1 800, 000.00 10.00
#2 810, 000.00 9.50
#3 805, 000.00 9.00
#4 815, 000.00 10.50
#5 820, 000.00 11.00
#6 800, 000.00 10.50
#7 810, 000.00 9.00
#8 805, 000.00 9.50
#9 815, 000.00 11.00
#10 820, 000.00 10.00

Problem 8

A man bought a house and lot worth Php Amount B in a subdivision in

Metro Manila. The annual amortization for the house and lot is Php
Amount A for N years. Determine the rate of interest he was charged by
the subdivision owners.

Group Php Amount A N Php Amount B

#1 270, 000.00 10 2.5 M
#2 250, 000.00 10 2.4 M
#3 265, 000.00 10 2.6 M
#4 255, 000.00 10 2.7 M
#5 280, 000.00 10 2.4 M
#6 270, 000.00 10 2.7 M
#7 250, 000.00 10 2.8 M
#8 265, 000.00 10 2.5 M
#9 255, 000.00 10 2.6 M
#10 280, 000.00 10 2.5 M

Problem 9

Find the annual payments to extinguish a debt of Php Amount A payable

in 5 years at rate R % compounded annually.

Group Php Amount A rate R %

#1 800, 000.00 10.00
#2 810, 000.00 9.50
#3 805, 000.00 9.00
#4 815, 000.00 10.50
#5 820, 000.00 11.00
#6 800, 000.00 10.50
#7 810, 000.00 9.00
#8 805, 000.00 9.50
#9 815, 000.00 11.00
#10 820, 000.00 10.00

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Problem 10

A man purchases a computer worth Php Amount B with interest at 5%

payable semi-annually. He signed a contract to pay Php Amount A and
the balance, principal and interest included, by equal payments at the
end of each months for 10 years. At the end of 4 years this computer
was sold to yield the investor rate R % payable semi-annually. Find
the price he was paid.

Group Php Amount A rate R % Php Amount B

#1 70, 000.00 10.00 2.5 M
#2 50, 000.00 9.50 2.4 M
#3 65, 000.00 9.00 2.6 M
#4 55, 000.00 10.50 2.7 M
#5 80, 000.00 11.00 2.4 M
#6 70, 000.00 10.50 2.7 M
#7 50, 000.00 9.00 2.8 M
#8 65, 000.00 9.50 2.5 M
#9 55, 000.00 11.00 2.6 M
#10 80, 000.00 10.00 2.5 M

Problem 11

A man owes Php Amount A with interest at rate R % payable semi-

annually. What equal payments at the beginning of each 6 months for N
years will discharge his debt?

Group Php Amount A rate R % N

#1 70, 000.00 10.00 12
#2 50, 000.00 9.50 11
#3 65, 000.00 9.00 10
#4 55, 000.00 10.50 8
#5 80, 000.00 11.00 9
#6 70, 000.00 10.50 12
#7 50, 000.00 9.00 11
#8 65, 000.00 9.50 10
#9 55, 000.00 11.00 8
#10 80, 000.00 10.00 9

Problem 12

The Php Amount A cost of an equipment was made available through a

loan which earns rate R % per annum. If the loan will be paid in 10
equal annual payments at the beginning of each year, how much is the
annual installment?

Group Php Amount A rate R %

#1 70, 000.00 10.00
#2 50, 000.00 9.50
#3 65, 000.00 9.00
#4 55, 000.00 10.50
#5 80, 000.00 11.00
#6 70, 000.00 10.50
#7 50, 000.00 9.00
#8 65, 000.00 9.50
#9 55, 000.00 11.00
#10 80, 000.00 10.00

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Problem 13

A mechanical engineer designed a mechanical device costing Php Amount

A. Maintenance will cost Php Amount B each year. The device will
generate revenues of Php Amount C each year for 5 years, after which
the salvage value is expected to be Php Amount D. Draw the cash flow
diagram.

Group Php Amount A Php Amount B Php Amount C Php Amount D

#1 70, 000.00 8, 000 40, 000 8, 000
#2 50, 000.00 6, 000 12, 500 7, 000
#3 65, 000.00 5, 000 15, 000 7, 000
#4 55, 000.00 4, 000 15, 000 5, 000
#5 80, 000.00 6, 000 20, 000 9, 000
#6 70, 000.00 8, 000 37, 000 7, 000
#7 50, 000.00 6, 000 13, 000 4, 000
#8 65, 000.00 5, 000 14, 000 5, 000
#9 55, 000.00 4, 000 16, 000 4, 000
#10 80, 000.00 6, 000 18, 000 9, 000

Problem 14

A father wishes to provide Php Amount A for his own son on the 21 st
birthday. How much should he deposit every 6 months in a savings bank
which pays rate R % compounded annually, if the first deposit is made
3 years old?

Group Php Amount A rate R %

#1 120, 000.00 10.00
#2 110, 000.00 9.50
#3 100, 000.00 9.00
#4 105, 000.00 10.50
#5 110, 000.00 11.00
#6 100, 000.00 10.50
#7 120, 000.00 9.00
#8 115, 000.00 9.50
#9 105, 000.00 11.00
#10 100, 000.00 10.00

Problem 15

If money is worth rate R % compounded quarterly and n = 5, compute the

present value of the following:
a. Php 1.00 received monthly in year n
b. Php 1.00 received monthly for n years

Group rate R % N
#1 10.00 12
#2 9.50 11
#3 9.00 10
#4 10.50 8
#5 11.00 9
#6 10.50 12
#7 9.00 11
#8 9.50 10
#9 11.00 8
#10 10.00 9

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Problem 16

A shirt factory has just installed a boiler. It is expected that there

will be no maintenance expenses until the end of the 11 th year when Php
Amount A will be spent on the boiler. The same amount will be spent at
the end of each successive year until the boiler is scrapped at the
end of 35 years. What sum of money set aside at this time will take
care of all maintenance expenses if money is worth R %?

Group Php Amount A rate R %

#1 11, 000.00 10.00
#2 10, 000.00 9.50
#3 11, 000.00 9.00
#4 10, 000.00 10.50
#5 12, 000.00 11.00
#6 10, 000.00 10.50
#7 12, 000.00 9.00
#8 11, 000.00 9.50
#9 10, 000.00 11.00
#10 12, 000.00 10.00

Problem 17

A Filipino contractor in the Middle East plans to purchase a new

office building costing Php Amount A. He agrees to pay Php Amount B
annually for 20 years. At the end of this time, he estimates that he
can resell the building for at least Php Amount C. Instead of buying
the building, he can lease it for Php 140, 000 a year. All payments
are to be made at the beginning of each year and the rate of interest
is R %. Should the contractor purchase or lease the building?

Group Php Amount A Php Amount B Php Amount C rate R %

#1 1.2 M 170, 000 600, 000 10.00
#2 1.1 M 150, 000 550, 000 9.50
#3 1.3 M 160, 000 650, 000 9.00
#4 1.0 M 180, 000 500, 000 10.50
#5 1.4 M 200, 000 700, 000 11.00
#6 1.2 M 170, 000 600, 000 10.50
#7 1.1 M 150, 000 550, 000 9.00
#8 1.3 M 160, 000 650, 000 9.50
#9 1.0 M 180, 000 500, 000 11.00
#10 1.4 M 200, 000 700, 000 10.00

Problem 18

XYZ Inc. plans to construct an additional building at the end of 10

years at an estimated cost of Php Amount A. To accumulate this amount
it will deposit equal year-end amounts in a fund earning R %. However,
at the end of the 5th year it decided to have a larger building
estimated to cost Php Amount B. What should be the annual deposit for
the last 5 years?

Group Php Amount A Php Amount B rate R %

#1 5.0 M 8.0 M 10.00
#2 5.1 M 8.1 M 9.50
#3 5.3 M 8.3 M 9.00
#4 5.0 M 8.0 M 10.50
#5 5.4 M 8.4 M 11.00
#6 5.2 M 8.2 M 10.50
#7 5.1 M 8.1 M 9.00
#8 5.3 M 8.3 M 9.50
#9 5.0 M 8.0 M 11.00
#10 5.4 M 8.4 M 10.00

6
Problem 19

An equipment costs Php Amount A. It can be leased for an annual rent

of Php Amount B payable at the beginning of each year throughout its
economic life of 5 years. No salvage value is expected at the end of 5
years. Cost of capital is rate R % and the applicable income tax rate
is 40%. Should the equipment be purchased or leased?

Group Php Amount A Php Amount B rate R %

#1 5.0 M 0.90 M 10.00
#2 5.1 M 0.95 M 9.50
#3 5.3 M 1.00 M 9.00
#4 5.0 M 0.90 M 10.50
#5 5.4 M 1.10 M 11.00
#6 5.2 M 1.05 M 10.50
#7 5.1 M 0.95 M 9.00
#8 5.3 M 1.00 M 9.50
#9 5.0 M 0.90 M 11.00
#10 5.4 M 1.10 M 10.00

Problem 20

A refrigeration equipment fabricator sold an ice drop making machine

with the condition that in the case the machine will not be able to
produce the guaranteed capacity, he will deduct from the agreed price
of the machine the loss of revenue that the buyer will incur during
the economic life of the machine which is 5 years, plus rate R % cost
of money. One month after the machine was delivered, the buyer
complained to the fabricator that he was not getting the guaranteed
production. After a series of tests, it was determined that the buyer
would be losing Php Amount A worth of unrealized sales per year.
Assuming no increase in operation cost if guaranteed production is
attained, how much must the buyer deduct from the agreed price of the
machine?

Group Php Amount A rate R %

#1 4, 500 10.00
#2 4, 000 9.50
#3 5, 000 9.00
#4 5, 500 10.50
#5 6, 000 11.00
#6 5, 500 10.50
#7 4, 000 9.00
#8 4, 500 9.50
#9 6. 000 11.00
#10 5, 000 10.00

Problem 21

A company manufacturing acids, upon inspection of the plant, found out

that it is badly corroded from the acid fumes and would need to be
replaced. To try to get some more life out of the roofing, the company
consulted a roofing coating contractor who presented the company with
two options. The first option is a coating that will cost Php Amount A
which would extend the life of the roofing for 3 years from the date
of application, and the second option will cost Php Amount B and which
would extend the life of the roofing for 5 years from the date of
application. At what rate of return are the investments equal?

Group Php Amount A Php Amount B

#1 20, 000 30, 000
#2 22, 000 32, 000
#3 21, 000 31, 000
#4 23, 000 33, 000
#5 24, 000 34, 000

7
 #6 20, 000 31, 000
#7 22, 000 33, 000
#8 21, 000 30, 000
#9 23, 000 32, 000
#10 24, 000 35, 000

Problem 22
A fully secured loan of Php Amount A was to be amortized by 10 equal
semi-annual payments, the first payment to be made 6 months after the
loan is approved. After the 6th payment was made the debtor was in a
position to settle the entire balance remaining by a single payment on
that date. If the interest on the loan is R % compounded semi-
annually, what would be the amount of the single payment?

Group Php Amount A rate R %

#1 100, 000 10.00
#2 110, 000 9.50
#3 120, 000 9.00
#4 130, 000 10.50
#5 110, 000 11.00
#6 115, 500 10.50
#7 120, 000 9.00
#8 110, 000 9.50
#9 100, 000 11.00
#10 115, 000 10.00

Problem 23
A machine has just been purchased for Php Amount A. It is anticipated
that the machine will be help 5 years, that it will have a salvage
value of Php Amount B based on current prices, and that the annual
rate of inflation during the next 5 years will be 7%. The machine will
be replaced by a duplicate and the firm will accumulate the necessary
capital by making equal year-end deposits in a reserve fund that earns
rate R % per annum. Determine the amount of the annual deposit.
Group Php Amount A Php Amount B rate R %
#1 5.0 M 90, 000 10.00
#2 5.1 M 95, 000 9.50
#3 5.3 M 80, 000 9.00
#4 5.0 M 90, 000 10.50
#5 5.4 M 110, 000 11.00
#6 5.2 M 105, 000 10.50
#7 5.1 M 95, 000 9.00
#8 5.3 M 100, 000 9.50
#9 5.0 M 90, 000 11.00
#10 5.4 M 110, 000 10.00

Problem 24
A man agreed to pay the loan he is borrowing from a bank in six equal
year-end payments of Php Amount A. Interest is rate R % per annum,
compounded annually, and is included in the yearly amount he will be
paying the bank. How much money is the man borrowing from the bank?

Group Php Amount A rate R %

#1 100, 000 10.00
#2 110, 000 9.50
#3 120, 000 9.00
#4 130, 000 10.50
#5 110, 000 11.00
#6 115, 500 10.50
#7 120, 000 9.00
#8 110, 000 9.50
Problem #9 100, 000 11.00 25
#10 115, 000 10.00
8
A man wishes to purchase a set of appliances with a total cost of Php
Amount A. He made a down payment of Php 5, 000 and the balance payable
in 24 equal monthly installments. If financing charge is 12% each year
computed on the balance to be paid by installment and the interest is
rate R %,
a. How much would each installment payment be?
b. What will be the actual cost of money?

Group Php Amount A rate R %

#1 100, 000 10.00
#2 110, 000 9.50
#3 120, 000 9.00
#4 130, 000 10.50
#5 110, 000 11.00
#6 115, 500 10.50
#7 120, 000 9.00
#8 110, 000 9.50
#9 100, 000 11.00
#10 115, 000 10.00

Problem 26

A new company developed a program in which employees will be allowed

to purchase shares of stock of the company at the end of its fifth
year of operation, when the company is thought to have gained
stability, at par value of Php 1000 per share. Believing in the good
potential of the company, an employee decided to save in a bank the
amount Php Amount A at the end of every year which will earn at a rate
R % interest, compounded annually. How many shares will he be able to
purchase at the end of the fifth year?

Group Php Amount A rate R %

#1 100, 000 10.00
#2 110, 000 9.50
#3 120, 000 9.00
#4 130, 000 10.50
#5 110, 000 11.00
#6 115, 500 10.50
#7 120, 000 9.00
#8 110, 000 9.50
#9 100, 000 11.00
#10 115, 000 10.00
Problem 27

If Php Amount A is deposited each year for N years, how much annuity
can a person get annually from a bank every year for 8 years starting
one year after the ninth deposit is made? Money is worth R %.

Group Php Amount A N rate R %

#1 100, 000 12 10.00
#2 110, 000 11 9.50
#3 120, 000 10 9.00
#4 130, 000 8 10.50
#5 110, 000 9 11.00
#6 115, 500 12 10.50
#7 120, 000 11 9.00
#8 110, 000 10 9.50
#9 100, 000 8 11.00
#10 115, 000 9 10.00

Problem 28

9
An employee earning Php Amount A a month can afford to buy a car
requiring a down payment of Php 10, 000 and a monthly amortization of
not more than 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 Php 10,000 and the balance payable in 4 years at a rate R %
per year payable on a monthly basis? The first payment will be due at
the end of the first month.

Group Php Amount A rate R %

#1 40, 000 10.00
#2 50, 000 9.50
#3 30, 000 9.00
#4 45, 000 10.50
#5 35, 000 11.00
#6 40, 000 10.50
#7 50, 000 9.00
#8 30, 000 9.50
#9 45, 000 11.00
#10 35, 000 10.00
Problem 29

A company has approved a car plan for its six senior officers in which
the company will shoulder 25% of the cost and the difference payable
by each officer to a financing company in 48 equal end-of-the month
installments at an interest rate of rate R % per month. If the cost of
each car is Php Amount A determine the following:
a. Total amount each owner will have to shoulder
b. The amount each officer has to pay the finance company each month

Group Php Amount A rate R %

#1 400, 000 1.50
#2 500, 000 2.00
#3 350, 000 1.50
#4 450, 000 1.75
#5 350, 000 1.50
#6 400, 000 1.50
#7 500, 000 2.00
#8 350, 000 1.50
#9 450, 000 1.75
#10 350, 000 1.50
Problem 30

A machine supplier is offering a certain machine on a 10% down payment

and the balance payable in equal year-end payments without interest
for N years. Under this arrangement, the price is pegged at Php Amount
A. However, for cash purchase the machine would only cost Php Amount
B. What is the equivalent interest rate that is charged on the two-
year payment plan if interest is compounded quarterly?

Group Php Amount A Php Amount B N

#1 400, 000 360, 000 2
#2 500, 000 420, 000 3
#3 350, 000 290, 000 2
#4 450, 000 390, 000 3
#5 350, 000 280, 000 2
#6 400, 000 350, 000 3
#7 500, 000 440, 000 2
#8 350, 000 290, 000 3
#9 450, 000 390, 000 2
#10 350, 000 280, 000 3 Problem 31

10
Determine the amount needed now to purchase a machine for Php Amount
A, provide an annual fund of Php Amount B for operation and
maintenance, and to replace it at the same cost at the end of every
ten-year period. Money is worth rate R % compounded annually.

Group Php Amount A Php Amount B rate R %

#1 400, 000 60, 000 10.00
#2 500, 000 40, 000 9.50
#3 350, 000 70, 000 9.00
#4 450, 000 90, 000 10.50
#5 350, 000 80, 000 11.00
#6 400, 000 50, 000 10.50
#7 500, 000 60, 000 9.00
#8 350, 000 50, 000 9.50
#9 450, 000 90, 000 11.00
#10 350, 000 70, 000 10.00 Problem 32

A new storage tank can be purchased and installed for Php Amount A and
is expected to last for ten years. However, an existing tank of
equivalent capacity may be continued to be used provided it is
repaired. If this tank were repaired were repaired its useful life is
estimated to be N years, after which the same type of repairs will
have to be done again. Assume that future costs will remain the same
and that the tanks will have no scrap value. Money is worth R %
compounded annually. How much can be spent for repairing the existing
tank if the capitalized cost of the two tanks are the same?

Group Php Amount A N rate R %

#1 400, 000 2 10.00
#2 500, 000 3 9.50
#3 350, 000 2 9.00
#4 450, 000 3 10.50
#5 350, 000 2 11.00
#6 400, 000 3 10.50
#7 500, 000 2 9.00
#8 350, 000 3 9.50
#9 450, 000 2 11.00
#10 350, 000 3 10.00 Problem 33

A chemical reactor which will contain corrosive liquids has been

designed. The reactor may be made of mild steel or stainless steel.
The initial cost, including installation of a mild steel reactor is
expected to be Php Amount A and would last 5 years. Stainless steel is
more resistant to the corrosive action of the liquids but it is more
expensive and will cost Php Amount B. Assuming that both types of
reactors will have no salvage or scrap value at the end of their
useful lives and could be replaced at the same costs as before, and if
money is worth 12% compounded annually, what should the useful life of
the stainless reactor be so that the capitalized cost are equal?

Group Php Amount A Php Amount B rate R %

#1 150, 000 180, 000 10.00
#2 140, 000 170, 000 9.50
#3 130, 000 160, 000 9.00
#4 120, 000 150, 000 10.50
#5 110, 000 140, 000 11.00
#6 150, 000 180, 000 10.50
#7 140, 000 170, 000 9.00
#8 130, 000 160, 000 9.50
#9 120, 000 150, 000 11.00
#10 110, 000 140, 000 10.00
11