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Problems in Engineering Economy.

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A. Capital recovery method

B. Present worth recovery method

C. Cost opportunity method

D. Return of investment method

2. If 1,600 Php earns 48 Php in 9 months, what is the annual rate of interest?

A. 4%

B. 3%

C. 8%

D. 9%

3. About how long will it take for 10,000 Php invested at 5% per year, compounded annually, to

double in value?

A. 5 yrs

B. 10 yrs

C. 15 yrs

D. 20 yrs

4. An individual wishes to deposit a certain quantity of money now so that at the end of five years

he will have 500 Php. With interest at 4% per year, compounded semi-annually, how much

must he deposit now?

A. 340.00 Php

B. 400.00 Php

C. 410.15 Php

D. 416.95 Php

5. Mr. Juan de la Cruz borrowed 1,000.00 Php and was able to sign a promissory note that he

would pay 2032.79 Php after 4 years. How much is the nominal rate of interest and the

corresponding effective rate if money is compounded bi-monthly.

A. 3%, 18%

B. 18%, 19.40%

C. 3%, 19.40%

D. 5%, 18%

Page 1

Engineering Economics

6. A man borrowed from a bank under a promissory note that he signed in the amount of

25,000.00 Php for a period of one year. He received only the amount of 21,915.00 Php after the

bank collected the advance interest and an additional amount of 85.00 Php for notarial and

inspection fees. What was the rate of interest that the bank collected in advance?

A. 14.64%

B. 13.64%

C. 12%

D. 15.82%

7. A man possesses a promissory note, due 3 years hence, whose maturity value is 6,700.48 Php. If

the rate of interest is 10% compounded semi-annually, what is the value of this note now?

A. 4,000 Php

B. 4,500 Php

C. 8,500 Php

D. 5,000 Php

8. A man applied for a car loan in a local financing bank which charges a rate of interest of 18%.

Interest in this type of transaction is to be deducted from the loan at the time the money is

released. At the end of one year the borrower will have to pay the same amount what is stated

in his application for the loan. What is the actual interest did the financing bank charge him?

A. 21.95%

B. 22.28%

C. 22.95%

D. 25.96%

9. A man wishes to bequeath to his daughter 20,000 Php ten years from now. What amount

should he invest now if it will earn interest of 8% compounded annually during the first five

years and 12% compounded quarterly during the next five years?

A. 8,532.45 Php

B. 7,536.45 Php

C. 6,534.56 Php

D. 7,546.32 Php

10. Five years ago a house was purchased for 34,000 Php. If it is sold today for 50,000 Php, what is

the rate of appreciation of its value?

A. 68%

B. 32%

C. 7.5%

D. 8.019%

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Engineering Economics

11. A man borrows money from a bank which uses a simple discount rate of 14%. He signs a

promissory note promising to pay 500 Php per month at the end of the 4th, 6th, and 7th months,

respectively. Determine the amount he received from the bank.

A. 1,300.65 Php

B. 1,403.65 Php

C. 461.00 Php

D. 2,405.75 Php

12. A mining property is offered for sale for $ 57,000. On the basis of estimated production, an

annual return of $ 8,000 is foreseen for a period of 10 years. After 10 years the property will be

worthless. What annual rate of return is in prospect?

A. 6.4%

B. 6.6%

C. 6.5%

D. 6.7%

13. A machine is under consideration for investment. The cost of the machine is $ 25,000. Each

year it operates, the machine will generate a savings of $ 15,000. Given an effective annual

effective interest rate of 18%, what is the discounted payback period, in years, on the

investment in the machine?

A. 2.16 years

B. 3.17 years

C. 1.67 years

D. 1.75 years

14. A 10 thousand pesos loan is to be repaid at the rate of 200 pesos per month with an annual

effective rate of 19.56% charged against the unpaid balance. What principal remains to be paid

after the 3rd payment?

A. 9,800 Php

B. 9,500 Php

C. 9,200 Php

D. 8,900 Php

15. You need $ 4,000 per year for 4 years to go to college. Your father invested $ 5,000 in a 7%

account for your education when you were born. If you withdraw the $ 4,000 at the end of your

17th, 18th, 19th, and 20th years, how much money will be left in the account at the end of your

21st year?

A. $ 4,000

B. $ 1,700

C. $ 2,500

D. $ 3,400

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Engineering Economics

16. In year zero, you invest $ 10,000 in a 15% security for five years. During that time, the average

annual inflation is 6%. How much, in terms of year zero dollars, will be in the account at

maturity?

A. $ 6,653

B. $ 15,030

C. $ 15,386

D. $ 13,382

17. What is the effective annual interest rate on a loan if the nominal interest rate is 12% per year

compounded quarterly?

A. 11.75%

B. 12.25%

C. 12.55%

D. 12%

18. An investment of $ 350,000 is made, to be followed by payments of $ 200,000 each year for

three years. What is the annual rate of return on investment for this project?

A. 32.7%

B. 15%

C. 41.75%

D. 51.75%

19. A man who won 300,000 Php in a lottery decided to place 50% of his winnings in a trust fund for

the college education of his son. If the money earn 14% a year compounded quarterly, how

much will the man have at the end of 10 years, when his son will be starting his college

education?

A. 593,888.96 Php

B. 375,958.75 Php

C. 593,467.98 Php

D. 682,456.96 Php

20. A one-bagger concrete mixer can be purchased with a down payment of 8,000 Php and equal

installments of 600 Php each paid at the end of every month for the next 12 months. If the

money is worth 12% compounded monthly, determine the equivalent cash price of the mixer.

A. 15,750 Php

B. 6,753 Php

C. 14,753 Php

D. 6,854 Php

Page 4

Engineering Economics

21. A man bought a house and lot worth 300,000 Php in a subdivision in Metro Manila. The annual

amortization in a house and lot is 34,200 Php. Determine the rate of interest he was charged by

the subdivision owners.

A. 11.13%

B. 12.25%

C. 13.13%

D. 31.25%

22. A lathe for a machine shop costs 60,000 Php if paid in cash. On the installment plan, purchaser

should pay 20,000 Php down payment and 10 quarterly installments, the first due at the end of

the first year after the purchase. If money is worth 15% compounded quarterly, determine the

quarterly installment.

A. 5,352,18 Php

B. 7,534.16 Php

C. 6,548,39 php

D. 5,439.18 Php

23. A person buys a piece of property for 100,000 Php down payment and ten deferred semi-annual

payments of 8,000 Php each starting three years from now. What is the present value of the

investment if the rate of interest is 12% compounded semi-annually?

A. 185,000 Php

B. 148,000 Php

C. 144,000 Php

D. 192,000 php

24. It costs 50,000 Php 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 10,000 Php?

A. 200,000 Php

B. 250,000 Php

C. 350,000 Php

D. 400,000 Php

25. A manufacturing plant installed a new boiler at a total cost of 150,000 Phpand is estimated to

have a useful life of 10 years. It is estimated to have a scrap value at the end of its useful life of

5,000 Php. If interest is 12% compounded annually, determine its capitalized cost.

A. 362,556 Php

B. 189,000 Php

C. 357,652 Php

D. 218,857 Php

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Engineering Economics

26. The purchaser of a contractor paid 10,000 Php cash and agreed to pay 3,000 Php at the end of

each 6 months for 10 years. He failed to make the first five payments of 3,000 Php each. At the

end of three years he desires the purchase of the tractor by a single payment which will cancel

both his accumulated liabilities and his future liabilities. What must he pay if money is worth 8%

per annum compounded semi-annually?

A. 54,123.45 Php

B. 51,589.01 Php

C. 50,777.54 Php

D. 52,350.32 Php

27. A new generator has just been installed. It is expected that there will be no maintenance

charges until the end of the sixth year, when 300 Php will be spent on the generator and 300

Php will be spent at the end of each successive year until the generator is scrapped at the end of

the fourteenth year of service. What sum of money set aside at the time of installation of the

generator at 6% interest will take care of all maintenance expenses for the generator?

A. 1,392 Php

B. 1,765 Php

C. 1,489 Php

D. 1,235 Php

28. Find the present value, in pesos, of a perpetuity of 15,000 Php payable semi-annually if money is

worth 8% compounded quarterly.

A. 371,290

B. 372,537.29

C. 374,900

D. 373,777

29. A rich man put up a trust fund in the bank with instructions to give his son the earnings of

400,000 Php at the end of every four years and to continue until the twentieth year of the

deposit when the son could get the 400,000 Php earning and the principal. What is the amount

of money placed i9n the trust fund if guaranteed interest is 16% per year?

A. 468,082 Php

B. 475,000 Php

C. 485,000.67 Php

D. 470,325.45 Php

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Engineering Economics

30. A service car whose cash price was 540,000 Php was bought with a downpayment of 162,000

Php and monthly installments of 10,874.29 for 5 years. What was the rate of interest if

compounded monthly?

A. 20

B. 15

C. 26

D. 24

31. An asset is purchased for 500,000 Php. The salvage value in 25 years is 100,000.00 Php. What

are the depreciations in the first three years using straight line method?

A. 24,000 Php

B. 32,000 Php

C. 48,000 Php

D. 16,000 Php

32. A company which manufactures electric motors has a production capacity of 200 motors a

month. The variable costs are 150.00 Php per motor. The average selling price of the motors is

275.00 Php. Fixed costs of the company amount to 20,000 Php per month which includes taxes.

The numbers of motors that must be sold each month to break-even is closest to:

A. 150

B. 80

C. 160

D. 40

33. A company invests $ 10,000 today to be repaid in five years in one lump sum at 12%

compounded annually. If the rate of inflation is 3% compounded annually, how much profit, in

present day dollars, is realized over the five years?

A. $ 5202

B. $ 5626

C. $ 3202

D. $ 7623

34. Mr. Johnson borrows $ 100,000 at 10% effective annual interest. He must pay back the loan

over 30 years with uniform monthly payments due to the first day of each month. What does

Mr. Johnson pat each month?

A. $ 846

B. $ 870

C. $ 878

D. $ 839

Page 7

Engineering Economics

A. Break-even-no-gain-no-loss

B. In-piece-value

C. Interest rate

D. Scrap value

36. What is the book value of equipment purchased three years ago for $ 15,000 if it is depreciated

using the sum of years digit method? The expected life is five years.

A. $ 3,000

B. $ 3,300

C. $ 4,000

D. $ 10,000

37. Company A purchases $ 200,000 of equipment in year zero. It decides to use straight-line

depreciation over the expected 20 year, life of the equipment. The interest rate is 14%. If its

overall tax rate is 40%, what is the present worth of the depreciation tax shield?

A. $ 26,500

B. $ 3,500

C. $ 4,000

D. $ 39,700

38. A person pays interest on a loan semi-annually at a nominal annual interest rate of 16%. What

is the effective annual interest rate?

A. 16.64%

B. 15.5%

C. 15.65%

D. 16.5%

39. A manufacturing firm maintains one product assembly line to produce signal generators.

Weekly demand for the generators is 35 units, and the line operates for 7 hours a day, five days

per week. What is the maximum production time per unit, in hours, required of the line in order

to meet demand?

A. 1 hour

B. 0.75 hour

C. 2.25 hour

D. 0.04 hour

Page 8

Engineering Economics

40. An asset is purchased for 120,000.00 Php. Its estimated life is 10 years, after which it will be

sold for 12,000.00m Php. Find the depreciation for the second year using the sum-of-the-years-

digit method.

A. 17,673 Php

B. 19,000 Php

C. 18,300 Php

D. 18,400 Php

41. The purchase of a motor for 6,000 Php and a generator for 4,000 Php will allow a company to

produce its own energy. The configuration can be assembled for 500 Php. The service will

operate for 1,600 hours per year for 10 years. The maintenance cost is 300 Php per year, and

cost to operate is 0.85 Php per hour for fuel and related cost. Using straight line depreciation,

what is the annual cost for the operation? There is 400 Php salvage value for the system at the

end of 10 years.

A. 2,670 Php

B. 2,630 Php

C. 2,480 Php

D. 2,710 Php

42. A manufacturing firm maintains one product assembly line to produce signal generators.

Weekly demand for the generators is 35 units. The line operates for 7 hours a day, 5 days a

week. What is the maximum production time per unit in hours required of the line to meet the

demand?

A. 0.75 hr

B. 1 hr

C. 2.25 hrs

D. 3 hrs

43. A steel drum manufacturer incurs a yearly fixed operating cost of 200,000.00 Php. Each drum

manufactured cost 160.00 Php to produce and sells for 200.00 Php. What is the manufacturer’s

break-even sales volume in drums per year?

A. 1,250

B. 2,300

C. 1,000

D. 5,000

Page 9

Engineering Economics

44. A machine costing 720,000n Php is estimated to have a book value of 40,545.73 Php when

retired at the end of 10 years. Depreciation cost is computed using constant percentage of the

declining book value. What is the annual rate of depreciation in %?

A. 25

B. 28

C. 26

D. 24

45. A man wants to make 14% nominal interest compounded semi-annually on s bond investment.

How much should the man be willing to pay now for 12%, 10,000 Php bond that will mature in

10 years and pays interest semi-annually?

A. 8,950 Php

B. 8,250 Php

C. 8,850 Php

D. 6,000 Php

46. A 1,500 Php bond which will mature in 10 years and with a bond rate of 15% payable annually is

to be redeemed at par at the end of this period. If it is sold now for 1,390 Php, determine the

yield at this price.

A. 14.57%

B. 16.56%

C. 15.68%

D. 17.65%

47. The year end operating and maintenance costs of a certain machine are estimated to be 12,000

Php the first year and to increase by 2,500 Php each year during its 4-year life. If capital worth

12%, determine the equivalent uniform year-end costs.

A. 17,783.13 Php

B. 25,657.89 Php

C. 36,971.19 Php

D. 15,397.13 Php

48. A young man decided to go on business at age 40. He wishes to accumulate 200,000 Php at that

age. On his twenty-fifth birthday he deposits a certain amount and will increase the deposit by

10% each year until the fortieth year. If the funds can be invested at 9.6% compounded

annually, how much should his initial investment be?

A. 3,074.82 Php

B. 4,746.89 Php

C. 6,737.14 Php

D. 8,365.85 Php

Page 10

Engineering Economics

49. A dam was constructed for $ 200,000. The annual maintenance cost is $ 5,000. If interest is 5%,

the capitalized cost of the dam, including the maintenance, is:

A. $ 250,000

B. $ 200,000

C. $ 100,000

D. $ 300,000

50. A new building is being considered to house some equipment. The new building will reduce

maintenance costs by $ 6,000 per year for the first ten years, and $ 3,000 per year thereafter.

Based on a 50-year analysis period, what building construction cost can be justified?

A. $ 50,000

B. $ 180,000

C. $ 30,000

D. $ 90,000

Page 11

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