M I T R C

Topic: Engineering Mathematics –

ENGINEERING ECONOMY
REVIEW PROBLEMS:

INTEREST and DISCOUNTS

1. Determine the ordinary simple interest on P500

borrowed money for 9 months and 3 days if the rate of
interest is 10%.

2. Determine the exact simple interest on P500

borrowed capital from January 10 to October 12,1996
at 10%.

3. Find the nominal rate which if converted could be

used instead of 10 % compounded monthly. What is the
corresponding effective rate?

4. Pedro borrowed P 1000 from his girlfriend Anita so

that she can treat it on a Valentines date. Anita being
business minded imposed 8% simple interest for 4
years. At the end of this period the payment was
extended for 3 years without the interest being paid but
the new interest was made 10% compounded
semiannually. How much should Pedro pay at the end
of 7 years to be used in their wedding?

5. A man bought a lot worth P2 000 000 if paid in cash:

On the installment basis he paid a downpayment of
P100 000; P300 000 at the end of one year; P400 000
at the end of three years and the final payment at the
end of five years. What was the final payment if the
interest was 20%?

6. Compare the accumulated amounts after 5 years of

P 2 000 invested at the rate at 10% compounded a)
annually b) monthly c) daily and d) continuously.

7. Pinkie borrowed P 5000 from a lending institution and

agreed to pay at the end of 10 months. The institution
discounted the loan and gave her P 3000 in cash. What
was the rate of discount? What was the rate on
interest?

ANNUITIES

8. To prepare for retirement at the end of 20 years, a

self employed engineer deposited P 6000 every 3
months in a fund that gives an interest of 10% annually
compounded quarterly. Find the lump sum he could get
at the end of 20 years.

9. An endownment today of 1 million pesos maybe

converted into monthly pensions for 20 years.
Determine the pension in pesos considering that the
rate of interest is 9 % compounded quarterly.

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10. A boy is entitled to 10 yearly endownments of P
1000 each starting at the end of 11 th year from now.
Using an interest rate of 8 % compounded annually,
what is the value of these endownments now?

11. Arthur invested P10 000 every end of the year

for 10 years then waited another 5 years for his
money to grow. If the investment earned 8% after
tax compounded annually, what would be the sum
of his investment and earnings at the end of the 15 th
year

12. One hundred thousand pesos is deposited at

the end of every year in fund that pays 12% per
annum compounded continuously. Determine the
accumulated sum at the end of 5 years.

13. Find the present value of a perpetuity of P 10

000 payable every end of 3 months if money is
worth 9% compounded monthly.

DEPRECIATION and CAPITALIZED COST

14. A machine has a salvage value of P 12 000 at

the end of its useful life of 6 years. The book value
at the end of 5 years is P 30 833. Using the straight
line method, what is the initial cost of the machine?

15. A machine costing P 700 000 is estimated to

have a book value of P 40 500 when retired at the
end of 10 years. Depreciation cost is computed
using the constant percentage of the declining
book value. What is the annual rate of depreciation
in %?

16. Using the declining balance method, determine

the book value at the end of 4 years of an
equipment costing P 7350 having a life of 8 years
and salvage value of P350.

17. A washing machine cost P 14 000 with a useful

life of 8 years. The scrap value is P 1000. Determine
the depreciation in its 4th year.

18. The salvage value of a machine is P 50 000 at

the end of its economic life of 10 years. If the first
cost is P490 000, find the annual depreciation on its
first year of operation using sum of the years digit.

19. A machine cost P 500 000 has a life of 10 years.

Using the sum of the years digit method, the total
depreciation at the end of 3 years is P 208 000.
Determine the salvage value.

20. An engineer buys a machine costing P 500 000.

Compute the capitalized cost if the machines has a
life of 5 years and a salvage value of P 80000. Rate
of interest is 12% per annum.