MANLAPAZ, EDRIAN JAY, P.

ENGINEERING ECONOMY

BSME – IV

CHAPTER IV

EXERCISES:

1. A bond issue of P200,000.00 in 10yr bonds, in P1,000 units, paying 16% nominal interest in semi-annual payments,
must be retired by the use of sinking fund that earns 12% compounded semi-annually. What is the total semi-annual

expense?

2. A man wants to make 14% nominal interest compounded semi-annually on a bond investment. How much should
the man
be willing to pay now for a 12%. P10,000.00-bond will mature in 10 yrs and pays interest semi-annually

3. You purchased a 5,000 bond for 5,100. The bond pays 200/yr. It is redeemable for 5,050 after 10yrs. What is the
rate of interest on your investment?

NO SOLUTION FOUND

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 CHAPTER V

EXERCISES:

1. A machine used for cutting materials in a factory has the following outputs per hour at various speeds and
required periodic tool regrinding at the intervals cited.

Speed Output per Hour Tool Regrinding

A 200 pieces every 8 hrs
B 280 pieces every 5 hrs

A set of tools costs P1,260 and can be ground twenty times. Each regrinding costs P54.00 and the time needed to regrind
and change tools is 1hour. The machine operator is paid P35.00per hour, including the time the tool is changed. The tool
grinder who also sets the tools to the machine is paid P40.00/hour. The hourly rate chargeable against the machine is
P38.00, regardless of machine speed. Which speed is the most economical?

2. An executive receives an annual salary of P600, 000 and his secretary of P180, 000. A certain task can be
performed by the executive working alone in 4 hours. If he delegates the task to his secretary it will require him 30 mins to
explain the work and another 45 mins to check the finished work. Due to the unfamiliarity of the secretary to do the task, it
takes her an additional time of 6 hrs after being constructed. Considering salary cost only, determine the cost of
performing the task by each method, if the secretary works 2,400 hrs a year and the executive 3,000hrs a year.

CHAPTER VI
EXERCISES:

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1. An investment of 270,000 can be made in a project that will produce a uniform annual revenue of 185,400 for 5
yrs and then a salvage value of 10% of the investment. Out of pocket costs for operation and maintenance will be
81,000/yr. Taxes and insurance will be 4% of the first cost/yr. The company expects capital to earn not less than 25%
before income taxes. Is this a desirable investment? What is the payback period of the investment?

2. A gasoline driven pump and an electric power pump are being considered for use in a mine for a period of 10yrs.
The data are as follows:

Gasoline Electric

First cost 12,000 25,000

Life in yrs 5yrs 10yrs
Salvage value 1,000 2,000
Annual Operating Cost 3,200 1,800
Annual repairs 600 400
Annual taxes(% of Co) 3% 3%
If money is worth 12% compounded annually, which would you recommend on the basis of annual cost?

NO SOLUTION FOUND

3. An electric cooperative is considering the use of concrete electric pole in the expansion of its power distribution
lines. A concrete pole costs 18,000 each and will last 20yrs. The company is presently using creosote wooden poles which
cost 12,000/pole and will last 10yrs. If money is worth 12%, what is the savings in choosing the most economical pole?

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4. A concrete mixer can be driven by a diesel engine or a gasoline engine described as follows:
Diesel Engine Gasoline Engine

First cost 1.6M 25,000

Life in yrs 10yrs 4yrs
Fuel for 8hrs 5 gal 40 lits
Operator 350/8hrs 350/8hrs
Repairs and maintenance 500/day 300/day
If money is worth 10% compounded quarterly, which do you think is more profitable to acquire? Assuming you will use
the mixer only for 6yrs? At the end of the life of the engines their value is zero. Depreciate by straight line method.
Assume 300working days in 1 yr.

NO SOLUTION FOUND

CHAPTER VII
EXERCISES:
1. It is estimated that insulation of steam pipes in a factory will reduce fuel bill as much as 20%. The cost of the
insulation is P900,000 installed and the annual cost of taxes and insurance is 5% of the initial cost. Without the insulation,
the annual fuel bill is P1,800,000. If the insulation is worthless after 6 years use, and a minimum return of 12% is desired,
would it be worthwhile to invest in the insulation?

NO SOLUTION FOUND

2. An existing machine in a factory has an annual maintenance cost of P140,000. A new and more efficient machine
will require an investment of P290,000 and is estimated to have a salvage value of P60,000 at the end of 8 years. Its annual
expenses for maintenance and upkeep, etc. a total of P100,000. If the company expects to earn 12% on its investment, will
it be worthwhile to purchase the new machine using the a) present worth method? b) rate-of-return method?

NO SOLUTION FOUND

3. An economic study of a proposed light oil recovery plant to recover light oils from a gas manufacturing firm has
the following data:
a.) Total investment P1,800,000
b.) Total Annual expenses P500,000
c.) Average Annual sales = 730 tons of light oils and derivatives
d.) A local chemical firm guarantees to purchase 3o tons monthly of benzene, one of the light oils, at a price of
P50,000 per ton.
e.) Paint factories guarantee 30 tons monthly purchase of light oil derivatives. The factories import their present
supply at an average cost of P7,000 per ton.
f.) The balance of oils can be sold to drug, rubber, plastic, and other companies at P7,500 ton.
Determine: a) the annual net profit
b) the recovery period of the investment
c) will you recommend such a project? Justify

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4. A certain company needs a new delivery truck, and has two choices: a gasoline engine truck costing P1,600,000,
and a diesel engine truck costing P1,950,000. The diesel engine truck is guaranteed to save P0.20 per kilometre less than
the gasoline engine truck. From previous experience, it is known that the truck 40,000 kilometers annually. If each truck
has a salvage value at the end of 5 years of 10% of first cost and a sinking fund at 8% can be set up to provide for
replacement after this time and if money is worth 12% to the company, which would you recommend?

NO SOLUTION FOUND