Engineering Economy

PROBLEM SET 1

Answer the following problems. Write your complete solutions in a notebook. Box your final answers. How to
submit your work? We will discuss that later….

Fundamentals of Engineering Economy

1. Situation 1: An equipment installation job in the completion stage can be completed in 40
days of 8-hour day work with 40 men working. With the contract expiring in 30 days, the
contractor decided to add 10 men on the job, overtime not being permitted. The liquidated
damage is P2,000 per day of delay, and the men are paid P80 per day.

Determine the number of days of delay.

2. Situation 1: An equipment installation job in the completion stage can be completed in 40

days of 8-hour day work with 40 men working. With the contract expiring in 30 days, the
contractor decided to add 10 men on the job, overtime not being permitted. The liquidated
damage is P2,000 per day of delay, and the men are paid P80 per day.

Compute the amount of savings with the addition of workers.

Simple Interest
3. A man borrowed P100,000 and promised to pay after 5 months at a simple interest of 8%
per month. How much will the man pay?
4. An investment of P200,000 for 36 days earns P3,588.00 after deducting 20% withholding tax.
Find the annual rate of simple interest.
5. A man borrowed P75,000 on September 18, 1898 and promised to pay on May 17, 1904 at a
simple interest of 12% per annum. How much will be the total interest?
6. A certain commodity is payable in 90 days but if paid in 15 days there will be a 10% discount.
Find the annual rate of interest.
7. An item is payable in 180 days but if paid in 30 days there will be a discount. If the annual
rate of interest is 32%, find the discount.

Present-Future Value Relationships

8. A man borrowed P100,000 and promised to pay after 5 months at an interest of 8%
compounded monthly per month. How much will the man pay?
9. How long will it take money to double if it earns 4% per annum compounded annually?
 10. A car costing P1 million was bought at a down payment of P200,000. P150,000 is paid after 2
years and the remaining balance after 5 years. How much was the payment after 5 years if
the interest rate is 12% compounded annually?
11. A man borrowed P120,000 and promised to pay “A” pesos annually for 5 years. If the
interest rate is 8% compounded annually, how much will the annual payment be?
12. A man borrowed P120,000 and promised to pay annually for 5 years. The payment starts at
“X” pesos. The man intends to increase his payments by P5,000 at the end of each
successive year. If the interest rate is 8% compounded annually, how much will the first
payment be?
13. A man borrowed P120,000 and promised to pay annually for 5 years. The payment starts at
“X” pesos and succeeding payments double yearly. If the interest rate is 8% compounded
annually, how much will the first payment be?
14. A man borrowed P120,000 and promised to pay annually for 5 years. The payment starts at
“X” pesos. The man intends to increase his payments by 10% at the end of each successive
year. If the interest rate is 8% compounded annually, how much will the first payment be?

Equivalent Interest Rate

15. Convert 6% compounded annually per year into compounded annually per month.
16. Find the equivalent effective interest rate of 3% compounded semi-annually.
17. Convert 12% compounded quarterly per year into compounded semi-annually per year.
18. Which of the following has the greatest effective annual rate of interest?
19. Convert 8% compounded quarterly per year into compounded annually per quarter.
20. Find the equivalent effective rate of 10% compounded continuously.
21. An effective rate of 7% is equivalent to:
22. A debt of P80,000 is to be paid after 6 years at an interest rate of 4% compounded monthly.
Find the amount to be paid after 6 years.

Annuity

23. A man borrowed P120,000 and promised to pay “A” pesos annually for 5 years. If the
interest rate is 8% compounded annually, how much will the annual payment be?
24. A man borrowed a sum of money and promised to pay annually for 8 years at an interest
rate of 12% compounded annually. If the total interest for his debt will be P185,000 after 8
years, how much will his annual payments be?
25. An individual makes five annual deposits of P2,000 in a savings account that pays interest at
a rate of 4% per year. One year after making the last deposit, the interest rate changes to 6%
per year. Five years after the last deposit, the accumulated money is withdrawn from the
account. How much is withdrawn?
26. A farmer bought a farm and he paid P10,000 cash and agreed to pay P2,000 at the end of
each 6 months for 5 years. He failed to pay the first 5 payments. At the end of 3 years, he is
required to pay by the seller the entire debt consisting of his accumulated and future
liabilities, otherwise the farm would be foreclosed by the seller. What must he pay if money
is worth 12% compounded semi-annually?
27. Find the difference between the sums of an annuity due and an ordinary annuity for the
following data:

Periodic Payment P14,000

Payment Interval 3 months
Term 16 years
Interest Rate 10% compounded quarterly
28. A farmer bought a tractor costing P25,000 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.
29. A man loans P192,000 and promised to pay for 8 years at an interest rate of 5%
compounded annually, the first payment being due at the end of 10 years. Find the annual
payment.
30. An equipment which costs P40,000 is to be purchased through a series of 10 semi-annual
payments in which the first payment is due 6 months after the equipment is released. The
first 6 payments will be P6,000 each, while the remaining 4 equal payments will liquidate the
remaining balance. What is the amount of the last 4 payments if the interest rate if 15%
compounded semi-annually?