Professional Documents
Culture Documents
Engineering Economy PDF
Engineering Economy PDF
Engineering-Economy
ENGINEERING ECONOMY Example 2: Determine the (a) ordinary and (b) exact simple
interests on P 100,000 for the period January 15 to June 20 2012
Engineering Economy – is the analysis and evaluation of the factors if interest is 15%.
that will affect the economic success of engineering projects to the Ans. (a) P 6,541.67; (b) P 6434.43
end that a recommendation can be made which will ensure the Example 3: Calculated the exact interest on an investment of P
best use of capital. 2,000.00 for a period from January 30 to September 15, 2001 if the
rate of interest is 10%.
SET 1A: INTEREST AND MONEY-TIME RELATIONSHIPS Ans. P124.93
Interest – is the amount of money paid for the use of borrowed Example 4: If P 4000 is borrowed for 75 days at 16% per annum.
capital (borrower’s viewpoint) or the income produced by money How much will be due at the end of 75 days?
which has been loaned (lender’s viewpoint). Ans. P 4,133.33
F=P+I Example 5: How long will it take for a deposit of P 1, 500.00 to earn
Where: P 186 if invested at the simple interest rate of 7 1/3%?
I = interest Ans. 1.6909 years
P = principal or present worth Example 6: If you borrow money from your friend with simple
F = accumulated amount or future worth interest of 12%, find the present worth of P 20,000 at the end of 9
months.
Cash-Flow Diagrams Ans. P 18,348.60
Cash-Flow Diagram – is a graphical representation of cash flows Example 7: (CE Board) A deposit of P 110,000 was made for 31
drawn on a time scale. days. The net interest after deducting 20% withholding tax is P
↑ - receipt (positive cash flow or cash inflow) 890.36. Find the rate of return annually.
↓ - disbursement (negative cash flow or cash outflow) Ans. 11.75%
Example: A loan of P100 at simple interest will becomeP150 after Example 8: A man buys an electric fan from a merchant that
5 years. charges P1500.00 at the end of 90 days. The man wishes to pay
cash. What is the cash price if money is worth 10% simple
interest?
Ans. P 1,463.41
Example 9: What amount will be available in eight months if P
15,000.00 is invested now at 10% simple interest per year?
Ans. P 16,000.00
Example 10: P 1000.00 becomes P 1500.00 in three years. Find the
simple interest rate.
Ans. 16.67%
Example 11: An engineer borrowed a sum of money under the
Cash flow diagram on the viewpoint of the lender
following terms: P 650,000.00 if paid in 90 days, or P 600,000.00
if paid in 30 days. What is the equivalent annual rate of simple
interest?
Ans. 50%
Compound Interest
Compound Interest – the interest for an interest period is
calculated on the principal plus total amount of interest
accumulated in previous period.
Simple Interest
Simple Interest – is calculated using the principal only, ignoring
any interest that has been accrued in preceding periods.
I = Pni
F = P(1 + in)
Where:
I = interest Principal at
Interest Interest Earned Amount at End
P = principal or present worth Beginning
Period During Period of Period
of Period
n = number of interest periods
i = rate of interest per period 1 P Pi P(1+i)
F = accumulated amount or future worth 2 P(1+i) P(1+i)i P(1+i)2
For Ordinary Simple Interest: 3 P(1+i)2 P(1+i)2i P(1+i)3
Interest period = 1 year = 360 days
For Exact Simple Interest: … … … …
Interest period = 1 year = 365 days (ordinary year) n P(1+i)n-1 P(1+i)n-1i P(1+i)n
= 366 days (leap year)
F = P(1 + i)n
SAMPLE PROBLEMS F⁄ = (1 + i)n = (F⁄ , i%, n)
P P
Example 1: Determine the ordinary simple interest on P 20,000
P = F(1 + i)−n
for 9 months and 10 days if the rate of interest is 12%. P⁄ = (1 + i)−n = (P⁄ , i%, n)
Ans. P 1,866.67 F F
SAMPLE PROBLEMS
Example 1: Mr. T borrowed money from the bank. He receives
from the bank P 1,340 and promised to pay P 1,500 at the end of
9 months. Compute: (a) Simple interest rate; and (b) Discount
Rate.
Ans. (a) 15.92%; (b) 13.73%
Example 2: Find the discount if P 2,000 is discounted for 6 months
at 8% simple discount.
Ans. P 80
Example 3: Discount 1650 for 4 months at 6% simple interest.
What is the discount?
Ans. P 32.35
Example 12: A new office building was constructed 5 years ago by beginning of each year. How much should he deposit if the fund is
a consulting engineering firm. At that time the firm obtained the invested at 5% compounded annually?
bank loan for P 10,000,000 with a 20% annual interest rate, Ans. P 6,057.49
compounded quarterly. The terms of the loan called for equal Example 4: Determine the present worth and the accumulated
quarterly payments for a 10-year period with the right of amount of an annuity consisting of 6 payments of P120, 000 each,
prepayment any time without penalty. Due to internal changes in the payment are made at the beginning of each year. Money is
the firm, it is now proposed to refinance the loan through an
worth 15% compounded annually.
insurance company. The new loan is planned for a 20- year term
Ans. P = P 522,259; F = P 1,208,016
with an interest rate of 24% per annum, compounded quarterly.
The insurance company has a onetime service charge 5% of the Example 5: A farmer bought a tractor costing P 25,000 payable in
balance. This new loan also calls for equal quarterly payments. 10 semi-annual payments, each installment payable at the
a.) What is the balance due on the original mortgage (principal) if beginning of each period. If the rate of interest is 26%
all payments have been made through a full five years? compounded semi-annually, determine the amount of each
b.) What will be the difference between the equal quarterly installment.
payments in the existing arrangement and the revised proposal? Ans. P 4,077.20
Ans. (a) P 7,262,747.03; (b) P 120,862 Example 6: A certain manufacturing plant is being sold and was
Example 13: An annual payment is made for 10 years with an submitted for bidding. Two bids were submitted by interested
annual interest rate of 8%. Compute the following: buyers. The first bid offered to pay P 200,000 each year for 5 years,
(a) Uniform series present worth factor; each payment being made at the beginning of each year. The
(b) Capital recovery factor; second bid offered to pay P 120,000 the first year, P 180,000 the
(c) Uniform series compound amount factor; second year, and P 270,000 each year for the next 3 years, all
(d) Sinking fund factor payments being made at the beginning of each year. If money is
Ans. (a) 6.710; (b) 0.149; (c) 14.487; (d) 0.069 worth 12% compounded annually, which bid should the owner of
the plant accept?
Annuity Due Ans. second bid, Present worth = P 859,727.18
Annuity Due – a type of annuity were equal payments are made at
the beginning of each period. Deferred Annuity
Deferred Annuity – a type of annuity were the first payment is
made several periods after the beginning of annuity.
A (1 + i)n − 1
P= [ ] (1 + i)−m
i (1 + i)n
A (1 + i)n−1 − 1
P =A+ [ ]
i (1 + i)n−1
Where:
P = value or sum of money at present
F = value or sum of money at some future time
A = series of periodic equal amount of payments
i = interest rate per interest period
n = number of interest periods/number of equal payments
A m = number of interest periods when there is no payment made
F= [(1 + i)n+1 − 1] − A
i
Where: SAMPLE PROBLEMS
P = value or sum of money at present Example 1: The present value of an annuity of R pesos payable
F = value or sum of money at some future time annually for 8 years, with the 1st payment at the end of 10 years is
A = series of periodic equal amount of payments P 187,481.25. Find the value of R if money if money is worth 5%.
i = interest rate per interest period Ans. P 45,000
n = number of interest periods/number of equal payments Example 2: A parent on the day that child is born wishes to
determine what lump sum would have to be paid into an account
SAMPLE PROBLEMS bearing interest of 5% compounded annually, in order to
Example 1: If money is worth 4% compounded semiannually, find withdraw P 20,000 each on the child’s 18th, 19th , 20th and 21th
the present amount of an annuity due paying P 5,000 birthdays?
semiannually for a term of 3.5 years. Ans. P 30,941.73
Ans. P 33,007.15 Example 3: An asphalt road requires no upkeep until the end of 2
Example 2: A man agrees to make equal payments at the beginning years when P60, 000 will be needed for repairs. After this P90, 000
of each 6 months for 10 years to discharge a debt of P 50,000 due will be needed for repairs at the end of each year for the next 5
now. If money is worth 8% compounded semiannually, find the years, then P120, 000 at the end of each year for the next 5 years.
semiannual payment. If money is worth 14% compounded annually, what was the
equivalent uniform annual cost for the 12-year period?
Ans. P 3,537.58
Ans. P 79,245.82
Example 3: To accumulate a fund of P 80,000 at the end of 10
years, a man will make equal annual deposits in the fund at the
Example 4: A man wishes to provide a fund for his retirement such Continuous Compounding for Discrete Payments
that from his 60th to 70th birthdays he will be able to withdraw For an annuity compounded continuously, replace interest rate
equal sums of P18, 000 for his yearly expenses. He invests equal with the effective rate for compounded continuously. Recall that:
amount for his 41st to 59th birthdays in a fund earning 10% ER = er − 1
compounded annually. How much should each of these amounts Replacing the interest rate for the formula of ordinary annuity
be? with ER, the formula becomes:
Ans. P 2,285.25
A ern − 1
Example 5: A lathe for a machine shop costs P 60,000, if paid in P= r ( rn )
cash. On the installment plan, a purchaser should pay P 20,000 e −1 e
downpayment and 10 quarterly installments, the first due at the A
F= r (ern − 1)
end of the first year after purchase. If money is worth 15% e −1
compounded quarterly, determine the quarterly installment.
Ans. P 5,439.18 SAMPLE PROBLEMS
Example 6: A man invests P 10,000 now for the college education Example 1: Determine the accumulated amount to an account
of his 2 year old son. If the fund earns 14% effective interest rate, paying P 5,000 annually (payments are made at the beginning of
how much will his son get each year starting from his 18 th to the each period) for 18 years if money is worth 8% compounded
22nd birthday? continuously. Also determine the present worth.
Ans. P 20,791.64 Ans. P 209,452.57; P 49,625.13
The cash flow above is equal to the sum of the two cash flows
below:
A = P 1000, n = 5
SAMPLE PROBLEMS
Example 1: An individual makes 5 deposits that increase
uniformly by P 300 every month in a savings account that earns
12% compounded monthly. If the initial deposit is P 4,500,
determine the accumulated amount in the account just after the
last deposit.
Ans. P 25,984.67
Example 2: An amortization of a debt is in a form of a gradient
series. (a) What is the equivalent present worth of the debt if
interest is 5%. (b) Determine also the future amount of
amortization as well as the equivalent uniform periodic payment.
(c) What is the equivalent uniform annual cost?
Ans. P 15,178.34; P 18,449.37; P 4,280.47
SET 2: DEPRECIATION Example 5: A machine cost P 73,500 and has a life of 8 years with
Depreciation – is the decrease in value of physical property with a salvage value of P 3500 at the end of 8 years. Determine the
the passage of time. book value at the end of 4 years using straight line method.
Book Value – is the worth of property as shown on the accounting Ans. P 38,500
records of an enterprise Example 6: What is the book value of electronic test equipment
Salvage/Resale Value – is the price that can be obtained from the after 8 years of use if it depreciates from its original value of P
sale of the property after it has been used. 120,000.00 to its salvage value of 13% in 12 years? Use straight-
Scrap Value – the amount of property would sell if disposed of as line method.
junk. Ans. P 50,400
BVm = FC − Dm Example 7: The initial cost of paint sand mill, including its
DL = FC − SV installation is, P800 000.00. The BIR approved life of this machine
Where: is 10 years for depreciation. The estimated salvage value of the
BVm = book value of a property at any time m mill is P 50,000.00 and the cost of dismantling is estimated to be P
Dm = total depreciation of a property at any time m 15,000.00. Using straight line depreciation, what is the annual
DL = total depreciation at the end of its useful life depreciation charge and what is the book value of the machine at
FC = first cost the end of six years?
SV = salvage or scrap value Ans. P 76,500; P 341,000
Example 8: An equipment has a salvage value of P1M at the end of
Straight Line Method 50 years. The straight line depreciation charge is P2M.
Straight Line Method –a method which assumes that the loss in (a) What is the first cost of the machine?
value is directly proportional to the age of the property. (b) What is the book value after 25 years?
d1 = d2 = ⋯ = dm = dL = d (c) At what year will its total depreciation be P30M?
FC − SV Ans. P 101M; P 51M; 15th year
d=
L Sinking Fund Method
Dm = md
Sinking Fund Method – a method which assumes that the sinking
DL = Ld
fund established in which funds will accumulate for replacement.
Where:
The total depreciation that has been taken place up to any given
d = depreciation at any year
time is assumed to be equal to the accumulated amount in the
Dm = total depreciation of a property at any time m
sinking fund at any time.
DL = total depreciation at the end of its useful life
d1 = d2 = ⋯ = dm = dL = d
L = useful life in years
(FC − SV)i
FC = first cost d=
SV = salvage or scrap value (1 + i)L − 1
d
Dm = [(1 + i)m − 1]
SAMPLE PROBLEMS i
d
Example 1: A machine has an initial cost of P 50,000 and a salvage DL = [(1 + i)L − 1]
i
value of P 10,000 after 10 years. Using Straight Line Method of Where:
Depreciation: d = depreciation at any year
(a) What is the annual depreciation? Dm = total depreciation of a property at any time m
(b) What is the book value after 5 years? DL = total depreciation at the end of its useful life
(c) What is the total depreciation after 3 years? L = useful life in years
Ans. (a) P 4,000; (b) P 30,000; (c) P 12,000 FC = first cost
Example 2: An Engineer bought an equipment for P 500,000. He SV = salvage or scrap value
spent an additional amount of P 30,000 for installation and other
expenses. The salvage value is 10% of the first cost. If the book SAMPLE PROBLEMS
value at the end of 5 years is P 291,500 using straight line Example 1: Given FC = 100,000, SV = 10,000, L = 10 years, i = 5%.
depreciation, compute the life of the equipment in years. (a) Annual Depreciation, d.
Ans. 10 years (b) Book Value after 3 years.
Example 3: A machine which cost P 10,000 was sold as scrap after (c) Book Value after 8 years.
being used for 10 years. The scrap value is P 500. Determine the Ans. P 7,155.41; P 77,442.56; P 31,672.21
total depreciation at the end of 5 years. Example 2: An equipment cost P 100,000 with a salvage value of P
Ans. P 4750 5,000 at the end of 10 years.
Example 4: An engineer bought an equipment for P 500,000.00. Using Sinking Fund Method with interest rate= 4%.
He spent an additional amount of P 30,000 for installation and (a) Compute the annual depreciation cost.
other expenses. The salvage value is 10% of the initial first cost. (b) Find the book values at years 1 to 4.
Life = 15 years. Compute the following: Ans. (a) P 7,912.64; (b) P 92,087.36; P 83,858.21; P 75,299.90; P
(a) Annual Depreciation. 66,399.26
(b) Book Value after 6 years. Example 3: A plant erected to manufacture socks with a first cost
(c) Total depreciation after 10 years. of P 10,000,000 with an estimated salvage value of P 100,000 at
Ans. (a) P 31,800; (b) P 339,200; (c) P 318,000 the end of 25 years. Find the appraised value to the nearest 100
by sinking fund method at 6% interest rate at the end of
a. 10 years
b. 20 years
Ans. P 7,621,600; P 3,362,200
SAMPLE PROBLEMS to process 800,000 cu.m. during its life. During a certain year it
Example 1: An asset is purchased for P 9000. Its estimated life is processed 60,000 cu.m. If its scrap value is P 100,000, determine
10 years, after which is will be sold for P 1,000. Using SOYD the total depreciation during the year and the depreciation cost
(a) Find the book value during the 3rd year. chargeable to each batch of 50 cu.m. using the service output
(b) Find the depreciation during the 2nd year. method.
(c) Find the total depreciation after 4 years. Ans. P 180,000.00; P 150.00
Ans. P 5,072.72; P 1,309.09; P 4,945.45
Example 2: Mr. Q purchased a Bulk Milk Cooler for P 480,000.00.
Shipping, tax, and installation costs amounted to P 25,000.00, P
20,000.00 and P 15,000.00. The machine has a useful life of 7 years SUPPLEMENTARY PROBLEMS
and salvage value of P 40,000. Example 1: A machine costs P 7,000 which last for 8 years with a
(a) Determine the book value after four years. salvage value at the end of its life of P 350. Determine the
(b) Determine the depreciation charge on its last year of service. depreciation charge during the 4th year and the book value at the
(c) Determine the total depreciation after 3 years. end of 4 years by:
Ans. P 147,142.86; P 17,857.14; P 321,428.57 (a) Straight Line Method;
Example 3: A telephone company purchased microwave radio (b) Declining Balance Method;
equipment for P 6 million, freight and installation charges (c) SOYD Method;
amounted to 4% of the purchased price. If the equipment will be (d) Sinking Fund Method with interest of 12%;
depreciated over a period of 10 years with a salvage value of 8%, (e) Double Declining Balance Method
determine the depreciation cost during 5th year using SYD. Ans. (a) P 831.25, P 3,675; (b) P 710.96, P 1,565.25; (c) P 923.61,
Ans. P 626,269.10 P 2,197.22; (d) P 540.66, P 4,416.00; (e) P 738.28; P 2,214.84
Example 4: A company purchases an asset for P 10,000.00 and Example 2: A P 110,000 chemical plant had an estimated life of 6
plans to keep it for 20 years. If the salvage value is zero at the end years and a projected scrap value of P 10,000. After 3 years of
of the 20th year: operation, an explosion made it a total loss. How much money
(a) What is the depreciation in the third year? would have to be raised to put up a new plant costing P 150,000,
(b) What is the total depreciation at the end of 14 years? if the depreciation reserve was maintained during its 3 years of
(c) What is the book value of the asset at the end of 8 years? operation by:
Use sum-of-the-year’s digits depreciation. (a) Straight Line Method;
Ans. P 857.14; P 9,000; P 3,714.29 (b) Sinking Fund Method at 6% interest
Example 5: An equipment costing P 500,000.00 has a life Ans. P 100,000; P 104,359.08
expectancy of 5 years. Using some-of-the-year’s digit method of Example 3: A contractor imported a bulldozer for his job, paying P
depreciation, what must be its salvage value such that its 250,000 to the manufacturer. Freight and insurance charges
depreciation charge for the first year is P 100,000.00? amounted to P 18,000; customs’, broker’s fees and arresters
Ans. P 200,000.00 services amounted to P 8,500; taxes, permits, and other expenses
which is 10% of the purchasing cost. If the contractor estimates
Service-Output Method the life of the bulldozer to be 10 years with a salvage value of P
Service-Output Method – a method which assumes that the total 20,000, determine the book value at the end of 6 years using the:
depreciation that has taken place is directly proportional to the (a) Straight Line Method;
quantity of output of the property up to that time. (b) Sinking Fund Method with interest at 8%;
(FC − SV) (c) Matheson’s Formula;
Depreciation per unit output =
T (d) SOYD Method
(FC − SV) Ans. P 132,600; P 158,949.69; P 59,201.53; P 71,181.82
Dm = (Q)
T Example 4: An equipment costs P 10,000 with a salvage value of P
Where: 500 at the end of 10 years. Calculate the annual depreciation cost
Dm = total depreciation of a property at any time by:
FC = first cost (a) Straight Line Method;
SV = salvage or scrap value (b) Sinking Fund Method at 4% interest
T = total units of output up to the end of its life Ans. P 950; P 791.26
Q = total number of units of output at any time Example 5: A radio service panel truck initially costs P 56,000. Its
resale value at the end of the 5th year is estimated at P 15,000.
SAMPLE PROBLEMS (a) Determine the annual depreciation charge by SLM.
Example 1: A television company purchased machinery for P (b) By means of the Matheson’s Formula, determine the yearly
100,000 on July 1, 1979. It is estimated that it will have a useful of depreciation charge for the first, second and third year.
10 years, scrap value of P 4,000, production of 400,000 units and Ans. P 8,200; P 12,969.60, P 9,965.84, P 7,657.75
working hours of 120,000. The company uses the machinery for
14,000 hours in 1979 and 18,000 hours is 1980. The machinery
produces 36,000 units in 1979 and 44,000 units in 1980. Compute
the depreciation charge for 1980 using each method given below:
(a) Straight Line Method
(b) Working Hours Method
(c) Output method
Also compute the total depreciation at the end of 1980 using:
(d) Working Hours Method
(e) Service Output Method
Ans. P 9,600; P 14,400; P 10,560; P 25,600; P 19,200
Example 2: An asphalt and aggregate mixing plant having a
capacity of 50 cu.m. every hour costs P 2,500,000. It is estimated
year. Taxes and insurance will be 4% of the first cost per year. The
company expects capital to earn not less than 25% before income
taxes. Using future worth method, determine the future worth of
all net cash flows. Is this a desirable investment?
Ans. –P 28,796.50; It is not a desirable investment
SAMPLE PROBLEMS
Example 1: An investment of P 270,000 can be made in a project
that will produce a uniform annual revenue of P 185,400 for 5
years and having a salvage value of 10% of the investment. Out of
pocket costs for operation and maintenance will be P 81,000 per
year. Taxes and insurance will be 4% of the first cost per year. The
company expects capital to earn not less than 25% before income
taxes. Determine the payback period.
Ans. 2.6 years
Example 2: A fixed capital investment of P 10,000,000.00 is
required for a proposed manufacturing plant and an estimated
working capital of P 2,000,000.00. Annual depreciation is
estimated to be 10% of the fixed capital investment. Determine
the rate of return on the total investment and the payout period is
the annual profit is P 2,500,000.00.
Ans. ROR = 12.5%; 4.8 years
SAMPLE PROBLEMS
Example 1: Example 1: A company is considering two types of
equipment for its manufacturing plant. Pertinent data are as
follows:
Type A Type B
First cost P 200,000 P 300,000
Annual operating cost P 32,000 P 24,000
Annual labor cost P 50,000 P 32,000
Insurance and property taxes 3% 3%
Payroll taxes 4% 4%
Estimated Life 10 10
If the minimum required rate of return is 15%. What is the annual
cost of Type A? Type B? Which equipment should be selected?
Ans. P 129,850; P 126,056; Type B
SAMPLE PROBLEMS
Example 1: Example 1: A company is considering two types of
equipment for its manufacturing plant. Pertinent data are as
follows:
Type A Type B
First cost P 200,000 P 300,000
Annual operating cost P 32,000 P 24,000
Annual labor cost P 50,000 P 32,000
Insurance and property taxes 3% 3%
Payroll taxes 4% 4%
Estimated Life 10 10
If the minimum required rate of return is 15%. What is the EUAC
of Type A? Type B? Which equipment should be selected?
Ans. P 129,850; P 126,060; Type B
Break-Even Analysis
SAMPLE PROBLEMS
Example 1: The cost of producing a small transistor radio set
consists of P 23.00 for labor and P 37.00 for materials. The fixed
charges in operating the plant are P 100,000 per month. The
variable cost is P 1.00 per set. The radio set can be sold for P 75.00
each. Determine how many sets must be produced per month to
break-even.
Ans. 7,143 sets
Example 2: A company has a production capacity of 500 units per
month and its fixed costs are P 250,000 a month. The variable
costs per unit are P 1,150 and each unit can be sold for P 2,000.
Economy measures are instituted to reduce the fixed costs by 10%
and the variable cost be 20%. (a) Determine the old break-even
point.
(b) Determine the new break-even point.
(c) What is the old monthly profit at 100% capacity?
(d) What is the new monthly profit at 100% capacity?
Ans. 294 units per month; 208 units per month; P 175,000; P 315,
000
Example 3: Two machines are being considered for the production
of a particular part for which there is a long term demand.
Machine A costs P 50,000 and is expected to last 3 years and have
a P 10,000 salvage value. Machine B costs P 75,000 and is expected
to last 6 years and have zero salvage value. Machine A can produce
a part in 18 seconds; Machine B requires only 12 seconds per part.
The out-of-pocket hourly cost of operation is P 38 for A and P 30
for B. Monthly maintenance costs are P 200 for A and P 220 for B.
If interest on invested capital is 25%, determine the number of
parts per year at which the machines are equally economical.
Ans. 29, 544 parts
Benefit-Cost Ratio
SAMPLE PROBLEMS
Example 1: A non-profit educational research organization, is
contemplating an investment of P 1,500,000 in grants to develop
new ways to teach people the rudiments of profession. The grants
would extend over a ten-year period and would achieve an
estimated savings of P 500,000 per year in professors’ salaries,
student tuition, and other expenses. The program would be an
addition to ongoing and planned activities, thus an estimated P
100,000 a year would have to be released from the other program
to support the educational research. A rate of return of 15% is
expected, calculate the B/C ratio. Is this a good program?
Ans. B/C = 1.34; It is a good program
Example 2: The National Government intends to build a dam and
hydroelectric project in the Cagayan Valley at a total cost of P
455,500,000. The project will be financed by soft foreign load with
a rate of interest of 5% per year. The annual cost for operation and
maintenance, distribution facilities and others would total P
15,100,000. Annual revenues and benefits are estimated to be P
56,500,000. If the structures are expected to last for 50 years, with
no salvage value, determine the B/C ratio of the project.
Ans. B/C = 1.41