Looks Fam Econ 4

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An inheritance of $250,000 is invested at 9%, compounded 1 point

monthly. If $2500 is withdrawn

at the end of each month, how long will it be until the

account balance is $0?

157 months

186 months

168 months

175 months

A lottery prize worth $1,200,000 is awarded in payments 1 point

of $10,000 at the beginning of each

month for 10 years. Suppose money is worth 7.8%,

compounded monthly. What is the real

value of the prize?

$836,483.55

$836,843.55

$863,843.55

$863,483.55
What is the present value of an annuity of $1500 payable 1 point
at the end of each 6-month period

for 2 years if money is worth 8%, compounded

semiannually?

$5333.83

$5222.82

$5444.84

$5111.81

Crystal Lake Village is building a sewage treatment 1 point

facility that has a 35-year design life. This facility
includes a pump that costs $13,000 and that will last 7
years. The pump has no salvage value, and its energy
costs are included with other energy costs. If i = 8%,
find the EAC for the series of five pumps.

$4297

$4792

$2947

$2497
A company establishes a sinking fund to discharge a debt 1 point
of $300,000 due in 5 years by

making equal semiannual deposits, the first due in 6

months. If the deposits are placed in an

account that pays 6%, compounded semiannually, what is

the size of the deposits?

$25,169.15

$26,169.15

$23,169.15

$24,169.15

Suppose a company wants to have $450,000 after 2 1 point

1/2 years to modernize its production equipment. How
much of each previous quarter’s profits should be
deposited at the beginning of the current quarter to
reach this goal, if the company’s investment earns
6.8%, compounded quarterly?

$40,467.39

$40,767.39

$40,967.39

$40,667.39
A telephone company purchased a microwave radio 1 point
equipment for P6M.  If the equipment shall be
depreciated over a period of 8 yrs. with a salvage value
of 5% of the cost of the equipment, determine the worth
of the equipment on the 4th year after deducting
depreciation charges using MARCS Method.

1.952 M

2.160 M

2.215 M

3.128 M

Suppose a 15-year corporate bond has a maturity value of 1 point

$10,000 and coupons at 5% paid semiannually. If an
investor wants to earn a yield of 7.2% compounded
semiannually, what

should he or she pay for this bond?

$8101.99

$8001.99

$8301.99

$8201.99
Twin 1 invests $2000 at the end of each of 8 years in an 1 point
account that earns 10%, compounded

annually. After the initial 8 years, no additional

contributions are made, but the investment continues to
earn 10%, compounded annually, for 36 more years (until
twin 1 is age 65). How much does twin 1 have at age 65?

$808,028

$707,028

$505,028

$606,028

A machine costs P900,000 and will have a salvage value 1 point

of P450,000 when retired at the end of 5 yrs. Using the
sum of years digit method, what is the sum of the
depreciation cost in the first two years.

P260,000

P270,000

P250,000

P280,000
Peter borrows P10,000 from a bank on the first days of 1 point
the month. The interest is computed at the end of every
month on the amount he still owed at the rate of 1.5%
per month. Peter pays “x” pesos at the end of the first
month, another “x” at the end of the second month and
another “x” at the end of the 3rd month. Peter has
completely paid off the debt completely at the end of
the 3rd month, find the value of “x”.

3434

3246

2868

4268

An employee is earning P18,000 a month and he can only 1 point

afford to purchase a car, which will require a down
payment of P85,000 and a monthly amortization of 30% of
his monthly salary. What would be the maximum cash value
of a car he can purchase if the seller will agree to a
down payment of P85,000 and the balance payable in four
years at 18% per year payable on monthly basis. The
first payment will be due at the end of the first month.

149,460

348,400

268,830

240,940
A telephone company purchased a microwave equipment for 1 point
P6 million with a salvage value of P600,000 over a
period of 5 years and pay a lump sump of P400,000 for
the maintenance cost.  Minimum attractive rate of return
is 16% annually. Compute the annual cost of investment
of purchasing the microwave equipment.

1,599,874.99

1,344,097.25

1,698,256.03

1,867,374.41

The first cost of a machine is P1,800,000 with a salvage 1 point

value of P300,000 at the end of its life of 5 yrs.
Determine the total depreciation after 3 yrs. using
Constant Percentage Method.

P1,185,770

P1,040,660

P1,020,440

P1,282,660
A man wished to have P40,000 in a certain fund at the 1 point
end of 8 years that will pay a nominal rate of 6%
compounded continuously. What is the value of the
compound amount factor for this rate?

1.426

1.816

1.382

1.616

Suppose that a couple plans to set up an ordinary 1 point

annuity with a $100,000 inheritance they

received. What is the size of the quarterly payments

they will receive for the next 6 years

(while their children are in college) if the account

pays 7%, compounded quarterly?

$5338.57

$5138.57

$5438.57

$5238.57
A contractor has 50 men of the same capacity at work on 1 point
a job.  They can complete the job in 30 days, the
working day being 8 hours, but the contract expire in 20
days.  He decides to put 20 additional men.  If all the
men get P3.00 per day for a full or part day and if the
liquidated damages are P100 for every full or part day
he requires over his contract. How many days could he
finish the job.

15

22

20

18
The roof and ceiling of a commercial building will be 1 point
insulated by blown-in insulation, which

can be specified in 1-inch-depth increments. The minimum

amount of insulation that will meet

code is 6 inches, and the maximum amount that will fit

is 12 inches. What is the optimal depth of

this insulation?

The firm uses an interest rate of 8% and a 30-year

building life. The installed cost of

the insulation for the 10,000-square-foot ceiling is

$1.75 per cubic foot. Thicker insulation

will reduce the capacity of the HVAC equipment and the

annual heating and cooling costs.

With 6 inches of insulation, the annual bill for heat

gains and losses through the roof will be

$1200.

Insulation thickness 6" 7" 8" 9" 10" 11" 12"

HVAC first cost $10,000 9643 9375 9167 9000 8864 8750

best insulation thickness is 8 inches

best insulation thickness is 10 inches

best insulation thickness is 9 inches

best insulation thickness is 7inches

North Central Power & Light has just purchased a 1 point

generating unit that comes with a 2-year

warranty. Once the warranty expires, repair costs are

expected to average $3500 per year. Find the EAC for the
repair costs over the 15-year life of the generating
unit. The interest rate is 7%.

$2805

$2505

$2705

$2605
The communications system for Conglomerate Engineering 1 point
cost $50,000 four years ago. Its current salvage value
is $26,000, which will decline as follows over the next
4 years: $20,000, $16,250, $14,000, and $12,500. The O&M
costs will be $6000 this year, and these costs
will increase by $2000 per year. At Conglomerate’s
interest rate of 10%, the best challenger has an EAC of
$14,200. When should the communications system be
replaced?

3.8 years

the communications system should not be replaced yet

4.2 years

3 years

A businessman wishes to earn 7% on his capital after 1 point

payment of taxes. If the income from an available
investment will be taxed at an average rate of 42% what
minimum rate of return before payment of taxes must the
investment offer to be justified?

13.6%

11.4%

12.1%

10.3%
Richard Lloyd deposits $200 at the end of each quarter 1 point
in an account that pays 4%, compounded quarterly. How
much money will he have in his account in 2 ¼ years?

$1873.71

1837.71

1783.17

1738.17

Mary Spaulding bought Wind-Gen Electric stock for 1 point

$6125.00. After 6 months, the value of her shares had
risen by $138.00 and dividends totaling $144.14 had been
paid. Find the simple interest rate she earned on this
investment if she sold the stock at the end of the 6
months.

9.2%

8.6%

6.8%

7.4%

A broadcasting corporation was formed duly approved by 1 point

the Securities and Exchange office has a working capital
of P20 M and a fixed capital of P80 M. Annual
depreciation amounts to P5 M and expected annual profit
is P16 M. Determine the recovery period in years.

3.8

6.25

5.42

7.25
The first cost of a machine is P1,800,000 with a salvage 1 point
value of P300,000 at the end of its life of 5 yrs.
Determine the total depreciation after 3 yrs. using Sum
of Years Digit Method.

P1,200,000

P1,000,000

P1,300,000

P1,100,000

An equipment installation job of Diego Construction in 1 point

the completion stage can be completed in 40 days of 8
hrs. per day of 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. If
the liquidated damages P20,000 per day of delay, and the
men are paid P580 per day, compute the total cost if he
will add 10 more men to finish the job.

P848,000

P968,000

P488,000

P100,000
If money is inverted at a nominal rate of interest of 8% 1 point
for a period of 4 yrs., what is the value of the
compound amount factor if it is compounded continuously?

1.413

1.288

1.377

1.142

For 40 years, Wishbone Hill has been notorious for the 1 point
accidents that have occurred there. Railings, signs,
wider shoulders, etc. have only managed to keep the
increasing level of traffic from increasing the rate of
accidents. The highway department uses an interest rate
of 6% and a study period of 40 years. What is the EAC
for building another two-lane road to separate the
traffic by direction?

Purchasing the right-of-way is expected to cost $15M,

and construction is expected to cost $60M. Snowplowing,
painting, repair of guardrails, and periodic pavement
work is expected to cost $3M per year.

$7.99M

$6.99M

$8.99M

$9.99M
A construction equipment is badly needed for a certain 1 point
project so as to shorten the time of completion of the
project.  The equipment cost P1.2 million and has a life
of 5 yrs. with a salvage value of P200,000 at the end of
its life.  This machine can be bought with money
borrowed at an interest rate of 20% per annum.  Annual
operating cost is P10,000. Find the annual investment
cost of using the equipment.

370,854

396,789

378,394

384,380

A machine was purchased at an original cost of 1 point

P400,000.00 with a salvage value of P20,000.00.  Life of
this machine is expected to last for 6 years.  It was
used for 4000 hrs. in the first year, 6000 hrs. in the
second year and 8000 hrs. on the third year.  The
machine is expected to last for 3800 hours in the period
of 6 years. Which of the following gives the
depreciation at the end of the second year.

70,000

50,000

60,000

40,000
A new landfill site is being considered. It would save 1 point
the citizens of Shady Acres $250,000 per year in the
fees they pay a private firm for garbage pickup. The
citizens who live near the road to the landfill site,
and especially those who live closest to the site, are
not supportive. A local university economist has
estimated the disbenefits of truck traffic, noise, and
odor to be $120,000 per year. The new landfill will cost
$2.4 million, and it will last 40 years. Shady Acres
uses an interest rate of 6%. Calculate the benefit/cost
ratio using equivalent annual measures.

1.518

0.518

1.815

0.815

Golden Valley Manufacturing sponsors a student loan 1 point

program for the children of employees. No interest is
charged until graduation, and then the interest rate is
5%. Assume that George borrows $8000 per year at the
beginnings of years 1 through 4 and that he graduates at
the end of year 4. If equal annual payments are made at
the ends of years 5 through 9, what is the internal rate
of return for George’s loan? Is this attractive to
George?

2.66%, yes

3.99%, yes

3.99%, no

2.66%, no
Suppose a lottery prize of $50,000 is invested by a 1 point
couple for future use as their child’s college

fund. The family plans to use the money as 8 semiannual

payments at the end of each

6-month period after payments are deferred for 10 years.

How much would each payment

be if the money can be invested at 8.6% compounded

semiannually?

$15,451.26

$17,451.26

$21,451.26

$18,451.26

George graduated in civil engineering 10 years ago, and 1 point

his mother and her two sisters are

ready to let him open a branch office of their firm in

another state. Their pattern is to own only one grader,
one Caterpillar tractor (cat), one loader, and two
tractor trailers for hauling at any time. If more
machinery is needed, they hire it, just as they hire all
dump trucks or belly dumps.

Use an interest rate of 10% and a study period of 30

years to find the EAC of the owned

equipment.

$352K

$238K

$358K

$235K
In 1940, the average value of a house is P290,000. In 1 point
1990, the average value of a house of the same model is
P7,910,000. What was the rate of inflation for the
house?

4.2%

5.2%

7.6%

6.8%

How much more will you earn if you invest $1000 for 5 1 point
years at 8% compounded continuously

instead of at 8% compounded quarterly?

$5.87

$7.58

$5.78

$7.85

Find the future value of an investment if $150 is 1 point

deposited at the beginning of each month for 9 years and
the interest rate is 7.2%, compounded monthly.

$25,836.59

$23,836.59

$22,836.59

$24,836.59
If $1000 is invested at 5.8% simple interest, how long 1 point
will it take to grow to $1100?

1.72 years

1.27 years

2.17 years

2.71 years

A machine costs P100,000 with a salvage value of P20,000 1 point

at the end of its life of 8 years. Which of the
following gives the depreciation at the 6th year using
sinking fund method if money is worth 6% annually.

8044.34

8463.68

8694.17

8082.88

A deferred annuity is purchased that will pay $10,000 1 point

per quarter for 15 years after being

deferred for 5 years. If money is worth 6% compounded

quarterly, what is the present value of this annuity?

$252,386.85

$256,386.85

$292,386.85

$296,386.85
Suppose a young couple such as Jim and Eden from our 1 point
Application Preview found three different investment
companies that offered college savings plans: (a) one at
10%  compounded annually, (b) another at 9.8% compounded
quarterly, and (c) a third at 9.65%

compounded continuously. Find the annual percentage

yield (APY) for each of these three

plans to discover which plan is best.

9.65% compounded continuously is best

9.8% compounded quarterly is best

You're the best!

10% compounded annually is best

Find the lump sum that one must invest in an annuity in 1 point
order to receive $1000 at the end

of each month for the next 16 years, if the annuity pays

9%, compounded monthly.

$101,372.77

$101,572.77

$101,972.77

$101,072.77
Assume that a light bulb has an average life of 22,000 1 point
hours; one-fifth of the bulbs fail at 20,000,

21,000, 22,000, 23,000, and 24,000 hours. The facility

operates every hour of the year, and the

bulbs are always on. Each bulb costs $3.50 to buy, $1.50
to install individually, and $.25 to install in block
replacement. At least 60% of the bulbs must be operating
for adequate light. The firm’s interest rate is 10%.
Compare block replacement at 21,000 hours with
individual replacement.

EAC(individual) = $2.44 and EAC(block) - $1.80 per bulb

EAC(individual) = $2.33 and EAC(block) - $1.90 per bulb

EAC(individual) = $2.33 and EAC(block) - $1.80 per bulb

EAC(individual) = $2.44 and EAC(block) - $1.90 per bulb

A small business invests $1000 at the end of each month 1 point

in an account that earns 6% compounded monthly. How long
will it take until the business has $100,000 toward the
purchase

of its own office building?

82 months

84 months

85 months

83 months
A fixed capital investment of P10,000,000 is required 1 point
for a proposed manufacturing plant and an estimated
working capital of P2,000,000.  Annual depreciation is
estimated to be 10% of the fixed capital investment. If
the annual profit is P2500000. what is the rate of
return?

18.18%

19.55%

17.95%

20.83%

A man bought a government bond which cost P1000 and will 1 point
pay P50 interest each year for 20 yrs. The bond will
mature at the end of 20 years and he will receive the
original P1000.  If there is 2% annual inflation during
this period, what rate of return will the investor
receive after considering the effect of inflation?

1.82%

2.41%

3.14%

2.94%
Suppose that a court settlement results in a $750,000 1 point
award. If this is invested at 9%,
compounded semiannually, how much will it provide at the
beginning of each half-year for a period of 7 years?

$60,205.97

$70,205.97

$50,205.97

$80,205.97

The National Monuments Commission is considering the 1 point

imposition of viewing fees for several monuments. At one
monument, these fees would bring in $800K for the first
year, and this should increase by $50K per year as the
number of tourists increases. If the government uses an
interest rate of 10% and perpetual life is assumed, what
is the EAW for the income stream?

$1.4M

$1.5M

$1.2M

$1.3M
A young couple wants to save $50,000 over the next 5 1 point
years and then to use this amount as

a down payment on a home. To reach this goal, how much

money must they deposit at the

end of each quarter in an account that earns interest at

a rate of 5%, compounded quarterly?

$2216.02

$2316.02

$2516.02

$2416.02

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