Engineering Economy and Accounting

PROBLEMS
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PROBLEMS..PROBLEMS..PROBLEMS..PROBLEMS..
Present Economy
1. An electrical contractor has a job which should
be completed in 100 days. At present, he has
80 men on the job and it is estimated that they
will finish the work in 130 days. If of the 80
men, 50 are paid P190 a day, 25 at P220 a
day, and 5 at P300 a day and if for each day
beyond the original 100 days, the contractor
has to pay P2,000 liquidated damages: How
many more men should the contractor add so
he can complete the work on time?
ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD
EE543-B7 SAMONTE, DANDREB
Present Economy (solutions)
1. Let x = # of men to be added to complete
the job on time
Equating man-days, we have

(x+80)(100)=(80)(130)
x =24 men

Present Economy
2. A chief architect has a job which should be
completed in 100 days. At present, he has 80
contract workers and it is estimated that they will
complete the work in 130 days. If of the 80
contract workers, 50 are paid P190 a day, 25 at
P220 a day, and 5 at P300 a day and if for each
day beyond the original 100 days, the chief
architect has to pay P2,000 liquidated damages: If
the additional contract workers of 5 are paid P220
a day and the rest at P190 a day, would the chief
architect save money by employing more workers
and not paying the fine?

2. 80 contract workers on the job:
wages: (50)(190)(130) = 1235000
(25)(220)(130) = 0715000
(05)(300)(130) = 0195000
damages: (2000)(30) = 0060000
total expense = 2121000
104 contract workers on the job:

wages: (50+19)(190)(100) = 1311000
(25+5)(220)(100) = 0660000
(05)(300)(100) = 0150000
total expense = 2121000
savings by employing more contract workers:

=P2,205,000-P2,121,000
=P84,000

Present Economy
3. The monthly demand for ice cans being
manufactured by Mr. Cruz is 3,200 pieces.
With a manually operated guillotine, the unit
cutting cost is P25.00. An electrically operated
hydraulic guillotine was offered to Mr. Cruz at a
price of P275,000 and which will cut by 30%
the unit cutting cost. Disregarding the cost of
money, how many months will Mr. Cruz be
able to recover the cost of the machine if he
decides to buy now?
3. Manually Operated Guillotine
Monthly cutting cost = (3200)(25)= P80000
Electrically Operated Hydraulic Guillotine
Monthly cutting cost = (3200)(25)(1-.30)= P56000
Savings = 80000-56000= P24000 per
month
# of months to recover cost of machine = (275000 /
24000) = 11.5 months

Present Economy
4. The making of rivets holes in structural steel members can be
done by two methods. The first method consists of laying out the
position of the holes in the members and using a drill press
costing P30,000. the machinist is paid P35 per hour and he can
drill 30 holes per hour.
The second method makes use of a multiple-punch machine
costing P27,500. The punch operator is paid P30 an hour and he
can punch out 4 holes every minute. This method also requires an
expense of P1.75 per hole to set the machine.
a.) if all other costs are assumed equal, what is the total cost
for each machine for 6,000 holes, assuming the total cost of
each machine to be charged to these holes?

4. Drill press:
time to drill 6000 holes = 6000/30 = 200hours
wage of machinist = 35(200) = 07000
cost of drill press = 30000
total cost = 37000
multiple punch machine:
time to punch 6000 holes = 6000/(4*60) = 25hours
wage of machinist = 30(25) = 00750
cost of machine set = 10500
cost of machine = 27500
total cost = 38750
Present Economy
5. The volume of the raw material required for a certain
machine part is 2.02 cu cm. The finished volume is
1.05 cu cm. The time for machining each piece is 45
seconds for steel and 30 seconds for brass. The costs
of steel is P32.50 per kg and the value of steel scrap is
negligible. The cost of the brass is P60.00 per kg and
the value of brass scrap is P25.00 per kg. the wage of
the operator is P40.00 per hour and the overhead cost
of the machine is P50.00 per hour. The weight of steel
and brass are 0.0081 and 0.0088 kg per cu cm,
respectively. Which material will you recommend?

5. steel:
wt per pc = 2.02(.0081) = .01636kg
cost per piece:
material = (.01636)(32.50) = 0.5317
operator wage = (45/3,600)(40) = 0.5000
overhead = (45/3600)(50) = 0.6250
total cost P1.6567
brass:
wt per pc = 2.02(.0081) = .01636kg
cost per piece:
material = (.01778)(60) = 1.6680
operator wage = (30/3,600)(40) = 0.3333
overhead = (30/3,600)(50) = 0.4167
total cost P1.8168
less cost of scrap = (2.02-1.05)(.0088)(25) = .2134
total cost P1.6034
USE STEEL!

Present Economy
6. High carbon steel or alloy steel can be used for the set of tools on a
lathe. The tools must be sharpened periodically. Data for each are
as follows:
High carbon steel Alloy steel
Output per hour 60 pcs 70 pcs
Time between tool

4h 6h
grinds
Time required to
1h 1h
change tools
The wage of the lathe operator is P50.00 per hour, based on actual
working hours. The tool changer costs P60.00 per hour. Overhead
costs for the lathe are P45.00 per hour, including tool-change time.
A set of unsharpened high carbon steel costs P500 and can be
ground ten times; a set of unsharpened alloy steel costs P850 and
can be ground five times. Which type of steel should be used?

6. High carbon steel:
cycle time = 4+1=5hours
# of pcs per cycle = 4(60) = 240
cost per cycle:
operator = 50(4) = 200
tool changer =60(1) = 60
overhead = 45(5) = 225
unsharpened tool = 500/10 = 50
total = 535
cost per pc = 535/240 =2.23
Alloy steel:
cycle time = 6+1=7hours
# of pcs per cycle = 6(70) = 420
cost per cycle:
operator = 50(6) = 300
tool changer =60(1) = 60
overhead = 45(7) = 315
unsharpened tool = 850/5 = 170
total = 845
cost per pc = 845/420 =2.02
USE ALLOY STEEL!

Present Economy
7. The monthly demand of the Coca Cola
company for tanzans being manufactured by
Tanzan co. is 3,500 pieces. With a manually
operated machine, the unit cutting cost is
P20.00. An electrically operated machine was
offered to Tanzan co. at a price of P75,000
and which will cut by 15% the unit cutting cost.
Disregarding the cost of money, how many
months will Tanzan co. be able to recover the
cost of the machine if he decides to buy now?
7. Manually Operated Machine
Monthly cutting cost = (3500)(20)= P70000
Electrically Operated Machine
Monthly cutting cost = (3500)(20)(1-.15)= P59500
Savings = 70000-59500= P10500 per
month
# of months to recover cost of machine = (75000 /
10500) =7.1 months

Present Economy
8. Interactivity Works Inc. has an animation
project which should be completed in 100
days. At present, they have 80 animators on
the project and it is estimated that they will
finish the animation in 130 days. If of the 80
animators, 50 are paid P190 a day, 25 at P220
a day, and 5 at P300 a day and if for each day
beyond the original 100 days, the contractor
has to pay P2,000 as part of the terms and
condition: How many more men should the
contractor add so he can complete the work on
time?

8. Let x = # of animators to be added to
complete the job on time
Equating animators-days, we have

(x+80)(100)=(80)(130)
x =24 animators

Present Economy
9. What is the selling price of a portable
computer if it was bought for 80,000.00
and the seller wishes to earn 12,000.00
but gave a discount of 1,000.00?

9. Selling Price=Capital+Profit-Discount
S.P.=80000+12000-1000
S.P.=Php 91,000.00

Present Economy
10. What will be the discount rate of a digital
camera which originally cost 30,000.00
and the seller gave 500.00 discount
price?

10. d%=Discount/Selling Price
d%=500.00/30,000.00
d%=0.01667x100
d%=1.67%

Simple interest
1. Determine the ordinary simple interest on
P700 for 8 months and 15 days if the
rate of interest is 15%.

Simple Interest (solutions)
1. Solution:
Number of days = (8)(30) + 15 = 255 days
I = Pni = (P700)(255/360)(0.15)
= P74.38

Simple interest
2. Determine the exact simple interest on
P500 for the period from January 10 to
October 28, 1996 at 16%.

2. Solution:
Jan. 10 – 31 = 21 (excluding Jan. 10)
February = 29
March = 31
April = 30
May = 31
June = 30
July = 31
August = 31
September = 30
October = 28 (including Oct. 28)
292 days
292
Exact simple interest = P500 x 366 x 0.16  P63.83

Simple interest
3. What will be the future worth of money
after 14 months, if a sum of P10,000 is
invested today at a simple interest rate of
12% per year?

3. Solution:
  14  
F  P1  ni  P10,0001   0.12  P11,400
  12  

Simple interest
4. What is the ordinary simple interest on
P343 for 3 months and 6 days if the rate
of interest is 2%?

Simple interest (solutions)
4. Solution:
Number of days = (3)(30) + 6 = 96 days
I = Pni = (P343)(96/360)(0.02)
= P1.30

Simple interest
5. What is the simple interest on P793.25
for the period from May 10 to October
28, 2006 at 5%?

5. Solution:
May 10 – 31 = 21 (excluding Jan. 10)
June = 30
July = 31
August = 31
September = 30
October = 28 (including Oct. 28)
171 days
171
Exact simple interest = P793.25 x x 0.05  P18.53
366
Simple interest
6. Determine the future worth of money
after 6 months, if a sum of P65,500 is
invested today at a simple interest rate of
13% per year?

6.
 6 
F  P1  ni  P65,5001   0.13  P69,757.5
  12  

Simple interest
7. What is the future amount of a P8,000.00
loan with P657.50 ordinary simple
interest?

7. P = loan = 8000
I = o.s.interest = 657.50
F=P+I
F = 8000 + 657.50
F = Php 8,657.50

Simple interest
8. Determine the present worth of money if
a sum of P116,768.00 was invested 6
years ago at a simple interest rate of
13% per year?

8. F  P1  ni
116768  P1  6 0.13
116768  1.78P
116768
P
1.78
P  65,600.00
Simple interest
9. At a simple interest rate of 10% per year,
a sum of P10,000 is invested today. How
many years will it take for the money to
grow to P18,000?

9. F  P (1  ni )
18000  10000[1  n(.10)]
18000  10000  [.10n(10000)]
18000  10000  1000n
8000
n
1000
n8
Simple interest
10. Mark deposits P5000 in the bank today,
the bank offers 10% interest rate per
year. After 9 years, Mark withdraws all
his money. How did his initial deposit
gained?

10. F  P (1  ni )
F  5000{1  [9(.10)]}
F  9,500.00
GAIN  F  P
GAIN  9,500.00  5,000.00
GAIN  4,500.00
Compound Interest
1. Find the nominal rate which if converted
quarterly could be used instead of 12%
compounded monthly. What is the
corresponding effective rate?

Compound Interest (solutions)
1. Let r = the unknown nominal rate
r 4
r %compundedquarterly  (1  )  1
4
.12 12
12%compoundedmonthly  (1  ) 1
12
r 4
(1  )  1  1( 0.01)12  1
4
r
1   (1.01)3  1.0303
4
r  0.1212or 12.12%compundedquarterly
Compound Interest
2. Find the amount at the end of two years
and seven months if P1000 is invested at
8% compounded quarterly using simple
interest for anytime less than a year
interest period.

2.
8%
ForCompoundInterest : i   2%, n  2( 4)  8
4
7
ForSimpleInterest : i  8%, n 
12
F1  P (1  i )n  1000(1  .02)8  1171.66
7
F2  F1(1  ni )  1171.66[1  (.08)]  1226.34
12

Compound Interest
3. A P2000 loan was originally made at 8%
simple interest for 4 years. At the end of
this period the loan was extended for 3
years, without the interest being paid, but
the new interest rate was made 10%
compounded semiannually. How much
should the borrower pay at the end of 7
years?

3.
F4  P (1  ni )  2000[1  4(.08)]  2640

F7  F4 (1  i )  2640(1  .05)  3537.86
n 6

Compound Interest
4. A P3500 loan was originally made at 5%
simple interest for 3 years. At the end of
this period the loan was extended for 2
years, without the interest being paid, but
the new interest rate was made 13%
compounded semiannually. How much
should the borrower pay at the end of 5
years?

4.
F4  P (1  ni )  3500[1  3(.05)]  4025

F7  F4 (1  i )  4025(1  .05)  4892.41
n 4

Compound Interest
5. The amount of P5,000.00 was deposited
in a bank earning an interest of 10% per
annum. What is the total amount at the
end of 20 years if the principal and
interest where not withdrawn during this
peroid.

5.
F  P (1  i ) n
F  5000(1  .10) 20
F  33,637.50
Compound Interest
6. What is the present worth of a future
payment of 19,457.25 to be made in 5
years with an interest of 15%
compounded annually?

6.
F
P
(1  i )n
19,457.25
P
(1  .15)5
P  9,673.69
Compound Interest
7. Determine the rate of interest
compounded annually which is the same
as the rate of interest of 18%
compounded quarterly.

7. ER1  ER 1
4
i 4
[1  i ]  1  [1  ]  1
1
4
.18 4
i  [1  ]  1 1 1
4
i  19.25%
Compound Interest
8. In how many years is required for
1000.00 to increase by 2500.00 if
interest at 5% compounded semi-
annually?

8. F  P (1  i )n
F
ln( )  2n ln(1  i )
P
3500 0.05
ln  2n ln(1  )
1000 2
3500
ln( )
n 1000
0.05
2 ln(1  )
2
n  25.37years
Compound Interest
9. How many years will 500,000.00 earn a
compound interest of 150,000.00 if the
interest rate is 3% compounded
quarterly?

9. F  P (1  i )n
F
ln  4n ln(1  i )
P
650000 0.03
ln  4n ln(1  )
500000 4
650000
ln( )
n 500000
0.03
4 ln(1  )
4
n  8.78years
Compound Interest
10. Dec borrows 20,000.00 for one year from
a friend at an interest rate of 2% per
month instead of taking a loan from a
bank at a rate of 24% per year. Compare
how much money Dec will save or lose
on the transaction.

10. FF  20000(1  2%)12
FF  25,364.84
FB  20000(1  24%) 1
FB  24,800.00
FF  FB
25,364.84  24,800.00
 564.84LessByBorrowingFromT heBank!
Annuity
1. What are the present worth and the
accumulated amount of a 10-year annuity
paying P10,000 at the end of each year,
with interest at 15% compounded
annually?

Annuity (solutions)
1. A  10000; n  10; i  15%
P  A(P / A, i %, n )  10000(P / A,15%,10)
10
1  (1.15)
P  10000[ ]  50,188
.15
F  A(F / A, i %, n )  10000(F / P,15%,10)
(1.15)  1 10
F  10000[ ]  203,037
.15
Annuity
2. What is the present worth of P500
deposited at the end of every three
months for 6 years if the interest rate is
12% compounded semiannually?

Annuity (solutions)
2
2.  0.12 
(1  i )  1  1 
4
 1
 2 
1  i  (1.06) 0.5
i  0.0296or 2.96%
P  A( P / A,2.96%,24)
 1  (1  0.0296)  24 
 P500 
 0.0296 
 P8,504
Annuity
3. A businessman needs P50,000 for his
operations. One financial institution is
willing to lend him the money for one year
at 12.5% interest per annum (discounted).
Another lender is charging 14%, with the
principal and interest payable at the end of
one year. A third financer is willing to lend
him P50,000 payable in 12 equal monthly
installments of P4,600. which offer is best
for him?
Annuity (solutions)
3. 1 ST offer: 3rd offer:
d  12.5% P / A, i %,12 
P 50000

A 4600
d 0.125
i   14.29% / year 1  (1  i ) 12
1  d 1  0.125  10.8696
i
2nd offer: i  1%
1  (1  .01) 12
P50,000  11.2551
Effective rate = 14% .01
i  2%
0 1 1  (1  .02) 12
 10.5753
.02
x 0.3855

1% 0.6798
P50,000(1.14)
x  0.57
i  1%  0.57%  1.57% / month
The second offer is the BEST!
rate(effective )  (1  .0157)12  20.26%

Annuity
4. A chemical engineer wishes to set up a
special fund by making uniform
semiannual end-of-period deposits for 20
years. The fund is to provide P100,000 at
the end of each of the last five years of the
20-year period. If interest is 8%
compounded semiannually, what is the
required semiannual deposit to be made?

Annuity (solutions)
4.
8%
deposits    i   4%
2
withdrawal s    i  (1  .04)  1  .0816or8.16%
2
A( F / A,4%,40)  100000( F / A,8.16%,5)

A  P6,193.39

Annuity
5. Using a compound interest of 8%, find the
equivalent uniform annual cost for a
proposed machine that has a first cost of
P100,000 an estimated salvage value of
P20,000and an estimated economic life of
8 years. Annual maintenance will amount
to P2,000 a year and periodic overhaul
costing P6,000 each will occur at the end
of the second and fourth year.
Annuity (solutions)
5.
A( P / A,8%,8)  100000  2000( P / A,8%,8)  6000( P / F ,8%,2)
 6000( p / f ,8%,4)  20000( P / F ,8%,8)
A(5.7466)  100000  2000(5.7466)  6000(0.8573)
 6000(0.7350)  20000(0.5403)
A  P19,183

Annuity
6. A man purchased a house for P425,000. In the first
month that he owned the house, he spent P75,000 on
repairs and remodeling. Immediately after the house was
remodeled, he was offered P545,000 to sell the house.
After some consideration, he decided to keep the house
and have it rented for P4,500 per month starting two
months after the purchase. He collected rent for 15
months and then sold the house for P600,000. If the
interest rate was 1.5% per month, how much extra
money did he make or lose by not selling the house
immediately after if was remodeled?

Annuity (solutions)
6.
loss  545  4500( P / A,1.5%,15)  60000( P / F ,1.5%,15)

loss  545  4500(13.3432)  60000(.7999)
 P5,015

Annuity
7. Today, you invest P100,000 into a fund that
pays 25% interest compounded annually. Three
years later, you borrow P50,000 from a bank at
20% annual interest and invest in the fund. Two
years later, you withdraw enough money from
the fund to repay the bank load and all interest
due on it. Three years from this withdrawal you
start taking P20,000 per year out of the fund.
After five withdrawals, you withdraw the balance
in the fund. How much was withdrawn?
Annuity (solutions)
7.
Q  20000( F / A,25%,5)  50000(1.20) 2 ( F / P,25%,7)  100000( F / A,25%,5)  50000( F / P,25%,9)

Q  20000(8.2070)  50000(1.20) 2 (4.7684)  100000(14.5519)  50000(7.4506)
Q  P1,320,255

Annuity
8. If P10,000 is deposited each year for 9
years, how much annuity can a person get
annually from the bank every year for 8
years starting 1 year after the 9th deposit is
made? Cost of money is 14%.

Annuity (solutions)
8. Solution:
A( P / A,14%,8)( P / F ,14%,9)  10000( P / A,14%,9)
A(4.63886)(0.307501)  10000(4.94637)
A  P34,675
Another Solution:
A( P / A,14%,8)  10000( F / A,14%,9)
A(463886.)  10000(16.08535)
A  P34675

Annuity
9. A debt of P40,000 whose interest rate is
15% compounded semiannually, is to be
discharged by a series of 10 semiannual
payments, the first payment to be made 6
months after consummation of the loan.
The first 6 payments will be P6,000 each,
while the remaining 4 payments will be
equal and of such amount that the final
payment will liquidate the debt. What is the
amount of the last 4 payments?
Annuity (solutions)
9.
P 40000  P6000( P / A,7.5%,6)  A( P / A,7.5%,4)( P / F ,7.5%,6)

P 40000  P6000(4.6938)  A(3.3493)(0.6480)
A  P5454

Annuity
10. A man bought an equipment costing
P60,000 payable in 12 quarterly
payments, each installment payable at the
beginning of each period. The rate of
interest is 24% compounded quarterly.
What is the amount of each payment?

Annuity (solutions)
10.
24%
P  60000; n  12; i   8%
3
P  A(1  P / A,2%, n  1)
60000  A(1  P / A,8%,11)
60000  A(1  7.1390)
A  Php7,371.91
Gradient
1. A loan was to be amortized by a group of
four end-of-year payments forming an
ascending arithmetic progression. The
initial payment was to be P5,000 and the
difference between successive payments
was to be P400. But the loan was
renegotiated to provide for the payment
of equal rather than uniformly varying
sums. If the interest rate of the load was
15%, what was the annual payment?
Gradient (solutions)
A  5000;G  400; n  4; i  15%
1.
1  (1.15) 4
P / A,15%,4   2.8550
0.15
1 (1.15)4  1 1
P / G,15%,4  [  4][ 4
]  3.7865
.15 .15 (1.15)
P  A(P / A,15%,4)  G(P / G,15%,4)
P  (5000)(2.8550)  400(3.7865)
P  15,789.60
A' (P / A,15%4)  15789.60
A  5530.51
Gradient
2. Find the equivalent annual payment of the
following obligations at 20% interest.
End of Year Payment
1 P8,000
2 7,000
3 6,000
4 5,000

LetA  TheEquival entAnnualPayment
2. A  8000;G  1000; n  4; i  20%
1  (1.2) 4
P / A,20%,4   2.5887
0 .2
1 (1.2)4  1 1
P / G,20%,4  [  4][ 4
]  3.2986
.2 .2 (1.2)
P  PA  PG
P  A(P / A,20%,4)  G(P / G,20%,4)
P  (8000)(2.5887)  1000(3.2986)
P  17,411
A' (P / A,20%4)  17,411
A  6,725.77
Gradient
3. Samonte Shipment Co. wants to buy an
automatic crane machine to handle some
of its heavy shipments. The machine
could be purchased for 20,000 or may be
leased for 8,000 for the first year and
1,000 less every year now and then until
the end of the 4th year. If money is worth
15% is it advisable to rent or buy the
machine?
(1  i )n  1
P  A[ ]
3. (1  i ) i
n
(1  .15)4  1
P  8000[ ]
(1  .15) (.15)
4
P  22,839.83
GRADIENT :
1000 (1  .15)4  1 4
P [  ]
.15 (1  .15)4 (.15) (1  .15)4
P  3,786.44
subtract :
P  P( gradient )
22,839.83  3786.44
By Re nting  19,053.39
ItIsAdvisa bleTo Re ntTheMachine!
Gradient
4. A loan was to be amortized by the yuchengco
group end-of-year payments forming an
ascending arithmetic progression. The initial
payment was to be P15,000 and the difference
between successive payments was to be P550.
But the loan was renegotiated to provide for the
payment of equal rather than uniformly varying
sums. If the interest rate of the load was 23%,
what was the annual payment?

4. A  15000;G  550; n  4; i  23%
1  (1.23) 4
P / A,23%,4   2.4483
0.23
1 (1.23)4  1 1
P / G,23%,4  [  4][ 4
]  3.0464
.23 .23 (1.23)
P  A(P / A,23%,4)  G(P / G,23%,4)
P  (15000)(2.4483)  550(3.0464)
P  16,677.97
A' (P / A,23%4)  16,677.97
A  1,677.97

Gradient
5. Saliba Manpower Services wants to buy
an automatic crane machine to handle
some of its heavy shipments. The
machine could be purchased for 120,000
or may be leased for P12,000 for the first
year and 1,500 less every year now and
then until the end of the 4th year. If money
is worth 12% is it advisable to rent or buy
the machine?
(1  i )n  1
P  A[ ]
5. (1  i ) i
n
(1  .23)4  1
P  12000[ ]
(1  .23) (.23)
4
P  29,379.26
GRADIENT :
1500 (1  .23)4  1 4
P [  ]
.23 (1  .23)4 (.23) (1  .23)4
P  4,569.66
subtract :
P  P( gradient )
29,379.26  4,569.66
By Re nting  24,809.60
ItIsAdvisa bleTo Re ntTheMachine!
Gradient
6. Find the equivalent annual payment of the
following obligations at 10% interest.
End of Year Payment
1 P4,000
2 3,000
3 2,000
4 1,000

LetA  TheEquival entAnnualPayment
6. A  4000;G  1000; n  4; i  10%
1  (1.1) 4
P / A,10%,4   3.17
0 .1
1 (1.1)4  1 1
P / G,10%,4  [  4][ 4
]  4.38
.1 .1 (1.1)
P  PA  PG
P  A(P / A,10%,4)  G(P / G,10%,4)
P  ( 4000)(3.17)  1000( 4.38)
P  17,060
A' (P / A,10%4)  17,060
A  6,374.77
Gradient
7. Suppose that certain end-of-year cash
flows are expected to be $1,000 for the
second year, $2,000 for the third year,
and $3,000 for the fourth year and that, if
interest is 15% per year, find the present
equivalent value at the beginning of the
first year.

7. P0  G(P / G,15%,4)
P0  1000(3.79)
P0  $3790.00

Gradient
8. Suppose that the geometric gradient
begins with $1,000 at the end of year one
and decreases by 20% per year after the
first year. Determine P, A, and F under
this condition.

8. 1000[1  (P / F ,25%,4)(F / P,20%,4)]
P
.25  ( .2)
P  2,222.22(.83222)
P  $1,849.38
A  1849.38( A / P,25%,4)
A  $783.03
F  1849.38(F / P,25%,4)
A  $4515.08

Gradient
9. For example no.8, find the uniform annual
equivalent value at the end of each of the
four years.

9. A  G( A / G,15%,4)
A  1000(1.3263)
A  P1,326.30
A  P0 ( A / P,15%,4)
A  3790(.3503)
A  P1,326.30
Gradient
10. Suppose that we have cash flows as
follows: End of Year
Cash flows
(P)
1 -5,000
2 -6,000
3 -7,000
4 -8,000
present equivalent @ I = 15% per year

10.
P0T  P0 A  P0G
P0T   A(P / A,15%,4)  G(P / G,15%,4)
P0T  5000(2.8550)  1000(3.79)
P0T  14,275  3,790
P0T  P18,065.00

Depreciation
1. An electronic balance costs P90,000 and
has an estimated salvage value of
P8,000 at the end of its 10 years life
time. What would be the book value after
3 years, using the Straight-line Method in
solving the depreciation?

Depreciation (solutions)
1. Co  P90,000
C L  P8,000
L  10
n3 C o CL 90000  8000
d   P8,200
L 10
D3  (n)(d )  (3)(8200)  P 24,600
C3  Co  D3  90000  24600  P65,400

Depreciation
2. A broadcasting corporation purchased an
equipment for P53,000 and paid P1,500
for freight and delivery charges to the job
site. The equipment has a normal life of
10 years with a trade-in value of P5,000
against the purchased of a new
equipment at the end of the life.
Determine the annual depreciation cost
by the sinking fund method. Assume
interest at 6.5% compounded annually.
2.
Co  53000  1500  P54500

CL  P5000
Co  C L 54500  5000 49500
d    P3668
F / A, i% L F / A,6.5%,10 13.3846

Depreciation
3. A firm brought an equipment for
P56,000. Other expenses including
installation amounted to P4,000. The
equipment is expected to have a life of
16 years with a salvage value of 10% of
the original cost. Determine the book
value at the end of 12 years by (a) the
straight line method and (b) sinking fund
method at 12% interest.
a)
3. C o  56000  4000  P60000
Co  CL 60000  6000
C L  P60000(0.10)  P6000 d   P3,375
L  16 L 16
n  12 D12  (d )(n)  3375(12)  P 40,500
i  12%
C12  Co  D12  60000  40500  P19,500
b)
Co  CL 60000  6000
d   P1,263
F / A,12%,16 42.7533
D12  d ( F / A,12%,12)  1263(24.1331)  P30,480
C12  Co  D12  60000  30480  P 29,520

Depreciation
4. A certain type of machine loses 10% of
its value each year. The machine costs
P2,000.00 originally. Make out a
schedule showing the yearly
depreciation, the total depreciation and
the book value at the end of each year
for 5 years.

4. Year Book Value at
beginning of year
Depreciation
during the year
Total depreciation at
the end of the year
Book value at the
end of the year
10%
1 2000 200 200 1800
2 1800 180 380 1620
3 1620 162 542 1458
4 1458 145 687.8 1312.2
5 1312.2 131.22 819.12 1180.98

Depreciation
5. Determine the rate of depreciation, the
total depreciation up to the end of the 8th
year and the book value at the end of 8
years for an asset that costs P15,000
new and has an estimated scrap value of
P2,000 at the end of 10 years by (a) the
declining balance method and (b) the
double declining balance method.

5. Co  P15,000 a)
CL  P 2,000 k  1 L
CL
 1  10
2000
 0.1825or18.25%
Co 15000
L  10
n8 C8  C 0(1  k )8  15000(1  .1825)8  P 2992
D8  Co  C8  15000  2992  P12,008
b)
2 2
Rate    0.2or 20%
L 20
8 8
 2  2
C8  Co 1    150001    P 2,517
 l  10 
D8  C0  C8  15000  2517  P12,483

Depreciation
6. A plant bought a calciner for P220,000
and used it for 10 years, the life span of
the equipment. What is the book value of
the calciner after 5 years of use?
Assume a scrap value of P20,000 for
straight line method; P22,000 for
textbook declining balance method and
20,000 for the double declining balance
method.
a)
6. Co  220000 C L  P 20000
L  10 n(Co  C L ) 5(220000  20000)
D5    P100,000
L 10
n5
C5  Co  D5  220000  100000  P120,000
b)
C L  P 22,000
n 5
C  L
 22000  10
C5  Co  L   220000   P69,570
 Co   220000 
c)
C L  P 20,000
5 5
 2  2
C5  Co 1    2200001    P72,090
 L  10 
Depreciation
7. A structure costs P12,000 new. It is
estimated to have a life of 5 years with a
salvage value at the end of life of
P1,000. Determine the book value at the
end of each year of life.

Co  CL  12,000  1000  P11,000
7. Year Year in
Reverse
Depreciation During the Year Book Value at the end of the
year
Order
1 5 (5/15)(11000)=3667 8333
2 4 (4/15)(11000)=2933 5400
3 3 (3/15)(11000)=2200 3200
4 2 (2/15)(11000)=1467 1733
5 1 (1/15)(11000)=733 1000
Sum of
Digits=15

Depreciation
8. A consortium of international
telecommunication companies contracted for
the purchase and installation of a fiber optic
cable linking two major cities at a total cost of
P960 million. This amount includes the freight
and installation charges estimated at 10% of
the above contract price. If the cable should be
depreciated over a period of 15 years with zero
salvage value: given the sinking fund deposit
factor of 0.0430 at 6% interest where n = 15,
what is the annual depreciation charge?

8.
C0  $960000000
CL  0
L  15
C0  C L
( A)d   (C0  C L )( A / F ,6%,15)  $96000000(0.0430)
F / A,6%,15
 $41,280,000

Depreciation
9. ABS-CBN company purchased machinery for
P100,000 on July 19, 1986. It is estimated that
it will have a useful life of 10 years; scrap value
of P4,000, production of 400,000 units and
working hours of 120,000.
The company uses the machinery for 14,000
hours in 1986 and 18,000 hours in 1987. The
machinery produces 36,000 units in 1986 and
44,000 units in 1987. Compute the
depreciation for 1987 using service-output
method.
9.
Co  P100,000
C L  P 4,00
L  10 years
T  400000units
H  120000hours
 Co  C L   100000  4000 
d80   Q80   44000  P10,560
 T   400000 

Depreciation
10. A machine costs P7,000 last 8 years and
has a salvage value at the end of life of
P350.00. Determine the depreciation
charge during the 4th year and the book
value at the end of 4 years by the SYD
method.

10. Co  P7,000
C L  P350
L8 8(8  1)
n4 Sum   36
2
d 4  (5 / 36)(7000  350)  P924
D4  (26 / 36)(7000  350)  P 4,803
C4  C0  D4  P7,000  P 4803  P 2,197

Bond
1. A 10-year $100 par value bond bearing a 10%
coupon rate payable semiannually and
redeemable for $105 is bought to yield 8%
convertible semiannually. Find the price of the
bond.

Bond (solutions)
1. P  Fran  C(1  i) -n
- 20
1 - (1.04)
P5  105(1.04) - 20
.04
P  115.87
Answer : 115.87

Bond
2. Two $1000 bonds redeemable at par at the end
of the same period are bought to yield annual
nominal rate 4%, convertible semi-annually.
One bond costs $1136.78 and has a coupon
rate 5% payable semiannually. The other bond
has a coupon rate of 2.5% payable
semiannually. Find the price of the second
bond.

Bond (solutions)
The first unknown variable is n, the number of coupon payments.
2. The par value and redemption value for both bonds is $1000: F1 =
C1 = F2 = C2 =$1000. The semiannual yield rate is i = 2%, the
coupon rates are r1 = 2.5%, r2 = 1.25%. The price of the first bond
is
n
Next, we calculate the price
P1  F1r 1an  C1(1  i )
of the second bond:
1  1.02
n
 10001.02
n
1136.78  25
P2  F2r2an  C2 1  i 
0.02 n
25
1.02n 
1136.78 -
0.02  12.5
1  1 . 02  40
 10001.02
 40
25 0.02
1000 -
0.02
n  40
P2  $794.83

Bond
3. Suppose you buy a $1000 par value bond
maturing at par in 10 years and paying annual
coupons at 4%, for a price to yield 8% effective.
You deposit the coupon payments in a bank
account paying 3% effective. What will be the
annual effective yield rate on the investment?

Bond (solutions)
3. First, we compute the price of the bond. We have F = C = 1000,
n = 10, r = 4%, i = 8%.
P  Fran  C 1  i 
n
1  1.08
10
 10001.02
10
 40
0.08
This is the investment at the end of the year. The investor will receive the amount
of $1000 at the end of 10 years, and will have the accumulated value A of the
coupon payments in the savings account:
A  Frs100.03  40
1.03  1
10
0.03
The investor’s yield on the transaction therefore is
1
A  1000 10
   1  7.14%
 P 
Answer : 7.14%
Bond
4. A $100 par value 12-year bond with semiannual
coupons at coupon rate 10% is selling for $110.
Find the annual effective yield rate, convertible
semiannually.

Bond (solutions)
4. The semiannual yield rate i satisfies the following equation:
1  1  i 
24
 1001  i 
 24
110  5
i
The solution is 4.32%. The nominal annual rate of interest,
convertible semiannually, therefore is 8.64%.
Answer: 8.64%

Bond
5. An investor buys a 5-year U.S. Treasury Note
with par value of $1000, paying semiannual
coupons with annual coupon rate of 6%, priced
to yield nominal annual rate of 7%, convertible
semi-annually. Immediately after the first
coupon payment, the annual yield rate,
convertible semiannually, goes up to 7.5% and
the investor sells the bond. What is the effective
annual rate of interest that the investor has
realized?
Bond (solutions)
5.
1  1.035
10
 10001.035
10
P0  30
0.035
1  1.0375
9
 10001.0375
9
P1  30
0.0375
2
 P1  Fr 
   1  3.19%
 P0 
Answer : 3.19%

Bond
6. For a certain period, a bond amortization
schedule shows that the amount of amortization
of premium is 5% and that the interest portion is
75% of the coupon payment. Find the amount
of the coupon.

Bond (solutions)
6. Since interest portion of the payment is 75%, the premium
amortization of $5 (which is the same thing as the principal
adjustment) is 25% of the coupon. Therefore the coupon amount
is
5
 20
0.25
Answer : 20

Bond
7. Determine the amount of interest you will
receive per period if you purchased a 5%
10,000 bond which matures in 20 years
with interest payable semi annually.

Bond (solutions)
7. V  P10,000
b  0.05
I  10,000
0.05
c2
2
Vb
I I  P 250.00
c

Bond
8. Dandreb wants to make a nominal 8% per
year compounded semi annually on bond
investment. How much he be willing to
pay for a 6% 10,000.00 bond that will
mature in 15 years and pays interest semi
annually?

Bond (solutions)
8. V  P10,000
b  0.06
I  10,000
0.06
c2
2
Vb
I I  P 300.00
c

Bond
9. What is the face value if you purchased a
6% bond which matures in 5 years with
interest of P75.00 payable quarterly?

Bond (solutions)
9. I  P 75.00
b  0.06
c4
V  75
4
Vb 0.06
I V  P 5,000.00
c
Ic
V 
b
Bond
10.What is the amount of interest you will
receive per period if you purchased a
10% 100,000 bond which matures in 20
years with interest payable bi monthly.

Bond (solutions)
10. V  P100,000
b  0.10
I  100,000
0.10
c6
6
Vb
I I  P1,666.67
c

• THANK YOU MA’AM VILLANUEVA!
• MERRY CHRISTMAS!
• HAPPY NEW YEAR! =)


Engineering Economy and Accounting

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Equating man-days, we have

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

104 contract workers on the job:

savings by employing more contract workers:

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

Output per hour 60 pcs 70 pcs

Time between tool

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

Equating animators-days, we have

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

F4  P (1  ni )  2000[1  4(.08)]  2640

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

F4  P (1  ni )  3500[1  3(.05)]  4025

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

A( F / A,4%,40)  100000( F / A,8.16%,5)

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD

ENGINEERING ECONOMY AND ACCOUNTING SALIBA, HARROLD