ES Econ: Engineering Economics

Homework 1

Refer to the HW page on Canvas for the guideline and submission.

No. Problem Answer

1 What are the present worth and the accumulated amount of a P=P50,187.69;
10-year annuity paying P10,000 at the end of each year, with F=P203,037.18
interest at 15% compounded annually?
2 On the day his grandson was born, a man deposited a sufficient B. F=P89,252.93;
amount of money to a trust company so that the boy could C. P=P5,250.15
receive five annual payments of P10,000 each for his college
tuition fees, starting on his 18th birthday. Interest rate at 12%
per annum was to be paid on all amounts on deposit. There was
also a provision that the grandson could elect to withdraw no
annual payments and receive a single lump amount on his 25th
birthday.
A. Draw the cash flow diagram.
B. How much did the boy receive as a single payment?
C. How much did the grandfather deposit?
3 A certain property is being sold and the owner received two Bidder 1:
bids. The first bidder offered to pay P400,000 each year for 5 P1=400K+400K(P/A,0.2,4)
years, each payment is to be made at the beginning of each P1=P1,435,493.83
year. The second bidder offered to pay P240,000 in the first Bidder 2:
year; P360,000 in the second year; and P540,000 each year for P2=240K+360K(P/F,0.2,1)+
the next 3 years, all payments will be made at the beginning of 540K(P/A,0.2,3)(P/F,0.2,1)
each year. If the money is worth 20% compounded annually, P2=P1,487,916.67
which should the owner of the properly accept? Diff=P2-P1=P52,422.84
A. Draw the cash flow diagram. Choose bidder 2.
B. Solve for the present value of each proposal to
determine the best option.
4 An asphalt road requires no upkeep until the end of 2 years B. P=60K(P/F,0.14,2)+
when P60,000 will be needed for repairs. After this, P90,000 will 90K(P/A,0.14,5)(P/F,0.14,2)+
be needed for repairs at the end of each year for the next 5 120K(P/A,.014,5)(P/F,0.14,7)
years, then P120,000 at the end of each year for the next 5 P=P448,554.52
years. Money is worth 14% compounded annually. C. A=448,554.5156
A. Draw a cash flow diagram of the problem. (A/P,0.14,12)
B. How much is the needed at present to finance all the A=P79,245.82
required repairs in the next 12 years? D. F=448,554.5156
C. How much is the equivalent annualized cost for the 12- (F/P,0.14,12)
year period? F=P2,161,092.96
D. How much is the equivalent cost of repairs after 12
years?
5 A young woman, 22 years old, has just graduated from college. Age=30.7957+22
She accepts a good job and desires to establish her own =52.80 years old,
retirement fund. At the end of each year thereafter, she plan to or 52 years and 9.5 months
deposit P2,000 in a fund at 15% annual interest. old
No. Problem Answer
A. Draw the cash flow diagram.
B. How old will she be when the fund has an accumulated
value of P1 million?
6 A P5,000 loan was to be repaid with 8% simple annual interest. n=45.5 weeks
A total of P5,350 was paid. How long was the loan outstanding?
7 Determine the value of P in the following cash flow diagram at P=157.06
15% interest.

8 A company buys a machine of P12,000, which it agrees to pay Final payment=P7,779.58

for five equal annual payments, beginning one year after the
date of purchase, at an interest rate of 4% per annum.
Immediately after the second payment, the terms of agreement
are changed to allow the balance due to be paid off in a single
payment the next year. What is the final payment?
9 A realtor sold a land on August 31, 1997 for P150,000 to a buyer A=P14,019.5454
in which 20% down payment was made. The buyer took a 15- Mortgage
year mortgage on the property with an interest rate of 8% per balance=P80,565.27
annum. The buyer intends to pay off the mortgage owned in
yearly payments starting August 31, 1998.
A. Draw the cash flow diagram.
B. How much of the mortgage will still be owed after the
payment due on August 31, 2004 has been made?
10 What is the amount of 10 equal annual deposits that can P/G: P=P13,383.9237
provide five annual withdrawals, where a first withdrawal of A/F: A=P923.89
P3,000 is made at the end of year 11 and subsequent
withdrawals increase at the rate of 6% per year over the
previous year’s, if the interest rate is 8% compounded annually?