CIVIL ENGINEERING REVIEW

ENGINEERING ECONOMICS
SIMPLE INTEREST
Interest - is the amount of money earned by a given capital. 6. In 1626 Peter Minuit convinced the Wappinger Indians to sell
Simple Interest - the interest earned by the principal is computed him Manhattan Island for Php 24. If the native Americans hat put
at the end of the investment period, and thus, it varies directly the Php 24 into a bank account paying 5% interest, how much
with time. would the investment worth in the year 2000, if interest were
compounded monthly. [ Php 3,052,428,614 ]
Types of Simple Interests:
(a) Ordinary Simple Interest - based on 30 days per month 7. Which of these four has the lowest effective rate of interest?
or 360 days per year (also known as the banker’s year). a. 12.35% compounded annually [12.35%]
𝒅 b. 11.90% compounded semi-annually [12.25%]
𝒕=
𝟑𝟔𝟎
c. 12.20% compounded quarterly [12.77%]
(b) Exact Simple Interest - based on 365 days per year or
𝒅 𝒅 d. 11.60% compounded monthly [12.24%]
366 days for a leap year. 𝒕 = ; 𝒕= (𝒍𝒆𝒂𝒑 𝒚𝒆𝒂𝒓)
𝟑𝟔𝟓 𝟑𝟔𝟔
8. The nominal interest rate is 4%. How much is my P10,000
Note: A year is a leap year if it is divisible by 4, provided it doesn’t worth in 10 years in a continuous compounded amount and
end with “00”. But if it is, it is only a leap year if divisible by 400. when will the amount double? [P14,918.25] & [17.33 yrs]
Where:
𝐼 = 𝑃𝑟𝑡 I = Interest
9. Money is deposited in a certain account for which the interest
P = Principal amount or present worth is compounded continuously. If the amount triples in 8 years,
𝐹 = 𝑃+𝐼 F = accumulated amount or future worth what is the annual percentage rate? [13.73%]
r = simple interest rate (per year). Sometimes
represented as "i"
t = number of interest period (in years). Sometimes CASH FLOW DIAGRAM
𝐹 = 𝑃(1 + 𝑟𝑡)
represented as "n" 10. A man opened an account P350,000 in the bank today at the
rate of 4% per annum (excluding taxes). After two years, he
1. How much is the interest that will be paid on a Php 25,000 load deposits another P400,000. In five years, he will withdraw
that was made on May 1, 2002 and repaid on August 1, 2005. P600,000. How much money does he have on his account on the
a. With ordinary simple interest at 8% per year. [6,500.00] 7th year? [P298,277.28]
b. With exact simple interest at 8% per year. [6,504.11]
11. An investment that cost 10,000 will give an annual revenue of
2. A price tag of P1,200 is payable in 60 days but if paid within 30 6,000 for the first three year, then 8,000 for the next four
days it will have a 3% discount. Find the rate of interest. [37.11%] succeeding years. If it has annual maintenance cost of 2,000, and
assuming an annual interest rate of 10%, how much money is in
3. Using simple interest, how many days must a P50,000 value the hands of the investor at the end of seventh year? [P27,743.51]
bearing 5% accumulate an interest of P3,000? [432 days]
ANNUITY
4. A deposit of P110,000 was made for 31 days. The net interest - A series of uniform payments made at equal interval of
after deducting the 20% withhold tax is P890.36. Find of return time.
annually. [11.75%] (a) Amortization - payment of a debt by a series of equal payment
at equal time intervals.
COMPOUND INTEREST (b) Sinking Fund - accumulate a certain amount in the future by
Compound Interest - the interest is computed every end of each depositing equal amounts at equal time intervals.
interest period (compounding period), and the interest earned (c) Ordinary Annuity - payments are made at the end of each
for that period is added to the principal (interest plus principal). period.
- After each period, the new capital will be (d) Annuity Due - payments are made at the start of each period.
the previous capital plus the interest. (e) Deferred Annuity - payment is deferred a certain number of
Where: period.
𝐹 = 𝑃(1 + 𝑖) F = accumulated amount or future worth (f) Perpetuity - annuity whose payments continue forever.
P = principal amount or present worth
𝑖 i = interest rate per interest period [ i = r/m ]
𝐹 = 𝑃(1 + )
𝑚 n = total number of interest period for n-years [ n=mt] (1 + 𝑖) − 1
r = nominal interest rate 𝐹=𝐴 𝐹=𝐴 (1 + 𝑖)
𝑃 = 𝐹(1 + 𝑖) m = number of interest period per year 𝑖
t = number of years of investment
𝐹 = 𝑃𝑒 Continuous compounding
𝐴[(1 + 𝑖) − 1]
𝑃 1 𝑃= 𝑃=𝐴 (1 + 𝑖)
= Single payment present - worth factor (1 + 𝑖) 𝑖
𝐹 (1 + 𝑖)
Types of Compound Interest Rate: 𝐴
𝑃= Perpetuity
(a) Effective - % per year compounded yearly 𝑖
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑎𝑟𝑛𝑒𝑑 𝑖𝑛 1 𝑦𝑒𝑎𝑟 Where:
𝐸𝑅 = F = accumulated amount or future worth
𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
𝑟 P = principal amount or present worth
𝐸𝑅 = 1 + −1 A = periodic amount, payment or investment
𝑚 i = interest rate per payment
𝐸𝑅 = 𝑒 − 1 → 𝑓𝑜𝑟 𝑐𝑜𝑛𝑡𝑖𝑛𝑢𝑜𝑢𝑠 𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑖𝑛𝑔 n = total number of interest period for
(b) Nominal - % per year compounded not yearly
𝑗 𝑗 𝑗 12. Determine the annual payment needed to retire
1+ = 1+ ; 𝑗 =𝑚 1+ −1 Php70,000,000 in bonds issued by a city to build a dam. The
𝑚 𝑚 𝑚
bonds must be repaid over a 50-year period, and they earn
interest at an annual rate of 6% compounded annually.
(c) Discounted - interest is discounted or deducted right
[P4,441,100.05]
away.
1 = (1 − 𝑑) (1 + 𝑖) 13. For their monthsary celebration, James wants to give
surprises to Fae and each would cost P5,000. But James will end
5. By the condition of a will the sum of P20,000 is left to a girl ro their BF-GF relationship after 7 years. How much should James
be held in trust fund by her guardian until it amounts to P50,000. have for his plan? Money accumulates 10% compounded
When will the girl receive the money if the fund is invested at 8% monthly. [P301,183.34]
computed quarterly? [11.57 years]

ENGR. AML
 CIVIL ENGINEERING REVIEW
ENGINEERING ECONOMICS
CAPITALIZED COST AND ANNUAL COST
14. A contractor buys a concrete mixer at P150,000 in cash. It can
also be acquired by installment to be paid in 6 years. Interest rate
is 6%, what is the amount of each payment is made at the
beginning of each year? [P28,777.73]

15. A man loans P187,400 from a bank with interest at 5%

compounded annually. He agrees to pay his obligations by paying
8 equal payments, the first being due at the end of 10 years. Find
the annual payments. [P44,980.56]

16. A father wants to set aside money for his 5-year-old son’s
future college education. Money can be deposited in bank account
that pays 8% per year, compounded annually. What equal
deposits should be made by the father, on his son’s 6th through
Capitalized Cost - is an application of perpetuity. In project or
17th birthdays, in order to provide P5,000 on the son’s 18th, 19th,
structure, it is the sum of the first cost (FC) and the worth of all
20th and 21st college. [P872.66]
future payments and replacement which is assumed to continue
forever.
17. Determine the present value of a perpetuity of P1,000
Annual Cost - Annual interest on investment plus Annual
payable annually, with the first payment due at the end of 6
Operation and maintenance plus depreciation cost.
years. Money is worth 6%. [P12,454.30]
21. From the following alternative based on 8% interest rate.
18. Find the value of perpetuity of P100 payable semi-annually if
Determine the annual cost of A and the capitalized cost of B.
money is worth 4% compounded quarterly. [P4,975.12]
Machine A B
ARITHMETIC GRADIENT First Cost P5,000 P10,000
Annual Maintenance P500 P200
End of useful-life
Salvage Value P600 P1,000
Usefule life 5 years 15 years

Capitalized Cost P20,625.11 P16,643.32

Annual Cost P1,650.01 P1,331.47

DEPRECIATION
𝐴[(1 + 𝑖) − 1] 𝐺 (1 + 𝑖) − 1 𝑛 Depreciation - refers to the decrease in the value of an asset due
𝑃= + −
(1 + 𝑖) 𝑖 𝑖 (1 + 𝑖) 𝑖 (1 + 𝑖) to usage of passage of time and may depreciate physically or
functionally.
𝑃=𝐴 (1 + 𝑖) +𝐺 (𝑛 − 1)(1 + 𝑖)
Time Dependent Methods:
A. Straight Line Depreciation Method
𝑃= 𝐴 + 𝐺(𝑛 − 1) (1 + 𝑖) 𝐹𝐶 − 𝑆𝑉 𝐷 𝑚𝐷
𝑠𝑙𝑜𝑝𝑒: 𝑑 = = ; 𝐷 = 𝑚𝑑 =
𝑛 𝑛 𝑛
19. A certain company expects the cost of maintenance for a
particular piece of heavy equipment to be 15,000 in year 1, B. Sum of the years Digit Method
25,000 in year 2, and amounts increasing by 10,000 through year
𝑛−𝑚+1 𝑚(2𝑛 − 𝑚 + 1)
8. At an interest rate of 10% per year, determine the present 𝑑 = 𝑛 (𝐹𝐶 − 𝑆𝑉) ; 𝐷 = (𝐹𝐶 − 𝑆𝑉)
worth of the maintenance cost. [P240,310.61] (𝑛 + 1) 𝑛(𝑛 + 1)
2

GEOMETRIC GRADIENT C. Declining Balance Method

𝑆𝑉
𝐵𝑉 = 𝐹𝐶(1 − 𝑘) ; 𝑆𝑉 = 𝐹𝐶(1 − 𝑘) ;𝐾 = 1 −
𝐹𝐶
Where: “K” is the Matheson’s Constant (Constant Percentage)

D. Double Declining Balance Method

2
𝐵𝑉 = 𝐹𝐶 1 − ; 𝑑 = 𝐵𝑉 − 𝐵𝑉
𝑛
𝐴 [1 − (1 + 𝑟) (1 + 𝑖) ]
𝑃= 𝑤ℎ𝑒𝑟𝑒 𝑖 ≠ 𝑟 E. Sinking Fund Method
𝑖−𝑟
𝐴 - An imaginary fund (d) “sinking fund” is invested yearly at a rate
𝑃= 𝑤ℎ𝑒𝑟𝑒 𝑖 = 𝑟 of “i" to amount to (FC-SV) at the end of the life of the property.
(1 + 𝑖)
(𝐹𝐶 − 𝑆𝑉)𝑖
𝑃=𝐴 (1 + 𝑟) (1 + 𝑖) 𝑑= ; 𝐵𝑉 = 𝐹𝐶 − 𝑑 (1 + 𝑖)
(1 + 𝑖) − 1

20. A mechanical contractor is trying to calculate the present Time Independent Methods:
worth of personnel salaries over the next five years. He has four A. Output Production Method
employees whose combined salaries thru the end of this year are 𝐷 𝐷
= 𝑐𝑜𝑠𝑡/𝑢𝑛𝑖𝑡
900,000php. If he expects to give each employee a raise of 5% 𝑚 𝑛
each year, compute the present worth of his employees' salaries
at an interest rate of 12% per year. [P3,546,045.85] B. Working Hours Method
𝐷 𝐷
= 𝑐𝑜𝑠𝑡/ℎ𝑜𝑢𝑟
𝑚 𝑛

ENGR. AML
 CIVIL ENGINEERING REVIEW
ENGINEERING ECONOMICS
SITUATION: A machine cost P1,800,000.00. It has a salvage value
of P300,000 at the end of 5 years. If money is worth 6% annually;
using the 5 types of depreciation.
22. Determine the depreciation “d” at the 3rd year.
23. Find the book value “BV” after 3 years.
Depreciation (d) at 3rd Book Value (BV) after 3
Method
year years
A 300,000 900,000
B 300,000 600,000
C 264,745.06 614,301.75
D 259,200.00 388,800.00
E 298,983.89 952,861.23

BONDS
A written contract to pay a certain redemption value, C, on a
specified redemption date and to pay equal dividends, D,
periodically.

(1 + 𝑖) − 1
𝑃(1 + 𝑖) = 𝐷 +𝐶 ; 𝐷 = 𝑟𝑓
𝑖
Where: r = bond rate or dividend rate
F = face or par value of bond
C = redemption value on a specified redemption date
i = investor’s rate of return
P = price of bond at a given interest i.

 A bond is said to be redeemable at par if the redemption

value, C, equals the face value, F. C=F
 A bond is said to be redeemable at Premium if C>F
 Redeemable at a Discount if C<F

24. A P100,000.00, 6% bond, pays dividend semi-annually and

will be redeemed at 110% on July1, 1999. Find its price if bought
on July 1, 1996, to yield an investor 4%, compounded semi-
annually. [P114,481.14]

BREAKEVEN ANALYSIS
- Is used to determine at how many products will the
total cost be equal to the net income. The point at which the
condition is met is the BREAKEVEN POINT.
𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡, 𝑪 = 𝒇 + 𝒂𝑵 ; 𝑡𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒, 𝑹 = 𝒑𝑵

Where: p = incremental value or selling price per unit

f = fixed cost which does not vary with production
a = incremental cost which is the cost to produced additional
item. Marginal cost or differential cost
N = breakeven point / quantity produced and sold for
breakeven.

Assuming there is no change in inventory, the breakeven point can be

found from:
𝑓
𝐶 = 𝑅 ; 𝑓 + 𝑎𝑁 = 𝑝𝑁 ; 𝑁=
𝑝−𝑎
SITUATION: The cost of producing a commodity consists of P35
per unit of labor, P42 per unit of materials, and P10 per unit for
other variable costs. Cost of utilities and rents amounts to
P850,000 per month. If the commodity is sold at P310 each;
25. What is the profit/loss if 3,369 units were sold? [P-98,713]

26. How many pieces must be produced each month for the
manufacturer to breakeven? [3,812 units]

ENGR. AML