Engineering Economy

Engineering Economy

1. Determine, which of the following is incorrect between lease and outright purchase of equipment?
a) Leasing fees needed working capital
b) Leasing reduces maintenance and administrative expenses
c) Leasing offers certain tax advantage
d) Leasing offers less flexibility with respect to technical obsolescence.
C
2. What do you call the replacement of the original cost of an investment?
a) Pay off
b) Return on investment
c) Breakeven d) Capital recovery
A
3. What is the least number of years needed triple a certain amount of money at 5 % per annum
compounded interest to the nearest year?
a) 20.5 years
b) 18.5 years
c) 22.5 years
d) 16.5 years
C
Solution:

F P 1 i
n

3P P1 i

3 1 0.05

ln 3
22.5 years
ln 1.05

4. The management of a certain company deposits P1,500.00 for each of its employees in a retirement
fund at the end of each year for the next 12 years. How much is each employees fund at the end of 12
years if it accumulates 8 % for the first 8 years and at 6 % for the last 4 years?
a) P27,705
b) P26,705
c) P24,705
d) P23,705
B

Solution:

A
1 i n 1 1500 1.08 8 1 P15,954.94
i
0.08

F8

F812 F8 1 i 15,954.941.06 P 20,142.74

n

F12

A
1 i n 1 1500 1.06 4 1 P6,561.92
i
0.06

F012 20,142.74 6,561.92 P 26,705.00

5. Fr. Bautista Expects to receive P50,000.00 in 6 years. How much is that money worth now
considering interest at 6 % compounded quarterly?
a) P39,477.20
b) P34,977.20
c) P37,497.20
d) P32,977.40
B

P
Solution:

F
i
1 n
m

mn

50,000.00
0.06
1

4 6

P34,977.20

6. Jovencio wants to make 14 % nominal interest compounded semi-annually on a bond investment.

How much should Jovencio be willing to pay now for a 12 % - P15,000 bond that will mature in 8
years and pays interest semi-annually?
a) P13,583.00
b) P14,583.00
c) P13,583.00
d) P12,585.00
A

Engineering Economy

Solution:

Let

12
6 % bond paying rate per semi - annual or per 6 months
2

d r redemption Pr ice 0.06 15,000 .00 P900 .00 semi - annual dividend

i
1 n
m

F d
in

Future Worth,

mn

Bond Face Value

0.14
1

F 900
0.14

Amount to be paid now,

2 8

15,000 .00 40,099 .25

i
1 n
m

mn

40 ,099 .25

0.14
1

2 8

P13,583 .00

Note: It is understood that redemption price is equal to the face value because redemption
price is not mentioned.
7. Determine the effective rate corresponding to 18 % compounded daily? Take 1 year = 365 days.
a) 17.72 %
b) 18.72 %
c) 19.72 %
d) 20.72 %
C

Solution:

i
ie 1 n
m

100 % 1 0.18
365

365

100 % 19.72 %

8. Determine the value of P20,000.00 in 5 years at 5 % compounded quarterly.

a) P26,540.75
b) P27,540.25
c) P25,640.75
C

Solution:

i
F P 1 n
m

mn

0.05

20,000 1

d) P24,250.75

4 5

P 25,640.75

9. If a Mechanical engineer borrowed money from his girl friend with simple interest of 12 %,
determine the present worth of P75,000.00, which is due at the end of 7 months.
a) P72,200.20
b) P70,200.20
c) P73,900.50
d) P70,093.5
D

Engineering Economy

P
Solution:

F
75,000.00

P70,093.5
1 i n 1 0.12 7
12

10. An Electrical Engineer obtained a loan of P50,000.00 at the rate of 8% compounded annually in order
to repair his mistress house. Mow much must the Electrical Engineer pay monthly to amortize the
loan within a period of ten years?
a) P605.20
b) P550.90
c) P505.90
d) P508.90
B
Solution: Converting the interest into effective monthly interest, one peso-one year analysis,
11 0.6 1 year 11 i 12 months
1

i 1.06 12 1 0.00486 or 0.486 %

N = mn = 12(10) = 120
A

i 1 i N P

1 i N 1

0.00486 1.00486 120 50 ,000 .00

1.00486 120 1

P550 .90

11. This is a form of business organization owned by one individual who is responsible for the firms
policies, owned all its assets, and is personally liable for its debts. How do you call this business
organization?
a) Partnership
b) Sole Proprietorship
c) Corporation
d) Cooperative
B
12. This cost item is common for both the fixed and operating cost of an enterprise. What is this cost
item?
a) Interest
b) Taxes
c) Depreciation
d) Supplies
A
13. What do you think is the length of time, usually in years, for cumulative net annual profit to equal the
investment?
a) Receivable turnover
b) Return of investment
c) Payback period
d) Price earning
ratio
C
14. What do you call the reduction in value and marketability due to competition from newest
products/model?
a) Depreciated cost
b) Fixed cost
c) Indirect cost
d)
Obsolescence
D
15. What do you think is the form of summary of assets, liabilities and net worth?
a) Production
b) Balance sheet
c) Break even point
d)
Balance
method
B
16. How do you call the worth of property that is equal to the original cost less depreciation?
a) Earning value
b) Scrap value
c) Book value
d) Face value

Engineering Economy

D
17. This type of interest is periodically added to the amount of loan so that subsequent interest is based on
the cumulative amount. How do you call this type of interest?
a) Compound interest
b) Interest rate
c) Simple interest
d) Sinking fund
A
18. What do you think is the output or sales at which income is insufficient to equal operating cost?
a) Break even point b) Depreciation
c) Investment
d) Cash flow
A
19. What is an estimate of assets net market value at the end of its estimated life?
a) Book value
b) Depreciation
c) Salvage value
d) Cash flow
C
20. What do you think is the lessening of the value of an asset due to a decrease in the quantity available
as a coal, oil and timber in forests?
a) Depletion
b) Amortization
c) Depreciation
d) Investment
A