ENGINEERING ECONOMICS PROBLEM SET

 

VIEW SOLUTION

You applied for a loan from a bank in the amount of P80,000. An interest rate of 14% or P11,200 was deducted from the loan and you were given a P68,800 check. Since you will be paying the loan after a year, what then will be the effective interest rate?

A fixed capital investment of P10,000,000 is required 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.  Determine the rate of return on the total investment and the minimum payout period if the annual profit is P2,500,000.

At a certain interest rate compounded quarterly, P1,000 will amount to P4,500 in 15 years. What is the amount at the end of 10 years?

A bond with a par value of P1,000 and a bond rate of 9% payable annually is to be redeemed at P1,050 at the end of 6 years from now. If it sold now, what should be the selling price to yield 8%?

On land worth P800,000, an investor constructs a building worth P3,000,000 containing a theater, a bank, stores, and offices. The owner estimates that the annual receipts from rentals will be P720,000, and annual expenses to cover taxes, insurance and maintenance of the building will be P80,000. He also estimates that the land can be sold for P1,200,000, the building for P2,000,000 at the end of 20 years. If his money is now earning 15% before taxes, will this property earn enough for the investment to be justified? Use AW method.

A machine is purchased on the basis of guaranteed performance. However, initial tests indicate that the operating cost will be P500 more per year than guaranteed. If the expected life is 25 years and money is worth 10%, what deduction from the purchase price would compensate the buyer for the additional operating cost?

How much money would you have to deposit for five consecutive years starting one year from now if you want to be able to withdraw P100,000 fifteen (15) years from now? Assume the interest is 15% compounded annually. 

A farmer wants to buy a new combine rather than hire a custom harvester. The total fixed costs for the desired combine are ₱ 21,270 per year. The variable costs (not counting the operator's labor) are ₱ 8.75 per hour. The farmer can harvest 5 acres per hour. The custom harvester charges ₱16.00 per acre. How many acres must be harvested per year to break-even? 

What is the principal amount if the principal plus interest at the end of 3 years is P 15,000 for a simple interest of 20% per annum? 

How long will it take the money to triple itself if invested at 8% compounded annually? What if it is compounded quarterly?

How much can be paid for a ₱5,000, 10% bond, with interest paid semi-annually, if the bond matures 12 years hence? Assume that the purchaser will be satisfied with 8% nominal interest compounded semi-annually. 

A one-bagger concrete mixer can be purchased with a down payment of P8,000 and equal installments of P600 each paid at the end of every month for the next 12 months. If money is worth 12% compounded monthly, determine the equivalent cash price of the mixer.

An electrical appliance manufacturer has fixed costs of P80M per year and its output capacity is 100,000 appliances per year. The variable cost is P1,600 per unit, and the product sells for P3,600 per unit. What is the manufacturer’s breakeven point?

What annual rate of simple interest is earned by an investment of P28,000 if it accumulates P3,552.50 in interest after twenty-one months?

A company produces circuit boards that are used to update computer equipment. The fixed cost is P3.15M per month and the variable cost is P3,975 per circuit board. The selling price per unit is p=11,250 – 1.5D. Maximum output of the plant is 6,000 units per month. What demand will maximize the profit for this product? 

A proposed project will require an initial investment of P50,000 and is estimated to have year-end revenues and costs as follows:

An additional investment of 25,000 will be required at the end of the second year. The project would terminate at the end of the 5th year, and the assets are estimated to have salvage value of 30,000 at that time. What is the IRR for this project?

An agricultural engineer estimated that the purchase of an automated tiller can save a farmer P150,000 a year in a labor cost. The tiller has an expected life of 5 years and no salvage value. If the farmer must earn a 20% annual return on such investment, at what amount he should spend to justify the purchase of the tiller? If the tiller was purchased at 448,590 and depreciated by double-declining balance method, what is the depreciation charge at the end of the 3rd year?

The barangay council of remote village was given some amount of money by the national government to build a structure that will last 30 years. Estimates of the annual costs and revenues of various structures are as follows:

A salvage value equal to 20% of the first cost is expected for each structure. If the interest rate is 12% which structure should the barangay council choose?

What is the value of the interest factor needed to find the equivalent at time 0 of P155,000 occurring 7 years from now when the interest rate is 9% per year compounded yearly?

In a given month, a versatile machine called “Alien” is used to make 400 units of R 60% of the time. For the remaining hours that “Alien” is in use, 400 units of another product S are made. An overhead charge of P80,000 per month applies to be allocated using machine hours. What is the total cost of making R in a month if labor and materials cost for R and S are given in the table below:

What is the value of the interest factor needed to find a series of equal revenues that must be received every year for 12 years to realize a return of 25% from an initial investment?

A small manufacturer of a car accessory has fixed costs of P5M per year and its maximum output capacity is 100,000 units per year. The variable cost is P1,000 per unit and the product sells for P1,800 per unit. What is the economic breakeven point for the company?   

If you invest P1,500,000 now in a house and lot, how much must you rent your property per month for 20 years if you want an annual return of 20% on your investment?

How much money will be accumulated in 3 years if a person makes a monthly deposit of P2,000 every month up to the 3rd year when the account pays interest of 1% per month?

Ferdinand Shipping Company bought a tugboat for P750,000. The boat is expected to last for 5 years, after which it could be sold for 120,000. The following revenues and expenses are expected for the first operating year. Revenue = P2,000,000; Expenses = P840,000, Depreciation = 40,000. If the company is taxed at a rate of 30%, what is the net income at the end of the first year?

A machine that costs P100,000 when new has a lifetime of 15 years and a salvage value equal to 20% of its original cost. If the interest rate is 10% compounded annually, what is the capital recovery of the machine? 

The Alpha Machinery Corp. had to put up for sale a certain machinery.  Two bidders have the following proposals:

Bidder “A” offers 5M payable 20% downpayment, the balance payable 500,000 annually for 8 years.

Bidder “B” offers 4.5M 1M downpayment, the balance payable 250,000 semi-annually for 7 years.

Which bid is more beneficial to AMC, if money is worth 10% effective?

A company imports a 30 hp. sand mill costing 520,000. Bank charges, brokerage, etc, costs 10,000. Installation costs were 40,000. Other incidental expenses amounted to 25,000. Salvage value of the mill is estimated to be 75,000 after 20 years. Find the book value of the mill using SLM, at the end of:

a) 10 years  

b) 15 years

A man wishes to purchase a car with a total cost of 450,000. He made a down payment of 50,000 and the balance payable in 24 monthly installments. If the effective interest rate is 12% for each year computed on the total balance to be paid by installment. How much would each installment payment be?

Suppose you are earning 12,000 a month and you can only afford to buy a car which will require a downpayment of 10,000 and monthly amortization of not more than 30% of your monthly salary.

What would be the maximum cash value of a car you can purchase if the seller will agree to a downpayment of 10,000 and the balance payable in 4 years at 12% compounded monthly. The first payment will be due at the end of the first month.

Compute for the number of blocks an ice plant must be able to sell per month to break even based on the following data:

A manufacturing firm purchased a machine worth 500,000 which is estimated to have a salvage value of 50,000 at the end of its 10 year economic life. How much yearly deposit must the company deposit in a sinking fund that will pay 18% interest, compounded yearly, to accumulate the needed fund to purchase a new machine at the end of the 10th year if a new machine will cost 75% more by that time?

Your father purchased a townhouse with a cash price of 1.5M. He was able to negotiate with the seller to allow him to pay only a downpayment of 20% and the balance payable in equal 60 end of the monthly installment at 1% interest per month. On the day he paid the 30th installment, he decided to pay the remaining balance. How much is the monthly payment and what is the remaining balance that he paid?

A company has offered a supervisor a yearly gratuity pay of 20,000 for 10 years for having been loyal, trustworthy and efficient. The first payment is to be made one year after the retirement. The supervisor, instead, requested that he be paid a lump sum on the date of his retirement less interest that the company would have earned if the gratuity is to be paid on the yearly basis. If interest is 15%, what is the equivalent lump sum that he could get? 

The initial cost of a processing equipment including its installation is 500,000. The BIR approved life of this equipment is 10 years for depreciation. The estimated salvage value is 40,000, and the cost of dismantling is estimated to be 15,000.

a)  Using straight-line method, what is the annual depreciation charge?

b)  What is the book value of the equipment at the end of 6 years?

You were granted a loan of 25,000 by your employee with an interest of 6% for 6 months on the principal collected in advance. Your employee would accept a promissory note for 25,000 non-interest for 180 days. If discounted at once, find the proceeds on the note.