University of Cebu – Review Engineering Economics

child’s 18th, 19th, 20th, and 21st birthdays. How much is the lump sum
ANNUITY amount?
A. P35,941.73 C. P30,941.73
Present Worth of an Annuity B. P33,941.73 D. P25,941.73
𝐴[(1 + 𝑖)𝑛 − 1]
𝑃= 8. On the day his son was born, a father decided to establish a fund for
𝑖 (1 + 𝑖)𝑛 his son’s college education. The father wants the son to be able to
withdraw $4000 from the fund on his 18th birthday, again on his 19th
Future Worth of an Annuity birthday, again on his 20th birthday and again on his 21st birthday. If
𝐴[(1 + 𝑖)𝑛 − 1] the fund earns interest at 8½% per year, compounded annually, how
𝐹= much should the father deposit at the end of each year, up through
𝑖 the 17th year?
A. $308.16 B. $370.95 C. $355.98 D. $386.63
Present Worth of an Annuity Due
𝐴[(1 + 𝑖)𝑛−1 − 1] 9. A man loans P187,400 from a bank with interest at 5% compounded
𝑃= +𝐴 annually. He agrees to pay his obligations by paying 8 equal annual
𝑖 (1 + 𝑖)𝑛−1 payments, the first being due at the end of 10 years. Find the annual
payments.
Future Worth of an Annuity Due A. P44,982.04 C. P62,334.62
𝐴[(1 + 𝑖)𝑛+1 − 1] B. P56,143.03 D. P38,236.04
𝐹= −𝐴
𝑖 10. A series of year and payments extending over eight years are as
follows P10,000 for the first year, P20,000 for the second year,
Future Worth of Continuous Compounding P50,000 for the third year, and P40,000 for each from the fourth
𝐹 = 𝑃𝑒 𝑟𝑛 through 8th year. Find the equivalent annual worth of these payments
if the annual interest is 8%.
A. P44,800.00 C. P35,650.20
Present Worth of an Annuity compounded continuously B. P30,563.40 D. P33,563.90
𝐴(𝑒 𝑟 − 1)
𝑃= 11. To maintain its newly acquired equipment, the company need
1
1 − 𝑟𝑛 P40,000 per year for the first five years and P60,000 per year for the
𝑒 next five years. In addition, an amount of P140,000 would also be
needed at the end of the fifth and the eight years. At 6%, what is the
Future worth of an Annuity compounded continuously present worth of these costs?
𝐴(𝑒 𝑟𝑛 − 1) A. P689,214 C. P512,453
𝐹= B. P549,812 D. P586,425
𝑒𝑟 − 1
12. A house and lot can be acquired by a down payment of P500,000 and
1. Ms. Brown deposits $750 in a savings account at the beginning of a yearly payment of P100,000 at the end of each year for a period of
each year, starting now, for the next 10 years. If the bank pays 7% per 10 years, starting at the end of 5 years from the date of purchase. If
year, compounded annually, how much money will Ms. Brown have money is worth 14% compounded annually, what is the cash price of
accumulated by the end of the 10th year? the property?
A. $11,087.70 C. $12,567.60 A. P810,100 B. P808,836 C. P801,900 D. P805,902
B. $12,550.63 D. $13,009.11
13. A depth of P12,000 with an interest of 20% compounded quarterly is
2. How much must be deposited at 6% each year beginning on January to be amortized by equal semi-annual payments over the next 3
1, year 1, in order to accumulate P5,000 on the date of the last deposit, years, the first due in 6 months. Determine the semi-annual
January 1, year 6? payments.
A. P728.99 B. P742.09 C. P716.81 D. P702 A. P2,775.50 C. P2,590.04
B. P2,662.89 D. P2,409.78
3. A backpay certificate is offered for sale on which the yearly payments
are P996.00 partly principal and partly interest. There are 8 annual 14. A savings account earns interest at the rate of 6% per year,
payments still due, the first of these due one year from now. How compounded quarterly. How much money must initially be placed in
much should one pay for this note in order to get 5% interest, the account to provide for fifteen end-of-year withdrawals, if the first
compounded annually on the investment? withdrawal is $2000 and each subsequent withdrawal increases by
A. P6437.36 B. P7343.50 C. P6834.80 D. P6847.64 $350?
A. $34,662 B. $36,792 C. $32,117 D. $30,528
4. A man wishes to have P35,000 when he retires 15 years from now. If
he can expect to receive 4% annual interest, how much he set aside 15. The cost to maintain a new car is estimated to be P3750 the first year,
in each 15 equal annual beginning of year deposits? and to increase by P600 each year thereafter. How much money
A. P1704.60 B. P1801.23 C. P1680.71 D. P2103.42 should be set aside for maintenance, if the car is to be kept 6 years
and if the money which is set aside earns interest at the rate of 5%
5. A housewife bought a brand new washing machine costing P12,000 per year, compounded monthly?
if paid in cash. However, she can purchase it on installment basis to A. $26,108 B. $24,254 C. $29,950 D. $32,316
be paid within 5 years. If money is worth 8% compounded annually,
what is her yearly amortization if all payments are to be made at the 16. Maintenance cost of an equipment is P200,000 for 2 years, P40,000
beginning of each year? at the end of 4 years and P80,000 at the end of 8 years. Compute the
A. P2,617.65 B. P2,782.85 C. P2,890.13 D. P2,589.90 semi-annual amount that will be set aside for this equipment. Money
worth 10% compounded annually.
6. An annuity of P4,000 is paid annually which starts at the beginning of A. P7,425.72 B. P7,329.67 C. P7,245.89 D. P7,178.89
each period for 6 years at a rate of 6% compounded annually.
Compute the equivalent sum of the annuity at the end of the 10th year. 17. Find the present value in pesos, of a perpetuity of P15,000 payable
A. P30,174.81 C. P37,338.20 semi-annually if money is worth 8% compounded quarterly.
B. P42,388.11 D. P24,821.91 A. P372,537 B. P371,296 C. P373,767 D. P371,287
7. A parent on the day the child is born wishes to determine what lump 18. Eric borrows P100,000.00 at 10% effective annual interest. He must
sum would have to be paid into an account bearing interest at 5% pay back the loan over 30 years with uniform monthly payment due
compounded annually, in order to withdraw P20,000 each on the on the first day of each month. What does Eric pay each month?
Prepared by: ENGR. RONIE T. TARRIGA II, CE
University of Cebu – Review Engineering Economics

A. P838.86 B. P845.89 C. P850.12 D. P840.21

32. A person borrows $5000 for 3 years, to be repaid in 36 equal monthly
19. The ABD Company is building a new plant, whose equipment installments. The interest rate is 10% per year, compounded
maintenance costs are expected to be $500 the first year, $150 the continuously. How much money must be repaid at the end of each
second year, $200 the third year, $250 the fourth year, etc., increasing month?
by $50 per year through the 10th year. The plant is expected to have A. $116.96 B. $155.63 C. $161.43 D. $146.55
a 10-year life. Assuming the interest rate is 8%, compounded
annually, how much should the company plan to set aside now in 33. A bank offers its customers a Christmas Club account, in which they
order to pay for the maintenance? deposit $12.61 a week for 39 weeks, starting in mid-February. At the
A. $2340.20 B. $2113.51 C. $3156.67 D. $2145.12 end of 39 weeks (mid-November), each customer will have
accumulated $500, which can be withdrawn to pay for gifts and other
20. A nominal interest of 3% compounded continuously is given on the seasonal expenses. What is the nominal interest rate, assuming
account. What is the accumulated amount of P10,000 after 10 years? continuous compounding?
A. P13,610.10 C. P13,500.10 A. 4.52% B. 4.44% C. 4.97% D. 5.05%
B. P13,498.60 D. P13,439.16
34. A piece of machinery can be bought for P10000 cash or for P2000
21. A man wishes to have P40,000 in a certain fund at the end of 8 years. down and payments of P750 per year for 15 years. What is the annual
How much should he invest in a fund that will pay 6% compounded interest rate for the time payments?
continuously? A. 4.61% B. 3.81% C. 5.71% D. 11.0%
A. P24,751.34 C. P36,421.44
B. P28,864.36 D. P30,468.42 35. A service car whose cash price was P540,000 was bought with a down
payment of P162,000 and monthly interest of P10,874.29 for 5 years.
22. Compute the effective annual interest rate which is equivalent to 5% What was the rate of interest if compounded monthly?
nominal annual interest compounded continuously. A. 20% B. 24% C. 21% D. 23%
A. 5.13% B. 5.26% C. 4.94% D. 4.90%
36. At what nominal interest rate compounded quarterly will payments
23. Find the time required for a sum of money to triple itself at 5% per of P8,000 at the end of each 3 months for 5 years discharge all
annum compounded continuously. liabilities for a debtor who borrows P140,000 today?
A. 21.97 yrs B. 18.23 yrs C. 25.34 yrs D. 23.36 yrs A. 5.23% B. 6.12% C. 4.92% D. 7.36%

24. Compute the different in the future amount of P500 compounded 37. At what interest rate payable quarterly will payments of P5000 at the
annually at nominal rate of 5% and if it is compounded continuously beginning of each 3 months for 7 years discharge a depth of P125,000
for 5 years at the same rate. due immediately?
A. P3.87 B. P5.48 C. P4.21 D. P6.25 A. 5.66% B. 6.55% C. 4.33% D. 3.44%

25. Money is deposited in a certain account for which the interest is 38. An engineer is planning for a 15-year retirement. In order to
compounded continuously. If the balance doubles in 6 years, what is supplement his pension and offset the anticipated effects of inflation,
the annual percentage rate? he intends to withdraw $5000 at the end of the first year, and to
A. 11.55% B. 11.66% C. 11.77% D. 11.88% increase the withdrawal by $1000 at the end of each successive year.
How much money must the engineer have in his savings account at
26. P5000 is deposited each year into a saving bank account that pays 5% the start of his retirement, if money earns 6% per year, compounded
nominal interest, compounded continuously. How much will be the annually?
account at the end of 5 years? A. $116 603.10 C. $106 116.59
A. 24606.72 B. 21591.38 C. 27698.40 D. 219648.39 B. $110 824.65 D. $125 925.50

27. How much money must be deposited at the end of each year in a 39. Ms. Frank is planning for a 25-year retirement period and wishes to
savings account that pays 9% per year, compounded continuously, to withdraw a portion of her savings at the end of each year. She plans
have a total of $10000 at the end of 14 years? to withdraw $10 000 at the end of the first year, and then increase
A. $381.20 B. $402.50 C. $372.90 D. $394.40 the amount of the withdrawal by $1000 each year, to offset inflation.
How much money should she have in her savings account at the start
28. Mr. Smith is planning his retirement. He has decided that he will need of the retirement period, if the bank pays 9% per year, compounded
$12000 per year to live on, in addition to his other retirement income annually?
from Social Security and a private pension plan. How much money A. $134 521.3 C. $157 215.5
should he plan to have in the bank at the start of his retirement, if the B. $143 512.2 D. $175 152.3
bank pays 10% per year, compounded continuously, and if Mr. Smith
wants to make 12 annual withdrawals of $12000 each? 40. A new machine is expected to cost $6000 and have a life of 5 years.
A. $79734.22 C. $70304.44 Maintenance costs will be $1500 the first year, $1700 the second
B. $75912.55 D. $81052.33 year, $1900 the third year, $2100 the fourth year, and $2300 the fifth
year. To pay for the machine, how much should be budgeted and
29. Mrs. Carter deposits $100 in the bank at the end of each month. If the deposited in a fund that earns 10½% per year, compounded
bank pays 7% per year, compounded continuously, how much money annually?
will she have accumulated at the end of 5 years? A. $13 982.59 C. $14 952.59
A. $7213.07 B. $7403.57 C. $7163.56 D. $7823.15 B. $13 972.59 D. $12 962.59

30. A savings account earns interest at the rate of 6¾% per year, 41. A newly-acquired equipment requires an annual maintenance costs
compounded continuously. How much money must initially be of P10,000. If the annual maintenance cost is increased by 20% each
placed in the account to provide for 15 end-of-year withdrawals if the year every for 10 years, what is the estimated present worth of the
first withdrawal is $2000 and each subsequent withdrawal increases maintenance costs if money is worth 15%?
by $350? A. P105 712.33 C. P106 101.37
A. $38501.5 C. $36620.2 B. P107 490.12 D. P108 890.11
B. $32525.2 D. $34502.4
42. Engr. Lansang, believing that life begins at 40, decided to retire and
31. Ms. Brown deposits $1000 in the bank at the end of the first year, start enjoying life at age 40. He wishes to have upon his retirement
$1200 at the end of second year, etc., continuing to increase the the sum of P5,000,000. On his 21st birthday, he deposited a certain
amount by $200 a year, for 20 years. If the bank pays 7% per year, amount and increased his deposit by 15% each year until he will be
compounded continuously, how much money will have accumulated 40. If the money is deposited in a super savings account which earns
at the end of 20 years? 15% interest compounded annually, how much was his initial
A. $110 581 B. $103 193 C. $150 582 D. $125 029 deposit?
Prepared by: ENGR. RONIE T. TARRIGA II, CE
University of Cebu – Review Engineering Economics

A. P17 253.18 C. P17 672.77

B. P17 566.33 D. P17 490.21 DEPRECIATION
Book Value, BV
EUAC and CAPITAL RECOVERY 𝐵𝑉 = 𝐹𝐶 − 𝐷
43. A machine cost $40 000 to purchase and $10 000 per year to operate. ***all methods have the same formula for book value***
The machine has no salvage value, and a 10-year life. If i = 10% per
year, compounded annually, what is the equivalent uniform annual Straight Line Method
cost of the machine? Annual depreciation, d
A. $16,509.82 C. $6,509.82 𝐹𝐶 − 𝑆𝑉
B. $5,509.82 D. $12,886.95 𝑑=
𝑛
44. A machine that cost $30 000 new has an 8-year life and salvage value
equal to 10% of its original cost. The annual maintenance cost of this Total depreciation for “m” years, D
machine is $1000 the first year, with an increase of $200 each year 𝐹𝐶 − 𝑆𝑉
hereafter; the annual operating cost is $800 per year. Determine the 𝐷 = 𝑑𝑚 = ( )𝑚
𝑛
EUAC of this machine if the interest is 10% per year, compounded
annually.
Declining Balance Method
A. $7 271.83 B. $7 761.78 C. $8 052.55 D. $7 901.23
Annual rate of depreciation, k
45. An amortization of a depth is in a form of a gradient series of P5,000
on the first year, P4,500 on the second year, P4,000 on the third year,
𝑛 𝑆𝑉
𝑘 =1− √
P3,500 on the fourth year. What is the equivalent uniform periodic 𝐹𝐶
payment if interest is 5%?
A. P4 280.47 B. P4 378.17 C. P4 259.68 D. P4 325.12
Book Value, BV
46. A company must relocate on of its factories in three years. Equipment 𝐵𝑉 = 𝐹𝐶(1 − 𝑘)𝑚
for the loading dock is being considered for purchase. The original
cost P20,000, the salvage value of the equipment after three years is
Double Declining Balance Method
P8000. The company’s rate of return on the money is 10%. Determine
Annual rate of depreciation, k
the capital recovery rate per year.
A. P5,115 B. P4,946 C. P5,625 D. P4,805 2
𝑘=
𝑛
CAPITALIZED COST
Book Value, BV
Capitalized Cost, K 𝐵𝑉 = 𝐹𝐶(1 − 𝑘)𝑚
𝑂𝑀 (𝐹𝐶 − 𝑆𝑉)
𝐾 = 𝐹𝐶 + + Sum of the Years Digit Method
𝑖 (1 + 𝑖)𝑛 − 1
Annual depreciation, d
Annual Cost, A 𝑛−𝑚+1
(𝐹𝐶 − 𝑆𝑉)𝑖 𝑑 = (𝐹𝐶 − 𝑆𝑉) ( 𝑛 )
𝐴 = 𝐹𝐶𝑖 + 𝑂𝑀 + (𝑛 + 1)
(1 + 𝑖)𝑛 − 1 2

47. An item is purchased for P100,000. Annual cost is P18,000. Using an Total depreciation for “m” years, D
𝑚
interest rate of 8%, what is the capitalized cost of perpetual service?
A. P310,000 B. P315,000 C. P320,000 D. P325,000 𝐷 = ∑ 𝑑(𝑚)
1
48. At 6%, find the capitalized cost of a bridge whose cost is P250M and
life is 20 years, if the bridge must be partially rebuilt at a cost of
P100M at the end of each 20 years. Sinking Fund Method
A. P275.3M B. P265.5M C. P295.3M D. P282.1M Annual depreciation, d
(𝐹𝐶 − 𝑆𝑉) 𝑖
49. A company uses a type of truck which costs P2M, with life of 3 years 𝑑=
(1 + 𝑖)𝑛 − 1
and a final salvage value of P320,000. How much could the company
afford to pay for another type of truck for the same purpose, whose
life is 4 years with a final salvage value of P400,000, if money is worth Total depreciation for “m” years, D
4%? 𝑑[(1 + 𝑖)𝑚 − 1]
A. P2,805,120 C. P2,585,870 𝐷=
B. P2,718,480 D. P2,642,320 𝑖

50. Your company is planning to manufacture a new product which

requires a machine that the company does not now own. The cost of 52. An asset is purchased for P9,000. Its estimated economic life is 10
the machine is $10,000, its life is 4 years, and its salvage value is years after which it will be sold for P1,000. Find the depreciation in
$1000. With this machine, new profit from each product is $12. What the first three years using straight line method.
annual production makes the investment worthwhile? MARR is 10%. A. P2,400 B. P2,412.34 C. P2,250 D. P2,450
A. $2939.5 B. $2159.5 C. $3041.5 D. $2436.2
53. A machine has an initial cost of P50,000 and a salvage value of
51. A contractor can buy dump trucks for P800,000 each or rent them for P10,000 after 10 years. What is the straight line method depreciation
P1200 per truck per day. The truck has a salvage value of P100,000 rate as percentage of the initial cost?
at the end of its useful life of 5 years. The annual cost of maintenance A. 10% B. 12% C. 8% D. 9%
is P20,000. At 14% interest rate, determine the number of days per
year that a truck must be used to warrant its purchased. Use sinking 54. An engineer bought an equipment for P500,000. Other expenses,
fund method of depreciation. including installation, amounted to P30,000. At the end of its
A. 199 days B. 200 days C. 201 days D. 220 days estimated useful life of 10 years, the salvage value will be 10% of the

Prepared by: ENGR. RONIE T. TARRIGA II, CE

University of Cebu – Review Engineering Economics

first cost. Using the straight line method of depreciation, what is the
book value after 5 years?
A. P291,500 B. P281,500 C. P271,500 D. P301,500

55. A machine having a first cost of P60,000 will be retired at the end of
8 years. Depreciation cost is computed using a constant percentage
of the declining book value. What is the total cost of depreciation, in
pesos, up to the time the machine is retired if the annual rate of
depreciation is 28.72%?
A. 56 000 B. 57 000 C. 58 000 D. 59 000

56. A machine costing P720 000 is estimated to have a life of 10 years. If

the annual rate of depreciation is 25%, determine the total
depreciation using a constant percentage of the declining balance
method.
A. P679 454 B. P532 826 C. P432 725 D. 764 243

57. A machine costing P45 000 is estimated to have a book value of P4

350 when retired at the end of 6 years. Depreciation cost is computed
using a constant percentage of the declining book value. What is the
annual rate of depreciation in percent?
A. 32.5% B. 32.25% C. 32% D. 32.75%

58. A telephone company purchased a microwave radio equipment for

P6M. Freight and installation charges amounted 3% of the purchased
price. If the equipment shall be depreciated over a period of 8 years
with a salvage value of 5%, determine the depreciation charge during
the 5th year using the Sum of the Year Digit Method (SOYD).
A. 756 633 B. 652 333 C. 957 903 D. 845 936

59. A consortium of international communication companies contracted

for the purchase and installation of a fiber optic cable linking to major
Asian cities at a total cost of P960M. This amount includes freight and
installation charges at 10% of the above total contract price. If the
cable depreciated over a period of 15 years with zero salvage value,
what is the depreciation charge during the 8th year using the sum of
the years digit method?
A. P64M B. P80M C. P23M D. P76M

60. A certain office equipment has a first cost of P20,000 and has a
salvage value of P1000 at the end of 10 years. Determine the
depreciation at the end of the 6th year using Sinking Fund Method at
3% interest.
A. 10 720 B. 11 516 C. 12 112 D. 11 509

61. A machine cost P100,000 and has a salvage value of P5000 after its
useful life of 25 years. Compute the book value after 8 years. Using
Sinking fund method if money is worth 6% annually.
A. 17 137.86 B. 82 862.14 C. 81 175.12 D. 12 591.07

62. An earth moving equipment that cost P90,000 will have an estimated
salvage value of P18 000 at the end of 8 years. Using double-declining
balance method, compute the book value at the end of the 5th year.
A. 21 357.42 B. 21 671.12 C. 29 716.56 D. 32 561.12

63. An earth moving equipment that cost P90,000 will have an estimated
salvage value of P18 000 at the end of 8 years. Using double-declining
balance method, compute the total depreciation at the end of the 5 th
year.
A. 68 642.58 B. 67 122.56 C. 80 129.01 D. 77 123.41

Prepared by: ENGR. RONIE T. TARRIGA II, CE