If money is worth 16%, m = 2 find the single payment which would replace the following obligations at

the end of 3 years, if $25,000 due at the end of 2 years and P15,000 due at the end of 2 ½ years 45,360

An investment option is available with continuous compounding at 5% interest. If you invest $8,000 now,
how much interest income will you earn if you cash out in 3.5 years?

Continuous compounding formula:

F = Pe^rn

P=Fe^-rn

Solution

F = 8,000e^0.05(3.5) = 9,530

Interest = 9530 – 8000 = 1530

A loan of $10,000 is made today at an interest rate of 15% and the first payment of $3,000 is made 4
years later. The amount that is still due on the loan after the first payment is most nearly 14,500

Compound interest

F = P(1+i)^n , 10,000(1+.15)^4 = 17,490

17,490 – 3000 = 14,490

Money is to be put into an account in 4 equal deposits at the end of 4 quarters. If the interest is 4%
compounded quarterly, how much will be accumulated if the quarterly deposit is $4,000? 16,242

A manufacturer produces certain items at a labor cost per unit of P315, material cost per
unit of P100, variable cost of P3.00 each. If the item has a selling price of P995, how
many units must be manufactured each month for the manufacturer to break even if the
monthly overhead is P461,600? 800 units
BEP(units) = FC / SP -VC

BEP(units) = 461,600 / 995 – 315 – 100 – 3

BEP(units) = 800

A manufacturing firm maintains one product assembly line to produce signal generators.
Weekly demand for the generators is 35 units. The line operates for 7 hours per day, 5
days per week. What is the maximum production time per unit in hours required of the
line to meet the demand? 1 hour

Total time = 7 x 5 = 35

Demand = 35

Hour per unit = 35/35 = 1 hour

A proposed project will require the immediate investment of $50,000 and is estimated to have year-end
revenues and costs as follows:
Year Revenue Costs
1 $ 75,000 $ 60,000

2 90,000 77,500

3 100,000 75,000

4 95,000 80,000

5 60,000 47,500
An additional investment of $20,000 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
a salvage value of $25,000 at the time. Solve for the IRR of the project by PW using 15% and 16%
rates. 15.68%

The officers of the International Leather Company is considering building a plant in Metro Manila costing
P2,250,000. At the end of 12 years, the plant can be sold for P500,000. It is estimated that sales will be
P1,000,000 per year and that labor would cost annually P100,000 and overhead would be P55,000. Taxes
and insurance would be 3% of the first cost. If MARR is at least 20%.
What is the rate of return of the Metro Manila plant project? 35.9%
First cost = 2,250,000
L = 12 years
Salvage value = 500,000
Annual Income = 1,000,000
Annual costs = 155,000 + 0.03x2,250,000 = 222,500
MARR = 20%
Determine the present equivalent value of the cash-flow diagram below when the annual interest rate, ik,
varies as indicated.

Present value = F(1+i)^-n

PV = 2000(1+0.08)^-1 – 1000(1+0.10)^-1 + 2000(1+0.08)^-1 x (1+0.06)^-1 + 1000(1+0.06)^-1 x (1+0.10)^-

1=

Alternative Methods I and II are proposed for a plant operation. Determine which alternative is economical if MARR
is 20%:

Method I Method II
Initial Investment $10,000 $40,000
Useful Life 5 years 5 years
Terminal Market Value $1,000 $5,000
Annual Expenditures
Taxes and Insurance $1,250 $800
Operating Costs $12,000 $4,000
Overhead Cost $500 $200
Maintenance Cost $400 $2,000

On the basis of Incremental Analysis? Determine IRR using 5% and 25% rates.

Total Expenses: Method 1 – 14,150, Method 2 – 7,000

MARR = 20%
Step 1: Rank alternatives in ascending order
Machine 1
Machine 2
Step 2: Compare alternatives based on increments
Change in capital investment = 40,000 – 10,000 = 30,000 (outflow)
Change in annual expenses = 14,150 – 7,000 = 7,150 (inflow) becomes cost savings
Change in market value = 5,000 – 1000 = 4000 (inflow)

Step 3: solve incremental IRR

i = 5%, NPV = 4089.862861

i = 25%, NPV = -9460.928

Step 4: Interpolate
.05-i/.05-.25 = 4089.86-0/4089.86-(-9460.928) = 11.03%

Find the present value, in pesos, of a perpetuity of P15,000 payable semi-annually if

money is worth 8% compounded quarterly. 371, 287
Effective rate of interest:

Perpetuity Formula:
P = A/i
Find the net present worth of the following cash flow series at an interest rate of 8%.

End of Period Cash Flow

0 -$1,000

1 -2,000

2 3,000

3 4,500

4 1,500

P = F(1+i)^-n

P = -1000 – 2000(1+0.08)^-1 + 3000(1+0.08)^-2 + 4500(1+0.08)^-3 + 1500(1+0.08)^-4 = 4394

An independently owned moving company wants to have enough money to purchase a new tractor-trailer
in 4 years. If the unit will cost $250,000, how much should the company set aside each year if the account
earns 10% per year?

Ordinary Annuity
Solve for A, A = 53867.7

The maintenance cost for an investment is $2,000 per year for the first 10 years and $1,000 per year
thereafter. The investment has infinite life. With a 10% interest rate, the present worth of the annual
disbursement is most nearly 16,000 or 16,144.57

P = 2000((1-(1+0.1)^-10)/0.1) = 12,289

Deferred annuity = A/i(1+i)^-d = (1000/0.1)(1+0.1)^-10 = 3855

12,289 + 3855 = 16144

Mr. Ramirez borrowed P15,000 two years ago. The terms of the loan are 10% interest
for 10 years with uniform payments. He just made his second annual payment. How
much principal does he still owe?

P = 15,000

I = 10%

N =10

Uniform payments = annuity

 A = 2441.18

Compute for P using A = 2441.18, n = 8

P = 13,023.51

A debt at P10,000 with 10% interest compounded semi-annually is to be amortized by

semi-annual payments over the next 5 years. The first due is 6 months. Determine the
semi-annual payments. 1295

Solve for A, I = .10/2, exponent is -2x5

The XYZ Company is contemplating the purchase of a new milling machine. The purchase price of the new
machine is P60,000 and its annual operating cost is P2,675.40. The machine has a life of 7 years, and it is
expected to generate P15,000 revenues in each year of its life. Should the company acquire a new milling
machine? The company expects to earn not less than 20%.
The Annual Worth Excess is:

AC = 2675.40, AI = 15000

FC = 60000, D = 4645.44

Annual worth method:

Pb = AI – (AC+D+FCi)

Pb = 15000 – (2675.40 + 4645.44 + 60000x.20) = -4,321

You want to start saving for your 10-year old son’s college education. If you were
guaranteed 6% interest compounded quarterly, how much would you have to save per
month to amount P12,000 by the time he is 18?
 A = 294.93
294.93/3 = 98.31

You are considering buying a CNC Machine. This machine will have an estimated service life of 10 years
with a savage value of 5% of the investment cost. its annual net revenues are estimated to be $40,000. To
expect a 15% minimum attractive rate of return, what would be the maximum amount that you are willing
to pay for the machine? 203,240

AI=40,000
I = 15%
N=10
SV = 5% of FC

You are considering a new punch press machine. This machine will have an estimated service life of 10
years. The expected salvage value at the end of service life will be 10% of the purchase cost. Its annual
operating cash flows are estimated to be $60,000. If you can purchase the machine at $308,758 and
MARR is set at 10%, what is the expected rate of return (ROR) on this investment? 15%

I am setting up a fund for my son to go to college. I figure that he will need $50,000 by the time he is old
enough to go to college. I found an account that pays 5.75% compounded monthly. How much will my
monthly payment be to get my son set up for college in 17 years?
 A = 145

Kathy buys a television set from a merchant who asks P1,250 at the end of 60 days
(cash in 60 days). Kathy wishes to pay immediately and the merchant offers to compute
the cash price on the assumption that money is worth 8% simple interest. What is the
cash price today?

The amount of P12,800 in 4 years at 5% compounded quarterly is ____________.

F = P(1+i/m)^nm = 15,614.58621

An engineering project analyst is contemplating a 3 year project which will require an initial investment for
equipment of $85,000. It is anticipated that, if there is no inflation, annual revenues from the project will
be $60,000 and annual cash expenses will be $25,000. It is estimated that the left-over equipment will have
a market value of $45,000 at the end of three years. Using an MARR of 10%,
The payback period of the project is: 1.14 years
FC=85000

AI=60000

AC=25000

SV=45000

A contract has been signed to lease a building at P200,000 per year with annual increase of P1,500 for 8
years. Payments are to be made at the end of each year, starting one year from now. The prevailing
interest rate is 7%. What lump sum paid today would be equivalent to the 8-year lease-payment
plan? Round off your answer to whole number. 1,222,443
Present worth
Annuity + arithmetic gradient = lump sum
A=200,000
I=0.07
N=8
G=1500

A motorcycle costs P50,000 and has an expected life of 10 years. The salvage value is
estimated at P1,000. What is the appropriate rate of return on the investment if the annual
revenue is P10,000? MARR = 10%

An engineering project analyst is contemplating a 3 year project which will require an initial investment
for equipment of $85,000. It is anticipated that, if there is no inflation, annual revenues from the project
will be $60,000 and annual cash expenses will be $25,000. It is estimated that the left-over equipment
will have a market value of $45,000 at the end of three years. Using an MARR of 10%,
Compute the IRR by PW of the project using 5% and 30% rates.
Recent technology has made possible a computerized vending machine that can grind
coffee beans and brew fresh coffee on demand. The computer also makes possible such
complicated functions as tracking the age of an item and then moving the oldest stock
to the front of the line, thus cutting down on spoilage. Easy Snack Inc. has estimated
the cash flows in thousands of dollars over the products's six-year useful life, including
the initial investment, as follows:

Compute for the ERR if MARR is 18%.

- 33%

The XYZ Company is contemplating the purchase of a new milling machine. The purchase price of the
new machine is P60,000 and its annual operating cost is P2,675.40. The machine has a life of 7 years,
and it is expected to generate P15,000 revenues in each year of its life. Should the company acquire a
new milling machine? The company expects to earn not less than 20%.

The Payback Period is:

4.87 years

A debt of $5000, which was due 5 years from now, is instead going to be repaid by
three payments: $2000 now, $1000 in 2 years’ time and the third payment after 4
years. What will be the final payment if the assumed interest rate is 6% per annum
compounding half-yearly?
- 1054

A bank deposit of $5,000 was made a year ago in one of the local banks in New York
City, which pays monthly interest. The bank account accumulates now to $5,450.50.
What is the effective annual interest rate?
- (5450.5-5000/5000)100 = 9.01%

General Electric Company which manufactures electric motor has a capacity of

producing 150 motors a month. The variable costs are P4,000 per month, the average
selling price of the motor is P750 per motor. Fixed costs of the company amount to
P78,000 per month which includes all taxes. Determine the number of motors to be
produced per month to break even.
= 110 Units

Find the net present worth of the following cash flow series at an interest rate of 8%.

= 4,394

If P5,000 shall accumulate for 10 years at 8% compounded quarterly. Find the

compounded interest at the end of 10 years.
= P6,040

An Industrial Engineer wishes to accumulate a total of P10,000 in a savings account at the end
of 10 years. If the bank pays only 4% compounded quarterly, what should be the initial deposit?
= Php 6,716.53

What is the corresponding effective interest rate of 18% compounded semi-quarterly?

= 19.48%

XYZ Corporation manufactures book cases that it sells for P65 each. It costs them P35,000 per
year to operate its plant. This sum includes rent, depreciation charges on equipment and salary
payments. If the cost to produce one bookcase is P50, how many cases must be sold each year
for XYZ to avoid taking a loss?
= 2,334 units
A man paid 10% down payment of P200,000 for a house and lot and agreed to pay the 90%
balance on monthly installments for 60 months at an interest rate of 15% compounded monthly.
Compute the amount of the monthly payment.
- P42,822

What uniform annual amount should be deposited each year in order to accumulate P100,000
at the end of the 5th annual deposit if money earns 10% interest?
- 16380

Compute the equivalent rate of 6% compounded semi-annually to a rate compounded

quarterly.
- 5.96%

What is the Future Worth of the Project? (Round off answer to whole number)
?

Today, a businessman borrowed money to be paid in 10 equal payments for 10 quarters. If the interest
rate is 10% compounded monthly and the quarterly payment is P2,000 how much did he borrow?
- P17,504.13

A newly-built business property, containing a space for a store and two offices, can be purchased for
$1,200,000. A prospective buyer estimates that during the next 10 years he can obtain annual rentals of
at least $458,460 from the property, and the annual out-of-pocket expenditure will not exceed $60,000.
He believes that he should be able to dispose of the property at the end of 10 years at not less than
$700,000. Annual taxes and insurance will total 2.5% of the first cost. Assume he has sufficient capital to
purchase the property, and that the minimum attractive return (MARR) he is obtaining from his capital is
20%.
What is the Rate of Return of the Investment (in %)?\
- 29.08

A computerized wood lathe, costing $17,000 will be used to make ornamental parts for sale. Sales are
estimated at $28,000 per year with costs running $25,000 per year. The salvage value is $2,000 at the
end of 10 years. If the MARR is 8%, what is the present worth of this investment?
- $4,060
Find the present value, in pesos, of a perpetuity of P15,000 payable semi-annually if
money is worth 8% compounded quarterly.
- P371,287

A $20,000 loan was originally made at 8% simple interest for 4 years. At the end of this period the loan
was extended for 3 years with the new interest rate at 10% compounded quarterly. How much should the
borrower pay at the end of 7 years?
- $35,505

Alternative Methods I and II are proposed for a plant operation. Determine which alternative is economical if MARR
is 20%:

On the basis of Incremental Analysis? Determine IRR using 5% and 25% rates.
- 9.8%

A debt at P10,000 with 10% interest compounded semi-annually is to be amortized by

semi-annual payments over the next 5 years. The first due is 6 months. Determine the
semi-annual payments.
- P1,295

A merchant puts in his P2,000 to a small business for a period of six years. With a given
interest rate on the investment of 15% per year, compounded annually, how much will
he collect at the end of the sixth year?