Engineering Economics

1. What is another term for annual cost method?

A. Capital recovery method
B. Present worth recovery method
C. Cost opportunity method
D. Return of investment method
2. If 1,600 Php earns 48 Php in 9 months, what is the annual rate of interest?
A. 4%
B. 3%
C. 8%
D. 9%
3. About how long will it take for 10,000 Php invested at 5% per year,
compounded annually, to double in value?
A. 5 yrs
B. 10 yrs
C. 15 yrs
D. 20 yrs
4. An individual wishes to deposit a certain quantity of money now so that at the
end of five years he will have 500 Php. With interest at 4% per year,
compounded semi-annually, how much must he deposit now?
A. 340.00 Php
B. 400.00 Php
C. 410.15 Php
D. 416.95 Php
5. Mr. Juan de la Cruz borrowed 1,000.00 Php and was able to sign a promissory
note that he would pay 2032.79 Php after 4 years. How much is the nominal
rate of interest and the corresponding effective rate if money is compounded
bi-monthly.
A. 3%, 18%
B. 18%, 19.40%
C. 3%, 19.40%
D. 5%, 18%

6. A man borrowed from a bank under a promissory note that he signed in the
amount of 25,000.00 Php for a period of one year. He received only the
amount of 21,915.00 Php after the bank collected the advance interest and
an additional amount of 85.00 Php for notarial and inspection fees. What was
the rate of interest that the bank collected in advance?
A. 14.64%
B. 13.64%
C. 12%
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D. 15.82%
7. A man possesses a promissory note, due 3 years hence, whose maturity
value is 6,700.48 Php. If the rate of interest is 10% compounded semiannually, what is the value of this note now?
A. 4,000 Php
B. 4,500 Php
C. 8,500 Php
D. 5,000 Php
8. A man applied for a car loan in a local financing bank which charges a rate of
interest of 18%. Interest in this type of transaction is to be deducted from
the loan at the time the money is released. At the end of one year the
borrower will have to pay the same amount what is stated in his application
for the loan. What is the actual interest did the financing bank charge him?
A. 21.95%
B. 22.28%
C. 22.95%
D. 25.96%
9. A man wishes to bequeath to his daughter 20,000 Php ten years from now.
What amount should he invest now if it will earn interest of 8% compounded
annually during the first five years and 12% compounded quarterly during
the next five years?
A. 8,532.45 Php
B. 7,536.45 Php
C. 6,534.56 Php
D. 7,546.32 Php
10.Five years ago a house was purchased for 34,000 Php. If it is sold today for
50,000 Php, what is the rate of appreciation of its value?
A. 68%
B. 32%
C. 7.5%
D. 8.019%
11.A man borrows money from a bank which uses a simple discount rate of 14%.
He signs a promissory note promising to pay 500 Php per month at the end of
the 4th, 6th, and 7th months, respectively. Determine the amount he received
from the bank.
A. 1,300.65 Php
B. 1,403.65 Php
C. 461.00 Php
D. 2,405.75 Php
12.A mining property is offered for sale for $ 57,000. On the basis of estimated
production, an annual return of $ 8,000 is foreseen for a period of 10 years.

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After 10 years the property will be worthless. What annual rate of return is in
prospect?
A. 6.4%
B. 6.6%
C. 6.5%
D. 6.7%
13.A machine is under consideration for investment. The cost of the machine is
$ 25,000. Each year it operates, the machine will generate a savings of $
15,000. Given an effective annual effective interest rate of 18%, what is the
discounted payback period, in years, on the investment in the machine?
A. 2.16 years
B. 3.17 years
C. 1.67 years
D. 1.75 years
14.A 10 thousand pesos loan is to be repaid at the rate of 200 pesos per month
with an annual effective rate of 19.56% charged against the unpaid balance.
What principal remains to be paid after the 3 rd payment?
A. 9,800 Php
B. 9,500 Php
C. 9,200 Php
D. 8,900 Php
15.You need $ 4,000 per year for 4 years to go to college. Your father invested $
5,000 in a 7% account for your education when you were born. If you
withdraw the $ 4,000 at the end of your 17 th, 18th, 19th, and 20th years, how
much money will be left in the account at the end of your 21 st year?
A. $ 4,000
B. $ 1,700
C. $ 2,500
D. $ 3,400
16.In year zero, you invest $ 10,000 in a 15% security for five years. During that
time, the average annual inflation is 6%. How much, in terms of year zero
dollars, will be in the account at maturity?
A. $ 6,653
B. $ 15,030
C. $ 15,386
D. $ 13,382
17.What is the effective annual interest rate on a loan if the nominal interest
rate is 12% per year compounded quarterly?
A. 11.75%
B. 12.25%
C. 12.55%
D. 12%

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18.An investment of $ 350,000 is made, to be followed by payments of $
200,000 each year for three years. What is the annual rate of return on
investment for this project?
A. 32.7%
B. 15%
C. 41.75%
D. 51.75%
19.A man who won 300,000 Php in a lottery decided to place 50% of his
winnings in a trust fund for the college education of his son. If the money
earn 14% a year compounded quarterly, how much will the man have at the
end of 10 years, when his son will be starting his college education?
A. 593,888.96 Php
B. 375,958.75 Php
C. 593,467.98 Php
D. 682,456.96 Php
20.A one-bagger concrete mixer can be purchased with a down payment of
8,000 Php and equal installments of 600 Php each paid at the end of every
month for the next 12 months. If the money is worth 12% compounded
monthly, determine the equivalent cash price of the mixer.
A. 15,750 Php
B. 6,753 Php
C. 14,753 Php
D. 6,854 Php
21.A man bought a house and lot worth 300,000 Php in a subdivision in Metro
Manila. The annual amortization in a house and lot is 34,200 Php. Determine
the rate of interest he was charged by the subdivision owners.
A. 11.13%
B. 12.25%
C. 13.13%
D. 31.25%
22.A lathe for a machine shop costs 60,000 Php if paid in cash. On the
installment plan, purchaser should pay 20,000 Php down payment and 10
quarterly installments, the first due at the end of the first year after the
purchase. If money is worth 15% compounded quarterly, determine the
quarterly installment.
A. 5,352,18 Php
B. 7,534.16 Php
C. 6,548,39 php
D. 5,439.18 Php
23.A person buys a piece of property for 100,000 Php down payment and ten
deferred semi-annual payments of 8,000 Php each starting three years from
now. What is the present value of the investment if the rate of interest is
12% compounded semi-annually?
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A.
B.
C.
D.

185,000
148,000
144,000
192,000

Php
Php
Php
php

24.It costs 50,000 Php at the end of each year to maintain a section of Kennon
road in Baguio City. If money is worth 10%, how much would it pay to spend
immediately to reduce the annual cost to 10,000 Php?
A. 200,000 Php
B. 250,000 Php
C. 350,000 Php
D. 400,000 Php
25.A manufacturing plant installed a new boiler at a total cost of 150,000
Phpand is estimated to have a useful life of 10 years. It is estimated to have
a scrap value at the end of its useful life of 5,000 Php. If interest is 12%
compounded annually, determine its capitalized cost.
A. 362,556 Php
B. 189,000 Php
C. 357,652 Php
D. 218,857 Php
26.The purchaser of a contractor paid 10,000 Php cash and agreed to pay 3,000
Php at the end of each 6 months for 10 years. He failed to make the first five
payments of 3,000 Php each. At the end of three years he desires the
purchase of the tractor by a single payment which will cancel both his
accumulated liabilities and his future liabilities. What must he pay if money is
worth 8% per annum compounded semi-annually?
A. 54,123.45 Php
B. 51,589.01 Php
C. 50,777.54 Php
D. 52,350.32 Php
27.A new generator has just been installed. It is expected that there will be no
maintenance charges until the end of the sixth year, when 300 Php will be
spent on the generator and 300 Php will be spent at the end of each
successive year until the generator is scrapped at the end of the fourteenth
year of service. What sum of money set aside at the time of installation of
the generator at 6% interest will take care of all maintenance expenses for
the generator?
A. 1,392 Php
B. 1,765 Php
C. 1,489 Php
D. 1,235 Php
28.Find the present value, in pesos, of a perpetuity of 15,000 Php payable semiannually if money is worth 8% compounded quarterly.
A. 371,290
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B. 372,537.29
C. 374,900
D. 373,777
29.A rich man put up a trust fund in the bank with instructions to give his son
the earnings of 400,000 Php at the end of every four years and to continue
until the twentieth year of the deposit when the son could get the 400,000
Php earning and the principal. What is the amount of money placed i9n the
trust fund if guaranteed interest is 16% per year?
A. 468,082 Php
B. 475,000 Php
C. 485,000.67 Php
D. 470,325.45 Php

30.A service car whose cash price was 540,000 Php was bought with a
downpayment of 162,000 Php and monthly installments of 10,874.29 for 5
years. What was the rate of interest if compounded monthly?
A. 20
B. 15
C. 26
D. 24
31.An asset is purchased for 500,000 Php. The salvage value in 25 years is
100,000.00 Php. What are the depreciations in the first three years using
straight line method?
A. 24,000 Php
B. 32,000 Php
C. 48,000 Php
D. 16,000 Php
32.A company which manufactures electric motors has a production capacity of
200 motors a month. The variable costs are 150.00 Php per motor. The
average selling price of the motors is 275.00 Php. Fixed costs of the
company amount to 20,000 Php per month which includes taxes. The
numbers of motors that must be sold each month to break-even is closest to:
A. 150
B. 80
C. 160
D. 40
33.A company invests $ 10,000 today to be repaid in five years in one lump sum
at 12% compounded annually. If the rate of inflation is 3% compounded
annually, how much profit, in present day dollars, is realized over the five
years?
A. $ 5202
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B. $ 5626
C. $ 3202
D. $ 7623
34.Mr. Johnson borrows $ 100,000 at 10% effective annual interest. He must pay
back the loan over 30 years with uniform monthly payments due to the first
day of each month. What does Mr. Johnson pat each month?
A. $ 846
B. $ 870
C. $ 878
D. $ 839
35.The total income equals the total operating cost.
A. Break-even-no-gain-no-loss
B. In-piece-value
C. Interest rate
D. Scrap value
36.What is the book value of equipment purchased three years ago for $ 15,000
if it is depreciated using the sum of years digit method? The expected life is
five years.
A. $ 3,000
B. $ 3,300
C. $ 4,000
D. $ 10,000
37.Company A purchases $ 200,000 of equipment in year zero. It decides to use
straight-line depreciation over the expected 20 year, life of the equipment.
The interest rate is 14%. If its overall tax rate is 40%, what is the present
worth of the depreciation tax shield?
A. $ 26,500
B. $ 3,500
C. $ 4,000
D. $ 39,700
38.A person pays interest on a loan semi-annually at a nominal annual interest
rate of 16%. What is the effective annual interest rate?
A. 16.64%
B. 15.5%
C. 15.65%
D. 16.5%
39.A manufacturing firm maintains one product assembly line to produce signal
generators. Weekly demand for the generators is 35 units, and the line
operates for 7 hours a day, five days per week. What is the maximum
production time per unit, in hours, required of the line in order to meet
demand?
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A.
B.
C.
D.

1 hour
0.75 hour
2.25 hour
0.04 hour

40.An asset is purchased for 120,000.00 Php. Its estimated life is 10 years, after
which it will be sold for 12,000.00m Php. Find the depreciation for the second
year using the sum-of-the-years-digit method.
A. 17,673 Php
B. 19,000 Php
C. 18,300 Php
D. 18,400 Php
41.The purchase of a motor for 6,000 Php and a generator for 4,000 Php will
allow a company to produce its own energy. The configuration can be
assembled for 500 Php. The service will operate for 1,600 hours per year for
10 years. The maintenance cost is 300 Php per year, and cost to operate is
0.85 Php per hour for fuel and related cost. Using straight line depreciation,
what is the annual cost for the operation? There is 400 Php salvage value for
the system at the end of 10 years.
A. 2,670 Php
B. 2,630 Php
C. 2,480 Php
D. 2,710 Php
42.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 a day, 5 days a week. What is the maximum production time per
unit in hours required of the line to meet the demand?
A. 0.75 hr
B. 1 hr
C. 2.25 hrs
D. 3 hrs
43.A steel drum manufacturer incurs a yearly fixed operating cost of 200,000.00
Php. Each drum manufactured cost 160.00 Php to produce and sells for
200.00 Php. What is the manufacturers break-even sales volume in drums
per year?
A. 1,250
B. 2,300
C. 1,000
D. 5,000

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44.A machine costing 720,000n Php is estimated to have a book value of
40,545.73 Php when retired at the end of 10 years. Depreciation cost is
computed using constant percentage of the declining book value. What is
the annual rate of depreciation in %?
A. 25
B. 28
C. 26
D. 24
45.A man wants to make 14% nominal interest compounded semi-annually on s
bond investment. How much should the man be willing to pay now for 12%,
10,000 Php bond that will mature in 10 years and pays interest semiannually?
A. 8,950 Php
B. 8,250 Php
C. 8,850 Php
D. 6,000 Php
46.A 1,500 Php bond which will mature in 10 years and with a bond rate of 15%
payable annually is to be redeemed at par at the end of this period. If it is
sold now for 1,390 Php, determine the yield at this price.
A. 14.57%
B. 16.56%
C. 15.68%
D. 17.65%
47.The year end operating and maintenance costs of a certain machine are
estimated to be 12,000 Php the first year and to increase by 2,500 Php each
year during its 4-year life. If capital worth 12%, determine the equivalent
uniform year-end costs.
A. 17,783.13 Php
B. 25,657.89 Php
C. 36,971.19 Php
D. 15,397.13 Php
48.A young man decided to go on business at age 40. He wishes to accumulate
200,000 Php at that age. On his twenty-fifth birthday he deposits a certain
amount and will increase the deposit by 10% each year until the fortieth year.
If the funds can be invested at 9.6% compounded annually, how much should
his initial investment be?
A. 3,074.82 Php
B. 4,746.89 Php
C. 6,737.14 Php
D. 8,365.85 Php
49.A dam was constructed for $ 200,000. The annual maintenance cost is $
5,000. If interest is 5%, the capitalized cost of the dam, including the
maintenance, is:
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A.
B.
C.
D.

$
$
$
$

250,000
200,000
100,000
300,000

50.A new building is being considered to house some equipment. The new
building will reduce maintenance costs by $ 6,000 per year for the first ten
years, and $ 3,000 per year thereafter. Based on a 50-year analysis period,
what building construction cost can be justified?
A. $ 50,000
B. $ 180,000
C. $ 30,000
D. $ 90,000

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