ENGINEERING ECONOMY

DIRECTIONS: Read and analyze each item carefully. Identify what is asked for in each given
sentences. Write your answers legibly. AVOID ERASURES.

1. What will be the future worth of money after 12 months, if the sum of P25,000 is invested today at simple
interest rate of 1% per month?
A. P29,000
B. P26,000
C. P28,000
D. P27,000
2. If you borrowed money from your friend with simple interest of 12%, find the present worth of P50,000,
which is due at the end of 7 months.
A. P46,200
B. P44,893
C. P46,730
D. P45,789
3. Annie buys a television set from a merchant who ask P1,250 at the end of 60 days. Annie 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?
A. P1,233.55
B. P1,244.66
C. P1,323.66
D. P1,392.67
4. A bank changes 12% simple interest on a P300.00 loan. How much will be repaid if the loan is paid back
in one lump sum after three years?
A. P408.00
B. P415.00
C. P551.00
D. P450.00
5. A man borrowed P100,000 at the interest rate of 12% per annum, compounded quarterly. What is the
effective rate?
A. 3% B. 13.2% C. 12% D. 12.55%
6. What is the corresponding effective rate of 18% compounded semi-quarterly?
A. 19.25% B. 19.48% C. 18.46% D. 18.95%
7. The amount of P50,000 was deposited in the bank earning at interest of 7.5% per annum. Determine the
total amount at the end of 5 years, if the principal and interest were not withdrawn during the period?
A. P71,781.47
B. P72,475.23
C. P70,374.90
D. P78,536.34
8. Alexander Michael owes P25,000.00 due in 1 year and P75,000 due in 4 years. He agrees to pay
P50,000.00 today and the balance in 2 years. How much must he pay at the end of two years if money is
worth 5% compounded semi-annually?
A. P38,025.28
B. P35,021.25
C. P30,500.55
D. P39,021.28
9. Fifteen years ago P1,000.00 was deposited in a bank account, and today it is worth P2,370.00. The bank
pays interest semi-annually. What was the interest rate paid in this account?
A. 3.8% C. 5.0%
B. 4.9% D. 5.8%

10. If P5,000.00 shall accumulate for 10 years at 8% compounded quarterly, find the compounded interest at
the end of 10 years.
A. P6,005.30
B. P6,000.00
C. P6,040.20
D. P6,010.20
11. A sum of P1,000 is invested now and left for eight years, at which time the principal is withdrawn. The
interest has accrued is left for another eight years. If the effective annual interest rate is 5%, what will be
the withdrawal amount at the end of the 16 th year?
A. P706.00
 B. P500.00
C. P774.00
D. P799.00
12. P1,500.00 was deposited in a bank account, 20 years ago. Today it is worth P3,000.00. Interest is paid
semi-annually. Determine the interest rate paid on this account.
A. 3% B. 2.9% C. 3.5% D. 4%
13. A young engineer borrowed P10,000 at 12% interest and paid P2,000 per annum for the last 4 years.
What does he have to pay at the end of the fifth year in order to pay off his loan?
A. P6,919.28
B. P5,674.00
C. P6,074.00
D. P3,296.00
14. Mr. Cruz plans to deposit for the education of his 5 years old son, P500 at the end of each month for 10
years at 12% annual interest compounded monthly. The amount that will be available in two years is
A. P13,000
B. P14,500
C. P13,500
D. P14,000
15. An investment of P350,000 is made to be followed by payments of P200,000 each year for 3 years. What
is the annual rate of return of investment for the project?
A. 41.7%
B. 32.7%
C. 51.1%
D. 15%
16. A small machine has an initial cost of P20,000 a salvage value of P2,000 and a life of 10 years. If your
cost of operation per year is P 3,500 and your revenues per year is P9,000, what is the approximate rate
of return on the investment?
A. 25.0%
B. 22.5%
C. 23.9%
D. 24.8%
17. A man paid 10% down payment of P200,000 for a house and lot agreed to pay the balance on monthly
installments for “x” years at an interest rate of 15% compounded monthly. If the monthly installment was
P42,821.87, find the value of x.
A. 11 B. 9 C. 5 D. 7
18. A manufacturing firm wishes to give each 80 employees a holiday bonus. How much is needed to invest
monthly for a year at 12% nominal interest rate compounded monthly, so that each employee will receive
a P2,000 bonus?
A. P12,608
B. P12,610
C. P12,600
D. P12,300
19. Find the present value in pesos, of a perpetuity of P15,000 payable semi-annually if money is worth 8%
compounded quarterly.
A. P372,537
B. P374,977
C. P373,767
D. P371,287
20. A depreciable item is purchased for P 485000. The salvage value at the end of 25 years is
estimated at P93700. What is the depreciation on the beginning of the third year using double-
declining balance method?
A. P35,696 B. P74,496 C. P107,336 D. P32,840.32

21. A machine costing P180000 has salvage value of P57000 after its useful life of 8 years. With
interest at 8%, find the total depreciation after the first 3 years using the sinking fund method.
A. P11,564 B. P345,691 C. P375,410 D. P12,514
22. Find the nominal rate that if converted quarterly could be used instead for 15% compounded semi-
annually?
A. 14.93% B. 14.73% C. 15.56% D. 15.90%

23. Which of the following has the least effective annual interest rate?
A. 12% compounded quarterly
B. 11.5% compounded monthly
C. 11.7% compounded semi-annually
 D. 12.2% compounded annually
24. One hundred thousand pesos was placed in at time deposit that earns 9% compounded quarterly, tax
free. After how many year would it be able to earn a total interest of fifty thousand pesos?
A. 4.56 B. 4.47c C. 4.32 D. 4.63
25. The amount of P2,825.00 in 8 years at 5% compounded quarterly is:
A. P4,166.77 C. P4,397.86
B. P4,188.56 D. P4,203.97
26. The amount of P2,825.00 in 8 years at 5% compounded continuously is:
A. P4,166.77 C. P4,188.56
B. P4,397.86 D. P4,214.40
27. What rate (%) compounded quarterly is equivalent to 6% compounded semi-annually?
A. 5.93 B. 5.99 C. 5.96 D. 5.9
28. Fifteen percent (15%) when compounded semi-annually will have effective rate of:
A. 15.93% B. 18.78% C. 16.02% D. 15.56%
29. What rate of interest compounded annually is the same as the rate of interest of 8% compounded
quarterly?
A. 8.24% B. 8.42% C. 6.88% D. 7.90%
30. How long will it take the money to triple itself if invested at 10% compounded semi-annually?
A. 13.3 years B. 11.3 years C. 11.9 years D. 12.5 yrs
31. An equipments costing P250,000 has an estimated life of 15 years with a book value of P30,000 at the
end of the period. Compute the depreciation charge and its book value after 10 years using straight line
method.
A. d = P14,666.67, BV = 103,333.30
B. d = P14,666.67, BV = 105,666.67
C. d = P13,333.33; BV = 103,333.30
D. d = P13,333.33; BV = 105,666.67
32. Determine the capitalized cost of an equipment costing P2M with and annual maintenance of
P200,000.00 if money is worth 20% per annum.
A. P2.5 M B. 2.75 M C. P3M D. P3.5 M
33. At 6% find the capitalized cost of a bridge whose cost is P200 M and life is 20 years, if the bridge must
be partially rebuilt at a cost of P100M at the end of each 20 years.
A. 245.3 B. 215 C. 210 D. 220
34. A P100,000, 6% bond, pays dividend semi-annually and will be redeemed at 110% on July 1, 1999.
Find its price if bought on July 1, 1996, to yield an investor 4%, compounded semi-annually.
A. P100,000.00 C. P112,786.65
B. P113,456.98 D. P114,481.14
35. A community wishes to purchase an existing utility valued at P500,000 by selling 5% bonds that will
mature in 30 years. The money to retire the bond will be raised by paying equal annual amounts into a
sinking fund that will earn 4%. What will be the total annual cost of the bonds until they mature?
A. P44,667.98 C. P37,345.78
B. P34,515.05 D. P33,915.05
36. A man paid P110,000 for a P100,000 bound that pays P4000 per year. In 20 years the bond will be
redeemed for P105,000. What net rate of interest will the man obtain on his investment?
A. 3.37% B. 3.47% C. 3.56% D. 3.40%
37. A man wants to make 14% nominal interest compounded semi-annually on a bond investment. How
much should the man be willing to pay now for a 12%, P10,000 bond that will mature in 10 years and
pays interest semi-annually?
A. P2,584.19 B. P3,118.05 C. P8,940.50 D. P867.8
38. It is estimated that a number tract will yield an annual profit of P100,000 for years, at the end of which
time the timber will be exhausted. The land itself will then have an anticipated value of P40,000. If a
prospective purchaser desires a return of 8% on his investment and can deposit money in a sinking
fund at 4%, what is the maximum price he should pay for the tract.
A. P459,480.00 C. P467,456.00
B. P578,987.00 D. P589.908.00
39. A mine is purchased for P1,000,000.00 and it is anticipated that it will be exhausted at the end of 20
years. If the sinking fund rate is 4%, what must be the annual return from the mine to realize a return of
7% on the investment?
A. P108,350 B. P150,832 C. P130,850 D. P103,582
40. The purchase of a motor for P6000 and a generator for P4000 will allow a company to produce its own
energy. The configuration can be assembled for P500. The service will operate for 1600 hours per year
for 10 years. The maintenance cost is P300 per year and the cost to operate is P0.85 per hour for fuel
and other related costs. Using straight line depreciation, what is the annual cost for the operation?
There is P400 in salvage value for the system at the end of 10 years.
A. P2,670.00 C. P2,760.00
B. P2,567.00 D. P2,657.00
41. A company purchases P200,000 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. P27,678.78 B. P26,876.45 C. P26,492.52 D. P26,098.78
42. XYZ Corporation manufacturer bookcases thatit sells for P65.00 each. It costs XYZ P35,000.00 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 P50.00, how many cases must be sold each year for
XYZ to avoid taking a loss?
A. 2334 cases C. 750 cases
B. 539 cases D. 2333 cases
43. A company that manufacturers electric motors has a production capacity of 200 motors a month. The
variable costs are P150.00 per motor. The average selling price of the motors is P275.00. Fixed costs
of the company amount to P20,000.00 per month which includes taxes. The number of motors that
must be sold each month to break even is closest to:
A. 40 B. 80 C. 150 D. 160
44. Determine the break-even point in terms of number of units produced per month using the following
data: (the costs are in pesos unit)
Selling price per unit............................600 pesos
Total monthly overhead expenses.......428,000 pesos
Labor cost ...........................................115 pesos
Cost of materials................................ 76 pesos
Other variable cost ........................... 2.32 pesos
A. 1036 B. 1053 C. 1044 D. 1025
45. A manufacturing firm whishes to give each 80 employee a holiday bonus. How much s needed to invest
monthly for a year at 12% nominal interest rate, compounded monthly, so that each employee will
receive a P2,000.00 bonus?
A. P12,608.00 B. P12,600.00 C. P12,610.00 D. P12,300.00
46. It is estimated that a mine will yield an annual net income of P300,000 for 20 years at the end of which
time it will have a salvage value of P40,000. Assuming that the recovered capital can be reinvested at
5%, the purchased price required to yield an investment rate of 15% is nearest to,
A. P1,675,000 C. P1,673,000
B. P1,674,000 D. P1,671,000
47. A local factory assembling calculators produces 400 units per month and sells them at P1800 each.
Dividends are 8% on the 8000 share with par value of P250 each. The fixed operating cost per month
id P25,000. Other costs are P1000 per unit.Determine the number of units needed to be produced per
month at unhealthy point.
A. 62 B.50 C. 48 D. 46
48. A construction company intends to build a fly-over that costs P3,000,000. The annual maintenance is
P100,000 and the annual benefit to the motorists has been estimated to be P250,000. If money is worth
8%and the useful life is 50 years, find B/C.
A. 0.742 B. 0.724 C. 0.824 D. 1.742
49. The inflation rate is expected to be 8% per year into the foreseeable future. How many years will it take
for the peso’s purchasing power to be one half of what it is now?
A. 9 B. 10.27 C. 10.29 D. 10.58
50. A certain contract can be finished by 40 men in 40 days. How many days will it take for 50 men to finish
the same job?
A. 50 B. 45 C. 25 D. 32
51. The warehouse of a certain company can serve an area of 4 sq. km. If the fixed cost of warehousing is
P2,000,000 per year and the variable transportation cost per unit is P5, find the number of units sold
per sq. km annually.
A. 100,000 C. 300,000
 B. 200,000 D. 400,000
52. A manufacturer of sports equipment produces tennis rackets for which there is a demand of 2400
rackets annually. The processing cost per order is P300. If the holding and carrying cost is P24 per unit,
find the number of units for economic order purchased quantity.
A. 254 B. 245 C. 285 D. 264
53. The Negros Timber Inc produces 10,000 logs annuall y, operating 250 days per year. Immediately
upon receiving an order, the company’s supplier begins deliver y to Negros Timber Inc. at the
rate of 60 logs per day. The company with the help of their IE has determined that the ordering
cost is $1,600 per order, and the cost of carr ying logs in inventor y is $15 a log per year.
Determine the optimal order size.
A. 4,650 B. 2,530 C. 3,250 D. 6,550
54. In reference to problem no.53, determine the number of operating days between orders.
A. 69 B. 60 C. 63 D. 65
55. In reference to problem no. 53, determine the number of operating days required to receive an order.
A. 42 B. 45 C. 47 D. 49
56. The Macaya Farms produces its own natural organic fertilizer, which it sells to homeowners
within their area. The annual demand for fertilizer is 270,000 pounds. The farm is able to
produce 305,000 pounds annually. The cost to deliver the fertilizer from the farm is $620 per
load meanwhile the annual carrying load cost is $0.12 per pound. Compute the optimal order size.
A. 149,815 B. 163,683 C. 155,926 D. 139,145
57. In reference to Problem No. 56, compute the maximum inventory level.
A. 17,893 B. 18,953 C. 19,261 D. 20,530
58. A piece of property is purchased for P10,000 and yields a P1000 yearly profit. If the property is sold
after five years, what is the minimum price to break-even, with interest at 6%?
A. P5,000 B. P6,554 C. P7,743 D. P8,314
59. About how long will it take for P10,000 invested at 5% per year, compounded annually to double in
value?
A. 5 years C. 15 years
B. 10 years D. 20 years
60. A bank pays one percent interest on savings accounts four times a year. The effective annual interest
rate is
A. 1.00% C. 3.96%
B. 1.04% D. 4.06%
61. What interest rate, compounded quarterly is equivalent to a 9.31% effective interest rate?
A. 2.25% C. 4.66%
B. 2.33% D. 9.00%
62. The tag price of a certain commodity is for 100 days. If paid in 31 days, there is a 3% discount. What is
the simple interest paid?
A. 12.15% B. 6.25% C. 22.32% D. 16.14%
63. Accumulate P5,000.00 for 10 years at 8% compounded quarterly.
A. P12,456.20 C. P13,876.50
B. P10,345.80 D. P11,040.20
64. Accumulate P5,000.00 for 10 years at 8% compounded semi-annually.
A. P10,955.61 C. P10,233.67
B. P9,455.67 D. P11,876.34
65. Accumulate P5,000.00 for 10 years at 8% compounded monthly.
A. P15,456.75 C. P11,102.61
B. P14,768.34 D. P12,876.34
66. It is the difference between the present worth and the future worth of a negotiable paper.
A. Rate of interest C. Discount
B. Interest D. Rate of discount
67. It is the rate of interest that specifies the number of interest periods in one year.
A. Actual rate of interest
B. Nominal rate of interest
C. Effective rate of interest
D. Simple interest
68. It pertains to the series of equal payments occurring at equal period or interval of time.
A. Annuity C. Depreciation
 B. Amortization D. Depletion
69. It is a type of annuity where payments are made indefinitely or forever.
A. Ordinary annuity C. Perpetuity
B. Annuity due D. Deferred annuity
70. It is the difference between the original costs and the depreciation.
A. Book value C. Salvage value
B. Sunk cost D. Fair value
71. It is a point in economic study where the sales volume is just enough to pay the costs of production.
A. Unhealthy point C. Equivalence point
B. Break-even point D. Brooks point
72. It pertains to the decrease in money’s purchasing power due to the increase of material cost and
services.
A. Deflation C. Recession
B. Depreciation D. Inflation
73. It is a method in selecting alternative where the interest on investment is included as cost.
A. AWC C. PWC
B. ROR D. EUAC
74. It pertains to the measure of the effectiveness of an investment.
A. Rate of return C. Recovery Factor
B. Profit D. Interest
-n -n
75. In the formula P = F(1 + i) the factor (1 + i) is called the:
A. Sinking fund factor
B. Single payment compound amount factor
C. Single payment present worth factor
D. Capital recovery factor

“If you’re totally convinced you’ll fail, you’ll struggle to succeed.

But if you believe you’ll succeed, you’ll stand a much better chance.
Take it one step at a time – you can get there!”

Always rooting for you Engineer!

Prepared by:

Engr. Patricia A. Dimayuga