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Basic Economic Study Methods (Example Problem With Solution)

This document contains calculations of the rate of return, present worth, annual worth, and future worth of an investment with an initial cost of ₱500,000. The rate of return is computed to be 13.59%. Present worth, annual worth, and future worth analyses show that the total cash outflows exceed the total cash inflows, indicating the investment is not desirable.

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coco yabut
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Download as PDF, TXT or read online on Scribd
141 views

Basic Economic Study Methods (Example Problem With Solution)

This document contains calculations of the rate of return, present worth, annual worth, and future worth of an investment with an initial cost of ₱500,000. The rate of return is computed to be 13.59%. Present worth, annual worth, and future worth analyses show that the total cash outflows exceed the total cash inflows, indicating the investment is not desirable.

Uploaded by

coco yabut
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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YABUT, ALLAINE VEANICKA P.

BSEE 3A

RATE OF RETURN
ANNUAL
COST:
₱ 500,000.00− ₱ 500,000.00 (10%)
DEPRECIATION = 𝐹⁄ ,25 %,9
𝐴
₱ 500,000.00 − ₱ 50,000.00
= (1+25 %)9 − 1 = ₱ 17,440.29
25 %

OPERATION & ₱ 80,000.00 per year = ₱ 80,000.00


MAINTENANCE
TAXES & 4 % THE 1ST COST PER YEAR
INSURANCE
= ₱ 500,000.00 (4%) = ₱ 20,000.00
= ₱ 117,440.29
RATE OF
RETURN:
RATE OF = 𝐴𝑉𝐸𝑅𝐴𝐺𝐸 𝐴𝑁𝑁𝑈𝐴𝐿 𝑁𝐸𝑇 𝐸𝐴𝑅𝑁𝐼𝑁𝐺𝑆 𝐴𝐹𝑇𝐸𝑅 𝑇𝐴𝑋𝐸𝑆
∗ 100
𝐼𝑁𝐼𝑇𝐼𝐴𝐿 𝐼𝑁𝑉𝐸𝑆𝑇𝑀𝐸𝑁𝑇
RETURN
𝑈𝑁𝐼𝐹𝑂𝑅𝑀 𝐴𝑁𝑁𝑈𝐴𝐿 𝑅𝐸𝑉𝐸𝑁𝑈𝐸−𝐴𝑁𝑁𝑈𝐴𝐿 𝐶𝑂𝑆𝑇
= ∗ 100
𝐼𝑁𝐼𝑇𝐼𝐴𝐿 𝐼𝑁𝑉𝐸𝑆𝑇𝑀𝐸𝑁𝑇

₱ 185,400.00 − ₱ 117,440.29
= ∗ 100 = 13.59 %
₱ 500,000.00
YABUT, ALLAINE VEANICKA P.
BSEE 3A

PRESENT WORTH
CASH CASH
OUTFLOWS INFLOWS
ANNUAL ₱ 185,400.00
REVENUE (𝑃⁄𝐴 , 25% , 9)
₱ 185,400.00
(1+𝑖)𝑁 −1
[ ]
𝑖(1+𝑖)𝑁
₱ 185,400.00
(1+25%)9 −1 = ₱ 642,064.13
[ 9]
25%(1+25%)
(₱ 500,000.00 *
MARKET 10%)
SALVAGE
(𝑃⁄𝐹 , 25% , 9)
₱ 50,000.00 (1 +
𝑖)−𝑁
₱ 50,000.00 (1 +
= ₱ 6,710.89
25%)−9
INVESTMENT ₱ 500,000.00 = ₱ 500,000.00
OPERATION & ₱ 80,000.00
MAINTENANCE (𝑃⁄𝐴 , 25% , 9)
₱ 80,000.00
(1+25%)9 −1 = ₱ 277,050.33
[ 9]
25%(1+25%)
(₱ 500,000.00 *
TAXES & 4%)
INSURANCE
(𝑃⁄𝐴 , 25% , 9)
₱ 20,000.00
(1+25%)9 −1 = ₱ 69,262.58
[ ]
25%(1+25%)9
TOTAL = ₱ 846,312.91 = ₱ 648,775.02
TOTAL CASH
PRESENT INFLOWS –
WORTH TOTAL CASH
OUTFLOWS
YABUT, ALLAINE VEANICKA P.
BSEE 3A

₱ 648,775.02 - ₱
= ₱ 197,537.89
846,312.91

ANNUAL WORTH
₱ 500,000.00 − ₱ 500,000.00 (10%)
=
DEPRECIATION 𝐹⁄ ,25 %,9
𝐴
₱ 500,000.00 − ₱ 50,000.00
= (1+25 %)9 − 1 = ₱ 17,440.29
25 %

OPERATION & ₱ 80,000.00 per year = ₱ 80,000.00


MAINTENANCE
4 % THE 1ST COST
TAXES &
INSURANCE PER YEAR
= ₱ 500,000.00 (4%) = ₱ 20,000.00
INTEREST ON = ₱ 500,000.00 (25%) = ₱ 125,000.00
CAPITAL
= ₱ 242,440.29
= UNIFORM

EXCESS OR DEFICIT ANNUAL REVENUE


– ANNUAL WORTH
= ₱ 185,400.00 - ₱
₱ 57,040.29
242,440.29

FUTURE WORTH
= ₱ 648,775.02
CASH INFLOWS
(𝐹⁄𝑃 , 25% , 9)
= ₱ 648,775.02 (1 +
𝑖)𝑁
= ₱ 648,775.02 (1 +
= ₱ 4,833,750.58
25%)9
YABUT, ALLAINE VEANICKA P.
BSEE 3A

= ₱ 846,312.91
CASH OUTFLOWS
(𝐹⁄𝑃 , 25% , 9)
= ₱ 846,312.91 (1 +
𝑖)𝑁
= ₱ 846,312.91 (1 +
= ₱ 6,305,522.55
25%)9
FUTURE CASH
FUTURE WORTH INFLOWS – FUTURE
CASH OUTFLOWS
= ₱ 4,833,750.58 - ₱
= ₱ 1,471,771.97
6,305,522.55

SUMMARY:
Overall, the investment made\planned by the company is not a desirable
investment since the computations of the present, annual, and future worth all
show that the cash outflows are greater than the cash inflows.

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