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Activity 3 Engineering Economy: P A P A, I, N G, I, N P 5,000 (P 5,000 P 6,631.285+ P1,255.411 P 7,886.68

This document contains 5 engineering economy problems involving concepts like present worth, rate of return, depreciation, and salvage value. The problems are solved using formulas for gradient interest, internal rate of return, straight-line depreciation, sinking fund method, and sum of the years' digits method. The solutions range from P6,631 to P112,492.50.

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taliya coco
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605 views

Activity 3 Engineering Economy: P A P A, I, N G, I, N P 5,000 (P 5,000 P 6,631.285+ P1,255.411 P 7,886.68

This document contains 5 engineering economy problems involving concepts like present worth, rate of return, depreciation, and salvage value. The problems are solved using formulas for gradient interest, internal rate of return, straight-line depreciation, sinking fund method, and sum of the years' digits method. The solutions range from P6,631 to P112,492.50.

Uploaded by

taliya coco
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ACTIVITY 3

ENGINEERING ECONOMY

Answer the following problems and show your solution.

1. Find the present worth of all the cash disbursements using gradient interest formulas if
money is worth 15% per annum. Annual cash disbursements increases by P1,000 every
year thereafter, until the end of the fourth year. The first cash disbursement amounts to
P5,000.
a. P6,650.50
b. P6,622.51
c. P7,694.43
d. P7,201.32

Solution:
Arithmetic gradient formula present worth P

P= A ( A ,iP , n )+G( G ,iP , n )


4
4 ( 1+0.15 ) ( 0.15 ) ( 4 )−1
¿ P 5,000[ 4
]+ P1,000 [ 2 4
]
( 1+ 0.15) −1 0.15 (1+0.15)

¿ P 5,000 ( 1.326257 )+ P 1,000(1.255411)


¿ P 6,631.285+ P1,255.411
¿ P 7,886.68
2. A man purchased a share of stock for P135.00 six years ago and has received a dividend
of P6.00 at the end of each year. If he sold the share for P120.00 today, at what rate could
he consider that he has been paid interest? Assuming that he would have reinvested such
interest at 4% compounded annually.
a. 2.8%
b. 3.1%
c. 2.7%
d. 3.6%

Solution:

[
R= D+
V f −V i
years¿ ]
maturity ¿ /[
V f −V i
2
]

[
R= 6+
6
/[
]
120−135 120−135
2
]

R=3.5/127.5
R=2.7 %
3. The cost of equipment is P500,000 and the cost of installation is P30,000. If the salvage
value is 10% of the cost equipment at the end of 5 years, determine the book value at the
end of the fourth year. Use straight line method.
a. P155,000
b. P140,000
c. P146,000
d. P132,600

Given:
C o=P 500,000+ P30,000=P 530,000

C L =P 500,000 ( 0.10 )=P50,000

L=5 n=4
Solution:
C o−C L
d=
L
P 530,000−P 50,000
d=
5
d=96,000
D 4 =( d)(n)

¿ ( 96,000 ) ( 4 )=384,000
C 4=C O −D4

¿ 530,000−384,000=P 146,000
Therefore, the book value of the equipment at the end of the fourth year is P 146,000.
4. A P100,000 chemical plant had an estimated life of 6 years and a projected scrap value of
P10,000. After 3 years of operation an explosion made it a total loss. How much money
would have to be raised to put up a new plant costing P150,00O, if a depreciation
reserved have been maintained during its 3 years of operation by sinking fund method.
a. P104,359.08
b. P111,432.40
c. P112,492.50
d. P106,532.45

Solution:
( FC−SV )
Annual depreciation=
(1+i)n −1
( P 100,000−P 10,000 ) 0.06
¿ =P 12,902.64
(1.06)6 −1
Solve for total depreciation (F) after 3 years,
n
(1+i) −1
F= A
i

(1+ 0.06)3−1
¿ P 12,902.64
0.06
¿ P 41,076.84
Amount to be raised,
¿ P 150,000−P 41,076.84
¿ P 108,923.16
Therefore, the amount to be raised to put up a new plant is P 108,923.16
5. An equipment costs P7,000 has a life of 8 years and salvage value of “x” after 8 years. If
the book value of the equipment at the 4th year is equal to P2,197.22 compute the salvage
value of “x” using the sum of the years digit method.
a. 594
b. 430
c. 350
d. 290

Solution:

SYD=( 1+8 ) ( 82 )=36


Solve for the total depreciation,
BV 4=FC−Σ D

2,197.22=7,000−Σ D
Σ D=7,000−2,197.22
Σ D=4,802.78
Depreciation at 4th year,
( 8+7 +6+5 )
D= ( FC −SV )
36
26
4,802.78= (7,000−SV )
36
4,802.78
=7,000−SV
26
36
6,650=7,000−SV
SV =7,000−6,650
SV =350
Therefore, the salvage value of “x” is 350.

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