‭ALCORCON ENGINEERING REVIEW CENTER‬

‭Cebu: 4‬‭TH‬‭Flr. Coast Pacific Downtown Center, Sanciangco‬‭St. Cebu City (Tel # 254-33-84)‬
‭Manila Branch: 3‬‭rd‬‭floor JPD Bldg 1955, C M Recto‬‭corner N. Reyes St, Sampaloc, Manila Tel # (02) 736-4438‬

‭ENGINEERING ECONOMICS‬
‭PROBLEM SET # 12‬
I‭NSTRUCTION:‬‭Encircle the letter that corresponds‬‭to the correct answer of your choice.‬
‭MULTIPLE CHOICE:‬

‭1. What is most nearly the present worth of a $100 annuity over a 10 yr period if the interest rate is 10%.‬

‭A. $314.46‬ ‭B. $414.46‬ ‭C. $514.46‬ ‭D. $614.46‬

‭2. What is the present worth of two $100 payments at the end of the fifth and sixth years if the annual interest rate‬
‭is 8%?‬
‭A. $131.07‬ ‭B. $141.07‬ ‭C. $151.07‬ ‭D. $161.07‬

‭3. At an annual rate of return of 8%, what is the future worth of $100 at the end of year 7?‬
‭A. $141.38‬ ‭B. $151.38‬ ‭C. $161.38‬ ‭D. $171.38‬

‭4. A person invests $1200 to be collected in 8 yr. Given the interest rate on the investment is 14.5%/yr,‬
‭compounded annually, most nearly what sum will be collected 8 yr from now?‬
‭A. $3,445‬ ‭B. $3,545‬ ‭C. $3,645‬ ‭D. $3,745‬

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‭5. $1000 is deposited into a 9% account today. At the end of 2 yr, another $3000 will be deposited. In 5 year, a‬
‭$5000 purchase will be made. Approximately how much will be left in the account 1 yr after the purchase?‬

‭A. $442‬ ‭B. $452‬ ‭C. $462‬ ‭D. $472‬

‭6. A firm borrows $2000 for 6 yr at 8%, to be repaid in a lump sum at the end of 6 yr. At the end of 6 yr, the firm‬
‭renews the loan for the amount due plus $3000 more for 2 yr at 8%. What is most nearly the amount of the‬
‭loan renewal?‬
‭A. $6673‬ ‭B. $6773‬ ‭C. $6873‬ ‭D. $6973‬

‭7. What is most nearly the effective annual interest rate on a loan if the nominal interest rate is 16%/yr compounded‬
‭quarterly?‬
‭A. 16.56%‬ ‭B. 16.62%‬ ‭C. 16.98%‬ ‭D. 17.23%‬

‭8. A person pays interest on a loan semi-annually at a nominal annual interest rate of 20%. What is most nearly the‬
‭effective annual interest rate?‬
‭A. 20.34%‬ ‭B. 21.00%‬ ‭C. 19.34%‬ ‭D. 20.67%‬

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‭9. A bank is advertising 10% accounts that yield 10.516% annually. How often is the interest compounded?‬

‭A. daily‬ ‭B. monthly‬ ‭C. bimonthly‬ ‭D. quarterly‬

‭10. Consider a deposit of $1000, to be paid back in 1 yr by $1125. What are the conditions on the rate of interest,‬
‭i, in %/yr compounded annually, such that the net present worth of the investment is positive? Assume i ≥‬
‭0%.‬

‭A. 0% ≤ i < 50%‬ ‭B. 0% ≤ i < 90%‬

‭C. 12.5% ≤ i < 100%‬ ‭D. There are no conditions on i that will make this possible.‬

‭11. Consider a deposit of $600, to be paid back in 1 yr by $750. What are the conditions on the rate of interest, i,‬
‭in %/yr compounded annually, such that the net present worth of the investment is positive? Assume i ≥ 0%.‬

‭A. 12.5% ≤ i < 14.3%‬ ‭B. 0% ≤ i < 14.3%‬ ‭C. 0% ≤ i < 25%‬ ‭D. 16.7% ≤ i < 100%‬

‭12. Approximately how many years will it take to double an investment at a 8% effective annual‬
‭rate?‬

‭A. 4 years‬ ‭B. 7 years‬ ‭C. 15 years‬ ‭D. 9 years‬

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‭ 3. An individual contributes $200 per month to a 401(k) retirement account. The account earns interest at a‬
1
‭nominal annual interest rate of 12%, with interest being credited monthly. What is the value of the account after 35‬
‭years?‬

‭A. $1,586,191‬ ‭B. $1,486,191‬ ‭C. $1,386,191‬ ‭D. $1,286,191‬

‭Page 1‬
‭ 4. $6000 is put into an empty savings account with a nominal interest rate of 5%. No other contributions are‬
1
‭made to the account. With monthly compounding, how much interest will have been earned after five years?‬
‭A. $1700‬ ‭B. $1800‬ ‭C. $1900‬ ‭D. $2000‬

‭15. A warehouse building was purchased 10 years ago for $300,000. Since then, the effective annual interest rate‬
‭has been 8%, inflation has been steady at 2.5%, and the building has had no deterioration or decrease in‬
‭utility. What should the warehouse sell for today?‬
‭A. $809,082‬ ‭B. $829,082‬ ‭C. $849,082‬ ‭D. $869,082‬

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‭16. A gourmet ice cream store has fixed expenses (rent, utilities, etc) of $50,000/year. Its two full-time employees‬
‭each $25,000 per year. There is also a part-time employee who makes $14,000 plus $6000 in overtime if‬
‭sales reach $120,000 in a year. The ice cream costs $4/L to produce and sells for $8/L. What is the minimum‬
‭number of liters the store must sell to break-even?‬
‭A. 30,700 L‬ ‭B. 30,800 L‬ ‭C. 30,900 L‬ ‭D. 30,000 L‬

‭17. A steel drum manufacturer incurs a yearly fixed operating cost of $200,000. Each drum manufactured costs‬
‭$160 to produce and sells for $220. What is the manufacturer’s break-even sales volume in drums per year?‬

‭A. 3034‬ ‭B. 3134‬ ‭C. 3234‬ ‭D. 3334‬

‭18. XYZ Corporation manufactures bookcases that it sells for $70 each. It cost XYZ $35,000/yr to operate its‬
‭plant. This sum includes rent, depreciation charges on equipment, and salary payments. If the cost to‬
‭produce one bookcase is $50, how many bookcases must be sold each year for XYZ to avoid taking a loss?‬
‭A. 1650 bookcase/yr‬ ‭C. 1850 bookcase/yr‬
‭B. 1750 bookcase/yr‬ ‭D. 1950 bookcase/yr‬

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‭19. A manufacturing firm maintains one assembly line to produce signal generators. Weekly demand for the‬
‭generators is 25 units, and the line operates for 7 h/d, 5 d/wk. What is the maximum production time per‬
‭unit required of the line in order to meet demand?‬
‭A. 1.00 h/unit‬ ‭B. 1.20 h/unit‬ ‭C. 1.30 h/unit‬ ‭D. 1.40 h/unit‬

‭20. In determining the cost involved in fabricating subassembly B within XYZ Corporation, the following data‬
‭have been gathered.‬
‭Xyz’s costs of manufacturing subassembly B‬
‭item cost‬
‭_______________ ____________‬
‭Direct material $0.50/unit‬
‭Direct labor $0.50/unit‬
‭Tooling setup $500/setup‬
‭It is decided to subcontract the manufacturing of subassembly B to an outside company. For an order of 100‬
‭units, which one of the following unit price bids from outside companies is unacceptable to XYZ Corporation?‬
‭A. $5.70/unit‬ ‭B. $6.70/unit‬ ‭C. $7.70/unit‬ ‭D. $8.70/unit‬

‭21. Suppose you want exactly $3000 in the previous investment account at the end of the seventh year. By using‬
‭the sinking fund factor, you could calculate the necessary annual amount you would need to deposit.‬
‭A. $317.41‬ ‭B. $337.41‬ ‭C. $357.41‬ ‭D. $377.41‬

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‭22. If a credit union pays 6% interest compounded quarterly, what is the effective annual interest‬
‭rate?‬

‭A. 5.136%‬ ‭B. 6.136%‬ ‭C. 7.136%‬ ‭D. 6.636%‬

‭ 3. If the nominal interest rate is 3% of 5000, how much worth in 15 years in a continuously compounded‬
2
‭account?‬

‭A. $7542‬ ‭B. $7642‬ ‭C. $7742‬ ‭D. $7842‬

‭24. If the interest rate on an account is 16% compounded yearly, approximately how many years will it take to triple‬
‭the amount?‬
‭A. 7.4 years‬ ‭B. 8.4 years‬ ‭C. 9.4 years‬ ‭D. 10.4 years‬

‭25. Fifteen years ago, $1000 was deposited in a bank account, and today it is worth $3000. The bank pays‬
‭interest semi-annually. What was the nominal annual interest rate paid on this account?‬
‭A. 5.46%‬ ‭B. 7.46%‬ ‭C. 8.46%‬ ‭D. 9.46%‬

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‭26. If you invest $30,000 at 8% interest compounded annually, approximately how much money will be in the‬
‭account at the end of 10 years?‬
‭A. $60,768‬ ‭B. $62,768‬ ‭C. $64,768‬ ‭D. $66,768‬

‭27. A 30-year-old consulting engineer wants to set up a retirement fund to be used starting at age 65. $20,000‬
‭is invested now at 6% compounded annually. Approximately how much money will be in the fund at retirement?‬
‭A. $153,122‬ ‭B. $153,322‬ ‭C. $153,522‬ ‭D. $153,722‬

‭28. You deposited $15,000 in a savings account five years ago. The account has earned 5.25% interest‬
‭compounded continuously since then. How much money is in the account today?‬
‭A. $17,503‬ ‭B. $18,503‬ ‭C. $19,503‬ ‭D. $20,503‬

‭29. A young engineer wants to surprise husband with a European vacation for their tenth anniversary, which is five‬
‭years away. She determines that the trip will cost $7000. Assuming an interest rate of 5.50% compounded‬
‭daily, approximately how much money does she need to deposit today for the trip?‬
‭A. $5,156‬ ‭B. $5,356‬ ‭C. $5,556‬ ‭D. $5,756‬

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‭ 0. A deposit of $1000 is made in the bank account that pays 8% interest compounded annually. Approximately how‬
3
‭will it be in the account after 20 years?‬
‭A. $4261‬ ‭B. $4461‬ ‭C. $4661‬ ‭D. $4861‬

‭31. A deposit of $1000 is made in a bank account that pays 20% interest per year compounded‬
‭quarterly. Approximately how much money will be in the account after 10 years?‬
‭A. $7,040‬ ‭B. $7,140‬ ‭C. $7,240‬ ‭D. $7,340‬

‭32. A what rate of annual interest will an investment quadruple itself in 10 years?‬
‭A. 10.87%‬ ‭B. 12.87%‬ ‭C. 14.87%‬ ‭D. 16.87%‬

‭33. Twenty thousand dollars is invested today. If the annual inflation rate is 6% and the effective annual return on‬
‭investment is 12%, what will be the approximate future value of the investment, adjusted for inflation, in five‬
‭years?‬
‭A. $43,168‬ ‭B. $45,168‬ ‭C. $47,168‬ ‭D. $49,168‬

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 ‭34. An investment currently costs $28,000. If the current inflation rate is 6% and the effective annual return‬
‭on investment is 10%, approximately how long will it take for the investment’s future value to reach $60,000.‬

‭A. 1.96 years‬ ‭B. 3.96 years‬ ‭C. 4.96 years‬ ‭D. 8.96 years‬

‭35. The annual maintenance cost of a machine shop is $10,000. The cost of making a forging is $2.00, and‬
‭the selling price is $4.00. How many forgings should be produced each year in order to break-even?‬
‭A. 4900‬ ‭B. 5000‬ ‭C. 5100‬ ‭D. 5200‬

‭36. The amount of machine worth P2600.00 is borrowed 16% simple interest. Find the amount after 10 months.‬

‭A. P1600.42‬ ‭B. P1790.34‬ ‭C. P1487.23‬ ‭D. P2946.67‬

‭37. Find the future amount of P25,000 after 4 years if the simple interest rate is 14%.‬
‭A. P29,500‬ ‭B. P39,600‬ ‭C. P29,700‬ ‭D. P29,800‬

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‭38. A man borrowed P30,000 from Jan 18, 2004 to November 3, 2004 with 12% simple interest. Find the‬
‭exact interest.‬
‭A. P2,852.46‬ ‭B. P3,093‬ ‭C. P5,083‬ ‭D. P7,826‬

‭39. A mother borrowed money from a bank with 22% simple interest. The interest is automatically deducted from the‬
‭principal at the time the money is released. Find the actual interest charged to him after 1 year.‬

‭A. 12.97%‬ ‭B. 14.82%‬ ‭C. 28.21%‬ ‭D. 18.37%‬

‭40. A man borrowed P300,000 from a bank and agreed to pay the loan at the end of a month. The bank‬
‭discounted the loan and gave him 250,000. What is the rate of discount?‬
‭A. 20.67%‬ ‭B. 16.67%‬ ‭C. 28%‬ ‭D. 30%‬

‭41. A machine has a selling price of P400,000 after a 15% discount. Find the original amount.‬

‭A. P325,000‬ ‭B. P350,000‬ ‭C. P375,000‬ ‭D. P470,588‬

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‭42. P20,000 is borrowed at 12% compounded quarterly for 8 years. Find the amount after 8 years.‬

‭A. P51,502‬ ‭B. P71,208‬ ‭C. P76,304‬ ‭D. P80,395‬

‭43. The company wanted to receive P500,000 6 years from now. Considering an interest of 14% compounded‬
‭semi-annually, find the amount must be deposited in the bank to receive the amount after 6 years.‬
‭A. P249,058‬ ‭B. P222,006‬ ‭C. P260,405‬ ‭D. P279,197‬

‭44. P60,000 is invested in a bank at 8% compounded monthly for 8 years. Find the amount earned of the‬
‭investment.‬
‭A. P75,038‬ ‭B. P79,964.78‬ ‭C. P53,547.43‬ ‭D. P93,048.34‬

‭45. An employee deposited an amount of P200,000 after his retirement 10 years ago. The money now is‬
‭worth P1,000,000. Find the annual interest he receives.‬
‭A. 21.93%‬ ‭B. 17.46%‬ ‭C. 25.89%‬ ‭D. 27.04%‬

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‭46. If P8000 shall accumulate for 10 years at 12% compounded quarterly. Find the compound interest at the end of‬
‭10 years.‬
‭A. P8456.28‬ ‭B. P9456.28‬ ‭C. P18,096.30‬ ‭D. P11,456.28‬

‭47. A sum of P5,000 is invested now and left for 6 years, at which time the principal is withdrawn. The interest‬
‭that has accrued is left for another 6 years. If the effective annual interest rate is 8%, what will be the‬
‭withdrawal amount at the end of the 12th year?‬
‭A. P706.00‬ ‭B. P4,656.48‬ ‭C. P1774.00‬ ‭D. P5,211.13‬

‭48. P3,500.00 was deposited in a bank account 15 years ago. Today it is worth P10,000.00. Interest is paid‬
‭semi-annually. Determine the interest rate paid on this account?‬
‭A. 3.67%‬ ‭B. 5.90%‬ ‭C. 7.12%‬ ‭D. 4%‬

‭ 9. If the nominal interest rate is 6%, how much is P10,000 worth in 12 years in a continuous compounded‬
4
‭account?‬

‭A. P20,544‬ ‭B. P6750.00‬ ‭C. P7288.47‬ ‭D. P6350.00‬

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‭ 0. You are given the option to borrow P5,000 you need for one year. Which of this will you pay lesser interest? To‬
5
‭borrow from a friend at an interest rate of 1.5% month or a loan from a bank at a rate of 18% per year?‬

‭ . You will pay P78.09 more than if you borrow from a bank‬
A
‭B. You will pay P78.09 less than if you borrow from a bank‬
‭C. You will save P43.20 from borrowing from your friend.‬
‭D. Borrowing from a bank will give P34.23 less in interest‬

‭ 1. Find the compound amount and interest if P4,500 is invested at 12% compounded quarterly for 5 years and‬
5
‭9 months.‬
‭A. P7,200‬ ‭B. P8881.14‬ ‭C. P3,864.95‬ ‭D. P5934.79‬

‭ 2. Mr. Ayala borrows P1000. In 4 years, the money become P2,500.00 compounded bimonthly. Find the nominal‬
5
‭interest.‬
‭A. 12.62%‬ ‭B. 14.64%‬ ‭C. 23.35%‬ ‭D. 15%‬

‭53. Find the effective interest of 4% quarterly.‬

‭A. 10.29%‬ ‭B. 12.55%‬ ‭C. 14.03%‬ ‭D. 16.98%‬

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‭54. A machine has a compound interest of 3,000 when invested at 14% compounded bi-monthly after 12 years.‬
‭Find the present amount of the investment.‬
‭A. 703.73‬ ‭B. 1572.03‬ ‭C. 7634.56‬ ‭D. 2937.45‬

‭55. A sum of money is deposited now in a savings account. The effective annual interest rate is 12% and interest is‬
‭compound monthly. How much money must be deposited to yield P8000.00 at the end of 11 months?‬

‭A. P153.00‬ ‭B. P446.00‬ ‭C. P6547.79‬ ‭D. P7210.63‬

‭ 6. Find the nominal rate which if converted semi-annually could be used instead of 12% compounded bi-‬
5
‭monthly.‬

‭A. 10.58%‬ ‭B. 11.28%‬ ‭C. 9.38%‬ ‭D. 12.24%‬

‭57. In how many years will an amount triple itself if invested at 10% compounded annually?‬
‭A. 9.69‬ ‭B. 11.52‬ ‭C. 13.05‬ ‭D. 15.34‬

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‭58. In how many years will an amount quadruple itself if interest is 14% compounded quarterly?‬
‭A. 6.93 yrs‬ ‭B. 10.07 yrs‬ ‭C. 8.84 yrs‬ ‭D. 11.28 yrs‬

‭59. When will an investment of P20,000.00 double if the effective rate is 4% per month?‬
‭A. 1.47‬ ‭B. 9.0‬ ‭C. 6.5‬ ‭D. 10.2‬

‭60.‬‭A‬‭student‬‭deposits‬‭P5,000.00‬‭in‬‭a‬‭10%‬‭account‬‭today.‬‭He‬‭intends‬‭to‬‭deposit‬‭another‬‭P10,000.00‬‭at‬‭the‬‭end‬‭of‬
‭three‬‭years.‬‭He‬‭plans‬‭to‬‭purchase‬‭in‬‭10‬‭years‬‭a‬‭machine‬‭worth‬‭P20,000.00.‬‭Calculate‬‭the‬‭money‬‭that‬‭will‬‭be‬
‭left in his account 4 years year after the purchase.‬
‭A. P18,237‬ ‭B. P10,912‬ ‭C. P21,250‬ ‭D. P1,260.00‬

‭61. A machine costs P30,000 today. If inflation rate is 12% per year and interest is 16% per year, what will be the‬
‭appropriate future value of the machine, adjusted for inflation, in 10 years?‬
‭A. P306,300.00‬ ‭B. P411,037.00‬ ‭C. P289,500.00‬ ‭D. P183,443.17‬

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‭62. A product has a current selling price of P1500.00. If its selling price is expected to decline at the rate of 12% per‬
‭annum because of obsolescence, what will be its selling price 8 years hence?‬
‭A. P425.15‬ ‭B. P202.75‬ ‭C. P302.75‬ ‭D. P539.45‬

‭63. A company which manufactures electric motors has a production capacity of 250 motors a month. The variable‬
‭costs are P150.00 per motor. The average selling price of the motor is P250.00. 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 closed to:‬
‭A. 40‬ ‭B. 150‬ ‭C. 200‬ ‭D. 160‬

‭64. A factory is running 80% efficiency with a fixed cost of P80,000.00, variable cost per unit of P130.00, selling‬
‭price per unit of P400.00, and production capacity of 4000 units. What is the current profit of the factory if all‬
‭products manufactured are sold?‬
‭A. P1,352,000.00‬ ‭B. P430,000.00‬ ‭C. P1,066,000.00‬ ‭D. P784,000‬

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‭65. XYZ Corporation manufactures bookcases that it sells for P60.00 each. It cost XYZ P35,000 per year to operate‬
‭its plant. The 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 ‭B. 539 cases‬ ‭C. 3500 cases‬ ‭D. 2333 cases‬

‭66. At an annual rate of return of 8%, what is the future worth of $100 at the end of year 4?‬
‭A. $130‬ ‭B. $132‬ ‭C. $135‬ ‭D. $136‬

‭67. A person invests $450 to be collected in 8 yr. Given the interest rate on the investment is 14.5%/yr,‬
‭compounded annually, most nearly what sum will be collected 8 yr from now?‬
‭A. $1050‬ ‭B. $1130‬ ‭C. $1240‬ ‭D. $1330‬

‭68. $1000 is deposited into a 9% account today. At the end of 2 yr, another $3000 will be deposited. In 5 years,‬
‭a $4000 purchase will be made. Approximately how much will be left in the account 1 yr after the purchase?‬

‭A. $1230‬ ‭B. $1420‬ ‭C. $1540‬ ‭D. $1690‬

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‭69. A firm borrows $2000 for 6 yr at 8%, to be repaid in a lump sum at the end of 6 yr. At the end of 6 yr, the firm‬
‭renews the loan for the amount due plus $2000 more for 2 yr at 8%. What is most nearly the amount of the‬
‭loan renewal?‬
‭A. $5280‬ ‭B. $5750‬ ‭C. $5510‬ ‭D. $6140‬

‭70. A company invests $10,000 today to be repaid in 5 yr in one lump sum at 12% compounded annually. If the‬
‭rate of inflation is 3% compounded annually, approximately how much profit, in present day dollars, is realized‬
‭over the 5 yr?‬
‭A. $3200‬ ‭B. $5200‬ ‭C. $5630‬ ‭D. $7620‬

‭71. What is most nearly the effective annual interest rate on a loan if the nominal interest rate is 12%/yr‬
‭compounded quarterly?‬
‭A. 11.8%‬ ‭B. 12.0%‬ ‭C. 12.3%‬ ‭D. 12.6%‬

‭72. A person pays interest on a loan semi-annually at a nominal annual interest rate of 16%. What is most nearly‬
‭the effective annual interest rate?‬
‭A. 15.5%‬ ‭B. 15.7%‬ ‭C. 16.4%‬ ‭D. 16.6%‬

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‭73. Which of the following statements is NOT correct?‬
‭A. A nominal rate of 12% per annum compounded quarterly is the same as 12%/4 = 3%/quarter.‬
‭B. $1 compounded quarterly at 3% for n yr has a future value of (1.03)‬‭4n‬‭.‬
‭C. Compounding quarterly at a nominal rate of 12%/yr is equivalent to compounding annually at a rate of‬
‭12.55%.‬
‭D. Effective rate of return in options (A), (B), and (C) is the difference between 12.55% and 12%.‬

‭ 4. A bank is advertising 9.5% accounts that yield 9.84% annually. How often is the interest‬
7
‭compounded?‬

‭A. daily‬ ‭B. monthly‬ ‭C. bimonthly‬ ‭D. quarterly‬

‭ 5. Consider a deposit of $1000, to be paid back in 1 yr by $975. What are the conditions on the rate of interest, i,‬
7
‭in %/yr compounded annually, such that the net present worth of the investment is positive? Assume i ≥ 0%.‬

‭ . 0% ≤ i < 50%‬
A
‭B. 0% ≤ i < 90%‬
‭C. 12.5% ≤ i < 100%‬
‭D. There are no conditions on I that will make this possible.‬

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‭76. Consider a deposit of $600, to be paid back in 1 yr by $700. What are the conditions on the rate of interest, i, in‬
‭%/yr compounded annually, such that the net present worth of the investment is positive? Assume i ≥ 0%.‬

‭ . 12.5% ≤ i < 14.3%‬

A ‭ . 0% ≤ i < 16.7%‬
C
‭B. 0% ≤ i < 14.3%‬ ‭D. 16.7% ≤ i < 100%‬

‭77. A steel drum manufacturer incurs a yearly fixed operating cost of $200,000. Each drum manufactured costs‬
‭$160 to produce and sells for $200. What is the manufacturer’s break-even sales volume in drums per year?‬

‭A. 1000‬ ‭B. 1250‬ ‭C. 2500‬ ‭D. 5000‬

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