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LP-10

The document contains a series of lecture problems related to financial calculations, including inflation rates, depreciation methods, investment returns, and cost analysis. Each problem presents a specific scenario requiring mathematical solutions, such as calculating book values, break-even points, and rates of return. The problems cover various topics in finance and accounting, aimed at enhancing understanding of capital investments and asset management.

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Jesiree Acosta
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3 views

LP-10

The document contains a series of lecture problems related to financial calculations, including inflation rates, depreciation methods, investment returns, and cost analysis. Each problem presents a specific scenario requiring mathematical solutions, such as calculating book values, break-even points, and rates of return. The problems cover various topics in finance and accounting, aimed at enhancing understanding of capital investments and asset management.

Uploaded by

Jesiree Acosta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CECA 1 – LECTURE PROBLEMS NO.

10

1. In 1960, the average value of a house is P300,000. In 2010, the average value of the house of the same model is
P2,132,000. What was the rate of infla on of the house?
2. In year zero, you invest P 100,000.00 in a 15% security for 10 years. During that me, the average annual
infla on is 6%. How much in terms of year zero pesos will be in the account at maturity?
3. A 30 hp sand mill cost P410,000. Salvage value of the mill is es mated to be P60,000 a er 20 years. Find the
appraisal or book value of the sand mill using straight line deprecia on method a er 10 years.
4. An asset is purchased for P9,000. Its es mated life is 10 years, a er which it will be sold for P1,000. Find the
book value at the end of third year if sum-of-the-year’s digit method ( SOYDM) deprecia on is used.
5. ABC purchased new 3D projectors with a total worth of P618,000. If the equipment is depreciated over an eight-
year period with salvage value of 5%, determine the deprecia on charge during the fi h year using declining
balance method.
6. A property is purchased at P 100,000 with a salvage value of 10% of the original cost a er 8 years of service. If
during the first 4 years of service it produces 100 units per year and 80 units each year for the remaining years.
What will be the book value a er 5 years of service using service output method?
7. A machinery worth P10,000 has an an cipated salvage value of P3,000 at the end of 7 years’ depreciable life.
Compute the deprecia on of the machinery on the 4th year only using MACRS method.
8. Compute the capitalized cost of a new car worth P800,000 if it is es mated that it requires P20,000 per year to
maintain and must be replaced at the same amount with a salvage value of P300,000 a er 5 years if the interest
rate is 12% per annum
9. A contractor can buy dump trucks for P800,000 each or rent them for P1200 per day. The truck has a salvage
value of P100,000 at the end of its useful life of 5 years. The annual cost of maintenance is P20,000. Using the
annual cost method and 14% interest rate, determine the number of days per year that the truck must be used
to warrant its purchase.
10. The labor cost per unit is P20, cost of materials per unit is P64, and other variable cost per unit is P5.25. The fixed
charges on business is P175,000/mo. If the unit selling price is P215, determine the number of units to be
produced monthly to break-even.
11. A small entrepreneur invested a capital of P80,000 for a buy and sell business. He es mated to have a gross
income of P25,000 annually and an opera ng cost of P6000 annually. It is assumed the business to have a life of
10 years. If the rate of interest is 12%. Compute the benefit cost ra o.
12. It is es mated that insula on of steam pipes in a factory will reduce the fuel bill by as much as 20%. The cost of
the insula on is P90,000 installed and the annual cost of taxes and insurance is 5% of the ini al cost. Without
insula on, the annual fuel bill is P180,000. If the insula on is worthless a er 6 years’ use, what would be the
rate of return? i=12%
13. It is es mated that insula on of steam pipes in a factory will reduce the fuel bill by as much as 20%. The cost of
the insula on is P90,000 installed and the annual cost of taxes and insurance is 5% of the ini al cost. Without
insula on, the annual fuel bill is P180,000. If the insula on is worthless a er 6 years’ use, determine the
recovery period. i=12%
14. A company has a working capital of P20M and a fixed capital of P80M. Annual deprecia on amounts of P5M and
the expected annual net profit is P16M. Compute the payout period in years.
15. What is the maximum amount an investor should pay for a 25-year bond with a P20,000 face value and 8%
coupon rate (interest only paid semiannually)? The bond will be kept to maturity. The investor’s effec ve annual
interest rate for economic decision is 10%.
16. ABC Corpora on has preferred stock outstanding. This stock pays an annual dividend of P2.5. If the next dividend
is paid 1 year from now and the annual required return is 10%, what should be the value of the preferred stock?
17. DEF Corpora on just paid a P1.57 dividend and investors expect that dividend to grow by 5% each year. If the
required return on the stock investment is 14%, what should be the price of the stock today.
18. ABC is planning to put up its own building. The two proposals being considered are:
Proposal A: Construc on of the building now, to cost P4,000,000.
Proposal B: Construc on of a smaller building now, to cost P3,000,000 and at the end of 5 years an extension to
be added to cost P2,000,000.
Which is more economical if the interest rate is 20% and deprecia on to be neglected?
19. A C.E. borrowed P50,000 from a bank and promises to pay the loan a er 1 year. The C.E. received P45,000 in
cash. Determine the rate of discount and the rate of interest.

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