EngEcon Worded Problems PDF

Worded Problems on Engineering Economics with Basic Accounting
Instructions:
A) Copy the Assigned Worded Problems, then write the Givens, Required, Diagram, Formulation,
and Assumptions needed then write your Solutions and Double-line the answer/s.
B) To have mastery on the subject, you are required to practice solving problems related on the
subject only. This submission is to monitor and record that activity.
C) The standard requirement is 15 worded problems for every unit of the subject. This subject,
being a 3 unit subject, will require you to submit at least 45 worded problems whose topics
are to be equally distributed to those 45 worded problems.
Worded Problems:
1)
A man planned to build a house. The cost of property and construction is Php 2,000,000 with the salvage value of
Php 400,000 after the life of 10 years. The cost of maintenance is Php 50,000 per year. If the interest rate is 6%,
what is the capitalized cost of the house?
2)
A man is considering investing Php 500,000 to open a semi-automatic auto-washing business in a city of 400,000
populations. The equipment can wash, on the average, 12 cars per hour, using two men to operate it and to do
small amount of handwork. The man plans to hire to men, in addition to him, and operate the station on an 8hour basis, 6 days per week, and 50 weeks per year. He will pay his employees Php 25.00 per hour. He expects
to charge Php 25.00 for a car wash. Out-of-pocket miscellaneous cost would be Php 8,500 per month.
He would pay his employees for 2 week for vacation each year. Because of the length of his lease, he must
write off his investment within 5 years. His capital now is earning 15%, and he is employed at a steady job that
pays Php 25,000 per month. He desires a rate of return of at least 20% on his investment.
Using rate of return and annual worth methods, is the investment recommended?
3)
Php 400,000 after the life of 10 years. The cost of maintenance is Php 50,000 per year. If the interest rate is 8%,
what is the capitalized cost of the house?
4)
A proposed project will require the immediate investment of Php 50,000 and is estimated to have year-end
revenues and cost as follows:
Year
Revenue
Costs
1
Php 75,000
Php 60,000
2
90,000
77,500
3
100,000
75,000
4
95,000
80,000
5
60,000
47,500
An additional investment of Php 20,000 will be required at the end of the second year. The project would
terminate at the end of the 5th year, and the assets are estimated to have a salvage value of Php 25,000 at the
time. Is this investment economically feasible?
5)
Php 400,000 after the life of 10 years. The cost of maintenance is Php 50,000 per year. If the interest rate is
10%, what is the capitalized cost of the house?
6)
Choose from the two machines, which is more economical, if money is worth at least 16%.
Specifics
First Cost
Salvage value
Annual Operation
Annual Maintenance
Taxes and insurance
Life (years)
Machine A
Php 8,000
0
3,000
1,200
3%
10
Machine B
Php 14,000
2,000
2,400
1,000
3%
15
7)
A company is going to buy a new machine for manufacturing its product. Four different machines are available.
Cost, operating and other expenses are as follows:
Specifics
Machine A
Machine B
Machine C
Machine D
First Cost
Php 24,000
Php 30,000
Php 49,600
Php 52,000
Power per year
1,300
1,360
2,400
2,020
Labor per year
11,600
9,320
4,200
2,000
Maintenance per year
2,800
1,900
1,300
700
Taxes and insurance
3%
3%
3%
3%
Life (year)
5
5
5
5
Money is worth 17% before taxes to the company. Which machine should be chosen?
8)
An untreated electric wooden pole that will last 10 years under certain soil condition cost Php 20,000. If a treated
pole will last for 20 years, which is the maximum justifiable amount that can be paid for the treated pole, if the
maximum return on investment is 20%. Consider annual taxes and insurance amount to be 1% of first cost.
. . . continuation of Engineering Econom ics W orded P roblem s
Page 2 of 62
****PRESENT ECONOMY****
9)
A building contractor is faced with the problem of possibly paying liquidated damages of Php2,000 per day for the
delay in the completion of his work in accordance with a contract. The facts are as follows:
a) Number of days left on the contract time = 30 days;
b) At present the working force is: 40 skilled workers with a daily wage of Php40.00 each, 20 unskilled workers
with a daily wage of Php32.00 each;
c) The daily wage is based on an 8-hour days work;
d) If he maintains the present number of men he will finish the work in 50 days;
e) Overtime rate is 25% more than regular rate.
If he allows the present working force to work overtime of 2 hours a day, in how many days will he finish the
work? How much are his savings or loss?
10)
The monthly demand for ice cans being manufactured by Mr. Cruz is 3,200 pieces. With a manually operated
guillotine the unit cutting cost is Php25.00. An electrically operated hydraulic guillotine was offered to him at a
price of Php275,000 and which reduced by 30% the unit cutting cost. Disregarding the cost of money, how many
months will Mr. Cruz be able to recover the cost of the machine if he decides to buy now?
11)
A contractor has 50 men of the same capacity at work on a job. They can complete the work in 30 days, the
working day being 8 hours, but the contract expires in 20 days. He decides to put 20 additional men. If all the
men get Php3.00 per day for a full or part time day, and if the liquidated damages are Php100.00 for
every full or part day he requires over his contract time, will he complete the work on time, and if
not, would he save money by putting enough men to complete it on time?
12)
If the contractor puts additional men maintaining the ratio of two skilled workers to one unskilled worker in order
to finish the work on time, how many will he add? Consider no overtime work.
13)
A man would like to invest Php50,000 in government bonds and stocks that will give an overall annual return of
5%. The money to be invested in government bonds will give an annual return of 4% and the stocks of about
6% annual return. The investments are in units of Php100.00 each. If he desires to keep his stock investment to
a minimum in order to reduce his risk, determine how many government bonds and how many stocks should he
purchase?
14)
A building contractor has a contract which will expire in 30 days. He has 80 men on the job and can finish the job
in 50 days. The wage per day of 40 men is Php6.00 each and that of the other 40 men is Php4.00 each for 8
hours work per day. The fine or liquidated damages for delay in the work is Php100.00. per day. How many more
men should the contractor add in order to enable him to complete the work on time? Assuming that the additional
men to be added will be paid Php6.00 per day, will the contractor save money by employing enough men for him
to complete the work on time or by not adding more men and paying the fine? How much is the savings, if any?
No overtime work is permitted.
15)
Should the contractor allow overtime work of two hours a day, how many men will he add in order to finish the
work on time? How much will he save or lose?
16)
A contract is let for Php10,000. It is to be completed in four weeks time, subject to a penalty of Php240 per day if
that time is exceeded. At the end of 3 weeks the work is 60% complete. Cost of labor was initially estimated at
Php4,000 when working 40 hours per week. If overtime labor must be compensated at double time and work is 8
hours per day straight time, on the revised work schedule determine:
a) Would it be cheaper to take the penalty or to complete the job by working overtime?
b) By what percent would the estimated labor cost be increased by the cheaper plan?
17)
In a gold mining area in Davao the ore contains, on the average, one ounce of gold per ton. One method of
processing A costs Php1,500 per ton and recovers 90% of the gold. Another method B costs only Php1,200 per
ton and recovers 80% of the gold. If gold can be sold for Php4,000 per ounce, which method is better and by how
much?
Page 3 of 62
18)
A cement kiln with production capacity of 130 tons per 24-hour day of clinker has its burning zone about 45 tons of
magnesite chrome bricks being replaced periodically depending on some operational factors and the life of the
bricks. If locally produced bricks cost Php25,000 per ton and have a life of 4 months, while certain imported bricks
costing Php30,000 per ton and have a life of 6 months, determine the more economical bricks and by how much?
19)
An equipment installation job in the completion stage can be completed in 40 days of 8 hours work per day with 40
men working. With the contract expiring in 30 days, the mechanical engineer contractor decided to add 10 more
men on the job, overtime not being permitted. If the liquidated damages is Php2,000 per day of delay, and the
men are paid Php80.00 a day, will the engineer be able to complete the job on time? Would he save money by
adding more men?
20)
A jewelry craftsman needs 100 grams of gold alloy containing 75% pure gold for his products. Only two alloys of
gold are available from a Davao supplier, the first 80% pure gold and the other 60% pure gold. How many grams
of each gold alloy must he buy to suit his requirements?
21)
The quarrying cost of marble and granite blocks plus delivery cost to the processing plant for each is Php2,400 per
cu.m. Processing cost of marble into tiles is Php200 per sq.m., and that of granite into tiles is Php600 per sq.m.
If marble has a net yield of 40 sq.m. of tiles per cu.m. of block and sells at Php400 per sq.m, and granite gives a
net yield of 50 sq.m. of tile per cu.m. of block, and sells at Php1,000 per sq.m., determine the more profitable
material considering all other costs to be the same, and by how much?
****INTEREST AND DISCOUNT****

22) Five years ago a house was purchased for Php34,000.
appreciation of its value?
If it is sold today for Php50,000, what is the rate of
23)
Annie buys a television set from a merchant who asks for Php1,250 if paid at the end of 60 days. However, Annie
wishes to pay immediately and the merchant offers to compute the cash price now. What is the cash price today if
money is worth 8% simple interest?
24)
Juan dela Cruz borrowed money from a bank. He received Php1,340 and promised to pay Php1,500 at the end of
9 months. Determine the following:
a) The rate of simple interest;
b) The corresponding discount rate.
25)
A man borrows money from a bank which uses a simple discount rate of 14%. He signs a promissory note
promising to pay Php500 per month at the end of the 4th, 6th, and 7th months, respectively. Determine the amount
he received from the back.
26)
An amount of Php3,000 is invested for 9 years at 6% compounded quarterly. Determine the amount of interest
earned by the investment.
27)
If Php10,000 is invested at 12% interest compounded annually, determine how many years it will take to double.
28)
Which is better for an investor, to invest at 5% compounded semi-annually or 5% compounded monthly?
29)
Mr. W borrowed Php2,000 from Mr. Y. on June 1, 1928 and Php500 on June 1, 1930. Mr. W. paid Php500 on June
1, 1931, Php400 on June 1, 1932, and Php700 on June 1, 1993. If money is worth 5% compounded annually,
what additional payment should Mr. W pay on June 1, 1936 to discharge all remaining liability?
30)
How long will it take Php500 to be four times in value if invested at the rate of 7% compounded semi-annually?
What is the effective rate of interest?
31)
It is the practice of almost all banks in the Philippines that when they grant a loan that the interest for one year is
automatically deducted from the principal amount upon release of money to the borrower. Let us therefore
assume that you applied for a loan with a bank and amount of Php80,000 was approved at an interest rate of 14%
of which Php11,200 was deducted and you were given a check for Php68,000. Since you have to pay Php80,000
one year after, what then will be the effective interest rate?
32)
The sum of Php26,000 was deposited in a fund earning interest at 8% interest per annum compounded quarterly.
What was the amount in the fund at the end of 3 years?
33)
The Philippine Society of Mechanical Engineers is planning to construct its own building. Two proposals are being
considered:
a) The construction of the building now to cost Php400,000;
b) The construction of a smaller building now, to cost Php300,000 and at the end of 5 years, an extension to be
added to cost Php200,000.
Which proposal is more economical if interest is 20%, depreciation is disregarded and by how much?
Page 4 of 62
34)
If the sum of Php15,000 is deposited in an account earning 4% per annum compounded quarterly, what will be the
amount of the deposit at the end of 5 years?
35)
A man who won Php300,000 in a lottery decided to place 50% of his winnings in a trust fund fro the college
education of his son. If the money will earn 14% a year compounded quarterly, how much will the man have at
the end of 10 years, when his son will be starting his college education?
36)
A man borrowed Php25,000 from a bank for which he signed a promissory note to repay the loan at the end of one
year. He only received the amount of Php21,915 after the bank collected the advance interest and an additional
amount of Php85.00 for legal fees. What is the rate of interest that the bank charged?
37)
One plan to raise money for Texas schools involves an enrichment tax that could collect Php56 for every student
in a certain school district and the cash flow begins 2 years from now, what is the present worth of the enrichment
plan over a 5-year planning period at an interest rate of 8% per year?
38)
Bacnotan Iron and Steel purchased a new machine for ram cambering large I-beams. The company expects to
bend 80 beams at Php2,000 per beam in each of the first 3 years, after which the company expects to 100 beams
per year at Php2,500 per beam through year 8. If the companys minimum attractive rate of return is 18% per
year, what is the present worth of the expected income?
39)
Rubbermaid Plastics plans to purchase a rectilinear robot for pulling parts from an injection molding machine.
Because of the robots speed, the company expects production costs to decrease by Php100,000 per year in each
of the first 3 years and by Php200,000 per year in the next 2 years. What is the present worth of the cost savings
if the company uses an interest rate of 15% per year on such investment?
40)
Toyco Watercraft has a contract with a parts supplier that involves purchases amounting to Php150,000 per year,
with the first purchase to be made now, followed by similar purchases over the next 5 years. Determine the
present worth of the contract at an interest rate of 10% per year.
****ANNUITIES AND CAPITALIZED COST****

41) A house and lot was offered for Php87,000 with a 10% down payment and a monthly payment of Php500 per
month for 25 years. What is the monthly interest rate and effective rate?
42)
The average annual cost of damages caused by floods to a certain subdivision located along the Pasig River is
estimated at Php700,000. To build a gravity dam to protect the area from flood would cost Php2,500,000 and
would involve an annual maintenance cost of Php20,000. With interest at 8% compounded annually, how many
years will it take for the dam to pay for itself?
43)
A man wishes to have Php350,000 when he retires 15 years from now. If he can expect to receive 4% annual
interest, how much must he set aside beginning at the end of each of the 15 years?
44)
An investor deposits Php10,000 per year in a bank which offers an interest of 18% per annum for time deposits of
over 5 years. Compute how much the investor can collect at the end of 13 years, assuming that he never
withdraws any amount before the 13th year.
45)
A man wishes to prepare the future of his ten-year old son. Determine the monthly savings that he should make
with interest at 5.41% per annum to amount to Php1,200,000 at the time his son will be 18 years old.
46)
A building and loan association requires that loans be repaid by uniform monthly payments which include monthly
interest calculated on the basis of nominal interest of 5.4% per annum. If Php50,000 is borrowed to be repaid in
10 years, what must the monthly payment be?
47)
You want to start saving for your ten-year old sons college education. If you are guaranteed 6% interest
compounded quarterly, how much would you have to save each month to amount to Php1,200,000 by the time he
is 18 years old?
48)
A man bought a house and lot worth Php300,000 in a subdivision in Metro-Manila. The annual amortization for the
house and lot is Php34,000. Determine the rate of interest he was charged by the subdivision owners.
49)
Find the annual payments to extinguish a debt of Php60,000 payable in 5 years at 12% compounded annually.
50)
A man purchases a computer worth Php15,000 with interest at 5% payable semi-annually. He signed a contract to
pay Php5,000 and the balance, principal and interest included, by equal payments at the end of each 6 months for
10 years. At the end of 4 years this computer was sold to yield the investor 7% payable semi-annually. Find the
price he was paid.
51)
A man owes Php50,000 with interest at 6% payable semi-annually. What equal payments at the beginning of each
6 months for 8 years will discharge his debt?
Page 5 of 62
52)
The Php100,000 cost of an equipment was made available through a loan which earns 12% per annum. If the
loan will be paid in 10 equal annual payments, how much is the annual installments?
53)
A mechanical engineer designed a mechanical device costing Php200,000. Maintenance will cost Php10,000 each
year. The device will generate revenues of Php50,000 each year for 5 years, after which the salvage value is
expected to be Php70,000. Draw the cash flow diagram. What is the difference of the Present worth on cash-out
from cash-in?
54)
A father wishes to provide Php400,000 for his sons 21st birthday. How much should he deposit every 6 months in
a savings bank which pays 3% compounded semi-annually, if first deposit is made when the son is 3 years old?
55)
If money is worth 12% compounded quarterly and n=5, compute the present value of the following:
a) Php100.00 received monthly in year n;
b) Php100.00 received monthly for n years.
56)
A shirt factory has just installed a boiler. It is expected that there will be no maintenance expenses until the end of
the 11th year, when Php400 will be spent on the boiler. The same amount will be spent at the end of each
successive year until the boiler is scrapped at the end of 35 years. What sum of money set aside at this time will
take care of all maintenance expenses?
57)
A Filipino contractor in the Middle East plans to purchase a new office building costing Php10,000,000. He agrees
to pay Php1,500,000 annually for 20 years. At the end of this time he estimates that he can resell the building for
at least Php6,000,000. Instead of buying the building he can lease it for Php1,040,000 a year. All payments are to
be made at the beginning of each year and the rate of interest is 10%. Should the contractor purchases or lease
the building?
58)
XYZ Inc. plans to construct an additional building at the end of 10 years at an estimated cost of Php5,000,000. To
accumulate this amount it will deposit equal year-end amounts in a fund earning 13%. However, at the end of the
5th year it decided to have a larger building estimated to cost Php8,000,000. What should be the annual deposit
for the last 5 years?
59)
A computer cost Php105,000. It can be leased for an annual rent of Php30,000 payable at the beginning of each
year throughout it s economic life of 5 years. No salvage value is expected at the end of 5 years. Cost of capital is
10% and the applicable income tax rate is 40%. Should the computer be purchased or leased?
60)
A refrigeration equipment fabricator sold an ice drop making machine which the condition that is case the machine
will not be able to produce the guaranteed capacity, he will deduct from the agreed price of the machine the loss
of revenue that the buyer will incur during the economic life of the machine which is 5 years, plus 12% cost of
money. One month after the machine was delivered the buyer complained to the fabricator that he was not
getting the guaranteed production. After a series of tests, it was determined that the buyer would be losing
Php4,000 worth of unrealized sales per year. Assuming no increase in operation cost if guaranteed production is
attained, how much must the buyer deduct from the agreed price of the machine?
61)
A company manufacturing acids, upon inspection of the plant, found out that it is badly corroded from the acid
fumes and would need to be replaced. To try to get some more life out of the roofing, the company consulted a
roofing coating contractor who presented the company with two options. The first option is a coating that will cost
Php20,000 which would extend the life of the roofing for 3 years from the date of application, and the second
option will cost Php30,000 and which would extend the life of the roofing for 5 years fro the date of application. At
what rate of return are the investment equal?
62)
A fully secured loan of Php30,000 was to be amortized by 10 equal semi-annual payments, the first payment to be
made 6 months after the loan is approved. After the 6th payment was made the debtor was in a position to settle
the entire balance remaining by a single payment on that date. If the interest on the loan is 12% compounded
semi-annually, what would be the amount of the single payment?
63)
A machine has just been purchased for Php1.2 million. It is anticipated that the machine will be held 5 years, that
it will have a salvage value of Php80,000 based on current prices, and that the annual rate of inflation during the
next 5 years will be 7%. The machine will be replaced by a duplicate and the firm will accumulate the necessary
capital by making equal year-end deposits in a reserve fund that earns 6% per annum. Determine the amount of
the annual deposit.
64)
A man agreed to pay the loan he is borrowing from a bank in six equal year-end payments of Php71,477.70.
Interest is 18% per annum, compounded annually, and is included in the yearly amount he will be paying the
bank. How much money is the man borrowing from the bank?
65)
A woman wishes to purchase a set of appliances with a total cost of Php20,000. She made a down payment of
Php5,000 and the balance payable in 24 equal monthly installments. If financing charge is 12% each year
computed on the total balance to be paid by installment and interest is 12%,
a) How much would each installment payment be?
b) What will be the actual cost of money?
Page 6 of 62
66)
A new company developed a program in which employees will be allowed to purchase shares of stock of the
company at the end of its fifth year of operation, when the company is thought to have gained stability, at par
value of Php100 per share. Believing in the good potential of the company, an employee decided to save in a bank
the amount of Php8,000 at the end of every year which will earn 9% interest, compounded annually. How many
shares will he be able to purchase at the end of the fifth year?
67)
A company has approved a car plan for its six senior officers in which the company will shoulder 25% of the cost
and the difference payable by each officer to a financing company in 48 equal end-of-the-month installments at an
interest rate of 1.5% per month. If the cost of each car is Php350,00, determine the Total amount each owner will
have to shoulder.
68)
If Php10,000 is deposited each year for 9 years, how much annuity can a person get annually from a bank every
year fro 8 years starting one year after the ninth deposit is made? Money is worth 14%.
69)
An employee earning Php12,000 a month can only afford to buy a car requiring a down payment of Php10,000 and
a monthly amortization of not more than 30% of his monthly salary. What would be the maximum cash value of a
car he can purchase if the seller will agree to a down payment of Php10,000 and the balance payable in 4 years at
18% per year payable on a monthly basis? The first payment will be due at the end of the first months.
70)
A company has approved a car plan for its six senior officers in which the company will shoulder 25% of the cost
and the difference payable by each officer to a financing company in 48 equal end-of-the-month installments at an
interest rate of 1.5% per month. If the cost of each car is Php350,000, determine the amount each officer has to
pay the finance company each month.
71)
A machinery supplier is offering a certain machine on a 10% down payment and the balance payable in equal yearend payments without interest for 2 years. Under this arrangement the price is pegged at Php250,000. However,
for cash purchase the machine would only cost Php195,000. What is the equivalent interest rate that is charged on
the two-year payment plan if interest is compounded quarterly?
72)
Determine the amount needed now to purchase a machine for Php100,000, provide an annual fund of Php15,000
for operation and maintenance, and to replace it at the same cost at the end of every ten-year period. Money is
worth 7% compounded annually.
73)
A new storage tank can be purchased and installed for Php50,000, and is expected to last for 10 years. However,
an existing tank of equivalent capacity may be continued to be used if it is repaired. If this tank were repaired its
estimated useful life is 3 years, then the same type of repairs will have to be done again. Assume that future costs
will remain the same and that the tanks will have no scrap value. Money is worth 10% compounded annually.
How much can be spent for repairing the existing tank if the capitalized cost of the two tanks are the same?
74)
A chemical reactor, which will contain corrosive liquids, has been designed. The reactor may be made of mild steel
or stainless steel. The initial cost, including installation, of a mild steel reactor is expected to be Php72,000 and
would last 5 years. Stainless steel is more resistant to the corrosive action of the liquids, but is more expensive at
the cost of Php120,000. Assuming that both types of reactors will have no salvage or scrap value at the end of
their useful lives and could be replaced at the same cost as before, and if money is worth 12% compounded
annually, what should the useful life of the stainless reactor be so that the capitalized cost are equal?
75)
Compute the values of the Present and Future worth from the data below where interest rate is 10%:
Period
Value
Cash Flow
0
Present Worth
Php 0
1
Php 0
2
Php 80
3
Php 160
4
Php 240
5
Php 320
6
Future Worth
Php 400
76)
Compute the values of the Present and Future worth from the data below where interest rate is 10%:
Period
Value
Cash Flow
0
Present Worth
Php 50
1
Php 50
2
Php 130
3
Php 210
4
Php 290
5
Php 370
6
Future Worth
Php 450
77)
Compute the values of the Present Worth and X from the data below where interest rate is 10%:
Period
Value
Cash Flow
0
Present Worth
0

1
2
3
4
5
6
Future Worth = Php10,000
Page 7 of 62
X
2X
3X
4X
5X
6X
78)
For the gradient series shown where interest rate is 10%, compute the values of Present and Future Worth, and
value of Annuity for the equivalent uniform series:
Period
Value
Cash Flow
0
Present Worth
Php 0
1
Php 1,000
2
Php 900
3
Php 800
4
Php 700
5
Php 600
6
Future Worth
Php 500
79)
Compute the value of X so that the two cash flows will be equivalent where interest rate for both is 12%. Hint:
The present or accumulated values for the cash flows should be equal.
Period
First Cash Flow
Second Cash Flow
0
Php 0
0
1
Php 0
5X
2
Php 700
4X
3
Php 1,400
3X
4
Php 2,100
2X
5
Php 2,800
X
80)
Suppose an engineer receives an initial annual salary of Php24,000 increasing at the rate of Php1,200 a year. If
money is worth 12%, determine his equivalent annual salary for a period of 10 years.
81)
The year-end operating and maintenance cost of a certain machine are estimated to be Php4,800 the first year and
to increase by Php800 each year thereafter during its eight-year life. If capital is worth 15%, determine the
equivalent uniform year-end costs.
82)
An inventor was offered the following alternatives as royalties for his invention:
a) A single lump sum payment of Php350,000 for the right to manufacture the invention for the next 5 years;
b) An initial payment of Php100,000 and year-end payments as follows:
End of Year
Royalty Payments
1
Php 0
2
Php 50,000
3
Php 100,000
4
Php 150,000
5
Php 200,000
If money is worth 15% to the inventor, which alternative is better for him? Disregard income tax considerations.
83)
For the following arithmetic gradient series, with interest at 10%, find the Present worth.
End of Year
Royalty Payments
1
Php 0
2
Php 800
3
Php 1,600
4
Php 2,400
5
Php 3,200
6
Php 4,000
84)
For the following arithmetic gradient series, with interest at 10%, find the value at the end of year 6.
End of Year
Royalty Payments
1
Php 0
2
Php 800
3
Php 1,600
4
Php 2,400
5
Php 3,200
6
Php 4,000
85)
For the following arithmetic gradient series, with interest at 10%, find the value at the end of year 10, assuming no
further deposits after the sixth year.
End of Year
Royalty Payments
1
Php 0
2
Php 800
3
Php 1,600

4
5
6
Page 8 of 62
Php 2,400
Php 3,200
Php 4,000
86)
For the following arithmetic gradient series, with interest at 10%, find the equivalent uniform series for 6 years.
End of Year
Royalty Payments
1
Php 0
2
Php 800
3
Php 1,600
4
Php 2,400
5
Php 3,200
6
Php 4,000
87)
A machine in a factory has the following end-of-year maintenance costs:

End of Year
Royalty Payments
1
Php 720
2
Php 800
3
Php 880
4
Php 960
5
Php 1,040
6
Php 1,120
7
Php 1,200
In interest is 14.8% compounded annually, determine the present worth of this series.
88)
A company owes Php80,000, which includes the interest, to be paid one year from now. To provide for the
repayment of this debt, the company deposits Php2,000 at the beginning of the first month, Php4,000 at the
beginning of the second month, increasing the deposits in each succeeding month by Php2,000 until the beginning
of the eight month. These amounts earn interest at the rate of 9% compounded monthly. Will the total amount in
the fund at the end of 12 months be sufficient to repay the debt? If not, how much more is needed?
89)
For the cash flow shown, find Present Worth (P) and Future Worth (F) if Interest (i) = 18% per year and
incremental increase (r) = 12%:
Period
Value
Cash Flow
0
Present Worth
Php 0
1
Php 500
2
Php 560
3
Php 627.20
4
Php 702.46
5
Php 786.76
6
Future Worth
Php 881.17
90)
For the cash flow shown, find Present Worth (P) and Future Worth (F) is Interest (i) = 18% per year and
incremental increase (r) = 10%:
Period
Value
Cash Flow
0
Present Worth
Php 0
1
Php 600
2
Php 660
3
Php 726
4
Php 798.60
5
Php 787.46
6
Php 966.31
7
Php 0
8
Future Worth
Php 0
91)
For the cash flow shown, find Present Worth (P) and Future Worth (F) is Interest (i) = 15% and incremental rate
(r) = -20%:
Period
Value
Cash Flow
0
Present Worth
Php 0
1
Php 5,000
2
Php 4,000
3
Php 3,200
4
Php 2,560
5
Php 2,048
6
Future Worth
Php 1,638.40
92)
A man makes a series of ten annual deposits starting at Php2,000 at the end of the first year and increasing the
amount deposited by 10% every year thereafter. Find the total amount at the end of ten years if the rate of
interest on all sums on deposit is 8%.
Page 9 of 62
93)
Find the value of X in the arithmetic gradient as shown, so that the two cash flows will be equivalent if i = 15%
per year:
Period
First Cash Flow w/ r = 10%
Second Cash Flow
0
Php 0
0
1
Php 1,000
5X
2
Php 1,100
4X
3
Php 1,210
3X
4
Php 1,331
2X
5
Php 1,464.10
X
94)
95)
A parcel of land in a downtown area, suitable for a parking lot, can be leased for a period of 10 years. Initial
development costs for clearing, paving, and constructing a small office shed on the lot is estimated to be
Php150,000. If the net annual revenue for the first year is Php22,000 and increases by 10% per year thereafter
until the tenth year, and the improvements revert to the owner of the land at the end of 10 years, what is the rate
of return on the investment?
96)
97)
Ciscos gross revenue (the percentage of revenue left after subtracting the cost of goods sold) was 70.1% of total
revenue over a certain 4-year period. If the total revenue was Php5.4 billion for the first 2 years and Php6.1 billion
for the last 2 years, what was the equivalent annual worth of the gross revenue over that 4-period period at an
interest rate of 20% per year?
98)
A Professional Mechanical Engineer decides to set aside money for his newborn daughters college education. He
estimates that her needs will be Php20,000 on her 17th, 18th, 19th, and 20th birthdays. If he plans to make uniform
deposits starting 3 years from now and continue through year 16, what should be the size of each deposit, if the
account earns interest at a rate of 8% per year?
99)
How much money would you have to pay each year in 8 equal payments, starting 2 years from today, to repay a
Php20,000 load received from a relative today, if the interest rate is 8% per year?
100) An Industrial Engineer is planning for his early retirement 25 years from now. He believes he can comfortably set
aside Php10,000 each year starting now. If he plans to start withdrawing money 1 year after he makes his last
deposit (i.e. year 26), what uniform amount could he withdraw each year for 30 years, if the account earns interest
at a rate of 8% per year?
101) Veco provides standby power to pumping stations using diesel-powered generators. An alternative has arisen
whereby the utilities could use natural gas to power the generators, but it will be a few years before the gas is
available at remote sites. The utility company estimates that by switching to gas, it will save Php15,000 per year
starting 2 years from now. At an interest rate of 8% per year, determine the equivalent annual worth (years 1
through 10) of the projected savings.
102) The operating cost of a pulverized coal cyclone furnace is expected to be Php80,000 per year. If the steam
produced will be needed on for 5 years beginning now (i.e. years 0 through 5), what is the equivalent annual worth
in years 1 through 5 of the operating cost at an interest rate of 10% per year?
103) Life Savings Accounts (LSA) would allow people to invest after-tax money without being taxed on any of the gains.
If an engineer invest Php10,000 now and Php10,000 each year for the next 20 years, how much will be the
account immediately after the last deposit if the account grows by 15% per year?
104) How much money was deposited each year for 5 years if the account is now worth Php100,000 and the last
deposit was made 10 years ago? Assume the account earned interest at 7% per year.
105) By spending Php10,000 now and Php25,000 three years from now, a plating company can increase its income in
years 4 through 10. At an interest rate of 12% per year, how much extra income per year would be needed in
years 4 through 10 to recover the investment?
106) Sierra Electric Company is considering the purchase of a hillside ranch for possible use as a windmill farm sometime
in the future. The owner of the 500-acre ranch will sell for Php3,000 per acre if the company will pay her in two
payments one payment now and another that is twice as large 3 years from now. If transaction interest rate is
8% per year, what is the amount of the first payment?
107) Two equal deposit made 20 and 21 years ago, respectively, will allow a retiree to withdraw Php10,000 now and
Php10,000 per year for 14 more years. If the account earned interest at 10%, how large was each deposit?
Page 10 of 62
****FINANCING ANY ENTERPRISE****

108) A debt of Php1,000,000 with interest at the rate of 8%, payable semi-annually, is to be amortized by equal
payments at the end of each 6 months for 4 years. Find the semi-annual payment and construct an amortization
schedule.
109) Construct the amortization schedule for a debt of Php100,000 with interest at the rate of 19%, payable semiannually, which is paid for, principal and interest included, by payments of Php20,000 at the end of each 6 months
for as long as necessary.
110) A man borrowed Php1,000,000 from a bank for home improvement, to be repaid by month-end payments for 12
months. The current rate of interest charged by banks is 19% compounded monthly. Based on this rate, prepare
an amortization schedule.
111) A corporation floats Php20,000,000 worth of ten-year callable bonds in 10,000 denominations. The bond rte is 7%
compounded annually. Prepare an amortization schedule.
112) You purchased a Php5,000 bond for Php5,100. The pays Php200 per year. It is redeemable for Php5,050 after 10
years. What is the net rate of interest on your investment?
113) A Php1,000 6% bond pays dividends semi-annually and will be redeemed at 110% on July 1, 1975. It is bought on
July 1, 1972 to yield (4%, m = 2). Find the price when it was bought.
114) A Php1,000,000 debt, in the form of Php1,000 bonds, bears 4% interest payable annually.
amortization schedule for this issue by ten annual payments as nearly equal as possible.
Construct an
115) A Php1,000 bond which will mature in 10 years and with a bond rate of 8% payable annually is to be redeemed at
par at the end of this period. It is sold for Php1,030. Determine the yield at this price.
116) A man was offered a Land Bank Certificate with a face value of Php100,000 which bears interest of 8% per year
payable semi-annually and due in 6 years. If the man wants to earn 6% semi-annually, how much must he pay for
the certificate?
****DEPRECIATION AND DEPLETION****
117) Your are planning to sell your electronic manufacturing plant originally costing Php250,000 when it was put up 15
years ago. Some equipment originally costing Php10,000 was replaced 10 years ago with new equipment costing
Php15,000. The equipment installed 10 years ago has now depreciated by Php7,500. The depreciation of the
remaining portion of the plant originally installed 15 years ago is now Php40,000. Determine the present book
value of your plant.
118) A broadcasting corporation purchased equipment worth Php53,000 and paid Php1,500 for freight and delivery
charges to the site. The equipment has a normal life of 10 years with a trade-in value of Php5,000 against the
purchase of new equipment at the end of life. Determine the annual depreciation cost by the straight-line method.
119) A machine which cost Php10,000 was sold as scrap after being used for 10 years. If the scrap value was Php500,
determine the total depreciation at the end of the fifth year.
120) A broadcasting corporation purchased equipment worth Php53,000 and paid Php1,500 for freight and delivery
charges to the site. The equipment has a normal life of 10 years with a trade-in value of Php5,000 against the
purchase of new equipment at the end of life. Determine the annual depreciation cost by the sinking fund method.
Assume interest is 6% compounded annually.
121) A telephone company purchased a microwave radio equipment for Php6,000,000. Freight and installation charges
amounted to 3% of the purchase price. If the equipment is depreciated over an eight-year period with salvage
value of 5%, determine the annual depreciation charge using the straight-line method.
122) The cost of a certain asset is Php3,000; its life is 6 years and scrap value is Php500. Find the annual rate of
depreciation under constant percentage method, and construct a depreciation table.
123) A dump truck was bought for Php300,000 six years ago. It will have a salvage value of Php30,000 four years from
now. It is sold now for Php80,000. What is the suck cost if the depreciation method used is the Straight-line
method?
124) A television company purchased machinery for Php100,000 on July 1, 1979. It is estimated that it will have a
useful life of ten years, scrap value of Php4,000, production of 400,000 units and working hours of 120,000. The
company uses the machinery for 14,000 hours in 1979 and 18,000 hours in 1980. The machinery produces
36,000 units in 1979 and 44,000 units in 1980. Compute the depreciation for 1980 using the Straight-line method.
Page 11 of 62
125) A telephone company purchased a microwave radio equipment for Php8,000,000. Freight and installation charges
amounted to 3% of the purchase price. If the equipment is depreciated over an eight-year period with salvage
value of 5%, determine the depreciation charge during the fifth year using the SYD method.
36,000 units in 1979 and 44,000 units in 1980. Compute the depreciation for 1980 using the Working hours
method.
127) A dump truck was bought for Php300,000 six years ago. It will have a salvage value of Php30,000 four years from
now. It is sold now for Php80,000. What is the suck cost if the depreciation method used is the Sinking fund
method at 6%?
128) A tax and duty free importation of a 30-horsepower sand mill for paint manufacturing costs Php360,000. Bank
charges, arrastre and brokerage cost Php5,000. Foundation and installation costs were Php25,000. Other
incidental expenses amount to Php20,000. Salvage value of the mill is expected to be Php60,000 after 20 years.
Find the appraisal value of the mill using straight-line depreciation at the end of 5 year.
36,000 units in 1979 and 44,000 units in 1980. Compute the depreciation for 1980 using the Output method.
131) On January 1, 1978 the purchasing manager of a cement company bought a new machine costing Php140,000.
Depreciation has been computed by the straight-line method, based on an estimated useful life of 5 years and
residual scrap value of Php12,800.
On January 2, 1981 extraordinary repairs (almost equivalent to a rebuilding of the machinery) were performed at
a cost of Php30,400. Because of the thorough going nature of these repairs, the normal life of the machinery was
extended materially, the revised estimate of useful life was 4 years from 1981.
Determine the annual provision for depreciation for the years 1978 to 1980 and the adjusted provision for
depreciation on December 31, 1981. Assume payment in cash for the machine and the repairs.
133) A machine shop purchased 10 years ago a milling machine for Php60,000. A straight-line depreciation reserve had
been provided based on a 20-year life of the machine. The owner of the machine shop desires to replace the old
milling machine with a modern unit having many advantages costing Php100,000. It can sell the old unit for
Php20,000. How much new capital will be required for the purchase?
135) A trenching machine may be used to dig irrigation ditches or pipeline trenches. A contractor purchases one for
Php400,000 and he estimates that it will be able 500,000 meters during its life and he expects to receive Php5,000
as scrap value when he sells it. During a certain year he used the machine to dig 90,000 meters of trench.
Determine the depreciation cost for that year.
136) A mining company invested Php25,000,000 to develop an oil well which is estimated to contain 1,000,000 barrels
of oil. During a certain year, 200,000 barrels were produced from this well. Compute the depletion charge during
the year.
137) A mining company invested Php25,000,000 to develop an oil well which is estimated to contain 1,000,000 barrels
of oil. During a certain year, 200,000 barrels were produced from this well which earned a total gross income of
Php30,000,000. The taxable income after deducting all expenses excluding depletion is Php11,800,000.
Determine the allowable depletion allowance for the year.
138) During a certain month, a mining company has a gross income of Php6,500,000 from the production of gold. The
expense for this month excluding depletion is Php4,000,000. If the fixed depletion rate for gold is 15%, what is
depletion allowance for this month?
Page 12 of 62
139) The Carryall Trucking Company uses three delivery trucks that cost Php100,000; Php120,000; and Php150,000.
The estimated salvage values are Php20,000; Php25,000; and Php35,000. All trucks have an expected service life
of 10 years. Determine the group depreciation rate.
140) A coal mining company has owned a mine for the past five years. During this time the following tonnage of ore
has been removed each year: 25,000; 32,000; 36,000; 30,000; and 28,000 tons. The mine is estimated to contain
a total of 500,000 tons of coal. The initial cost of the mine is Php12,000,000. If the company had a gross income
for this coal of Php220 per ton for the first two years, and Php300 per ton for the last three years, determine the
depletion charge for each year using the larger values for the two methods.
141) The Rainbow Electric Company uses three production
Machine
Type of Machine
No. 1
Cutting machine
No. 2
Drill press
No. 3
Sanding machine
machines. Determine the composite life of stated machines:

First Cost
Salvage Value
Life
Php30,000
Php5,000
8
Php22,000
Php4,000
6
Php15,000
Php1,500
5
142) A coal mining company has owned a mine for the past five years. During this time the following tonnage of ore
has been removed each year: 25,000; 32,000; 36,000; 30,000; and 28,000 tons. The mine is estimated to contain
a total of 500,000 tons of coal. The initial cost of the mine is Php12,000,000. If the company had a gross income
for this coal of Php220 per ton for the first two years, and Php300 per ton for the last three years, compute the
percent of the initial cost that has been written off in the five years.
143) The Rainbow Electric Company uses three production
machines described below:
Machine
Type of Machine
No. 1
Cutting machine
No. 2
Drill press
No. 3
Sanding machine
machines. Determine the composite depreciation rate of the

First Cost
Php30,000
Php22,000
Php15,000
Salvage Value
Php5,000
Php4,000
Php1,500
Life
8
6
5
144) The Carryall Trucking Company uses three delivery trucks that cost Php100,000; Php120,000; and Php150,000.
The estimated salvage values are Php20,000; Php25,000; and Php35,000. All trucks have an expected service life
of 10 years. Determine the group annual depreciation.
145) The San Fernando Manufacturing Company owns four different production machines with data tabulated below:
Machine Number Number Owned
First Cost
Salvage Value
Expected Life
No. 1
8
Php40,000
Php12,000
12
No. 2
6
Php32,000
Php8,000
10
No. 3
4
Php18,000
Php4,000
10
No. 4
4
Php24,000
Php6,000
8
One-half of the machines of each kind will be replaced after 8 years and the rest will be sold after 12 years.
Compute the total annual straight-line depreciation charges by the group depreciation method.
146) The Rainbow Electric Co. uses three production machines. Determine the annual depreciation of stated machines:
Machine
Type of Machine
First Cost
Salvage Value
Life
No. 1
Cutting machine
Php30,000
Php5,000
8
No. 2
Drill press
Php22,000
Php4,000
6
No. 3
Sanding machine
Php15,000
Php1,500
5
However, calculate the actual annual depreciation by assuming that the company uses a service life of 8 years for
all models and one-half of the salvage values.
148) The San Fernando Manufacturing Company owns four different production machines with data tabulated below:
Machine Number Number Owned
First Cost
Salvage Value
Expected Life
No. 1
8
Php40,000
Php12,000
12
No. 2
6
Php32,000
Php8,000
10
No. 3
4
Php18,000
Php4,000
10
No. 4
4
Php24,000
Php6,000
8
One-half of the machines of each kind will be replaced after 8 years and the rest will be sold after 12 years.
Compute the total annual straight-line depreciation charges by the composite depreciation method.
****VALUATION OF PROPERTIES****
149) An 8-story building was built in Manila 10 years ago costing Php5,000,000 on a 1,000 sq.m. lot purchased for
Php1,000 a sq.m. It is expected that after 50 years a taller building will be constructed on the site due to the need
for more office and store space in that area. To be conservative, the owners of the property expect its scrap value
at the end of 50 years to be Php250,000. Sinking fund depreciation at 6% is used. However, due to inflation the
Page 13 of 62
price of properties are expected to escalate at the rate of 4.6% a year for each of the 10 years. Determine the
value of the property now by the Historical-cost less depreciation method.
150) A factory was built in Laguna 12 years ago at an original cost of Php800,000 on a 4,000 sq.m. parcel of land
costing Php120 a sq.m. The plant will be fully depreciated in 25 years with no salvage or scrap value. The
machinery and equipment installed 12 years ago cost Php600,000 and are expected to last 15 years before being
replaced with a scrap value of Php50,000. Five years ago, new equipment were purchased costing Php360,000
due to increased demand for the product being manufactured. These will also last for 15 years with value at the
time of Php25,000. Disregarding inflation, determine the valuation of the property now if depreciation is by the
straight-line formula for the building, and by the Matheson formula for the equipment.
price of properties are expected to escalate at the rate of 4.6% a year for each of the 10 years. Determine the
value of the property now by the Reproduction-cost-new less depreciation method.
152) A farmer in Guiguinto, Bulacan planted 50 mango trees on his property which are now fruit bearing. For the
mangoes produced for the next 5 years, the farmer was offered the following by two wholesale buyers:
Buyer A offered a down payment of Php50,000 and Php1,000 for the produce from each tree each year to be
paid at the end of each of the 5 years.
Buyer B will not pay any down payment, but will pay Php1,200 for the produce from each tree each year to be
paid at the beginning of each year for 5 years.
If money is worth 12% effective, which of the offers should the farmer accept?
price of properties are expected to escalate at the rate of 4.6% a year for each of the 10 years. If the property is
appraised now for taxation purposes at the rate of 3.5% of the appraised value, compute the annual real estate tax
to be paid by the owners.
154) An author of a best-selling novel in the United States was offered two alternatives by a publisher for the right to
publish her book:
The first alternative was a single lump sum payment of $2,000,000 with no further royalties in the future; or
As the second alternative, a royalty of 15% on the gross selling price of each book sold. The publisher expects
to sell 500,000 copies of the hard-bound edition for the first year costing $22.50 each, and 500,000 copies of the
paperback edition each year for the next 3 years which sells for $5.95 each. Payments to the author are made at
the end of each of the 4 years. Assume that no further royalty payments will be paid after 4 years.
If money is worth 8.5% to the author, which alternative should she accept? Disregard income tax consideration.
155) A copper mine is Davao expects to have a net annual income of Php2,500,000 annually for 10 years. Determine its
value if the annual dividend rate is to be 15%, payable annually, and the sinking fund is to accumulate at the rate
of 8% annually.
156) The annual output of a gold mine is 25,000 tons of ore. It is expected that the ore body will be exhausted within
20 years. The management cost annually is Php750,000, and the operating cost of the mine and the smelter plant
is Php120 per ton. The processed ore produces and income of Php450 per ton. If the annual dividend rate is
12%, payable annually, and the sinking fund rate is 9% annually, determine the valuation of the property now.
157) Timber land in Palawan was purchased for Php8,000,000 and earned an average annual profit of Php1,400,000 for
14 years, at the end of which time the land was sold for Php200,000. Assuming that a sinking fund earning 7%
was established to provide for depletion, determine the investment rate.
****PRINCIPLES OF ACCOUNTING****
158) Prepare a Balance Sheet and determine the ownership on the following data:
Cash
Notes payable
Accrued taxes
Accounts receivable
Prepaid insurance
Accounts payable
Furniture and fixtures
Reserve for depreciation
Php41,012
2,500
2,950
30,300
2,150
11,150
53,125
21,000
159) As of December 30, 20xx the balance of the ledger accounts of the Davao Manufacturing Company are below
stated. Determine the amount for Inventories of goods and materials on hand, and prepare a balance sheet:

Mortgages payable
Cash on Hand and in Banks
Common Shares
Reserve for depreciation on buildings and plant
Prepaid expenses (for taxes, rental, etc.)
Equipment and machinery
Undivided surplus
Advance payment on orders from the company
Franchises
Notes and accounts payable
Inventories of goods and materials on hand
Land (original Cost)
Declared and unpaid dividends
Notes and accounts receivable
Reserve for expansion
Reserve for depreciation on equipment
Building and plant (original cost)
Preferred shares (45% of Common Shares)
Accrued expenses (taxes, wages, etc.)
160) Prepare a Balance Sheet and determine the Debt Ratio on the following data:
Cash
Notes payable
Accrued taxes
Accounts receivable
Prepaid insurance
Accounts payable
Page 14 of 62
Php350,000
220,000
552,000
53,670
32,640
450,000
180,000
37,590
60,000
92,340
Php???,???
320,000
92,500
56,700
150,000
85,200
529,000
Php???,???
45,800
Php41,012
2,500
2,950
30,300
2,150
11,150
53,125
21,000
161) As of December 31, 1976, the financial data for the Visayan Manufacturing Company are below stated. Prepare a
balance sheet and determine the ownership from the following data:
Cash on hand
Php300,000
Cash in Bank
1,200,000
Building and plant
3,000,000
Cast of Land
1,200,000
1,500,000
Advance payment for taxes and insurance
700,000
1,200,000
Mortgage allowance
1,500,000
Allowance for depreciation
300,000
Declared and approved dividends
300,000
Inventory
2,000,000
Supplies and materials
1,800,000
Capital stocks
7,500,000
162) Prepare a Balance Sheet and determine the Acid-Test Ratio on the following data:
Cash
Php41,012
Notes payable
2,500
Accrued taxes
2,950
Accounts receivable
30,300
Prepaid insurance
2,150
Accounts payable
11,150
53,125
21,000
stated. Determine the amount for Inventories of goods and materials on hand, and Calculate the Current Ratio
and Inventory turnover from the following data:
Mortgages payable
Php350,000
220,000
Common Shares
552,000
53,670
32,640
450,000

Undivided surplus
Franchises
Page 15 of 62
180,000
37,590
60,000
92,340
Php???,???
320,000
92,500
56,700
150,000
85,200
529,000
Php???,???
45,800
164) On December 31, the balance sheet of the F. Santos Corporation includes the following classifications:
Assets
Liabilities and Stockholders Equity
Current Assets
Current Liabilities
Fixed Assets
Fixed Liabilities
Prepaid Expenses
Prepaid Income
Intangible Assets
Capital Stock
Retained Earnings
Indicate the proper balance sheet classification for each of the following items and prepare the completed
balance sheet:
a) Equipment purchased for Php100,000;
b) Bonds payable in 10 years, Php50,000;
c) A petty cash fund, Php500;
d) Common stock, 1,000 shares at Php100 par;
e) Cash in the Union Bank, Php46,000;
f) Inventory of goods on hand, Php32,000;
g) Net income, Php67,000;
h) Income taxes payable, Php23,500;
i) Amount in fund for expansion, Php22,800;
j) Ownership of patents, Php20,000;
k) Franchise from foreign companies, Php50,000;
l) Dividend payable on common shares, Php12,000;
m) Amount paid for rental in advance, Php6,000;
n) Advance payment received from customers, Php10,800.
165) The condensed balance sheet of the Luzon Manufacturing Company for a certain year is given below.
Assets
Cash
Php80,000
Current Liabilities
Php55,000
Account Receivable
45,000
Long-term Liabilities
85,000
Inventory
75,000
Capital stock, Php100 par
350,000
Prepaid Expenses
35,000
Retained Earnings
25,000
Plant Assets (net)
220,000
Total Liabilities and Stockholders Equity:
Php515,000
Other Assets
60,000
Total Assets:
Php515,000
During this year, the company made a gross profit of Php280,000 on total sales of Php920,000. Assuming that
accounts receivable, inventory, and plant assets were relatively constant during the year, determine the Current
Ratio and Book Value per share of Capital stock.
stated. Determine the amount for Inventories of goods and materials on hand, and Calculate the Quick Ratio and
Asset turnover from the following data:
Mortgages payable
Php350,000
220,000
Common Shares
552,000
53,670
32,640
450,000
Undivided surplus
180,000
37,590
Franchises
60,000
92,340
Php???,???
320,000
92,500
56,700

Page 16 of 62
150,000
85,200
529,000
Php???,???
45,800
Assets
Current Assets
Current Liabilities
Fixed Assets
Fixed Liabilities
Prepaid Expenses
Prepaid Income
Intangible Assets
Capital Stock
Retained Earnings
Indicate the proper balance sheet classification for each of the following items, prepare the completed balance
sheet, and compute the Current Ratio:
Assets
Cash
Php80,000
Current Liabilities
Php55,000
Account Receivable
45,000
85,000
Inventory
75,000
350,000
Prepaid Expenses
35,000
Retained Earnings
25,000
Plant Assets (net)
220,000
Php515,000
Other Assets
60,000
Total Assets:
Php515,000
accounts receivable, inventory, and plant assets were relatively constant during the year, determine the Acid-test
Ratio and Asset Turnover.
Assets
Current Assets
Current Liabilities
Fixed Assets
Fixed Liabilities
Prepaid Expenses
Prepaid Income
Intangible Assets
Capital Stock
Retained Earnings
Prepare the completed balance sheet and Compute for the Book value per share of common stock:
stated. Determine the amount for Inventories of goods and materials on hand, and Calculate the Equity Ratio
and Debt Ratio from the following data:

Mortgages payable
Common Shares
Undivided surplus
Franchises
Page 17 of 62
Php350,000
220,000
552,000
53,670
32,640
450,000
180,000
37,590
60,000
92,340
Php???,???
320,000
92,500
56,700
150,000
85,200
529,000
Php???,???
45,800
Assets
Cash
Php80,000
Current Liabilities
Php55,000
Account Receivable
45,000
85,000
Inventory
75,000
350,000
Prepaid Expenses
35,000
Retained Earnings
25,000
Plant Assets (net)
220,000
Php515,000
Other Assets
60,000
Total Assets:
Php515,000
accounts receivable, inventory, and plant assets were relatively constant during the year, determine the Equity
Ration and Accounts Receivable Turnover (assume all sales are on credit).
Assets
Cash
Php80,000
Current Liabilities
Php55,000
Account Receivable
45,000
85,000
Inventory
75,000
350,000
Prepaid Expenses
35,000
Retained Earnings
25,000
Plant Assets (net)
220,000
Php515,000
Other Assets
60,000
Total Assets:
Php515,000
accounts receivable, inventory, and plant assets were relatively constant during the year, determine the Debt Ratio
and Inventory Turnover.
173) During a certain quarter, the balances of the ledger accounts of the A & M Trading Company were as follows:
Gross Sales
Php245,620
Salaries and wages
92,800
Depreciation of Equipment
21,050
Rental of building for 3 months
12,000
Bad debts
4,200
Interest earned and other income
8,450
Supplies and postage
3,670
Taxes and insurance
9,580
Advertising and social representation
4,120
Repairs of equipment
7,490
Fuel oil and lubricants for delivery equipment
6,320
Power and water bills
1,680
Prepare the Profit and Loss Statement for the quarter, and determine the Operating Expense Ratio.
Gross Sales
Php245,620
Salaries and wages
92,800
21,050
12,000
Bad debts
4,200
Page 18 of 62

8,450
3,670
Taxes and insurance
9,580
4,120
7,490
6,320
1,680
Prepare the Profit and Loss Statement for the quarter, and calculate the Gross Margin.
Gross Sales
Php245,620
Salaries and wages
92,800
21,050
12,000
Bad debts
4,200
8,450
3,670
Taxes and insurance
9,580
4,120
7,490
6,320
1,680
Prepare the Profit and Loss Statement for the quarter, and calculate the Return on Sales.
176) Journalize the following transactions of the Perez Plumbing Company for the month of June:
June 1 Paid rent for June, Php3,000.
4 Purchased supplies for Php12,000, paying Php5,000 cash, and giving a
note payable for the balance of Php7,000.
9 Complete a household contract worth Php9,850.
Received payment of Php7,500; the balance of Php2,350 is payable
within 30 days by the client.
11 Received Php3,500 for past services from another client.
14 Paid bi-weekly wages to his workers, Php1,200.
17 Paid electric bill for May, Php280.
19 Paid creditors on account, Php4,000.
24 Completed another contract worth Php16,500; was paid in full.
25 Owner withdrew Php2,500 for personal use.
28 Paid bi-weekly wages to his workers, Php1,950.
30 Recorded other cash sales fro June, Php3,200.
177) Listed below are the ending account balances arranged in alphabetical sequence for the calendar year 2002 of a
single proprietorship (M.A. Buti Ent.). Prepare the detailed Balance Sheet, and determine the Current Ratio and
the Quick (Acid-Test) Ratio:
Accounts Payable
Php10
Accounts Receivalbe
10
Cash in Bank
30
Cash in Hand
10
Customers Deposits
10
Deposits with Suppliers
10
Furnitures and Fixtures
30
Goodwill
10
Investment
20
M.A. Buti Proprietor
100%
Marketable Securities
10
Merchandise Inventory
30
Mortgage Payable (5 years)
50
Notes Payable (1 year)
10
Notes Receivable
10
Other Current Assets
10
Other Current Liabilities
10
Patent
10
Petty Cash Fund
10
Prepaid Insurance
10
Property, Plant, and Equipment
50
Page 19 of 62
partnership (U.N. Lad. Ltd.). Prepare the detailed Balance Sheet, and determine the Current Ratio and the
Debt/Equity Ratio:
Accounts Payable
Php50
Accounts Receivalbe
50
Arturo Abad Capital
30%
Cash in Bank
150
Cash in Hand
20
Cesar de Castro Capital
35%
Customers Deposits
20
20
60
Goodwill
10
Investment
40
Mario A. Buti Capital
35%
20
50
50
40
Notes Receivable
40
10
10
Patent
10
Petty Cash Fund
20
Prepaid Insurance
10
100
corporation (K.A. Bayan Inc.). Prepare the detailed Balance Sheet, and determine the Current Ratio and the
Debt/Capitalization Ratio:
Accounts Payable
Php100
Accounts Receivalbe
100
Cash in Bank
300
Cash in Hand
30
Capital Stock
Par Php1
Customers Deposits
30
30
90
Goodwill
10
Investment
60
30
100
50
80
Notes Receivable
80
10
10
Patent
10
Petty Cash Fund
30
Prepaid Insurance
10
150
Retained Earnings
50
****FUNDAMENTALS OF COST ACCOUNTING****
180) Classify the annual cost items listed below as to direct or indirect materials or labor and overhead; and Calculate
the cost of the Total Direct Materials:
a) Leather used to manufacture shoes, Php2,000,000;
b) Wood used to manufacture furniture, Php3,250,000;
c) Power used to run factory machines, Php31,000,000;
d) Salary of the accountants in a Furniture manufacturing plant, Php245,000;
e) Salary of an engineers in an engineering firm, Php4,135,000;
f) Income taxes paid by a company, Php1,324,000;
g) Water used in making ice in a Restaurant, Php2,867;
h) Wages of auto-mechanics in a car repair shop, Php2,342,000;
i) Wages of equipment mechanics in a Leather manufacturing plant, Php1,358,000;
j) Government permit to start a business, Php234,000;
k) Payment for engineering supplies in a consulting firm, Php121,500;
Page 20 of 62
l) Cost of delivery trucks of a manufacturing company, Php13,287,000;

m) Wages of the truck drivers delivering finished products, Php1,834,000;
n) Wages of heavy equipment operator/driver in highway construction, Php 890,200.
181) In completing the final phases for the plans of a multi-story building, the technical department of an engineering
consulting firm employs one architect (Salary of each is 1.75 times of Minimum-Wage per day [1.75mw]), six
engineers of different expertise (2mw), and seven draftsmen (1.25mw). These men worked eight hours a day for
15 days during a certain month. The entire technical department employs 25 men working 8 hours a day at 26
days a month. The records of the accounting department indicated that the total overhead expenses for this
month for the technical department were Php179,800. Determine what partial cost of the total overhead is
chargeable to the above-named project.
the cost of the Total Indirect Materials:
month for the technical department were Php179,800. Determine the minimum wage at the time of the project.
the cost of the Total Direct Labor:
month for the technical department were Php179,800. Determine what partial cost of the total overhead is not
chargeable to the above-named project.
the cost of the Total Overhead Labor:
Page 21 of 62

187) A factory manufactures plastic products. During a certain it manufactured four types of products: A, B, C, and D,
with total production and sales of 6,000; 10,000; 15,000; and 8,000 units, respectively. The weights in grams of
plastic material used in the production of each product are as follows: 3.5; 8.2; 12.4; and 6.9, respectively. If the
company used a total of 344.2 kilograms during the month costing Php86,050, compute the total cost of direct
materials used for product A.
materials used for product C.
materials used for product D.
materials used for product B.
191) Three workers, Jose, Juan, and Pedro, are performing identical task making a certain product. Each can finish, on
the average, the following number of units per hour, respectively: Jose, 10; Juan, 12; and Pedro, 8. During a
certain week of 48 working hours, the total wages paid to these men is Php2,592.00. The company wage policy is
based on the number of pieces finished. How much was Pedro paid at the end of the week?
based on the number of pieces finished. How much was Juan paid at the end of the week?
based on the number of pieces finished. How much was Jose paid at the end of the week?
194) A small factory manufactures three different products: A, B, and C. The production and sales each much for each
product is as follows: 7,500; 6,900; and 8,100 units, respectively. The total overhead expenses for the month
include taxes, supervision, depreciation, etc. is Php38,325.00. Furthermore, the time spent to produce one unit is
as follows: 30 minutes; 45 minutes; and 15 minutes, respectively. Since these products are made on one type of
machine, the cost accountant makes it the practice to charge overhead based on the machine hours used. Using
the machine rate method of apportioning overhead, determine the total overhead to be charged for product C.
the machine rate method of apportioning overhead, determine the total overhead to be charged for product B.
the machine rate method of apportioning overhead, determine the total overhead to be charged for product A.
197) For cost accounting purposes, a manufacturing plant in 1983 is divided into four departments. Data for these
departments are given below:
Page 22 of 62
Department
Direct Labor Hours
Direct Labor Cost Direct Material Cost
Logistics
12,150
Php28,920
Php54,350
Production
15,600
42,670
67,800
Engineering
10,460
24,570
42,780
Warehousing
8,250
18,980
37,530
The following overhead items are to be distributed to the four departments: Managers Salary, Php72,000;
depreciation of equipment, Php65,300; Utilities (Power, Water, and Telephone), Php27,600; Taxes, Php24,800; and
other overhead expenses, Php9,500. Apportion the total for overhead to each of the departments according to the
Direct Labor Hour Method.
198) The Regal Manufacturing Company is divided into three departments for accounting purposes. The records of the
cost accountant last year indicated the following data:
Cost Item
Production Dept. Engineering Dept. Logistics Dept.
Direct Materials Cost
Php86,500
Php42,340
Php56,250
Direct Labor Cost
Php38,200
Php24,600
Php32,450
Direct Labor Hours
16,150
12,180
14,560
Overhead Expenses
Php25,360
Php8,340
Php15,480
The Manufacture Order No. 82 which was also completed last year, the job cost ledger indicated the following:
Cost Item
Php8,300
Php5,490
Php6,780
Direct Labor Cost
Php4,200
Php2,890
Php3,200
Direct Labor Hours
1,860
1,290
1,420
Determine the cost for Logistics Department and the total cost for Manufacture Order No. 82, assuming that
overhead is applied based on I) Direct Material Cost, II) Direct Labor Cost, and III) Direct Labor Hours.
Department
Direct Labor Hours
Logistics
12,150
Php28,920
Php54,350
Production
15,600
42,670
67,800
Engineering
10,460
24,570
42,780
Warehousing
8,250
18,980
37,530
Direct Labor Cost Method.
Cost Item
Php86,500
Php42,340
Php56,250
Direct Labor Cost
Php38,200
Php24,600
Php32,450
Direct Labor Hours
16,150
12,180
14,560
Overhead Expenses
Php25,360
Php8,340
Php15,480
Cost Item
Php8,300
Php5,490
Php6,780
Direct Labor Cost
Php4,200
Php2,890
Php3,200
Direct Labor Hours
1,860
1,290
1,420
Determine the cost for Engineering Department and the total cost for Manufacture Order No. 82, assuming that
201) A manufacturer has the following inventory of the purchase and usage of a certain material:
June 1 Balance on hand
4,000 units at Php5.20/unit
12 Purchased
26 Delivered to plant
5,000 units
July 2 Purchased
15 Purchased
4,500 units
Aug. 4 Purchased
3,500 units
Determine the value of the inventory on August 11 using the Last-in First-out (LIFO) Method.
Department
Direct Labor Hours
Logistics
12,150
Php28,920
Php54,350
Production
15,600
42,670
67,800
Engineering
10,460
24,570
42,780
Page 23 of 62
Warehousing
8,250
18,980
37,530
Direct Material Cost Method.
12 Purchased
5,000 units
July 2 Purchased
15 Purchased
4,500 units
Aug. 4 Purchased
3,500 units
Determine the value of the inventory on August 11 using the Weighted-Average Method.
Cost Item
Php86,500
Php42,340
Php56,250
Direct Labor Cost
Php38,200
Php24,600
Php32,450
Direct Labor Hours
16,150
12,180
14,560
Overhead Expenses
Php25,360
Php8,340
Php15,480
Cost Item
Php8,300
Php5,490
Php6,780
Direct Labor Cost
Php4,200
Php2,890
Php3,200
Direct Labor Hours
1,860
1,290
1,420
Determine the cost for Production Department and the total cost for Manufacture Order No. 82, assuming that
12 Purchased
5,000 units
July 2 Purchased
15 Purchased
4,500 units
Aug. 4 Purchased
3,500 units
Determine the value of the inventory on August 11 using the First-in First-out (FIFO) Method.
206) Two Corporations, APO Corp. and TAOG Corp, are applying for a Php200,000 loan for an undetermined term. The
only available financial statement they can furnish you is their Balance Sheet as of Dec. 31, 2001, both for the first
year of operations and the amounts reflected in the Balance Sheets approximate the realizable values of each
account. To whom would you grant the loan and for how long? Show computations and give reasons:
ASSET
APO Corp.
TAOG Corp.
Cash
Php20
Php20
Accounts Receivable
20
40
Merchandize Inventory
20
40
Land and Building
640
280
Other Assets
50
10
TOTAL ASSETS
Php750
Php390
EQUITIES
Accounts Payable
Php180
Php60
Other Liabilities
240
40
Capital Stock (Par Php1)
120
40
Retained Earnings
210
250
TOTAL EQUITIES
Php750
Php390
****CLASSIFICATION OF COST****
207) The total cost of production 360 units of a Suman sa Lihiya is Php6,620. If 450 units are manufactured, the total
cost will be Php7,475. What is the variable cost per unit?
208) A semi-automatic arc welding machine is used for a certain joining process costs Php25,000. The machine has a
life of 10 years and a salvage value at the time of Php2,500. Maintenance, taxes, and fixed costs amount to
Php3,200 per year. The cost of power and supplies is Php10.20 per hour, and the operator receives Php20.00 per
Page 24 of 62
hour. The cycle time per unit of the product is 30 minutes. If interest is 12%, calculate the cost per unit of
processing the product if production per year is 1,000 units.
209) The total cost of manufacturing 360 units of a Suman sa Lihiya is Php6,620. If 450 units are manufactured, the
total cost will be Php7,475. What is the average fixed cost?
total cost will be Php7,475. What is the average manufacturing cost for the first 360 units?
213) A certain firm has the capacity to produce 800,000 units of product per year. At present, it is operating at 60% of
capacity. The firms annual income for this operating capacity is Php1,200,000. Annual fixed costs are
Php620,000, and variable cost is equal to Php0.546 per unit. What will be the profit or loss at 70% of capacity
based on constant income per unit and constant variable cost per unit?
Php620,000, and variable cost is equal to Php0.546 per unit. What is the firms annual profit or loss?
total cost will be Php7,475. What is the total variable cost for 360 units?
217) A certain firm owns two plants, A and B, which produces an identical product. Plant A has a capacity of 50,000
units annually, while that of Plant B is 75,000 units. The annual fixed cost of Plant A is Php540,000 and the
variable cost is Php15.20 per unit. The corresponding values for Plant B are Php710,000 and Php16.50 per unit.
At present, Plant A is operating at 40% capacity and Plant B is operating at 50% capacity. What are the unit
costs of production at Plant A and Plant B?
Php620,000, and variable cost is equal to Php0.546 per unit. At what volume of sales does the firm break even?
At present, Plant A is operating at 65% capacity and Plant B is operating at 80% capacity. What is the average
of the total cost of both plants?
At present, Plant A is operating at 40% capacity and Plant B is operating at 50% capacity. What is the total
cost of production from Plant A and Plant B?
Page 25 of 62
223) A machine was purchased 4 years ago at a cost of Php230,000 and was installed at a cost of Php12,000. It is
expected to last 12 years with a salvage value at the time of Php25,000. If it is sold now for Php100,000,
determine the sunk cost if the depreciation method used is the straight-line formula.
At present, Plant A is operating at 65% capacity and Plant B is operating at 80% capacity. What is the total
cost of production from both plants?
determine the sunk cost if the depreciation method used is the sinking-fund formula at 9.6%.
227) A manufacturing firm estimates that its annual expenses at different levels production would be as follows:
Output in units of Product
0
100
200
300
400
Administrative and Sales
Php25,000
Php34,600
Php43,500
Php51,400
Php60,600
Direct materials and labor
Php0
Php18,900
Php32,700
Php45,300
Php54,800
Overhead expense
Php17,500
Php18,200
Php18,900
Php19,300
Php19,800
Total Cost :
Php42,700
Php71,790
Php95,100 Php116,000 Php135,200
What is the average incremental cost per unit of producing the first increment of 100 units of product per year?
determine the sunk cost if the depreciation method used is the Matheson formula.
0
100
200
300
400
Php25,000
Php34,600
Php43,500
Php51,400
Php60,600
Php0
Php18,900
Php32,700
Php45,300
Php54,800
Overhead expense
Php17,500
Php18,200
Php18,900
Php19,300
Php19,800
Total Cost :
Php42,700
Php71,790
Php95,100 Php116,000 Php135,200
What is the average total cost per unit when manufacturing at the rate of 200 units per year?
At present, Plant A is operating at 40% capacity and Plant B is operating at 50% capacity. What is the average
of the total cost of both plants?
0
100
200
300
400
Php25,000
Php34,600
Php43,500
Php51,400
Php60,600
Php0
Php18,900
Php32,700
Php45,300
Php54,800
Overhead expense
Php17,500
Php18,200
Php18,900
Php19,300
Php19,800
Total Cost :
Php42,700
Php71,790
Php95,100 Php116,000 Php135,200
What is the average incremental cost per unit of manufacturing the increment of 301 to 400 units per year?
determine the sunk cost if the depreciation method used is the Sum of the Years-digits Method.
0
100
200
300
400
Php25,000
Php34,600
Php43,500
Php51,400
Php60,600
Php0
Php18,900
Php32,700
Php45,300
Php54,800
Overhead expense
Php17,500
Php18,200
Php18,900
Php19,300
Php19,800
Total Cost :
Php42,700
Php71,790
Php95,100 Php116,000 Php135,200
At a time when the rate of manufacturing is 200 units per year, a salesman reports that he can sell 100
additional units at Php250,000 per unit without disturbing the market in which the company sells. Would it be
profitable for the company to undertake the production of the 100 additional units?
****INVESTMENT OF CAPITAL****
Page 26 of 62
234) An irrigation project covering 10,000 hectares is estimated to cost Php10,000,000. Bonds will be paid at 4% per
annum compounded annually for 30 years. Construction of the project will take 4 years. Insurance, operation,
and maintenance of the system will cost Php120,000 per year. Local interest on sinking fund is 6%. How much
each hectare should be charged?
235) Annual maintenance costs for a rotary kiln is Php2,000. The placement of a new refractory would reduce the
annual maintenance cost to Php500 a year for the first 5 years, and to Php1,000 a year for the next 5 years. The
annual maintenance cost after 10 years would again be Php2,000. If maintenance is the only saving, what
maximum investment can be justified for the new refractory if interest is 4%?
236) A certain newly created company installed a 10,000 kW electric generating plant at a cost of Php430 per kW. The
amount of the total cost of the plant was sold to the public and was to mature in 20 years. The estimated life of
the plant is 15 years. Salvage value is conservatively set at 5% of the first cost, interest on bonds is 4% and on
sinking fund deposit is 3%. What is the annual payment on the investment?
238) What is the overall rate of return on a Php100,000 investment that returns 20% on the first Php30,000 and 14%
on the remaining Php70,000?
239) The first cost of a factory tractor is Php1,600,000. Its life is 15 years with no salvage value. If interest is 12%,
what is the amount per day that must be charged for its services? Operating cost for 300 days operation each year
as follows:
Tires
Php75,000
Maintenance and Repairs
Php225,500
Fuel = 10 gallons per day at Php25.00 per liter
Oil = 1 pint per day at Php360.00 per gallon
Labor: 1 operator at Php220.00 per day
240) A certain corn mill decided to sell its old engine which had been in use for 5 years costing Php7,200 when new.
The average cost per year thus far has been Php4,200. The replacement costing Php12,000 has an estimated life
of 15 years, and an estimated annual operating expense 20% lower than that of the old engine. If interest is 5%
and using straight-line depreciation, how much must the old engine be sold if its assumed working life is 15 years
and its assumed salvage value is Php500? Actual total cost for the new engine considering depreciation, interest
and operation is Php 347 less than that of the old engine. Use straight-line depreciation.
241) A mine in Northern Luzon gets its base load power from the Luzon Grid of the National Power Corporation (NPC).
It has a billing demand of 12 megawatts and a monthly contract energy of 5.4 million kW-Hr. Determine the
Monthly minimum charge if the NPC schedule rate is as follows:
Demand Charge
Per meter per month
First 1,000 kilowatts
Php8.00 per kW
Next 9,000 kilowatts
Php5.00 per kW
All excess kilowatts
Php3.00 per kW
Basic Energy Charge
Per meter per charge
First 300 kW-Hr per kW of billing demand
Php0.65/kW-Hr
Next 150 kW-Hr per kW of billing demand
Php0.45/kW-Hr
All excess kW-Hr
Php0.20/kW-Hr
242) A certain newly created company installed a 10,000 kW electric generating plant at a cost of Php430 per kW. The
amount of the total cost of the plant was sold to the public and was to mature in 20 years. The estimated life of
the plant is 15 years. Salvage value is conservatively set at 5% of the first cost, interest on bonds is 4% and on
sinking fund deposit is 3%. What is the sinking fund accumulation after 10 years?
244) The first cost of a factory tractor is Php1,600,000. Its life is 15 years with no salvage value. If interest is 18%,
what is the amount per day that must be charged for its services? Operating cost for 300 days operation each year
as follows:
Tires
Php75,000
Maintenance and Repairs
Php225,500
Fuel = 10 gallons per day at Php25.00 per liter
Oil = 1 pint per day at Php360.00 per gallon
Page 27 of 62
Labor: 1 operator at Php220.00 per day

245) The Manila Gas Corporation is considering the purchase of a power trench digger for laying main extension on its
distribution system. The machine costs Php138,000 with a salvage value of Php50,000 at the end of 10 years.
Annual cost of maintenance, insurance and taxes is estimated at 12% of the first cost regardless of the amount the
equipment is used. The operating costs consist of 2 men at Php30.00 a day each; fuel and lubrication, Php50 a
day. The machine has a capacity of digging 25 meters deep per day. At present, trenches are excavated by hand
labor. A laborer can dig meter by 1.2 meters deep per day and receives Php12.00 per day. How long must be
excavated each year to make this machine a good investment? Assume money is worth 8%. Use the straight-line
with average interest method of depreciation.
246) A Poultry Processing Plant in Central Luzon gets its base load power from the Luzon Grid of the National Power
Corporation (NPC). It has a billing demand of 23 megawatts and a monthly contract energy of 5.4 million kW-Hr.
Determine the Monthly minimum charge if the NPC schedule rate is as follows:
Demand Charge
Per meter per month
First 1,000 kilowatts
Php8.00 per kW
Next 9,000 kilowatts
Php5.00 per kW
All excess kilowatts
Php3.00 per kW
Basic Energy Charge
Per meter per charge
First 300 kW-Hr per kW of billing demand
Php0.65/kW-Hr
Next 150 kW-Hr per kW of billing demand
Php0.45/kW-Hr
All excess kW-Hr
Php0.20/kW-Hr
247) The Manila Gas Corporation is considering the purchase of a power trench digger for laying main extension on its
distribution system. The machine costs Php138,000 with a salvage value of Php50,000 at the end of 10 years.
Annual cost of maintenance, insurance and taxes is estimated at 12% of the first cost regardless of the amount the
equipment is used. The operating costs consist of 2 men at Php30.00 a day each; fuel and lubrication, Php50 a
day. The machine has a capacity of digging 25 meters deep per day. At present, trenches are excavated by hand
labor. A laborer can dig meter by 1.2 meters deep per day and receives Php12.00 per day. How long must be
excavated each year to make this machine a good investment? Assume money is worth 12%. Use the sinkingfund method of depreciation.
248) A client on the general services rate of an Electric Cooperative Power Company uses 3,438 kW-Hr in one month
and has a connected load of 7.6 kW for lighting, 4.2 kW for power, 8.3kW for appliances, 3.2 kW for residential
load, and 6.6 kW miscellaneous load. If his factor load is 65%, calculate the energy bill for the month.
RATE SCHEDULE
General Services:
X-1 Connected Load 1 to 5,000 watts inclusive.
First 12 kW-Hr
Php2.00
Next 78 kW-Hr
Php0.16/kW
Excess kW-Hr
Php0.35/kW
X-MD Connected Load over 5,000 watts.
Demand charge for each kW billing demand
Php12.60
Energy Charges:
First 100 hours, use billing demand at
Next 100 hours, use billing demand at
Excess kW-Hr at
Php0.30/kW-Hr
Php0.25/kW-Hr
Php0.20/kW-Hr.
249) A company that used an average of 20,000 kW-Hr of energy per month purchased under the rate schedule shown
below was going to purchase a spot welder that would consume 2,000 kW-Hr per month. The existing maximum
demand was 55 kilowatts. The ABC machine which cost Php4,500 would increase the maximum demand by 15
kilowatts. The XYZ machine costing Php6,000 would increase the demand by only 5 kilowatts. The welder
selected would have to be written off over a 5-year period using a profit rate of 8%. Taxes and insurance on
either machine would be 2% of first cost per year and other costs were estimated to be the same for either welder.
Determine the best alternative using the annual cost method.
RATE SCHEDULE
Service charge per month
Php1.60
Energy charge (to be added to the service charge)
First 1,000 kW-Hr per month
Php0.027/kW-Hr
Next 2,000 kW-Hr per month
Php0.023/kW-Hr
Next 5,000 kW-Hr per month
Php0.019/kW-Hr
For all excess over 8,000 kW-Hr per month
First 50 hours of maximum demand
Php0.017/kW-Hr
Next 150 hours per kW of maximum demand but Php0.012/kW-Hr
not more than 85,000 kW-Hr
All excess
Php0.007/kW-Hr
Page 28 of 62
250) A water system is to be built to serve a newly developed subdivision. This subdivision will use 300,000,000 liters of
water every year. The facilities to be installed will cost Php1,500,000 and it is estimated that operation and
maintenance of the system will cost Php70,000 annually. Operating taxes will be Php24,000 per year and income
taxes will be 25% of the first Php100,000 net revenue and 35% of the net revenue over Php100,000. The life of
the system properties is 80 years and 5% sinking fund is to be established for depreciation. At what rate per cu.m.
must the water be sold to return an annual net profit of 8% after income taxes on the original investment?
251) A food manufacturing plant has a waste product that is now being dumped into a river. The industrial waste
material could be processed to produce fertilizer or a remixed waste to digest the organic materials to produce
methane, carbon dioxide and bacterial cells. This would require the investment of Php32,000 in equipment and
Php5,300 a month for other materials. Labor could cost Php1,400 per month. Overhead expenses will cost
Php5,600 a year. Taxes and insurance amount to 3% of the first cost of the equipment per year. Payroll and
other benefits amount to 4% of first cost. The life of the equipment is 5 years with no salvage value at the end of
its life. Money is worth 20% to the company. If 3,000 kilograms of fertilizers are produced each month which can
be sold for Php2.20 per kilogram, should the firm make the investment?
252) A company warehouse has no automatic sprinkler system. Annual fire insurance premium have been Php1,200. If
a sprinkler system costing Php8,000 is installed, the insurance premium will be reduced by 50%. The system is
estimated to have a life of 30 years, with the annual cost of taxes and maintenance amounting to Php75. Capital is
worth 8%. The company engineer estimates the actual loss from any fire, including such factors as lost orders and
personnel required to make repairs would be at least 50% greater than the physical loss covered by insurance. It
is assumed that the reduction in insurance premiums is a good measure of the difference in the probable physical
loss without and with a sprinkler system. From a long range viewpoint, determine whether the sprinkler system is
a good investment.
253) A food manufacturing plant has a waste product that is now being dumped into a river. The industrial waste
material could be processed to produce fertilizer or a remixed waste to digest the organic materials to produce
methane, carbon dioxide and bacterial cells. This would require the investment of Php12,000,000 in equipment
and Php95,300 a month for other materials. Labor could cost Php8,400 per month. Overhead expenses will cost
Php98,600 a year. Taxes and insurance amount to 3% of the first cost of the equipment per year. Payroll and
other benefits amount to 4% of first cost. The life of the equipment is 15 years with no salvage value at the end
of its life. Money is worth 30% to the company. If 5,000 kilograms of fertilizers are produced each month which
can be sold for Php22.20 per kilogram, should the firm make the investment?
254) A young mechanical engineer is considering establishing his own small company. An investment of Php100,000 will
be required which must be recovered in 15 years. It is established that sales will be Php150,000 per year and that
operating expenses will be:
Materials
Php40,000 per year
Labor
70,000 per year
Overhead
Php10,000 + 10% of sales per year
Selling expenses
Php5,000 per year
The engineer will give up his regular job paying Php15,000 per year and devote full time to his business. This
will result in decreasing labor cost by Php10,000 per year, materials cost by Php7,000 per year, and overhead by
Php8,000 per year. If the engineer expects to earn at least 20% on his capital, should he invest?
255) The ABC Company manufacturers Part No. 1001 for use in its tractor assembly operation. The cost per unit for
5,000 units of this part is a total of Php26.00 for the following:
Direct materials
Php2.00
Direct labor
Php12.00
Fixed factory overhead
Php7.00
Variable factory overhead
Php5.00
The LMR Company offered to sell to ABC Company 5,000 units of the same part for Php27.00 each. If ABC
Company accepts, some of its facilities presently used to manufacture this part could be used to help with the
manufacture of the same part, thus saving Php40,000 in relevant cost in its manufacturing and eliminate Php3.00
per unit of the fixed factory over head applied to this part.
Prepare a make or buy decision analysis showing the savings, if any, from buying instead of making.
256) A plastic manufacturing company is intending to expand its product facilities starting in 1988. The program
requires the following estimated expenditures:
Php1,000,000 at the end of 1988
To accumulate the require funds, it established a sinking fund constituting of 15 uniform annual deposits, the
first deposit having been made at the end of 1979. The interest of the fund is 6% per annum. Calculate the annual
deposit.
Page 29 of 62
257) A young mechanical engineer is considering establishing his own small company. An investment of Php300,000 will
be required which must be recovered in 5 years. It is established that sales will be Php150,000 per year and that
operating expenses will be:
Materials
Php80,000 per year
Labor
150,000 per year
Overhead
Php20,000 + 10% of sales per year
Selling expenses
Php15,000 per year
The engineer will give up his regular job paying Php35,000 per year and devote full time to his business. This
will result in decreasing labor cost by Php10,000 per year, materials cost by Php7,000 per year, and overhead by
Php8,000 per year. If the engineer expects to earn at least 20% on his capital, should he invest?
258) An ice plant owner decided top install a water pump from a near-by clean fresh water source to supply its water
requirements. The capacity of the pump is 45.5 cu.m. per hour against a head of 43 meters with an efficiency of
70% at full load and 40% at half load. The total cost of the pumping unit including the piping system to the plant
is Php700,000 with zero salvage value at the end of its estimated life of 20 years. The prime mover of the pump is
an electric motor and cost of power is Php2.10 per kW-Hr. Taxes, insurance and maintenance cost is 1.5% of the
first cost per year. The pump will operate 200 days continuous operation per year at half load and 150 days at full
load. If the cost of money is 12%, how much will it cost the owner to operate the pump per cubic meter?
259) A plastic manufacturing company is intending to expand its product facilities starting in 1988. The program
requires the following estimated expenditures:
To accumulate the require funds, it established a sinking fund constituting of 15 uniform annual deposits, the
first deposit having been made at the end of 1979. The interest of the fund is 6% per annum. What will be the
balance in the fund in January 1, 1990?
260) A mechanical engineer is faced with the prospect of a fluctuating future budget due to the countrys economic
condition for the maintenance of a particular machine. During each of next 5 years Php1,000 per year will be
budgeted. During the next 5 years the annual budget will be Php1,500 each year. In addition, Php3,500 will be
spent for the overhaul of the machine at the end of the 4th year, and another Php3,500 for overhaul at the end of
the 8th year. The mechanical engineer wonders what uniform annual expenditure would be equivalent to these
fluctuating amounts assuming interest is 6% per annum. Compute the equivalent uniform annual expenditure for
the 10-year period.
261) An ice plant owner decided top install a water pump from a near-by clean fresh water source to supply its water
requirements. The capacity of the pump is 45.5 cu.m. per hour against a head of 43 meters with an efficiency of
70% at full load and 40% at half load. The total cost of the pumping unit including the piping system to the plant
is Php1,700,000 with zero salvage value at the end of its estimated life of 20 years. The prime mover of the pump
is an electric motor and cost of power is Php7.10 per kW-Hr. Taxes, insurance and maintenance cost is 8.5% of
the first cost per year. The pump will operate 150 days continuous operation per year at half load and 200 days at
full load. If the cost of money is 12%, how much will it cost the owner to operate the pump per cubic meter?
262) A food-processing plant consumes 600,000 kW-Hr of electrical energy annually and pays an average of Php2.00
per kW-Hr. A study is being made to generate its own power to supply the plant the energy required. The power
plant installed cost Php2,000,000; annual operation and maintenance, Php800,000; other expenses, Php100,000
per year. The life of the plant is 19 years; salvage value at the end of life is Php200,000; annual taxes and
insurance 5% of first cost, and the rate of interest is 12%. Using the straight-line method for depreciation,
determine if the power plant is justifiable.
263) A mechanical engineer is faced with the prospect of a fluctuating future budget due to the countrys economic
condition for the maintenance of a particular machine. During each of next 5 years Php1,000 per year will be
budgeted. During the next 5 years the annual budget will be Php1,500 each year. In addition, Php3,500 will be
spent for the overhaul of the machine at the end of the 4th year, and another Php3,500 for overhaul at the end of
the 8th year. The mechanical engineer wonders what uniform annual expenditure would be equivalent to these
fluctuating amounts assuming interest is 15% per annum. Compute the equivalent uniform annual expenditure for
the 10-year period.
264) A fixed capital investment of Php10,000,000 is required for a proposed manufacturing plant and an estimated
working capital of Php2,000,000. Annual depreciation is estimated to be 10% of the fixed capital investment.
Determine the rate of return on the total investment and the minimum payout period if the annual profit is
Php2,500,000.
265) A food-processing plant consumes 600,000 kW-Hr of electrical energy annually and pays an average of Php2.00
per kW-Hr. A study is being made to generate its own power to supply the plant the energy required. The power
plant installed cost Php2,000,000; annual operation and maintenance, Php800,000; other expenses, Php100,000
per year. The life of the plant is 15 years; salvage value at the end of life is Php200,000; annual taxes and

insurance 6% of first cost, and the rate of interest is 15%.
determine if the power plant is justifiable.
Page 30 of 62
Using the sinking fund method for depreciation,
266) A firm is considering purchasing equipment that will reduce annual cost by Php40,000. The equipment costs
Php300,000 and has a salvage value of Php50,000 and a life of 7 years. The annual maintenance cost is Php6,000.
While not is use by the firm, the equipment can be rented to others to generate an income of Php10,000 per year.
If money can be invested for an 8% return, is the firm justified in buying the equipment?
267) A fixed capital investment of Php17,000,000 is required for a proposed manufacturing plant and an estimated
working capital of Php3,000,000. Annual depreciation is estimated to be 8% of the fixed capital investment.
Determine the rate of return on the total investment and the minimum payout period if the annual profit is
Php3,500,000.
268) A manufacturing company is buying power from Meralco at an average cost of Php1.60 per kW-Hr. The companys
average annual consumption is 36 million kW-Hr. In view of the expected power shortage next year, 1990, the
company is considering to generate their own power requirements. From the order of the president of the
company, you are to determine the comparative costs between a self-generated power and that of Meralco.
The following information were obtained by the companys Engineering Department:
a) Total connected load 3,000 kW and peak load 2,000 kW;
b) Based on the total connected and peak loads, three 1.5 MW bunker-fired Diesel generator sets will be installed;
c) Installed cost for the three sets including civil works and building is Php12,000 per kW;
d) Life of the entire power plant is 15 years;
e) Salvage value is 10% of the installed cost;
f) Interest rate is 4%;
g) Annual fuel and lubricating oil consumption and cost of other petroleum products:
i. Diesel oil for start-up = 972,000 liters at Php3.3916/liter;
ii. Bunker fuel = 8.748 million liters at Php2.3241 per liter;
iii. Lubricating oil = 10,000 liters at Php21,56 per liter.
h) Annual cost for spare parts and other consumables = Php3,600,000.
i) Annual salaries and wages for operating and maintenance personnel = Php1,200,000;
j) Taxes and insurance = 1% of installed cost;
k) Use straight-line depreciation. If the self-generated power should be cheaper, how much savings would be
realized annually, and what would be the payback period of the power plant?
269) A firm is considering purchasing equipment that will reduce annual cost by Php50,000. The equipment costs
Php300,000 and has a salvage value of Php50,000 and a life of 8 years. The annual maintenance cost is Php6,000.
While not is use by the firm, the equipment can be rented to others to generate an income of Php12,000 per year.
If money can be invested for a 10return, is the firm justified in buying the equipment?
270) A manufacturing company is buying power from Meralco at an average cost of Php3.60 per kW-Hr. The companys
average annual consumption is 36 million kW-Hr. In view of the expected power shortage next year, 1990, the
company is considering to generate their own power requirements. From the order of the president of the
company, you are to determine the comparative costs between a self-generated power and that of Meralco.
The following information were obtained by the companys Engineering Department:
a) Total connected load 3,000 kW and peak load 2,000 kW;
b) Based on the total connected and peak loads, three 1.5 MW bunker-fired Diesel generator sets will be installed;
c) Installed cost for the three sets including civil works and building is Php12,000 per kW;
d) Life of the entire power plant is 19 years;
e) Salvage value is 10% of the installed cost;
f) Interest rate is 9%;
g) Annual fuel and lubricating oil consumption and cost of other petroleum products:
i. Diesel oil for start-up = 972,000 liters at Php3.3916/liter;
ii. Bunker fuel = 8.748 million liters at Php2.3241 per liter;
iii. Lubricating oil = 10,000 liters at Php21,56 per liter.
h) Annual cost for spare parts and other consumables = Php3,600,000.
i) Annual salaries and wages for operating and maintenance personnel = Php1,200,000;
j) Taxes and insurance = 1% of installed cost;
k) Use sinking-fund method of depreciation. If the self-generated power should be cheaper, how much savings
would be realized annually, and what would be the payback period of the power plant?
****COMPARISON OF ALTERNATIVES****
271) Superior Air Products Co., Inc., will install an induction motor costing Php40,000 with an efficiency of 88% and a
power factor of 75%, or a synchronous motor costing Php48,000 having an efficiency of 87% and a power factor
of 98%. The power output of each motor will be 10,000 kWHr per month. Power cost Php0.50 per kWHr prior
to the application of any bonus or penalty for power. The Panay Electric Co. providing current will reduce its bill
according to the following clause: if the power factor exceeds 80% the bill will be reduced by 0.4% for each 1% of
such excess up to 90% power factor, and by 0.3% for each 1% excess from 91% to 100% power factor. No
bonus or penalty will be given for any power factor between 70% and 79%. Compare the monthly power bills for
the two motors and give your recommendations.
Page 31 of 62
272) Two project studies for the construction of an engineering building are under consideration. On one study the cost
of the building is Php650,000 with a life of 20 years and a salvage value of Php40,000. Yearly maintenance and
repair is Php1,800. The other proposes a first cost of Php720,000, life of 30 years, and a salvage value of
Php60,000. Yearly maintenance and repair is Php2,000. If the yield on the investment is 6%, determine which
project study is acceptable?
274) Make an economic analysis to determine which of the following two machines is capable of performing the same
task in a given amount of time should be purchased. The minimum attractive rate of return is 8%. Basing on
annual cost and using straight-line with average interest method, determine which machine you would choose.
Account
Machine A
Machine B
First Cost
Php10,000
Php20,000
Annual Maintenance
Php250
Php300
Salvage Value
Php0
Php6,000
Estimated Life
6 years
14 years
275) Two project studies for an engineering building construction are under consideration. On one study, the cost of
the building is Php650,000, life of 25 years, and salvage value of Php40,000. Yearly maintenance and repair is
Php1,800. The other proposes a first cost of Php720,000, life of 30 years, and a salvage value of Php60,000.
Annual maintenance and repair is Php2,000. With 10% investment yield, which project study is acceptable?
276) A cold storage plant desires to determine whether to use insulation 2 inches thick or 3 inches thick in insulating the
walls of the cold storage warehouse. Heat absorbed through the walls without insulation would cost Php96.00 per
sq.m. A 2-inch insulation will cost Php30.40 and will cut out 89% of the loss. A 3-inch insulation will cut out 92%
of the loss and will cost Php65.60 per sq.m. Using a life of 15 years for the insulation with no salvage value and
minimum attractive return of 8%, what thickness of insulation should be used? Use annual cost method.
278) The City of Zamboanga contemplates to increase the capacity of its existing water transmission line. Which of the
two plans, under consideration, is the more economical plan if interest rate is 12%?
Plan A requires the construction of a parallel pipe line, the flow being maintained by gravity. The initial cost is
Php2,750,000 and the life is 40 years, with an annual operating cost of Php50,000.
Plan B requires the construction of a booster pumping station costing Php1,050,000 with a life of 40 years. The
pumping equipment costs an additional amount of Php250,000. It has a life of 20 years and a salvage value of
Php25,000. The annual operating cost is Php165,000.
minimum attractive return of 8%, what thickness of insulation should be used? Use capitalized cost method.
280) Make an economic analysis to determine which of the following two machines is capable of performing the same
task in a given amount of time should be purchased. The minimum attractive rate of return is 11%. Basing on
annual cost and using straight-line with average interest method, determine which machine you would choose.
Account
Machine A
Machine B
First Cost
Php10,000
Php20,000
Annual Maintenance
Php250
Php300
Salvage Value
Php100
Php6,000
Estimated Life
6 years
14 years
Page 32 of 62
minimum attractive return of 8%, what thickness of insulation should be used? Use present worth cost method.
283) The Alpha Machinery Co. has been shipping its products (moderately heavy machines) mounted only on skids
without complete crating. To avoid crating, it must ship in freight cars which contains only the machines. To do
this, it must pay freight on a 42 tons car capacity load, regardless of whether or not the car is completely full. In
the past, actual shipment is only 30 tons in each car. The car load freight rate is Php3.10 per hundred kilograms.
If the machines are crated so that they can be shipped in mixed car lots along with other merchandise, they can
be shipped at a rate of Php3.30 per hundred kilograms with the freight bill computed on the actual weight shipped.
The cost of crating would be Php8.00 and would increase the shipping weight from 545 to 555 kilogram per
machine. Which procedure should be followed?
284) A number of Dendro-Thermal Plants are being constructed in the Philippines. One of the problem areas is the
transportation of cut wood from the Jemelina plantation to the Dendro-Thermal Plant. Two possible alternatives to
accomplish this operation are by trucks or by cable transport system. The economic life of the truck is 10 years.
Which of the two alternatives would you recommend?
The operation requires 8 to 10 hours per day, 365 days a year. Average weight of cut wood to be transported
per day is 100 tons.
A trucking company has offered their services at an average cost of Php35.00 per ton to haul cut wood from the
plantation to the plant. If the plant owner will install a cable transit system, he will have the following expenses:
a) First cost of cable transit system equipment including installation = Php2,500,000;
b) Estimated annual maintenance cost = Php75,000;
c) Labor cost to operate the system 8 to 10 hours a day, 365 days a year = Php75,000;
d) Overhead expenses and other miscellaneous expenditures per year = Php80,000;
e) Rate of interest on investment = 21%.
286) An industrial firm received an offer for the supply of two electric motors which are being considered to power an
industrial hoist. Money is worth 20%. Each motor is capable of providing 100hp. If the expected usage of the
hoist is 700 hours per year, what should be the cost of electric power before Motor A is favored over Motor B?
Other pertinent data for each motor are as follows:
Description
Motor A
Motor B
Investment
Php25,000
Php32,000
Efficiency
84%
88%
Php400
Php600
Economic Life
10 years
10 years
287) The Alpha Machinery Co. has been shipping its products (moderately heavy machines) mounted only on skids
without complete crating. To avoid crating, it must ship in freight cars which contains only the machines. To do
this, it must pay freight on a car capacity load of 42 tons, regardless of whether or not the car is completely full.
In the past it actually has shipped only 30 tons in each car. The car load freight rate is Php3.15 per hundred
kilograms.
If the machines are crated so that they can be shipped in mixed car lots along with other merchandise, they can
be shipped at a rate of Php3.40 per hundred kilograms with the freight bill computed on the actual weight shipped.
The cost of crating would be Php16.00 and would increase the shipping weight from 545 to 555 kilogram per
machine. Which procedure should be followed?
Description
Motor A
Motor B
Investment
Php25,000
Php32,000
Efficiency
84%
88%

Economic Life
Php400
8 years
Page 33 of 62
Php600
10 years
289) An oil company is being offered a special coating for the gasoline underground tanks it is installing in its service
stations which will increase the life of the tank from 10 to 15 years. The cost of the special coating will increase
the cost of the tank from Php40,000 to 58,000. The cost of the installation is Php24,000. The salvage value is
zero, and the interest rate is 26%. Would you recommend the use of the special coating?
290) A number of Dendro-Thermal Plants are being constructed in the Philippines. One of the problem areas is the
transportation of cut wood from the Ipil-ipil plantation to the Dendro-Thermal Plant. Two possible alternatives to
accomplish this operation are by trucks or by cable transport system. The economic life of the truck is 10 years.
Which of the two alternatives would you recommend?
The operation requires 8 to 10 hours per day, 365 days a year. Average weight of cut wood to be transported
per day is 100 tons.
A trucking company has offered their services at an average cost of Php35.00 per ton to haul the cut wood from
the plantation to the plant. If the plant owner will install a cable transit system, the following expenses will be
incurred:
a) First cost of cable transit system equipment including installation = Php2,500,000;
b) Estimated annual maintenance cost = Php70,000;
c) Labor cost to operate the system 8 to 10 hours a day, 365 days a year = Php75,000;
d) Overhead expenses and other miscellaneous expenditures per year = Php80,000;
e) Rate of interest on investment = 16%.
the cost of the tank from Php40,000 to 58,000. The cost of the installation is Php24,000. The salvage value is
zero, and the interest rate is 20%. Would you recommend the use of the special coating?
292) The engineer of a medium scale industry was instructed to prepare two plans to be considered by management to
improve their operations. Plan A calls for an initial investment of Php200,000 now with an expected salvage value
of 20% of the first cost 20 years hence. The operations and maintenance disbursements are estimated to be
Php15,000 each year and taxes will be 2% of first cost. Plan B calls for an immediate investment of 140,000 and a
second investment of Php160,000 eight years later. The operations and maintenance disbursements will be
Php9,000 a year for the initial installation and Php8,000 a year for the second installation. At the end of 20 years,
the salvage value will be 20% of the investments. Taxes will be 2% of first cost. If money is worth 12%, which
plan will you recommend?
Description
Motor A
Motor B
Investment
Php25,000
Php32,000
Efficiency
86%
88%
Php400
Php600
Economic Life
9 years
10 years
**
295) The MGC Company has a contract with a hauler to transport its Naphtha requirements of 3,600,000 liters per year
from a refinery in Batangas to its site in Paco, Manila at a total cost of Php0.21 per liter. It is proposed that the
company buy a tanker with a capacity of 18,000 liters to service its requirements at a first cost of Php800,000, life
is 6 years, and a salvage value of Php20,000. Other expenses are as follows:
a) Diesel fuel at Php5.00 per liter and the tanker consumes 120 liters per round trip from Batangas to Paco and
back;
b) Lubricating oil and servicing is Php800.00 per month;
c) Labor including overtime and fringe benefits for one driver and one helper is Php7,000.per month;
d) Annual taxes and insurance is 5% of first cost;
e) General maintenance per year is Php20,000;
f) Tire costs Php21,000 per set and will be renewed every 150 round trips.
What should the MGC Company do if a 15% interest rate on investment is included in the analysis?
Page 34 of 62
the cost of the tank from Php40,000 to Php58,000. The cost of the installation is Php24,000. The salvage value is
Php1,000, and the interest rate is 18%. Would you recommend the use of the special coating?
back;
298) The Asset Privatization Trust put up for sale a machine manufacturing plant. There were two bidders with the
following proposals:
a) Bidder A offered Php10,000,000 payable with 20% down payment, the balance payable Php1,000,000 annually
for 8 years;
b) Bidder B offered Php9,000,000 payable Php2,000,000 down payment, the balance payable Php500,000 semiannually for 7 years.
Which bid is more favorable to the Asset Privatization Trust if money is worth 10% effective?
for 8 years;
301) A paint manufacturing company uses a sand mill for fine grinding of paint with an output of 100 liters per hour
using glass beads as grinding media. Media load in the mill is 25 kilograms costing Php200 per kilogram and is
fully replenished in 2 months time at 8 hours per day operation, 25 days per month. A ceramics grinding media is
offered to the company costing Php400 per kilogram and needs 30 kilograms in the sand mill, but guarantees an
output of 120 liter per hour and full replenishment of media in 3 months. If the profit on paint production is
Php1.50 per liter, would you recommend the change in media?
302) An untreated electric wooden pole that will last 10 years under a certain soil condition cost Php1,200.00. If a
treated pole will last for 20 years, what is the maximum amount that be paid for the treated pole if the maximum
return on the investment is 12%? Consider annual taxes and insurance to be 1% of first cost.
back;
return on the investment is 15%. Consider that annual taxes and insurance to be 3% of first cost?
Page 35 of 62
for 8 years;
309) An electric cooperative is considering the use of a concrete electric pole in the expansion of its power distribution
system. A concrete pole cost Php18,000 each and will last 20 years. The company is presently using creosoted
wooden poles which cost Php12,000 each and will last 10 years. If money is worth 12%, which pole should be
used? Assume annual taxes amount to 1% of first cost and zero salvage value in each case.
311) A company is considering the purchase of generating set to supply the electrical needs of its office during
brownouts.
The first offer it received is for a Gasoline engine driven unit with an estimated life span of 15 years and would
cost the company Php52,000. The annual maintenance cost is estimated to be Php8,300, annual operating cost
would be Php27,000, and salvage value would be Php7,200.
The second offer the company received is for a Diesel engine driven unit with an estimated life span of 28 years,
annual maintenance cost of Php5,800, operating yearly cost of Php18,800, and salvage value of Php11,900. The
price offered for the unit is Php98,250.
If the company would need the services of the generator for 30 years, which of the two offers would be better
for the company if money is worth 22%? Compute on Present Worth cost basis.
used? Assume annual taxes amount to 1% of first cost and zero salvage value in each case.
brownouts.
for the company if money is worth 20%? Compute on Present Worth cost basis.
brownouts.
Page 36 of 62
for the company if money is worth 20%? Compute on annual cost basis.
316) A newly-formed company plans to build a factory building containing 3,000 sq.m. A wood frame building with
aluminum roofing and sidings can be built at a cost of Php400 per sq.m. It is expected to last 10 years with an
average maintenance expense of Php3,000. The insurance rate on such a building is 1.5% of the first cost per
year.
Another alternative is to build a structure with steel roof trusses having asbestos sheet roofing with hollow block
sidings. Such a building would cost Php600 per sq.m. This building is expected to last 20 years with average
maintenance expenses of Php2,000. Insurance on such a building would be 1% of first cost.
Assume a salvage value of 5% of first costing each case. Annual taxes on each structure are 1.5% of first cost.
If capital is available and is worth not less than 12%, which structure would you recommend?
used? Assume annual taxes amount to 3% of first cost and zero salvage value 1% of first cost in each case.
318) A machine part in a chemical plant is subject to corrosion and rust due to chemical fumes. The installed cost is
Php2,300 and lasts 5 years. If the part is treated against corrosion and rust it will cost Php3,000 installed. If
money is worth 12%, how long must the treated part last to justify the treatment?
year.
brownouts.
for the company if money is worth 21%? Compute on Annual cost basis.
year.
Page 37 of 62
****REPLACEMENT ANALYSIS****
325) A certain corn mill decided to sell its old engine which has been for 5 years costing Php7,200 when it was new.
The average operating cost per year thus far has been Php4,200. The replacement costing Php12,000 has an
estimated life of 15 years, estimated annual operating cost 20% lower than that of the old engine. If interest is
9% and using straight-line depreciation, how much must the old engine be sold if its working life and its salvage
value have been assumed as 15 years and Php500, respectively? Actual total cost for the old engine considering
depreciation, interest and operation is Php347 less than that of the new. Salvage value of the replacement is
Php800.
326) The owner of a ten-year old plant is considering two alternatives. If interest is 6%, which of these alternatives
would you select?
a) To continue with the old equipment possibly for 5 more years at which time there will not be any salvage value.
Its present salvage value is Php4,000. Annual repair cost is Php1,000 and annual output is 10,000 tons.
Operating cost is Php2.00 per ton.
b) To sell the old equipment for salvage value now and purchase new equipment costing Php50,000. It has a
capacity of 12,000 tons per year and has an estimated life of 20 years, and will be scrapped at the end of life.
Operating cost is Php1.60 per tone and annual repairs cost Php500.
12% and using sinking-fund depreciation, how much must the old engine be sold if its working life and its salvage
value have been assumed as 15 years and Php500, respectively? Actual total cost for the old engine considering
depreciation, interest and operation is Php347 less than that of the new. Salvage value of the replacement is
Php800.
would you select?
329) An ash disposal system of a cement factory cost Php60,000 when new. It is now 4 years old. The annual
maintenance cost for the 4 years has been Php4,000, Php4,500, Php5,350, and Php6,000. Interest rate is 6%. A
new system is guaranteed to have an estimated annual maintenance and operating cost not exceeding Php3,000
per annum. Its cost is Php94,000 installed. Life of each system is 7 years, salvage value is 5% of first cost.
Present sale value of the old system is the same as the salvage value. Would it be profitable to install the new
system? Use straight-line depreciation.
5% and using straight-line depreciation, how much must the old engine be sold if its working life and salvage value
have been assumed as 15 years and Php500, respectively? Actual total cost for the old engine considering interest,
depreciation, and operation is Php347 less than that of the new. Salvage value of the replacement is Php800.
system? Use straight-line depreciation.
332) A machine that cost Php5,000 will last 20 years and have a scrap value at that time of Php500. Repairs will
average Php300 a year. Operating expenses, including the wage of the operator, will be Php400 a month. A
second machine will produce twice as many units per year. It costs Php50,000 and must later be replaced at the
end of 25 years at a cost of Php45,000. Repairs for this machine will average Php250 per year, and operating
expenses will be Php500 per month. If money is worth 5% effective, how much will be saved, if any, each year by
purchasing the more economical machine?
would you select?
Page 38 of 62
334) A manufacturing firm supplies a certain product which is being made on an engine lathe to a progressive car
manufacturing company. A turret lathe is now available. There are 2,400 working hours each year on the old
engine lathe. If money is worth 10% to the company, should replacement be made now? The data for the two
lathes are as follows:
Engine Lathe
Turret Lathe
First cost
Php36,000
Php48,000
Installation cost
Php500
Php800
Salvage value at the end of life
Php4,000
Php5,000
Trade-in value
Php12,000
----------Production time per piece, minutes
30
20
Labor cost per hour
Php2.00
Php2.50
Overhead per hour
Php5.00
Php4.50
Estimated life in years
10
8
Present age, years
5
0
Taxes and insurance (%)
4%
4%
expenses will be Php500 per month. If money is worth 9% effective, how much will be saved, if any, each year by
purchasing the more economical machine?
Engine Lathe
Turret Lathe
First cost
Php36,000
Php48,000
Installation cost
Php500
Php800
Php4,000
Php5,000
Trade-in value
Php12,000
30
20
Labor cost per hour
Php2.00
Php2.50
Overhead per hour
Php5.00
Php4.50
10
8
Present age, years
5
0
4%
4%
system? Use sinking-fund depreciation.
Engine Lathe
Turret Lathe
First cost
Php36,000
Php48,000
Installation cost
Php500
Php800
Php4,000
Php6,000
Trade-in value
Php12,000
30
20
Labor cost per hour
Php2.00
Php2.50
Overhead per hour
Php5.00
Php4.50
16
13
Present age, years
5
0
4%
4%
339) A recapping plant is planning to acquire a new Diesel engine to replace its present unit which they run during
brownouts. The new set would cost Php135,000 with a 5-year life and zero salvage value. Variable operating cost
would be Php150,000 a year.
Page 39 of 62
The present generating set has a book value of Php75,000 and a remaining life of 5 years. Its disposal value
now is Php7,500 but it would be zero after 5 years. Variable operating cost would be Php187,500 a year. Money is
worth 10%. Which is profitable, to buy the new set or retain the present set?
expenses will be Php600 per month. If money is worth 12% effective, how much will be saved, if any, each year
by purchasing the more economical machine?
341) A decision by the supervising mechanical engineer must be made whether to replace a certain engine with a new
one or to rebore the cylinders of the old engine and thoroughly recondition it. The original costs of the engine 10
years ago were Php70,000, to rebore and recondition it now will cost Php8,000, but would extend its useful life for
5 years. A new engine will have a first cost of Php62,000 and will have an estimated life of 10 years. It is
expected that the annual costs for fuel and lubricants with the reconditioned engine will be about Php20,000 and
this cost will be 15% less with the new engine. It is also believed that repairs will be Php2,500 a year less with the
new engine than with the reconditioned one. Assume that neither engine has any realizable value when retired. If
money is worth 10%, what would you recommend?
brownouts. The new set would cost Php135,000 with a 5-year life and zero salvage value. Variable operating cost
would be Php150,000 a year.
Engine Lathe
Turret Lathe
First cost
Php36,000
Php48,000
Installation cost
Php500
Php800
Php4,000
Php6,000
Trade-in value
Php12,000
35
20
Labor cost per hour
Php2.00
Php2.50
Overhead per hour
Php5.00
Php4.50
16
13
Present age, years
5
0
5%
5%
346) An old machine may be repaired at a cost of Php9,000 or it may be replaced by a modern machine of the same
size at a cost of Php57,000. The present net salvage value of the old machine is Php13,000. It is estimated that
the repaired machine will last 5 more years with a net salvage value of Php10,000, and that of the new machine
will be Php15,000 after 30 years. The annual cost of maintenance and operation of the repaired machine will be
Php1,500 more per year than for the new machine. Assuming a return of 8% and depreciation on a straight-line
basis, determine whether it is more economical to repair the machine or replace it.
Page 40 of 62
brownouts. The new set would cost Php135,000 with a 10-year life and zero salvage value. Variable operating
cost would be Php150,000 a year.
348) A trucking company in Central Luzon has a fleet of 15 units of 10-wheeler trucks which are used to haul sand and
gravel from the provinces to Metro-Manila. Ten of the 15 trucks were purchased 5 years ago, and the other 5 units
were purchased recently.
Due to frequent breakdown, the old trucks could make only an average of Php320 per trip. These trucks make
an average of 14 trips per month. Average maintenance cost per truck per month is Php1,200. It is estimated that
these old trucks can still be sold for Php18,000 per unit, and that they can be operated at least for the next 2 years.
The new trucks could make an average of 22 trips per month. They were purchased at Php120,000 each only 2
month ago. It is estimated that the maintenance cost would average Php320 per month. Fuel consumption was
recorded at Php180 per trip. Interest on capital investment is 18%. All other out-of-pocket cost for the old and
new trucks is equal. The company has an average income of Php800 per trip.
Because of frequent breakdowns and high fuel consumption of the old units, the owner would like to know if it is
time to replace the old units. Will it be profitable to change the old trucks at this time? Consider an economic life
of 5 years for the new trucks.
Php1,500 more per year than for the new machine. Assuming a return of 10% and depreciation on a straight-line
Php1,500 more per year than for the new machine. Assuming a return of 12% and depreciation on a sinking-fund
Page 41 of 62
****EFFECTS OF FACTORS ON ECONOMY****
354) The full production capacity of a factory is 120,000 units a year. Its actual production during each of the quarters
of 1993 was 24,000, 27,000, 19,500, and 22,400 units, respectively. Determine the capacity factor for the year.
355) A soft drinks manufacturer produces three kinds of cola drinks: Kino, Ngot, and Sisi. Its facilities can produce
120,000 bottles a day. During a week in December, determine the Capacity Factor. For the particular week under
consideration, the number of bottles of soft drinks produced were as follows:
Kino
Ngot
Sisi
Total
Monday
40,000
32,000
35,000
107,000
Tuesday
31,500
37,200
42,100
110,800
Wednesday
38,400
41,300
39,700
119,400
Thursday
45,200
38,500
30,900
114,600
Friday
42,800
39,100
35,200
117,100
Saturday
37,900
36,400
42,500
116,800
Sunday
0
0
0
0
Total :
235,800
224,500
225,400
685,700
of 1993 was 24,000, 27,000, 19,500, and 22,400 units, respectively. Determine the demand factor for the year.
357) The Allied Battery is capitalized at Php800,000 and it produces an average of 250 batteries a day, 260 days a year.
It sells its batteries at a wholesale price of Php350.00 each. It is now making 180 batteries a day, which is
equivalent to a capacity factor of 72%. It is believed that if the wholesale price is reduced to Php320,000 each
that it will be able to sell 225 batteries a day, which corresponds to 90% capacity factor. Would it be favorable to
the company to increase production and at the same time reduce its wholesale price? The annual operating
expenses are as follows:
72% Capacity
90% Capacity
Materials
Php5,600,000
Php7,000,000
Labor
Php1,900,000
Php2,300,000
Maintenance
Php480,000
Php600,000
Supervision
Php700,000
Php880,000
Management and Sales
Php1,400,000
Php1,750,000
Depreciation, Taxes, and Insurance
Php950,000
Php1,170,000
Total :
Php11,030,000
Php13,700,000
120,000 bottles a day. During a week in December, determine the Load Factor. For the particular week under
Kino
Ngot
Sisi
Total
Monday
40,000
32,000
35,000
107,000
Tuesday
31,500
37,200
42,100
110,800
Wednesday
38,400
41,300
39,700
119,400
Thursday
45,200
38,500
30,900
114,600
Friday
42,800
39,100
35,200
117,100
Saturday
37,900
36,400
42,500
116,800
Sunday
0
0
0
0
Total :
235,800
224,500
225,400
685,700
of 1993 was 24,000, 27,000, 19,500, and 22,400 units, respectively. Determine the load factor for the year.
360) The Allied Battery is capitalized at Php1,000,000 and it produces an average of 250 batteries a day, 260 days a
year. It sells its batteries at a wholesale price of Php350.00 each. It is now making 180 batteries a day, which is
72% Capacity
90% Capacity
Materials
Php5,600,000
Php7,000,000
Labor
Php1,900,000
Php2,300,000
Maintenance
Php480,000
Php600,000
Supervision
Php700,000
Php880,000
Php1,400,000
Php1,750,000
Php950,000
Php1,170,000
Total :
Php11,030,000
Php13,700,000
Page 42 of 62
361) The King Shirt Company has a full production capacity of 200,000 shirts a month. The annual overhead costs are
Php4,000,000 + Php20,000 times the capacity factor in percent. Presently, it makes only 125,000 shirts a month
which are sold wholesale at an average price of Php68.00 each. Materials and labor cost Php25.00 each. If the
wholesale price is reduced to Php63.00 each, it is expected that 160,000 shirts could be sold each month. This
decrease in selling price with the corresponding increase in production would reduce the materials and labor costs
by Php1.20 for each shirt. Assuming all other costs remain constant, should the company reduce the selling price?
120,000 bottles a day. During a week in December, determine the Diversity Factor. For the particular week under
Kino
Ngot
Sisi
Total
Monday
40,000
32,000
35,000
107,000
Tuesday
31,500
37,200
42,100
110,800
Wednesday
38,400
41,300
39,700
119,400
Thursday
45,200
38,500
30,900
114,600
Friday
42,800
39,100
35,200
117,100
Saturday
37,900
36,400
42,500
116,800
Sunday
0
0
0
0
Total :
235,800
224,500
225,400
685,700
364) A small manufacturing company has an annual production capacity of 900,000 units. Annual fixed costs are
Php275,000 and the variable cost per unit is Php0.68. Presently, its annual income is Php675,000 based on a
capacity factor of 60%. For this production, determine the firms annual profit or loss.
365) The Allied Battery is capitalized at Php1,000,000 and it produces an average of 250 batteries a day, 260 days a
year. It sells its batteries at a wholesale price of Php390.00 each. It is now making 180 batteries a day, which is
72% Capacity
90% Capacity
Materials
Php5,600,000
Php7,000,000
Labor
Php1,900,000
Php2,300,000
Maintenance
Php480,000
Php600,000
Supervision
Php700,000
Php880,000
Php1,400,000
Php1,750,000
Php950,000
Php1,170,000
Total :
Php11,030,000
Php13,700,000
capacity factor of 60%. Assume constant income per unit and constant variable cost per unit. Calculate the profit
or loss at 70% of capacity.
capacity factor of 60%. At what capacity factor will the firm break-even?
Page 43 of 62
****BREAK-EVEN ANALYSIS****
371) A plywood manufacturer produces a piece of plywood at a labor cost of Php0.50 and material cost of Php3.00. The
fixed charges of the business are Php50,000 a month and the variable cost is Php0.50 a piece. If one piece of
plywood sells for Php6.00, draw the breakeven chart and determine how many pieces must be produced each
month for the manufacturer to break-even?
372) The direct labor cost and direct material cost of a certain product are Php300 and Php400 per unit, respectively.
Fixed charges are Php100,000 per month and other variable costs are Php100 per unit. If the product is sold for
Php1,200 per unit, draw the breakeven chart and determine how many units must be produced and sold to break
even?
even?
375) A certain firm has a capacity to produce 650,000 units of a certain product per year. At present, it is operating at
62% capacity. The firms annual income is Php4,160,000. Annual fixed cost is Php1,920,000 and the variable
costs are equal to Php3.56 per unit. Draw the breakeven chart and determine the annual profit or loss?
costs are equal to Php3.56 per unit. Draw the breakeven chart and determine the volume of sales which the firm
will break-even?
378) General Electric Company which manufactures electric motors has a capacity of producing 150 motors a month.
The variable costs are Php4,000 a month. Fixed cost of the company amount to Php78,000 per month, which
includes all taxes. The average selling price of each motor is Php750. Draw the breakeven chart and determine
the number of motors to be produced and sold per month to break even.
even?
the sales volume in pesos to breakeven.
381) A local factory assembling calculators produces 400 units per month and sells them at Php1,800 each. Dividends
are 8% on the 8,000 shares with par value of Php250 each. The fixed operating cost per month is Php25,000.
Other costs are Php1,100 per unit. Draw the breakeven chart and determine the break-even point.
costs are equal to Php3.60 per unit. Draw the breakeven chart and determine the volume of sales which the firm
will break-even?
Other costs are Php1,100 per unit. Draw the breakeven chart. If only 250 units are produced each month,
determine the profit or loss.
Page 44 of 62
384) In the manufacture of a certain product two processes are available. One will produce 80 units of the finished
product per Php100.00 worth of raw materials, and will cost Php0.42 per unit of the finished product. The other
will produce 87 units of the finished product per Php100.00 worth of raw materials and will cost Php0.56 per unit of
finished product. Draw the breakeven chart. What is the breakeven point in unit value of finished product below
which the low efficiency process should be used and above which the high efficiency process should be used?
the sales volume in pesos to breakeven.
387) A small shop in Bulacan fabricates threshers for palay producers in the locality. The shop can produce each
thresher at a labor cost of Php1,800. The material cost for each unit is Php2,500. The variable costs amount to
Php650 per unit, while fixed charges incurred per year total Php69,000. Draw the breakeven chart. If the portable
threshers are sold for Php7,800 per unit, how many units must be produced and sold per annum to breakeven?
Other costs are Php1,100 per unit. Draw the breakeven chart. If only 200 units are produced each month,
determine the profit or loss.
390) Canlubang Automotive Company manufactures and sells a single automotive product line. From the following data
available, what is the break-even point in units for the current year? Prepare a break-even chart for the 1981
operation at intervals of 5,000 units up to 30,000 units.
Unit selling price
Php40.00
Unit variable cost
Php20.00
Total fixed costs
Php200,000
Unit selling price
Php50.00
Unit variable cost
Php20.00
Total fixed costs
Php220,000
393) The Asian Transmission Company makes and sells automotive parts. Present sales volume is 500,000 units a year
at a selling price of Php0.50 per unit. Fixed expenses total Php80,000 per year. Draw the Breakeven chart. What
is the total profit or loss for a year?
at a selling price of Php0.50 per unit. Fixed expenses total Php80,000 per year. Draw the Breakeven chart. What
is the break-even point in pesos?
396) A shoe manufacturer produces a pair of shoes at a labor cost of Php9.00 a pair and material cost of Php8.00 a pair.
The fixed charges of the business are Php90,000 a month and the variable cost is Php4.00 a pair. If the shoes sell
for Php30.00 a pair, how many pairs must be produced each month for the manufacturer to breakeven? Draw the
breakeven chart.
Page 45 of 62
Unit selling price
Php50.00
Unit variable cost
Php25.00
Total fixed costs
Php225,000
398) The company policy is to earn a return of 18% on invested capital. For manufacturing a new product, a company
intends to purchase one of two available machines. From the following data, how many units must be produced
for equal costs? Draw the breakeven chart.
Machine A
Machine B
First Cost
Php36,000
Php21,000
Salvage Value
Php6,000
Php3,500
Life (years)
10
6
Annual Maintenance and operation cost
Php4,200
Php2,800
Number of operators
1
3
Wage of one operator/hour
Php15.00
Php9.00
Output (units/hour)
25
15
The fixed charges of the business are Php90,000 a month and the variable cost is Php4.00 a pair. The
manufacturer decided to retrench two clerical personnel which will save the company 10% of the fixed cost. If the
shoes sell for Php30.00 a pair, how many pairs must be produced each month for the manufacturer to breakeven?
Draw the breakeven chart.
for equal costs? If the expected annual demand for the new product is 6,000 units annually, which machine should
be purchased? Draw the breakeven chart.
Machine A
Machine B
First Cost
Php36,000
Php21,000
Salvage Value
Php6,000
Php3,500
Life (years)
10
6
Php4,200
Php2,800
Number of operators
1
3
Php15.00
Php9.00
Output (units/hour)
25
15
at a selling price of Php0.50 per unit. Fixed expenses total Php80,000 per year. Draw the breakeven chart. What
is the total profit or loss for a year? What is the break-even point in units?
402) A company has annual fixed cost of Php600,000 and a break-even point at 45% of capacity. The ratio of direct
labor costs to direct materials cost is 4:1. At 100% capacity, the labor cost is Php960,000 which is 80% of all
variable costs. Draw the breakeven chart. If labor costs are decreased 15% with materials costs remaining the
same, determine the new break-even point.
The fixed charges of the business are Php90,000 a month and the variable cost is Php4.00 a pair. If the shoes sell
for Php25.00 a pair, how many pairs must be produced each month for the manufacturer to breakeven? Draw the
breakeven chart.
same, what is the ratio of direct labor to direct materials at full capacity?
405) To produce a certain product, three manufacturing methods are available, costs for which are indicated below. For
what range of annual production volume is each method preferred? Draw and indicate in the breakeven chart.
Method A
Method B
Method C
Annual fixed cost
Php20,000
Php25,000
Php30,000
Variable cost per unit
Php4.20
Php3.50
Php3.00
for equal costs? If the expected annual demand for the new product is 8,000 units annually, which machine should
be purchased? Draw the breakeven chart.
Machine A
Machine B

First Cost
Salvage Value
Life (years)
Number of operators
Output (units/hour)
Php36,000
Php6,000
10
Php4,200
1
Php15.00
32
Page 46 of 62
Php21,000
Php3,500
6
Php2,800
3
Php9.00
20
Method A
Method B
Method C
Annual fixed cost
Php20,000
Php25,000
Php30,000
Php4.00
Php3.50
Php2.50
408) A plant has a capacity of producing 800,000 units per year of a product which it sells for Php1.50 per unit
regardless of output. The annual fixed costs are Php280,000 and a variable cost of Php480,000 at 75% capacity.
Draw the breakeven chart. What is the fixed cost per unit at the break-even point?
same, what is the ratio of direct labor to direct materials at the new break-even point?
Draw the breakeven chart. What is the net profit at 100% capacity if the company is in the 40% tax bracket?
411) An asphalt batching plant to produce hot-mix asphaltic concrete may be purchased for Php920,000. Delivery
equipment and other accessories will cost Php450,000. Materials cost for asphalt and aggregates, including
operation and maintenance, are calculated to be Php18.75 per ton of asphaltic concrete. If the selling price of the
product to contractors is Php42.50 per ton, how many tons must the plant produce and sell to breakeven if the
before-tax minimum attractive rate of return is 25%? Draw the breakeven chart. Assume a ten-year life for the
batching plant and the delivery equipment with 10% of first cost as salvage value.
Method A
Method B
Method C
Annual fixed cost
Php17,000
Php26,000
Php40,000
Php4.00
Php3.50
Php2.50
Draw the breakeven chart. What is the net profit at 100% capacity if the company is in the 40% tax bracket?
414) An asphalt batching plant to produce hot-mix asphaltic concrete may be purchased for Php920,000. Delivery
equipment and other accessories will cost Php450,000. Materials cost for asphalt and aggregates, including
operation and maintenance, are calculated to be Php18.75 per ton of asphaltic concrete. If the selling price of the
product to contractors is Php42.50 per ton, how many tons must the plant produce and sell to breakeven if the
before-tax minimum attractive rate of return is 21%? Draw the breakeven chart. Assume a fifteen-year life for the
batching plant and the delivery equipment with 5% of first cost as salvage value.
****MINIMUM COST ANALYSIS****
415) A manufacturer of television sets determines that the total cost C (in pesos) of manufacturing N units per month is
C=0.2N2 + 100N + 50,000. The relation between unit price p (in pesos) and the number of units N is p = 2,600
0.05N. Determine the number N to be produced per month to maximize profit, and the amount of this profit.
416) For packaging its product, a company uses yearly 60,000 carton containers which cost Php12.00 each. The cost
for placing and receiving an order for these containers is Php150.00 and the carrying costs for storage, taxes,
insurance, and handling is 20% of the purchase price. Assuming that there is no minimum reserve stock,
determine the most economical purchase quantity.
Page 47 of 62
419) A manufacturing company needs 200,000 units of a certain component which is used at a uniform rate throughout
the year. The factory operating 2,000 hours each year can produce this component at the rate of 150 units per
hour. The manufacturing cost is Php25.00 per unit. The holding cost, which includes storage, taxes, insurance
and handling is estimated at 12% of the production cost. The set-up cost per lot is Php540.00. Determine the
most economical production quantity and the total manufacturing cost each year.
and handling, is estimated at 13% of the production cost. The set-up cost per lot is Php550.00. Determine the
422) A company is now using 24,000 units of an item it purchases from a supplier. The management believes that it
can economize if they manufacture the item. Data for the purchase or manufacture of the item are as follows:
Purchase
Manufacture
Cost of item
Php10.20
Php9.50
Cost of placing an order
Php85.00
=====
Cost of each manufacturing set-up
=====
Php1,250
Holding cost per unit per year
Php 5.80
Php 5.80
Annual rate of production
=====
60,000
Determine the total cost of each alternative.
Purchase
Manufacture
Cost of item
Php10.50
Php9.50
Php89.00
=====
=====
Php1,250
Php 5.80
Php 5.80
=====
60,000
425) A company uses 12,000 pieces annually of a product used for a manufacturing process. The price schedule quoted
by a supplier of this product is as follows:
1 499 pieces --- Php12.50 per piece
1,000 1,499 pieces --- Php12.00 per piece
Over 1,500 pieces --- Php11.50 per piece
The cost of placing and receiving an order is estimated to be Php120.00. The holding cost for interest, taxes,
and insurance is 15% of the purchase price. Storage is estimated to be Php12.00 per unit. Determine the most
economical number of lots and the corresponding total cost.
and handling, is estimated at 13% of the production cost. The set-up cost per lot is Php550.00. Determine the
428) Each year a company uses 5,000 kilograms of a chemical component in manufacturing a plastic product. It c an
purchase the component according to the following price schedule:
Page 48 of 62
1 200 kg --- Php25.00 per kg

201 350 kg --- Php24.50 per kg
351 500 kg --- Php23.90 per kg
Over 500 kg --- Php23.20 per kg
The cost of placing and receiving an order is Php90.00. Interests, taxes, and the insurance are estimated to be
24% of the purchase price. The storage cost is calculated to be Php1.20 per kg. Determine the most economical
number of lots and the number of kg to be ordered per lot.
Purchase
Manufacture
Cost of item
Php10.50
Php9.20
Php89.00
=====
=====
Php1,250
Php 5.80
Php 5.80
=====
65,000
1 200 kg --- Php25.50 per kg
201 350 kg --- Php24.50 per kg
351 500 kg --- Php23.90 per kg
1 200 kg --- Php25.50 per kg
201 350 kg --- Php24.50 per kg
351 500 kg --- Php23.90 per kg
****PUBLIC ECONOMY/COST-BENEFIT ANALYSIS****
433) Data for two alternatives are given in the table below. Determine the cost X of alternative B so that the two
alternatives will be equally desirable. Assume an interest rate of 11%. Use benefit-cost analysis.
Alternatives
Cost
Salvage value
Annual benefit
Life (years)
Php9,500
Php1,000
Php2,800
6
Php X
Php1,600
Php3,700
12
434) Data for two alternatives are given below. If interest rate is 10%, determine the cost X of alternative M so that the
two alternatives will be equally desirable.
Alternatives
Cost
Salvage value
Annual benefit
Life (years)
Php X
Php900
Php1,150
8
Php3,200
Php600
Php720
8
435) Data for two alternatives are given in the table below. Assume an interest rate of 11%. Use benefit-cost analysis.
Determine the value of X so that the two alternatives will have the same B/C ratio.
Alternatives

Cost
Salvage value
Annual benefit
Life (years)
Php9,500
Php1,000
Php2,800
6
Page 49 of 62
Php X
Php1,600
Php3,700
12
436) Data for two alternatives are given below. A) If interest rate is 10%, determine the value of X so that the two
alternatives will have the same B/C ratio.
Alternatives
Cost
Salvage value
Annual benefit
Life (years)
Php X
Php900
Php1,150
8
Php3,200
Php600
Php720
8
437) Data for two alternatives are given in the table below. Determine the cost X of alternative B so that the two
alternatives will be equally desirable. Assume an interest rate of 14%. Use benefit-cost analysis.
Alternatives
Cost
Salvage value
Annual benefit
Life (years)
Php9,500
Php1,000
Php2,800
7
Php X
Php1,600
Php3,700
12
438) Data for two alternatives are given below. If interest rate is 15%, determine the cost X of alternative M so that the
two alternatives will be equally desirable.
Alternatives
Cost
Salvage value
Annual benefit
Life (years)
Php X
Php900
Php1,150
9
Php3,200
Php600
Php720
8
439) Determine the life Y of alternative C so that the two alternative will be equally desirable, assuming an interest rate
of 9%, and no salvage value for either alternative.
Alternatives
Cost
Annual benefit
Life (years)
Php8,400
Php1,600
Y
Php12,500
Php3,000
7
440) Data for two alternatives are given in the table below. Assume an interest rate of 14%. Use benefit-cost analysis.
Determine the value of X so that the two alternatives will have the same B/C ratio.
Alternatives
Cost
Salvage value
Annual benefit
Life (years)
Php9,500
Php1,000
Php2,800
7
Php X
Php1,600
Php3,700
12
Alternatives
Cost
Annual benefit
Life (years)
Php8,400
Php1,600
Y
Php12,500
Php3,000
7
442) Irrigation canals are proposed to be built in an arid region. The initial cost is estimated to be Php2,500,000 with
annual maintenance and operation cost of Php48,000. For maximum efficiency, the canal will be dredge every 5
years at a cost of Php50,000. Annual income from farmers and cooperatives that benefit from the project is
expected to be Php320,000. Assuming an annual interest rate of 9% and a 30-year planning horizon, determine
whether the project should be undertaken.
443) Data for two alternatives are given below. If interest rate is 15%, determine the value of X so that the two
alternatives will have the same B/C ratio.
Alternatives
Cost
Salvage value
Annual benefit
Life (years)
Php X
Php900
Php1,150
9
Php3,200
Php600
Php720
8
Page 50 of 62
445) To reduce flood damage in a river valley in Southern Luzon, a flood control dam is being proposed for construction.
The initial cost is estimated to be Php4,600,000, with annual maintenance and inspection costs of Php24,000.
Every 5 years, minor reconstruction work will be undertaken on the dam at a cost of Php150,000. If the dam is
built, flood damage is expected to be reduced from Php400,000 to Php800,000 annually. Assuming the dam to be
permanent and the interest rate is 8%, should the dam be built?
Alternatives
Cost
Annual benefit
Life (years)
Php8,400
Php1,600
Y
Php10,500
Php3,000
7
built, flood damage is expected to be reduced from Php800,000 to Php1,000,000 annually. Assuming the dam to
be permanent and the interest rate is 10%, should the dam be built?
448) Two locations are being considered for a regional park. Improvements planned for either location will include
roads, a swimming pool, picnic areas, tennis and racquetball courts, a ball field, basketball courts, and pavilions.
Disbenefits due to the loss to the province of real estate taxes and the withdrawal of land from agriculture are
provided for in the estimated. Using an interest rate of 12% and a planning horizon of 30 years, determine which
site should be selected using A) the B/C Method; and B) the B C criterion. Estimates for both locations are
tabulated below:
Location
Cost of land
Cost of improvements
Annual operation and maintenance
Annual revenue from concessionaires
Annual disbenefits
Php1,600,000
Php1,200,000
Php96,000
Php600,000
Php120,000
Php2,200,000
Php1,500,000
Php120,000
Php810,000
Php150,000
tabulated below:
Location
Cost of land
Annual disbenefits
Php2,000,000
Php1,200,000
Php96,000
Php600,000
Php120,000
Php2,200,000
Php1,500,000
Php120,000
Php810,000
Php150,000
451) There are three mutually exclusive alternatives for a government project. Determine the best alternative from the
following data:
Projects
Annual benefit
Annual Cost
B/C ratio
Php250,000
Php100,000
2.50
Php320,000
Php135,000
2.37
Php350,000
Php180,000
1.94
built, flood damage is expected to be reduced from Php800,000 to Php1,000,000 annually. Assuming the dam to
be permanent and the interest rate is 12%, should the dam be built?
following data:

Projects
Annual benefit
Annual Cost
B/C ratio
Php220,000
Php100,000
2.20
Php320,000
Php135,000
2.37
Page 51 of 62
C
Php350,000
Php180,000
1.94
454) The government plans to build a system of retention dams in Northern Luzon to reduce the annual damage from
floods. Each dam would be located on one of the contributory streams to the flood basin. In case of heavy flood,
the gates in a dam are closed and the reservoir behind the dam, normally empty, would begin to fill. Each dam is
estimated to last 50 years with no salvage value. All, or any, of the dams can be constructed.
Dam
Construction Cost
Annual Maintenance Cost
Annual Cost of Damage
None
Php 0
Php 0
Php5,200,000
A
Php21,900,000
Php120,000
Php2,900,000
B
Php15,400,000
Php105,000
Php3,200,000
C
Php14,500,000
Php90,000
Php4,000,000
The damages listed in the last column are those that would occur if only the corresponding dam is built. If more
than one dam is built, the total savings are assumed to be the sum of the saving that each would achieve by itself.
If the cost of capital is 8%, which dam, if any, should be built? Use B/C analysis.
tabulated below:
Location
Cost of land
Annual disbenefits
Php2,000,000
Php1,200,000
Php100,000
Php700,000
Php140,000
Php2,200,000
Php1,500,000
Php120,000
Php810,000
Php150,000
Dam
Construction Cost
None
Php 0
Php 0
Php5,200,000
A
Php21,900,000
Php120,000
Php2,900,000
B
Php15,400,000
Php105,000
Php3,200,000
C
Php14,500,000
Php90,000
Php4,000,000
457) The Sunshine Realty Company purchased a commercial lot for Php250,000 on which they will construct an office
building. They have under consideration three different building plans with the estimates tabulated below. If their
minimum attractive rate of return is 10%, A) Calculate the B/C ratio and the (B C) for each alternative.
Building Height
4 stories
6 stories
12 stories
Cost of building
Php650,000 Php1,500,000 Php2,400,000
Resale value of property at the end of 30 years
Php350,000
Php720,000 Php1,000,000
Net annual income
Php120,000
Php250,000
Php340,000
following data:
Projects
Annual benefit
Annual Cost
B/C ratio
Php230,000
Php100,000
2.30
Php320,000
Php135,000
2.37
Php350,000
Php180,000
1.94
minimum attractive rate of return is 10%, using incremental B/C ratio, determine which alternatives should be
selected.
Building Height
4 stories
6 stories
12 stories
Cost of building
Php650,000 Php1,500,000 Php2,400,000
Php350,000
Php720,000 Php1,000,000
Net annual income
Php120,000
Php250,000
Php340,000
Page 52 of 62
460) An investor has three investment alternatives under consideration. Determine which alternative she should select if
i = 15% and n = 10 years for all alternatives.
Alternative
Initial investment
Annual net income
Salvage value
Php40,000
Php7,800
Php8,000
Php52,000
Php10,200
Php10,000
Php60,000
Php11,500
Php12,000
Dam
Construction Cost
None
Php 0
Php 0
Php5,200,000
A
Php21,900,000
Php120,000
Php2,900,000
B
Php15,400,000
Php105,000
Php3,200,000
C
Php14,500,000
Php90,000
Php4,000,000
Alternative
Initial investment
Annual net income
Salvage value
Php40,000
Php7,800
Php8,000
Php52,000
Php10,200
Php10,000
Php60,000
Php11,500
Php12,000
463) Consider four alternatives A, B, C, and D with their respective annual benefits, disbenefits, costs, and savings.
Calculate the B/C ration and (B C) for each alternative.
Alternatives
Benefits
Disbenefits
Cost
Savings
Php180,000
Php42,000
Php128,000
Php16,000
Php250,000
Php68,000
Php184,000
Php27,000
Php300,000
Php92,000
Php265,000
Php38,000
Php400,000
Php118,000
Php288,000
Php54,000
minimum attractive rate of return is 14%, calculate the incremental B/C ratio and the (B C) for each alternative
and determine which alternatives should be selected.
Building Height
4 stories
6 stories
12 stories
Cost of building
Php650,000 Php1,500,000 Php2,400,000
Php350,000
Php720,000 Php1,000,000
Net annual income
Php120,000
Php250,000
Php340,000
465) Consider four alternatives A, B, C, and D with their respective annual benefits, disbenefits, costs, and savings.
Calculate the B/C ration and incremental B/C ratio, then determine which alternative should be selected.
Alternatives
Benefits
Disbenefits
Cost
Savings
Php180,000
Php42,000
Php128,000
Php16,000
Php250,000
Php68,000
Php184,000
Php27,000
Php300,000
Php92,000
Php265,000
Php38,000
Php400,000
Php118,000
Php288,000
Php54,000
466) Analyses of five mutually exclusive projects indicate the estimates tabulated below. The projects have a useful life
of 10 years and the minimum attractive rate of return in 12% annually. Only the cost of the land will be recovered
at the end of the useful life of the project. Using the B/C method, select the best alternative treating operation and
maintenance cost A) as disbenefits, and B) as part of the total cost.
Project
Cost of Land
Construction Cost
Annual O & M
Annual income
Php100,000
Php400,000
Php48,000
Php135,000
Php85,000
Php450,000
Php54,000
Php148,000
Php90,000
Php510,000
Php40,000
Php130,000
Php110,000
Php480,000
Php50,000
Php165,000
Php120,000
Php390,000
Php60,000
Php149,000
Alternative
Initial investment
Annual net income
Salvage value
Php40,000
Php7,800
Php8,000
Php52,000
Php10,200
Php10,000
Php60,000
Php11,500
Php12,000
Page 53 of 62
Project
Cost of Land
Construction Cost
Annual O & M
Annual income
Php100,000
Php400,000
Php48,000
Php135,000
Php85,000
Php450,000
Php54,000
Php148,000
Php90,000
Php510,000
Php40,000
Php130,000
Php110,000
Php480,000
Php50,000
Php165,000
Php120,000
Php390,000
Php60,000
Php149,000
469) The national government has under consideration the following mutually exclusive alternatives for implementing a
certain project. Annual benefits and costs are tabulated below. Determine the alternative which should be
selected based on a B/C analysis.
Alternatives
Annual Benefits
A
B
C
D
E
F
Annual Costs
Php4,200,000
Php3,800,000
Php6,400,000
Php5,700,000
Php3,200,000
Php7,500,000
Php3,900,000
Php4,000,000
Php7,000,000
Php4,900,000
Php2,700,000
Php6,900,000
470) Consider four alternatives A, B, C, and D with their respective annual benefits, disbenefits, costs, and savings. A)
Calculate the (B C) for each alternative and incremental B/C ratio, then determine which alternative should be
selected.
Alternatives
Benefits
Disbenefits
Cost
Savings
Php180,000
Php42,000
Php128,000
Php16,000
Php250,000
Php68,000
Php184,000
Php27,000
Php300,000
Php92,000
Php265,000
Php38,000
Php400,000
Php118,000
Php288,000
Php54,000
Alternatives
Annual Benefits
A
B
C
D
E
F
Annual Costs
Php4,700,000
Php3,800,000
Php6,400,000
Php5,700,000
Php4,200,000
Php7,500,000
Php3,900,000
Php4,000,000
Php7,000,000
Php4,900,000
Php2,700,000
Php6,900,000
Project
Cost of Land
Construction Cost
Annual O & M
Annual income
Php100,000
Php400,000
Php48,000
Php135,000
Php85,000
Php450,000
Php54,000
Php148,000
Php90,000
Php510,000
Php40,000
Php130,000
Php110,000
Php480,000
Php50,000
Php165,000
Php120,000
Php390,000
Php60,000
Php149,000
Alternatives
A
B
C
D
E
F
Annual Benefits
Php4,700,000
Php3,800,000
Php6,400,000
Php5,700,000
Php4,200,000
Php7,600,000
Annual Costs
Php3,900,000
Php4,200,000
Php7,000,000
Php5,200,000
Php2,700,000
Php6,900,000
****INFLATION AND DEFLATION****

474) For the cash flow diagram shown, find Combined interest-inflation rate (ic) and Real rate of interest after inflation
(i), if Rate of inflation (f) = 9% and gradient rate (r) = 20%. Draw the line diagram.
Period
0
1
2
Present Worth
Php1,000.00
Annual Allocation
Php0.00
Php120.00
Php144.00
Future Worth

3
4
5
Php172.80
Php207.36
Php248.832
Page 54 of 62
Php3,000.00
Period
0
1
2
3
4
5
Present Worth
Php1,000.00
Annual Allocation
Php0.00
Php120.00
Php144.00
Php172.80
Php207.36
Php248.832
Future Worth
Php2,000.00
Period
0
1
2
3
4
5
Present Worth
Php1,000.00
Annual Allocation
Php0.00
Php120.00
Php144.00
Php172.80
Php207.36
Php248.832
Future Worth
Php3,000.00
Period
0
1
2
3
4
5
Present Worth
Php1,000.00
Annual Allocation
Php0.00
Php120.00
Php144.00
Php172.80
Php207.36
Php248.832
Future Worth
Php2,000.00
(i), if Rate of inflation (f) = 7.5% and gradient rate (r) = 15%. Draw the line diagram.
Period
0
1
2
3
4
5
Present Worth
Php2,500.00
Annual Allocation
Php0.00
Php200.00
Php230.00
Php264.50
Php304.18
Php402.27
Future Worth
Php5,782.65
Period
0
1
2
3
4
5
Present Worth
Php1,000.00
Annual Allocation
Php0.00
Php120.00
Php144.00
Php172.80
Php207.36
Php248.832
Future Worth
Php3,000.00
Period
0
1
2
3
4
5
Present Worth
Php2,500.00
Annual Allocation
Php0.00
Php200.00
Php230.00
Php264.50
Php304.18
Php402.27
Future Worth
Php5,782.65
Period
0
1
Present Worth
Php100.00
Annual Allocation
Php0.00
Php10.90
Future Worth

2
3
...
9
10
Php11.881
Php12.950
.....
Php10(1.09)9
Php10(1.09)10
Page 55 of 62
Php236.74
Period
0
1
2
3
4
5
Present Worth
Php1,000.00
Annual Allocation
Php0.00
Php120.00
Php144.00
Php172.80
Php207.36
Php248.832
Future Worth
Php2,000.00
Period
0
1
2
3
...
9
10
Present Worth
Php100.00
Annual Allocation
Php0.00
Php10.90
Php11.881
Php12.950
.....
Php10(1.09)9
Php10(1.09)10
Future Worth
Php236.74
484) Assuming an average inflation rate of 6% during the next 10 years, how much would a car costing Php400,000
now cost 10 years hence?
Period
0
1
2
3
4
5
Present Worth
Php2,500.00
Annual Allocation
Php0.00
Php200.00
Php230.00
Php264.50
Php304.18
Php402.27
Future Worth
Php5,782.65
487) A man wishes to set aside money for his retirement at age 60 in a fund which will have an amount equivalent to
Php50,000 with todays purchasing power at that time. The estimated inflation rate is 6.5%. If the fund will earn
9% compounded annually, what amount should he invest now on his forty-fifth birthday?
Period
0
1
2
3
...
9
10
Present Worth
Php100.00
Annual Allocation
Php0.00
Php10.90
Php11.881
Php12.950
.....
Php10(1.09)9
Php10(1.09)10
Future Worth
Php236.74
Php50,000 with todays purchasing power at that time. The estimated inflation rate is 6.5%. If the fund will earn
6% compounded annually, what amount should he invest now on his forty-fifth birthday? How do you relate this
to Philippines situation?
490) A coupon bond with a face value of Php5,000 is purchased for Php4,750. Twenty coupons, each worth Php550,
are attached to the bond and are to cased, one each year, at a designated bank in payment of interest. At the end
of 20 years, the last coupon and the face value of Php5,000 are paid by the bank. If the average inflation rate
during the 20 years is 5.8%, determine the real rate of return before taxes.
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Php50,000 with todays purchasing power at that time. The estimated inflation rate is 11%. If the fund will earn
10% compounded annually, what amount should he invest now on his forty-fifth birthday? How do you relate this
to Philippines situation in 1999?
498) If the rate of inflation is 9% and the rate of interest is 15% compounded annually, determine the single composite
rate per year that would be used to compute the present equivalent future costs estimated in terms of present-day
pesos.
during the 20 years is 5.8% and if the owner of the bond is in the 39% income tax bracket, and his capital gains
tax is 39% on 40% of profit, determine the real rate of return after taxes.
500) If the rate of inflation is 12.5% and the rate of interest is 12% compounded annually, determine the single
composite rate per year that would be used to compute the present equivalent future costs estimated in terms of
present-day pesos.
501) An investor who is in the 44% income tax bracket, purchased bonds for which he will receive Php5,000 interest
each year for 10 years. At the end of 10 years, the bonds will be redeemed for Php50,000. The capital gains tax
is 44% on 40% of his profit, if any. If the rate of inflation is 7%, how much is the real rate of return if he
purchased the bonds for Php50,000?
during the 20 years is 5.8% and if the owner of the bond is in the 39% income tax bracket, determine the real rate
of return before taxes.
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505) If the rate of inflation is 12% and the rate of interest is 15% compounded annually, determine the single
composite rate per year that would be used to compute the present equivalent future costs estimated in terms of
present-day pesos.
507) If Php10,000 is lent today at 12% compounded annually is to be repaid in one lump sum at the end of 5 years, and
if the rate of inflation is 7.5%, what is the real rate of return?
if the rate of inflation is 9%, what is the real rate of return?
510) An investor purchased some shares of a corporation for Php10,000. She received year-end annual dividends of
Php1,200 for ten years. At the end of this time, she sold her shares for Php10,000. If the inflation rate during
each of the 10 years was 8.2%, determine the combined interest-inflation rate of return and the real rate of return
on her investment.
each of the 10 years was 10%, determine the combined interest-inflation rate of return and the real rate of return
on her investment.
each of the 10 years was 8.2%, determine the combined interest-inflation rate of return and the real rate of return
on her investment.
if the rate of inflation is 11%, what is the real rate of return?
on her investment.
Php1,200 for ten years. At the end of this time, she sold her shares for Php6,000. If the inflation rate during each
of the 10 years was 8.2%, determine the combined interest-inflation rate of return and the real rate of return on
her investment.
on her investment.
of the 10 years was 7%, determine the combined interest-inflation rate of return and the real rate of return on her
investment.
519) An investor in the 30% income tax bracket invests Php10,000 in a bond paying 12% rate of interest annually. The
bond will be redeemed at the end of 10 years at par. If the rate of inflation is 8%, what is the real after-tax rate of
return?
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on her investment.
bond will be redeemed at the end of 10 years at par. If the rate of inflation is 10%, what is the real after-tax rate
of return?
of the 10 years was 5%, determine the combined interest-inflation rate of return and the real rate of return on her
investment.
bond will be redeemed at the end of 10 years at par. If the rate of inflation is 10%, what is the real after-tax rate
of return?
****RISK, UNCERTAINLY, AND SENSITIVITY****
524) Manufacture equipment worth Php64,000 is to be purchased. It is estimated to have a life of 8 years with a
salvage value of Php8,000 at the end of this time. Estimates of the annual income from this equipment vary from
Php10,000 to Php12,000. Using present-worth analysis, determine the sensitivity of the investment in the
equipment if the minimum attractive rate of return (MARR) is 10%.
525) A company intends to purchase one of two machines whose data are given below. Determine the sensitivity of the
decision, using annual cost analysis, for MARR value of 10%.
Details
First cost
Annual Operating cost
Salvage value at end of life
Overhaul at mid-life
Life in years
Machine A
Php30,000
Php3,600
Php5,000
Php4,200
8
Machine B
Php42,000
Php2,400
Php7,000
Php6,000
12
526) A machine is purchased for Php24,000 and is expected to be used from 5 to 8 years before being replaced. The
estimated annual operating cost and year-end salvage value for each of the years of its life are tabulated below.
If the MARR is 12%, determine the sensitivity of the investment in the machine to the various life estimates
using the annual cost method.
Life in Years
Annual operating cost

Salvage value
Php2,400
Php10,000
Php2,700
Php9,000
Php3,100
Php7,000
Php3,500
Php5,000
Details
First cost
Life in years
Machine A
Php30,000
Php3,600
Php5,000
Php4,200
8
Machine B
Php42,000
Php2,400
Php7,000
Php6,000
12
Details
First cost
Life in years
Machine A
Php30,000
Php3,600
Php5,000
Php4,200
8
Machine B
Php42,000
Php2,400
Php7,000
Php6,000
12
Life in Years

Salvage value
Php2,400
Php10,000
Php2,700
Php9,000
Php3,100
Php7,000
Php3,500
Php5,000
Page 59 of 62
Details
First cost
Life in years
Machine A
Php30,000
Php3,600
Php5,000
Php4,200
8
Machine B
Php42,000
Php2,400
Php7,000
Php6,000
12
Details
First cost
Life in years
Machine A
Php30,000
Php3,600
Php5,000
Php4,200
8
Machine B
Php42,000
Php2,400
Php7,000
Php6,000
12
534) A company intends to purchase one of two machines whose data are given below. Determine the value of the
minimum attractive rate of return when the machine A and B will have equal annual cost.
Details
First cost
Life in years
Machine A
Php30,000
Php3,500
Php5,000
Php4,200
10
Machine B
Php42,000
Php3,500
Php7,000
Php6,000
12
Life in Years

Salvage value
Php2,400
Php10,000
Php2,700
Php9,000
Php3,100
Php7,000
Php3,500
Php5,000
Details
First cost
Life in years
Machine A
Php30,000
Php3,500
Php5,000
Php4,200
8
Machine B
Php42,000
Php3,500
Php7,000
Php6,000
12
537) A company has the opportunity to invest Php50,000 for which it will receive Php7,000 annually for each year of
investment, and the original investment will be returned at the end of any of the next 5 years. However, beginning
with the sixth year, the amount to be returned to the company of its original investment will be decreased by
Php5,000 in each succeeding year. Thus, the company will receive Php45,000 at the end of the sixth year,
Php40,000 at the end of the seventh year, and so on. If capital is worth 12%, determine the sensitivity of the
investment relative to the years it is retained.
decision, using annual cost analysis, for MARR values of 20%.
Details
First cost
Life in years
Machine A
Php30,000
Php3,600
Php5,000
Php4,200
8
Machine B
Php42,000
Php2,400
Php7,000
Php6,000
12
Page 60 of 62
Details
Machine A
First cost
Life in years
Php35,000
Php3,500
Php5,000
Php4,000
9
Machine B
Php42,000
Php3,500
Php7,000
Php6,000
12
542) The decision matrix shown below gives the profit expected from three alternatives under five states of nature.
Select the preferred alternative by applying each of the following criteria: Laplace, maximin, maximax, minimax
regret, and Hurwicz with = 0.8.
Alternatives
A1
A2
A3
S1
12
7
13
S2
States of Nature
18
20
16
S3
15
14
25
S4
8
12
10
S5
11
16
17
Alternatives
A1
A2
A3
S1
12
7
13
S2
States of Nature
18
20
16
S3
15
14
25
S4
8
12
10
S5
11
16
17
Alternatives
A1
A2
A3
S1
12
7
13
S2
States of Nature
18
20
16
S3
15
14
25
S4
8
12
10
S5
11
16
17
Alternatives
A1
A2
A3
S1
12
7
13
S2
States of Nature
18
20
16
S3
15
14
25
S4
8
12
10
S5
11
16
17
Alternatives
A1
A2
A3
S1
12
7
13
S2
States of Nature
18
20
16
S3
15
14
25
S4
8
12
10
S5
11
16
17
547) The decision matrix shown below consist of cost element from three alternatives under five states of nature. Select
the preferred alternative by applying each of the following criteria: Laplace, minimin, minimax, minimax regret, and
Hurwicz with = 0.3.

Alternatives
S1
A1
A2
A3
12
7
13
S2
States of Nature
18
20
16
S3
15
14
25
Page 61 of 62
S4
8
12
10
S5
11
16
17
548) Analyze the profit matrix below by the use of the Hurwicz principle.
Alternatives
A1
A2
A3
States of Nature
S1
Php8.00
Php4.00
Php3.00
S2
Php7.00
Php9.00
Php11.00
S3
Php5.00
Php10.00
Php8.00
549) Analyze the cost matrix below by the use of the Hurwicz principle.
Alternatives
A1
A2
A3
States of Nature
S1
Php8.00
Php4.00
Php3.00
S2
Php7.00
Php9.00
Php11.00
S3
Php5.00
Php10.00
Php8.00
550) Ford Construction Company is considering the proposed acquisition of a new earthmover. The movers basic price
is Php700,000, and it will cost another Php150,000 to modify it for special use by the company. This earthmover
falls into the MACRS 5-years. It will be sold after 4 years for Php300,000. The earthmover purchase will have no
effect on revenues, but it is expected to save the firm Php330,000 per year in before-tax operating costs, mainly
labor. The firms marginal tax rate (federal plus state) is 40%, and its MARR is 18%. Is this project acceptable
based on the most-likely estimates given.
551) Analyze the cost matrix below by the Hurwicz principle.
Alternatives
A1
A2
A3
States of Nature (000)
S1
Php90.00
Php70.00
Php40.00
S2
Php80.00
Php70.00
Php50.00
S3
Php60.00
Php70.00
Php100.00
labor. The firms marginal tax rate (federal plus state) is 40%, and its MARR is 18%. Suppose that the project will
require an increase in not working capital (spare parts inventory) of Php20,000, which will be recovered at the end
of year 5. With consideration of this new requirement, would the project still be acceptable?
554) Analyze the profit matrix below by the Hurwicz principle.
Alternatives
A1
A2
A3
States of Nature (000)
S1
Php90.00
Php70.00
Php40.00
S2
Php80.00
Php70.00
Php50.00
S3
Php60.00
Php70.00
Php100.00
Page 62 of 62
labor. The firms marginal tax rate (federal plus state) is 40%. If the firms MARR is 22%, what would be the
required savings in labor so that the project remains profitable?
561) The Central Drug Distribution Center wants to evaluate a new materials handling system for fragile products. The
complete device will cost Php62,000 and have an 8-year life and a salvage value of Php1,500. Annual
maintenance, fuel, and overhead cost are estimated at Php0.50 per metric ton moved. Labor cost will be Php8 per
hour for regular wages and Php16 for overtime. A total of 20 tons can be moved in an 8-hr period. The center
handles from 10 to 30 tons of fragile products per day. The center uses a MARR of 10%. Determine the sensitivity
of present worth of cost to the annual volume moved. Assume the operator is paid regular wages for 200 days of
work per year. Use a 10 metric-ton-increment for the analysis.
562) A manufacturing company needs 1,000 square meter of storage space. Purchasing land for Php80,000 and
erecting a temporary metal building at Php70 per square meter is one option. The president expects to sell the
land for Php100,000 and the building for Php20,000 after 3 years. Another option is to lease space for Php2.50 per
square meter per month payable at the beginning of each year. The MARR is 20%. Perform a present worth
analysis of the building and leasing alternative to determine the sensitivity of the decision if construction costs go
down 10% and the lease cost goes up to Php2.75 per square meter per month.
563) A new demonstration system has been designed by Custom Bath & Showers. For the data shown, determine the
sensitivity of the rate of return to the amount of the revenue gradient G for values from Php1,500 to Php2,500. If
MARR is 18% per year, would this variation in the revenue gradient affect the decision to build the demonstration
system? Work this problem with P = Php74,000; n = 10 years; and S = 0. {Expense: Php30,000 first year,
increasing Php3,000 per year thereafter; and Revenue: Php63,000 first year, decreasing by G per year thereafter.}
564) Laura has been offered an investment opportunity that will require a cash outlay of Php30,000 now for a cash
inflow of Php3,500 for each year of investment. However, she must state now the number of years she plans to
retain the investment. Additionally, if the investment is retained for 6 years, Php25,000 will be returned to
investor, but after 10 years the return is anticipated to be only Php15,000, and after 12 years it is estimated to be
Php8,000. If money is currently worth 8% per year, is the decision sensitive to the retention period?
565) An asset cost Php8,000 and has a maximum life of 15 years. Its Annual Operating Cost is expected to be Php500
the first year and increasing by an arithmetic gradient G between Php60 and Php140 per year thereafter.
Determine the sensitivity of the economic service life to the cost gradient in increments of Php40, and plot the
results on the same graph. Use an interest rate of 5% per year.

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Worded Problems on Engineering Economics with Basic Accounting

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

****INTEREST AND DISCOUNT****

If it is sold today for Php50,000, what is the rate of

Which is better for an investor, to invest at 5% compounded semi-annually or 5% compounded monthly?

. . . continuation of Engineering Econom ics W orded P roblem s

****ANNUITIES AND CAPITALIZED COST****

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

Future Worth = Php10,000

. . . continuation of Engineering Econom ics W orded P roblem s

A machine in a factory has the following end-of-year maintenance costs:

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

****FINANCING ANY ENTERPRISE****

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

machines. Determine the composite life of stated machines:

machines. Determine the composite depreciation rate of the

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

Interest earned and other income

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

l) Cost of delivery trucks of a manufacturing company, Php13,287,000;

. . . continuation of Engineering Econom ics W orded P roblem s

h) Wages of auto-mechanics in a car repair shop, Php2,342,000;

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

Labor: 1 operator at Php220.00 per day

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

Using the sinking fund method for depreciation,

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

. . . continuation of Engineering Econom ics W orded P roblem s

1 200 kg --- Php25.00 per kg

INTEREST AND DISCOUNT

ANNUITIES AND CAPITALIZED COST

FINANCING ANY ENTERPRISE

INFLATION AND DEFLATION