QUIZ - ENGINEERING ECONOMY

1. Data for a mine are as follows:

Estimated probable output = 20, 000 tons annually
Times to exhaust property = 15 days
Selling price of mine, smelted ore = Php 10, per ton
Cost of operation of mine, smelter = Php 7.53 per ton
Management cost, not included in the charge for depletion = Php 5 000 annually
Rate of investment = 8%
Sinking fund interest = 2.5%

Determine the value of the mine after 15 years. (DEPLETION)

2. The data below are estimated for the project study of a certain business investment. If money is
worth 10% which of the project is more desirable, using Present Worth Method and determine
the difference in profit from each project study.
For A, the initial investment is Php 3, 500, with annual revenue of Php 1, 900. Annual
disbursement amounts to Php 645 with no salvage value at the end of its life which is 4
years.

For B, the initial investment is Php 5, 000, with annual revenue of Php 2, 500. Annual
disbursement is Php 1, 383 with no salvage value at the end of its life which is 8 years.

3. A new engine will cost Php 12, 000 with an estimated life of 15 years and a salvage value of Php
800 and guaranteed to have an operating cost of Php 3, 500 per year. The new engine is
considered as a replacement of the old engine. The old engine had a total annual cost of Php 5,
200 to operate. Determine the rate of return of the new investment using 6% sinking fund to
cover depreciation, if the old engine could be sold now for Php 2, 000.00.

4. An industrial plant has an engine costing of Php 7, 200 which is 5 years old. Its working life is 15
years and salvage value of Php 500. The average operating cost per year thus far has been Php 4,
200. A new engine costing Php 12, 000 estimated life 15 years and a salvage value of Php 800 is
guaranteed to have an operating cost of Php 3, 500 per year. The new engine is considered as a
replacement of the old. If we replace the old engine considering that Php 4, 500 can be obtained
by the sale of the old engine, what would be the equivalent rate of return due to this replacement.
(Straight Line Depreciation)

5. An initial capital Php 10, 000 was put up for a new business that will produce an annual income
of Php 6, 000 for 5 years and will have a salvage value of Php 2, 000 at the time. Annual expenses
for its operation (salaries and wages, insurance, taxes) and maintenance amounts to Php 3, 000.
If money is worth 10% compounded annually, compute the profit or loss. Use annual cost method
(capital recovery method).

6. An old, light-capacity highway bridge may be repaired at a cost of Php 36, 000 or it may be
replaced by a modern bridge of sufficient capacity at a cost of Php 220, 000. The present net
salvage value of the old bridge is Php 52, 000. It is estimated that the reinforced bridge will last
for 5 years after which replacement will be necessary. At the end of the 5 years the net salvage
value of the reinforced bridge is Php 40, 000 and the net salvage value of the new bridge will be
Php 60, 000 after 30 years. The additional cost of maintenance and inspection of the old bridge
will be Php 1, 200 per year. Assuming interest at 6% and depreciation on a straight-line basis, state
whether it is more economical to reinforced the bridge or to replace it. How much would be the
savings if the bridge is to be replaced or reinforced?