ADDITIONAL EXERCISES

1. AMT Inc., is considering the purchase of a digital camera for the maintenance of
design specifications by feeding digital pictures directly into an engineering
workstation where computer-aided design files can be superimposed over the
digital pictures. Differences between the two images can be noted, and
corrections, as appropriate, can be made by design engineers. The capital
investment requirement is $345,000 and the estimated market value of the
system over the six-year study period is $115,000. Annual revenues are
attributable to the new camera system will be $120,000 whereas additional
annual expenses would be $22,000. You have been asked by management to
determine the IRR of this project and to make a recommendation plan. The
corporation’s MARR Is 20% per year.

A. 25.06%
B. 22.03%
C. 23.02%

2. A loan of 350,000 pesos is set to be repaid in equal payments for 18 months with
an interest of 3% per month. The borrower however was allowed to increase his
payment by 25% after the 4th payment was made. How much is the unpaid
balance at the 8th month?

A. 190,460.60
B. 235,385.70
C. 178,017.10

3. In preparation for the college education of his son, DJ plans to deposit equal
amounts money for five consecutive years starting one year from now. If he wants
his son to be able to withdraw P1,000,000 ten years from now at 8% interest
compounded annually, what is the amount of each deposit?

D. 190,651.28
E. 161010.09
F. 116,010.09

4. As an IE consultant for the World Bank you are earning an average annual salary
of $5M for 10 years. A private company would like to acquire your services and
offers you an initial salary of $3M but is increasing at the rate of $400,000
annually. If money is worth 10%, are you going to accept the offer?

A. PW INCOME = 862,845.11 & PW COSTS = 855,803.57 therefore accept

B. PW INCOME = 862,845.11 & PW COSTS = 555,803.57 therefore accept
C. PW INCOME = 762, 845.11 & PW COSTS = 855,803.57 therefore reject
5. At age 30 you invest $5,000 into a mutual fund. If the fund averages an 8%
annual return, your investment is worth how much at age 55?

A. $23,300 B. $34,240 C. $50,310 D. $344,570

6. Tom’s retirement account in a company currently totals $416,384. What

perpetual income can Tom and his heirs receive per year if he retires now and
the money is invested in an annuity earning 6% interest?

A. $20,980 B. $22,980 C. $24,980 D. $26,980

7. An investment option is available with continuous compounding at 5% interest. If

you invest $8,000 now, how much interest income will you earn if you cash out in
3.5 years?

A. $1,172 B. $1,261 C. $1,490 D. $1,530

8. A computerized wood lathe, costing $17,000, will be used to make ornamental

parts for sale. Receipts are estimated at $28,000 per year with costs running
$25,000 per year. The salvage value is $2,000 at the end of 10 years. If the MARR
is 8%, what is the present worth of this investment?

A. -$410 B. $3,130 C. $4,060 D. $5,210

9. A price tag of P1200 is specified if paid within 60 days but offers a 3% discount
for cash in 30 days. Find the rate of interest.

A. 37.11% B. 40.21% C. 38.51% D. 39.31%

10. It is the practice of almost all bank in the Philippines that when they grant a loan,
the interest for 1 year is automatically deducted from the principal amount upon
release of money to a borrower. Let us therefore assume that you applied for a
loan with the bank and the P80000 was approved at an interest rate of 14% of
which P11200 was deducted and you were given ac check of P68800. Since you
have to pay the amount of P80000 one year after, what then will be the effective
interest rate?

A. 16.28% B. 17.30% C. 38.51% D. 39.31%

11. Mr. J. Dela Cruz borrowed money from the bank. He received from the bank
P1,340.00 and promised to pay P1,500.00 at the end of 9 months. Determine the
simple interest rate and the corresponding discount rate or often referred to as
the “Banker’s Discount”.

A. 15.92% ; 13.73% B. 12.95% ; 17.33% C.18.28% ; 13.12% D. 19.25% ;

13.33%
12. A man borrowed from the bank under a promissory note that he signed in the
amount of P25000.00 for a period of 1year. He received only the amount of
P21,915.00 after the bank collected the advance interest and an additional
amount of P85.00 for notarial and inspection fees. What was the rate of interest
that the bank collected in advance?

A. 13.64% B. 16.43% C.18.37% D. 10.32%

13. Karen was granted a loan of P20,000 by her employer CPM Industrial Fabricator
and Construction Corporation with an interest at 6% for 180days on the principal
collected in advance. The corporation would accept a promissory note for
P20,000 non-interest for 180days. If discounted at once, find the proceeds in the
note.

A. P18,800 B. P18,000 C. P19,000 D. P18,400

14. P4000 is borrowed for 75 days at 16% per annum simple interest. How much will
be due at the end of 75 days?

A. P4186.43 B. P4133.33 C. P5124.54 D. P5625.43

15. Mr. Bautista made a money market placement of P1,000,000 for 30 days at 7.5%
per year. If withholding tax is 20%, what is the net interest that Mr. Bautista will
receive at the end of the month?

A. P3,000 B. P6,000 C. P4,000 D. P5,000

16. A bill for motorboat specifies the cost as P1,200 due at the end of 100days but
offers a 4% discount for cash in 30days. What is the highest rate, simple interest
at which the buyer can afford to borrow money in order to take advantage of the
discount?

A. 18.4% B. 20.9% C. 19.6% D. 21.4%

17. In buying a computer disk, the buyer was offered the options of paying P250
cash at the end of 30days or P270 at the end of 120days. At what rate is the
buyer paying simple interest if he agrees to pay at the end of 120days?

A. 32% B. 28% C.40% D. 25%

18. A bookstore purchased a best-selling book at P200.00 per copy. At what price
should this book be sold so that by giving a 20% discount, the profit is 30%.

A. P200.00 B. P300.00 C. P400.00 D. P500.00

19. A businessman wishes to earn 7% on his capital after payment of taxes. If the
income from an available investment will be taxed at an average of 42%, what
minimum rate of return, before payment of taxes, must the investment offer to be
justified?

A. 13.02% B. 12.07% C. 10.89% D. 11.08%