CHEMICAL ENGINEERING REVIEWER

ENGINEERING ECONOMY
Compiled by: Engr. Albert D.C. Evangelista
Instructions:

1. You have 9 hours to work on your exam.

2. Answer all one hundred questions for a total of one hundred answers. There is no penalty for guessing.
3. Work rapidly and use your time effectively. If you do not know the correct answer, skip it and return to it later.
4. Some problems are presented in both metric and English units. Solve either problem.
5. Mark your answer sheet carefully. Fill in the answer space completely. No marks on the questioners will be evaluated. Multiple
answers receive no credit. If you make a mistake, erase completely.

Multiple Choices:

1. Fundamentally, it involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a
defined purpose are available.
(A) Market Study (C) Chemical Engineering
(B) Optimization (D) Engineering Economy

2. The minimum attractive rate of return (MARR) is also referred to as the

(A) break even value (C) hurdle rate
(B) profit (D) inflation

3. Which of the following statements is incorrect?

(A) The change in the amount of money over a given time period is called the time value of money.
(B) Interest is the manifestation of the time value of money.
(C) The term return on investment (ROJ) is used equivalently with ROR in different industries and settings
(D) Inflation contributes to an increase in purchasing power of the currency.

SITUATION FOR PROBLEMS 4-5(2-11):

Two workers, A and B, produce the same product on identical machines. A receives PHP 25.00 per hour and he produces 100 units
per hour. B is able to produce 120 units per hour. The machine rate or cost of operation of the machines used by them is PHP100.00
per hour.

4. The cost (PHP) per piece for worker A is

(A) 1.75 (C) 1.00
(B) 1.25 (D) 2.50

5. The hourly wage (PHP) of worker B in order that his cost per piece will equal that of A
(A) 25 (C) 50
(B) 35 (D) 40

SITUATION FOR PROBLEMS 6-7(2-15):

An executive receives an annual salary of PHP 300,000 and his secretary a salary of PHP 60,000 a year. A certain task can be
performed by the executive, working alone, in 4 hours. If he delegates the task to his secretary it will require him 30 minutes to
explain the work and another 45 minutes to check the finished work. Due to the unfamiliarity of the secretary to do the task it takes her
an additional time of 6 hours after being instructed. Considering salary cost only and the secretary works, 2,400 hours a year and the
executive 3,000 hours a year.

6. The cost (PHP/hour) of performing the task by the executive alone is

(A) 400 (C) 356
(B) 288 (D) 450

7. The cost (PHP/hour) of performing the task by the executive and the secretary together is
(A) 400 (C) 356
(B) 288 (D) 450

8. (2-22) A new civil engineer failing to complete his first building contract worth PHP 70,000 in a specified time is compelled to pay
a penalty of 1/2 of 1% per day for the first 6 days of extra time required, and for each additional day thereafter, the stipulated
penalty is increased by 10% or PHP 35.00 each day. If he pays a total penalty of PHP 6,160, by how many days did he overrun his
contract time?
(A) 10 (C) 14
(B) 16 (D) 12

9. (3-02) What is the ordinary simple interests (PHP) on PHP 5,000 for the period from January 15 to June 20, 2019, if the rate of
simple interest is 14%?
(A) 334 (C) 200
(B) 257 (D) 303

Compiled By: Engr. Albert D.C. Evangelista 1

10. (3-03) What is the exact simple interests (PHP) on PHP 1,200 for the period from January 16 to November 26, 2016, if the rate of
the interest is 24%?
(A) 248 (C) 344
(B) 310 (D) 277

11. The corporation uses its own funds from cash on hand, stock sales, or retained earnings.
(A) Equity financing (C) Debt financing
(B) Depreciation (D) ROR

12. When a uniform series begins at a time other than at the end of period 1, it is called a
(A) gradient (C) annuity
(B) shifted series (D) perpetuity

13. Which of the following statements is incorrect?

(A) Simple interest is calculated using the principal only, ignoring any interest accrued in preceding interest periods.
(B) For compound interest, the interest accrued for each interest period is calculated on the principal minus the total amount of
interest accumulated in all previous periods.
(C) The rule of 72 for compound interest rates can be used to estimate i or n, given the other value.
(D) If the interest is simple, a rule of 100 may be used in the same way as the rule of 72.

14. (3-04) A man borrows PHP 10,000 from a loan firm. The rate of simple interest is 15%, but the interest is to be deducted from the
loan at the time the money is borrowed. At the end of one year he has to payback PHP 10,000. What is the actual rate of interest?
(A) 17.65 % (C) 21.32%
(B) 14.44 (D) 24.66%

15. (3-05) A man borrows PHP 6,400 from a loan association. In repaying the debt he has to pay PHP 400 at the end of every 3
months on the principal rate and a simple interest of 16% on the principal outstanding at that time. The total amount (PHP) he has
to paid after paying all his debt is
(A) 8576 (C) 5600
(B) 8990 (D) 7566

16. (3-06) If the sum of PHP 12,000 is deposited in the account earning interest at the rate of 9% compounded quarterly, what will it
become at the end of 8 years?
(A) PHP 22,344 (C) PHP 21,455
(B) PHP 26,444 (D) PHP 24,457

17. (3-08) A man possesses a promissory note, due 3 years hence, whose maturity value is PHP 6,700.48. If the rate of interest is 10%
compounded semi-annually, what is the value (PHP) of this note now?
(A) 4500 (C) 5500
(B) 5000 (D) 4000

18. (3-19) Annual deposit were made in a fund earning 10% per annum. The first deposit was PHP 2,000 and each deposit thereafter
was PHP 200 less than the preceding one. The amount (PHP) in the fund after sixth deposit is
(A) 10,000 (C) 13,000
(B) 12,000 (D) 11,000

19. (3-20) A man wishes to bequeath to his daughter PHP 20,000 ten years from now. What amount (PHP) should he invest now if it
will earn interest of 8% compounded annually during the first 5 years and 12% compounded quarterly during next 5 years?
(A) 7536 (C) 7123
(B) 34443 (D) 6778

20. (3-23) If you borrow money from your friend at 12% simple interest, the present worth (PHP) of PHP 20,000 which is due at the
end of the 9 months is
(A) 17665 (C) 16777
(B) 19099 (D) 18349

21. It is the actual rate that applies for a stated period of time.
(A) depreciation (C) Effective interest rate
(B) depletion (D) Nominal rate

22. It is the shortest time unit over which interest is charged or earned.
(A) Compounding period (C) Compounding frequency
(B) Nominal period (D) Time period

23. Which of the following statements is incorrect?

(A) The MARR is a reasonable rate of return established as a hurdle rate to determine if an alternative is economically viable.
(B) The MARR is always higher than the return from a safe investment.
(C) An arithmetic gradient is a cash flow series that either increases or decreases by a constant amount.
(D) Nominal interest rate, r, is an interest rate that include any consideration of compounding.

Compiled By: Engr. Albert D.C. Evangelista 2

24. (4-02) A steam boiler is purchased on the basis of guaranteed performance. However, initial tests indicate that the operating cost
will be PHP 400 more per year than guaranteed. If the expected life is 25 years and money is worth 10%, what deduction (PHP)
from the purchased price would compensate the buyer from the additional operating cost?
(A) 3631 (C) 4122
(B) 3320 (D) 3989

25. (4-05) A farmer bought a farm and he paid PHP 10,000 cash and agreed to pay PHP 2,000 at the end of each 6 months for 5 years.
He failed to pay the first 5 payments. At the end of 3 years, he is required to pay by the seller the entire debt consisting of his
accumulated and future liabilities, otherwise the farm would be foreclosed by the seller, What must he pay (PHP) if money is
worth 12% compound semi-annually?
(A) 18765 (C) 19887
(B) 21767 (D) 20881

26. (4-06) How much (PHP) money would you have to deposit for five consecutive years starting one year from now if you want to be
able to withdraw PHP 50,000 ten years from now? Assume the interest is 14% compounded annually
(A) 3754 (C) 3212
(B) 3929 (D) 3565

27. (4-09) A corporation will make the following disbursements: PHP 50,000 on December 31, 2011; PHP 100,000 on December 31,
2012; PHP 200,000 on December 31, 2013. To accumulate these sums, a sinking fund is established by making equal year end
deposits starting December 31, 2006 up to the end of 2013. If the fund earns 9% interest compounded annually, what is the
required amount (PHP) of the annual deposit?
(A) 29887 (C) 31998
(B) 35433 (D) 33405

28. (4-11) A company sets aside PHP 200,000 at the end of each year for plant expansion. If the fund draws 8% compounded
annually, how long (years) will it take before PHP 2,500,000 can be saved?
(A) 5 (C) 9
(B) 11 (D) 7

29. (4-13) A lathe for a machine shop cost PHP 60,000 if paid in cash. On the installation plan, a purchaser should pay PHP 20,000
down payment and 10 quarterly instalments, the first due at the end of the first year after purchase. If money is worth 15%
compounded quarterly, what is the quarterly instalment (PHP)?
(A) 5439 (C) 4521
(B) 3232 (D) 4122

30. (4-14) A man invest PHP 10,000 now for the college education of his 2-year old son. If the fund earns 14% effective, how much
(PHP) will the son get each year starting from his 18th to the 22nd birthday?
(A) 20792 (C) 19988
(B) 18773 (D) 17887

31. In this type of project, only one of the viable projects can be selected by the economic analysis. Each viable project is an
alternative.
(A) Monopoly (C) Mutually exclusive
(B) Do-nothing (D) Independent

32. It is often utilized if the asset (equipment, a corporation, a building, etc.) might be sold or traded at some time after its start-up or
acquisition, but before the expected life is reached.
(A) Salvage value analysis (C) Present worth analysis
(B) Payback period Analysis (D) Future worth analysis

33. Which of the following statements is incorrect?

(A) All engineering economy factors require the use of an effective interest rate.
(B) The interest rate and payment periods must have the same time unit for the factors to correctly account for the time value of
money.
(C) A future amount of money converted to its equivalent value now has a present worth (PW) that is always greater than that of
the actual cash flow.
(D) Mutually exclusive alternatives compete with one another in the evaluation.

34. (4-15) A person buys a pieces of property for PHP 100,000 down payment and ten deferred semi-annual payment of PHP 8,000
each starting three years from now. What is the present value (PHP) of the investment if the rate interest is 12% compounded
semi- annually?
(A) 154565 (C) 143999
(B) 136543 (D) 123221

35. (4-17) A farmer bought a tractor costing PHP 25,000 payable in 10 semi-annual payments, each installment payable at the
beginning of each period. If the rate of interest is 26% compounded semi-annually, the amount (PHP) of each installment is
(A) 3789 (C) 4077
(B) 44566 (D) 3322

36. (4-21) It cost PHP 50,000 at the end of each year to maintain a section of Kenon road in Baguio City. If money is worth 10%, how
much (PHP) would it pay to spend immediately to reduce the annual cost to PHP 10,000?
(A) 350000 (C) 400000
(B) 450000 (D) 300000
Compiled By: Engr. Albert D.C. Evangelista 3
37. (4-23) A manufacturing plant installed a new boiler at a total cost of PHP 150,000 and is estimated to have a useful life of 10
years. It is estimated to have a scrap value at the end of its useful life of PHP 5,000. If the interest is 12% compounded annually,
its capitalized cost (PHP) is
(A) 218856 (C) 322211
(B) 289888 (D) 345443

38. (4-24) The capitalized cost of a piece of equipment was found to be PHP 142,000. The rate of interest used in the computation was
12%, with a salvage value of PHP 10,000 at the end of a service life of 8 years. Assuming that the cost of perpetual replacement
remains constant, the original cost (PHP) of the equipment is
(A) 67667 (C) 99887
(B) 88687 (D) 77678

39. (4-35) A man bought a Ford Fairlane, model 1965, for PHP 21,000 on installment basis at the rate of 12% per annum on the
unpaid balance. If he paid a down payment of PHP 6,000 in cash and proposes to pay the balance in 20 monthly payment, what
should these monthly payment (PHP) be?
(A) 988 (C) 1211
(B) 831 (D) 1087

40. (4-49) A business needs PHP 50,000 for its operations. One financial institution is willing to lend it money for one year at 12,5%
interest per annum (discounted). Another lender is charging 14% with the principal and interest payable at the end of the year. A
third financier will lend it the amount payable in 12 equal monthly installment of PHP 4,600 each. Which offer is best for the
business?
(A) 1st Offer (C) 3rd Offer
nd
(B) 2 Offer (D) all offers are the same

41. It is the present worth of an alternative that will last "forever."

(A) Capitalized cost (C) Perpetuity
(B) Investment (D) Salvage Value

42. It is the estimated time, usually in years, it will take for the estimated revenues and other economic benefits to recover the initial
investment and a stated rate of return.
(A) Annuity (C) payback period
(B) Perpetuity (D) break even

43. Which of the following statements is incorrect?

(A) Payback analysis is also called payout analysis.
(B) There is a logical linkage between payback and breakeven analysis.
(C) The payback period np should never be used as the primary measure of worth to select an alternative.
(D) Life-cycle cost (LCC) is another extension of future worth analysis.

44. (P4-01) A house and lot was offered for PHP 87,000 with a 10% down payment and a monthly payment of PHP 500 per month for
25 years. What is the monthly interest rate?
(A) 3.76% (C) 5.90%
(B) 6.32% (D) 4.97%

45. (5-07) Suppose a man receives an initial amount salary of PHP 60,000, increasing at the rate of PHP 5,000 a year. If money is
worth 10%, what is his equivalent uniform salary (PHP) for a period of 8 years?
(A) 79887 (C) 87667
(B) 84434 (D) 75022

46. (5-08) The year-end operating and maintenance costs a certain machine are estimated to be PHP 12,000 the first year and to
increase by PHP 2,500 each year during its 4-year life. If capital is worth 12%, what is the equivalent uniform year-end costs
(PHP)?
(A) 13231 (C) 14555
(B) 16766 (D) 15397

47. (5-10) Deposits are made to an account as indicated in the table below which bears interest at the rate of 10% compounded
annually. How much (PHP) will there be in the account at the end of the sixth year?
End of year Deposit (PHP)
1 0
2 500
3 1000
4 1500
5 2000
(A) 6078 (C) 6988
(B) 6765 (D) 5766

48. (5-19) Eleanor makes year -end deposits of PHP 500 the first year, PHP 550 the second year, PHP 605 the third year, and so on,
increasing the next year's deposit by 10% of the deposit in the preceding year until the end of the tenth year. Ronald makes equal
year-end deposits of PHP 700 each year for 10 years. If interest on both funds is 12% compounded annually, who will be able to
have more at the end of the years?
(A) Eleanor (C) Equal savings
(B) Ronald (D) Insufficient data

Compiled By: Engr. Albert D.C. Evangelista 4

49. (6-05) A city will issue 9% bond, redeemable at par in 15 years, with interest payable annually. The proceeds from the bond issue
will be used of finance part of the public works program of the city. To pay for the deposit to the sinking fund and the annual
interest, it is estimated that PHP 1,000,000 can be raised yearly through taxation. If the fund earns 8% compounded annually, what
is the maximum amount (PHP) of bonds which the city can issue?
(A) 8344333 (C) 8776631
(B) 7884598 (D) 7445554

50. (6-08) A bong with a par value of PHP 1,000 and with a bond rate of 9% payable annually is to be redeemed at PHP 1,050 at the
end of 6 years from now. If it is sold now, what should be the selling price (PHP) to yield 8%?
(A) 1098 (C) 1078
(B) 1100 (D) 1059

51. It is paid periodically between the time the money is borrowed and the time the face value is repaid.
(A) Bond interest (C) Amortization
(B) Equity (D) Deprecation

52. This is the terminal estimated value of assets at the end of their useful life.
(A) MARR (C) Bond
(B) Salvage value (D) Annuity

53. Which of the following statements is incorrect?

(A) Initial investment is the total first cost of all assets and services required to initiate the alternative.
(B) Present worth analysis determines if the MARR will be obtained over the life of a bond, given specific values for the bond's
face value, term, and interest rate.
(C) Payback analysis estimates the number of years necessary to recover the initial investment minus a stated rate of return
(MARR).
(D) Bond interest is also called bond dividend.

54. (6-13) A man purchased a share of stock for PHP 135 six years ago, and has received a dividend of PHP 6 at the end of each year.
If he sold the share for PHP 120 today, at what rate of return could he consider having been paid? Assume that he has re-invested
the interest earned at 4% compounded annually.
(A) 3.64 % (C) 3.87 %
(B) 2.65 % (D) 3.23 %

SITUATION FOR PROBLEMS 55-58(7-03):

A contractor imported a bulldozer for his job, paying PHP 250,000 to the manufacturer. Freight and insurance charges amounted to
PHP 18,000; customs', broker's fees and arrastre services, PHP 8,500; taxes, permits, and other expenses, PHP 25,000. The contractor
estimates the life of the bulldozer to be 10 years with a salvage value of PHP 20,000.

55. The book value (PHP) at the end of 6 years using the straight-line formula is
(A) 143221 (C) 122366
(B) 148998 (D) 132600

56. The book value (PHP) at the end of 6 years using the sinking fund formula at 8% is
(A) 145443 (C) 158950
(B) 123323 (D) 150112

57. The book value (PHP) at the end of 6 years using the Matheson formula is
(A) 59202 (C) 54669
(B) 52112 (D) 56432

58. The book value (PHP) at the end of 6 years using the SYD method is
(A) 77887 (C) 76556
(B) 71182 (D) 74554

SITUATION FOR PROBLEMS 55-58(7-07):

A company purchased a machine for PHP 30,000, used it for 5 years and the sold it for PHP 10,000. The capital is worth 8%.

59. The annual cost (PHP) of depreciation and interest using the sinking fund depreciation and interest on first cost is
(A) 5289 (C) 5122
(B) 5334 (D) 5809

60. The annual cost (PHP) of depreciation and interest using the straight-line depreciation plus average interest is
(A) 5998 (C) 5760
(B) 5434 (D) 6656

61. It is the rate paid on the unpaid balance of borrowed money, or the rate earned on the unrecovered balance of an investment, so
that the final payment or receipt brings the balance to exactly zero with interest considered.
(A) IRR (C) Perpetuity
(B) MARR (D) Rate of return (ROR)

Compiled By: Engr. Albert D.C. Evangelista 5

62. What refers to the market situation in which any given product is supplied by a very large number of vendors and there is no
restriction against additional vendors from entering the market?
(A) Monopoly (C) Oligopoly
(B) Oligopsony (D) Perfect competition

63. Which of the following statements is incorrect?

(A) Capital recovery is the equivalent annual cost of owning the asset plus the return on the initial investment.
(B) The annual worth method of comparing alternatives is often preferred to the present worth method, because the AW
comparison is performed for only one life cycle.
(C) The composite rate of return i' is the unique rate of return for a project that assumes that net positive cash flows, which
represent money not immediately needed by the project, are reinvested at the reinvestment rate c.
(D) Supply refers to the need, want or desire for a product backed by the money to purchase it.

64. (7-06) An asphalt and aggregate mixing plant having a capacity of 50 cu.m. every hour costs PHP 2,500,000. It is estimated to
process 800,000 cu.m. during its life. During a certain year it processed 60,000 cu.m. If its scrap value is PHP 100,000, the total
depreciation (PHP) during the year using the production units method is
(A) 175000 (C) 180000
(B) 185000 (D) 170000

65. (7-08) The Allied Plastic Company has four plastic injection machine that cost PHP 15,000; PHP18,000; PHP 22,000; and PHP
25,000. These machines have an expected services life of 12 years with estimated salvage values at that time of PHP 2,500; PHP
3,000; PHP 4,500; and PHP 5,000. The annual depreciation by the group depreciation method is
(A) 6777 (C) 6667
(B) 7677 (D) 7767

SITUATION FOR PROBLEMS 66-67(7-09):

The Tamaraw Company maintains records of its production machines on a composite basis. The date for 4 machine is shown in the
table below.
Machine First cost Salvage Value Service Life
A 55,000 10,000 15
B 52,000 8,000 11
C 40,000 6,000 10
D 38,000 5,000 10
66. The composite life (years) of the machines is
(A) 11.39 (C) 13.87
(B) 12.88 (D) 10.87

67. The composite depreciation rate is

(A) 7.98 (C) 6.99%
(B) 8.33 (D) 7.41%

68. (7-11) To develop an oil well containing 2,000,000 barrels of oil required an initial investment of PHP 30,000,000. In a certain
year, 400,000 barrels of oil were produced from this well. The depletion charges (PHP) during the year is
(A) 6500000 (C) 6000000
(B) 5500000 (D) 5000000

SITUATION FOR PROBLEMS 69-70(7-14):

A PHP 110,000 chemical plant had an estimated life of 6 years and a projected scrap value of PHP 10,000. After 3 years of operation,
an explosion made it a total loss. The amount (PHP) of money would to be raised to put up a new plant costing PHP 150,000, if a
depreciation reserve was maintained during its 3 years operation

69. Using straight line Method is

(A) 120000 (C) 100000
(B) 130000 (D) 110000

70. Using Sinking Fund method at 6%ineterest is

(A) 106878 (C) 104359
(B) 110989 (D) 112000

71. This often quoted ratio indicates the profit margin for the company.
(A) Return on Sales Ratio (C) Return on Assets Ratio
(B) Debt Ratio (D) Inventory Turnover Ratio

72. Assess ability to meet short-term and long-term financial obligations.

(A) Profitability ratios (C) Efficiency ratios
(B) Acid Test Ratio (D) Solvency ratios

73. Which of the following statements is incorrect?

(A) Liabilities is a summary of all financial obligations (debts, bonds, mortgages, loans, etc.) of a corporation.
(B) Net worth provides a summary of the financial value of ownership, including stocks issued and earnings retained by the
corporation.
(C) Net worth is a summary of all resources owned by or owed to the company.
(D) Expenses includes all sales and revenues that the company has received in the past accounting period.

Compiled By: Engr. Albert D.C. Evangelista 6

74. (8-06) Jose Cruz has invented a device and he has been offered a royalty of PHP 0.50 per piece to be manufactured by a certain
firm. Market research indicates that 20,000 units can be sold each year for a period of 5 years, after which the device may be
superseded by a better device. However, Jose prefers to be paid a lump sum now because he fears that the market research has
been too optimistic and that the estimate has been too high. What is the equivalent cash payment (PHP) now if the valuation is
based on a rate of 12%?
(A) 43221 (C) 36048
(B) 48998 (D) 54555

75. (8-08) A mine will have a net annual income of PHP 400,000 annually for 15 years. Determine its value if the annual dividend rate
is to be 12%, payable annually, and the sinking fund is to accumulate at 7% annually.
(A) 2100998 (C) 2333444
(B) 2988776 (D) 2503213

76. (10-02) During a certain month, the expenses of a certain department of a company for office supplies, electric and water
consumption, depreciation of office equipment, and other expenses, but excluding salaries was PHP 16,000. This department
employs 20 men working 8 hours a day for 25 days during the month. A certain project assigned to this department was completed
by 7 men working 12days. Determine what part of the total expense is chargeable against this task.
(A) PHP 8739 (C) PHP 2885
(B) PHP 2789 (D) PHP 2229

77. (10-04) In making ready mixed concrete the plant superintendent states that the labor item is PHP 10.20 per cu.m. of concrete. The
cost of labor, of power, and of equipment depreciation is as 4:6:10. If 120 cu.m. of concrete are, on the average, made per day, 25
days per month of the year determine the annual cost (PHP) of labor, power, and depreciation.
(A) 1836000 (C) 1432556
(B) 1122112 (D) 1678989

78. (11-08) A lot purchased for PHP 6,000 fifteen years ago can now be sold for PHP 90,000. Real property taxes of PHP 200 were
paid in the end of each of the 15years. If the agent selling the property receives PHP 4,500 as commission, determine the before
tax rate of return on the investment.
(A) 12.5% (C) 15.4%
(B) 27.4% (D) 18.1%

SITUATION FOR PROBLEMS 79-80(11-11):

A proposed manufacturing plant will require a fixed capital investment of PHP 8,000,000 and an estimated working capital of PHP
1,500,000. Annual depreciation is estimated to be 8% of the fixed capital investment. The annual profit is PHP 2,000,000.

79. The rate of return on the total investment is

(A) 12.44% (C) 21.05%
(B) 9.22% (D) 15.33%

80. The minimum payout period (years) is

(A) 3.03 (C) 4.33
(B) 4.55 (D) 2.90

81. It is defined as the decrease in the value of a property , such as machinery, equipment, building or other structure, due to the
passage of time.
(A) depletion (C) inflation
(B) acid ratio (D) depreciation

82. In this method of solving depreciation, the loss in value is considered to be directly proportional to the age of the property.
(A) Matheson Formula (C) Sinking Fund Formula
(B) Straight Line Formula (D) SYD Method

83. When the inflation rate is equal to 0% per year

(A) the market interest rate is greater than the real interest rate.
(B) the market interest rate is less than the real interest rate
(C) the market interest rate is equal to the real interest rate.
(D) the inflated interest rate is greater than the real interest rate.

84. (11-12) A certain waterworks system cost PHP 600,000 and in 20 years will have depreciated PHP 400,000 in value. If the annual
interest on bonds is 5% and local interest is fixed at 8% yearly and if the annual operating expenses amount to PHP 80,000, what
must be the charge (PHP) per thousand cu.m of water if the plant capacity is 3500000 cu.m. per year? The sinking fund is
deposited annually.
(A) 24.66 (C) 27.87
(B) 33.93 (D) 37.87

85. (12-11) A 3 story school building will cost PHP 200,000 to build and will serve the purpose for 10 years. After this period, another
story must be added to accommodate the increase enrollment, and this additional story will cost PHP 80,000. However, if the
school building were built originally of 4 stories, the cost would have been PHP 250,000. If the bond pay interest at the rate of 5%
per annum, and the interest is paid annually, which is the better proposition?
(A) 1st (C) Both equal savings
(B) 2nd (D) Unpredictable

Compiled By: Engr. Albert D.C. Evangelista 7

86. (13-09) The cost of electric energy in a certain city is based on the following consumption: First 25 kw-hr per month at PHP 0.60;
next 25kw-hr at PHP 0.45; next 50kw-hr at Php0.40; and the additional kw-hr in excess of 100 kw-hr at PHP 0.30. The present
consumption of a family is 80 kw-hr a month. If it is contemplated to install an electric range which will use about 110 kw/hr per
month, determine the monthly cost (PHP) of energy for the range.
(A) 31 (C) 41
(B) 49 (D) 35

SITUATION FOR PROBLEMS 87-88(13-20):

A dump truck was bought for PHP 30,000 six years ago. It will have a salvage value of PHP 3,000 four years from now. It is sold now
for PHP 8,000.

87. The sunk cost (PHP) if the depreciation method used is the straight-line formula is
(A) 5800 (C) 5095 psi
(B) 4766 (D) 5330 psi

88. The sunk cost (PHP) if the depreciation method used is the sinking fund formula at 6% is
(A) 6766 (C) 7700
(B) 7300 (D) 5660

89. (14-20) An engineer sold his machine for PHP 17,000, after using it for 5 years. He bought a new machine worth PHP 75,000 with
an expected life of 12 years, and a salvage value of PHP 2,000. The operating cost is PHP 5,500 per year. The old machine which
he bought for PHP 50,000 when new will be useful for 10 years with a junk value of PHP 1,000, but because of appropriate
preventive maintenance it will be useful for another 5 years with an annual operating cost of twice the new one. If money is worth
12%, was the engineer justified in selling the old machine? Use straight line depreciation.
(A) yes (C) both have equal depreciation
(B) no (D) insufficient data

90. (16-01) A telephone switchboard cable can be made up of either enameled wire or tinned wire. There are 400 soldered
connections. The cost of soldering a connection on the enameled wire will be PHP 16.5; on the tinned wire it will be PHP 11.5. A
cable made up with enameled wire cost PHP 56.00 per lineal meter and made up with tinned wire PHP 85.00 per lineal meter. The
length (m) of cable used so that cost of each installation will be the same is
(A) 75 (C) 98
(B) 69 (D) 86

91. This method assumes that the annual cost of depreciation is a fixed percentage of the book value at the beginning of the year.
(A) Operating Day Method (C) SYD method
(B) Sinking Fund Formula (D) Matheson Formula

92. A detailed cost estimate that takes several weeks to prepare should be accurate to within what percentage of the actual cost?
(A) 1 (C) 10
(B) 5 (D) 15

93. When accelerated depreciation methods or shortened recovery periods are applied, there are impacts on the income taxes due.
Which of the following statements is incorrect?
(A) Total taxes paid are the same for all depreciation methods.
(B) Present worth of taxes is lower for smaller recovery periods.
(C) Accelerated depreciation imposes more taxes in the later years of the recovery period.
(D) Present worth of taxes is higher for smaller recovery periods.

94. (16-07) A shoe manufacturer produces a pair of shoes at a labor cost of PHP 8.50 and material cost of PHP 23.5. The fixed charges
on the business are PHP 10,125 a month and the variable costs are PHP 2.5 a pair. If the shoes sell to retailers for PHP 48.00 a
pair, how many pairs must be produced and sold each month for the manufacturer to break even?
(A) 890 (C) 750
(B) 960 (D) 100

95. (16-17) A foundry produces a pair of eyebolt and nut at a labor cost of PHP 0.70 a pair and materials cost of PHP 1,60 a pair. The
fixed charges on the business are PHP 25,000 a month and the variable cost is PHP 0.5 a pair. If the eyebolt and nut sell for PHP
5.50 a pair, how many pairs must be produced each month for the foundry to break even?
(A) 7887 (C) 6778
(B) 9989 (D) 9260

SITUATION FOR PROBLEMS 96-98(17-06):

A company manufactures an article that sells for PHP 500 per unit. The cost of production is in accordance with the following
equation: C= 0.25N2 + 300N +18,000 where N = number of units produced monthly; C= total cost of production per month.

96. The rate of production for maximum rate of return is

(A) 221 units (C) 261 units
(B) 289 units (D) 343 units

97. The rate of return for this level of production is

(A) 15.16% (C) 10.77%
(B) 12.44% (D) 8.88%

Compiled By: Engr. Albert D.C. Evangelista 8

98. The rate of production for a rate of return of 125 is
(A) 144 units (C) 176 units
(B) 211 unts (D) 55 units

99. (19-02) Based on the news reports, it is predicted that there will be an average annual rate of inflation in prices of commodities of
8,2% during the next ten years. Assuming this prediction to be accurate, a home currently costing PHP 51,000 now would have
what price (PHP) ten years hence?
(A) 144399 (C) 112160
(B) 56443 (D) 211000

100. (19-04) On his son's fifth birthday, a man decides to deposit a certain amount which will be equivalent to PHP 28,000 with
today's purchasing power of the peso on his son's eighteenth birthday when he will start his college education. If the banks pay
5.5% interest compounded annually but the rate of inflation is 8.7% compounded annually, how much (PHP) should the man
deposit now?
(A) 40000 (C) 38999
(B) 41291 (D) 45332

Compiled By: Engr. Albert D.C. Evangelista 9