ENGINEERING ECONOMY

Problems , September 23, 2019

Encircle the best answer:

1. A side walk vendor increased the selling price of his chicken-inasal from P100 to P125/pc. What is the inflation
during that period if real % escalation if is 10%?
a.15.74% b. 13.64% c. 8.5% 11.5%

2. A man borrowed P12,000 and agreed to pay the loan in one year. The bank discounted the loan and gave him P11,000 in
cash. What was the effective interest rate?
a. 13.33% b. 9.09% c. 25% d. 30.00% .

3. The initial cost of the equipment is P100,000, a salvage value of P12,000 after 5 years and annual repair and maintenance
cost of P10,000. If cost of money is 10% pa, the capitalized cost is:
a. P 344,142 b. P 65,540 c. P131,825 d. P121,520

4. A P150,000 loan is to be paid as follows:

P 10,000/month _______ 12 months, first payment on the 13th
Final payment _______ 25th month
If the rate of interest is 12 % per annum, compounded monthly, what would the balance after payment of 12 th monthly
installment?
a. P 344,142 b. P 64,272 c. P39,930 d. P121,520

5. What would be the loan balance after the 11 th monthly payment?

a. P 344,142 b. P 64,272 c. P39,930 d. P76,697

6. How much is the worth 3 years from now of 3 annual payments of P10,000 if the amount increases by 10% per year with interest at
10% pa? The first payment is to be made now.
a. P 30,000 b. P 112,131 c. P39,930 d. P121,520

7. How much is the worth now of 3 annual payments of P10,000 if the amount increases by 10% per year with interest at
10% pa? The first payment is to be made now.
a. P 30,000 b. P 112,131 c. P39,930 d. P121,520

8. A fund is to be donated by a wealthy man to provide annual scholarships to deserving students. The fund will
grant P5,000 each month for the first 5 years and P10,000 each month for another 5 years. If the fund earns a 12%
interest p.a. compounded monthly, what is the amount of donation now?
a. P 350,560 b. P365,890 c. P345,660 d. P472,230 e. P335,900

9. A nominal interest rate of 12% per annum compounded monthly is equal to what nominal interest compounded
quarterly?
a. 11.49% b. 12.12% c. 12.68% d. 8.34% e. 13.5%

10. Solve, using the declining-balance- method, the annual depreciation cost of an equipment on the 6 th year, if its
book value on the 7th year is P250,000. The salvage value of the equipment is assumed to be P100,000 with a service life
of 10 years.
a. P100,881 b. P121,207 c. P89,305.10 d. P94,115 e. P134,900

11. A proposed plant will require a total capital investment of P100M. It is estimated that the working capital will
amount to 20% of the total capital investment, and the service life is 10 years. If the annual net profit will be P30 M,
determine the minimum pay-out period.
a. 5 years b. 3.3 years c. 5.5 years d. 2.105 years

12. A company borrowed P100,000 to be repaid after 3 years at a market interest rate of 11%. What is the real
percent interest earned by the lender if the general inflation rate is 5% per year
a. 11.00% b. 5.71% c. 3.63% d. 6.66%

13. A bond, with a face value of P1000 redeemable at par in 10 years, pays dividends at the rate of 8% per annum. How much
could it be sold after six years. The yield on the bond is 5 %.
a. P1008. b. P1106.38 c. P989.30 d. P941.15
14. The annual fixed costs for a plant are P100,000. At 50% capacity, the variable costs are P140,000 with net
sales of P280,000. What is the break-even point in units if the selling price per unit is P100?
a.2,000 b. P 3,000 c. 3,5000 d. 4,000

15. A company has the capacity to produce one million units of product per year. At present it can only produce
and sell 800 thousand units annually at a total sales of P800 million. Variable costs per unit is P500 with an
annual fixed costs of P50 million.
Calculate the company's annual profit or loss for this present production.
a. P350 Million b. P 350,000 c. P 500 Million d. P 500,000

16. What is economic order quantity for the following conditions?

Annual requirement quantity, = 10,000 units
Cost per order, = P 2000
Cost per unit,= P 10
Carrying cost = 0.16/unit cost
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 a. 500 units b. 1000 units c, 1500 units d. 5000 units

II. Multiple Choice

1. The present worth of all future amounts that are expected to be received through ownership of the bond.
a. Present Value of the Bond b. Par value c. Redemption Value d. Annual Cost

2. Which of the following terms is synonymous with internal rate of return (IRR)?
a. Investor’s method b. Discounted cash flow method c. Profitability index d. All of these

3. An ordinary annuity but the payment of the first amount is deferred a certain number of periods after the first
period.
a. Deferred annuity b. Annuity Due c. Arithmetic Gradient d. Geometric Gradient

4. Minimum rate of return on a project a manager or company is willing to accept before starting a project, given its
risk and the opportunity cost of forgoing other projects.
a. MARR b. IRR c. Discounted Rate of Return d. Bank rate

5. In which of the following methods of project valuation is the internal rate of returns used?
a. Present worth b. Future worth c. Discounted Cash Flow d. Annual worth
6. The difference between the present value of the annual cash flows (CF) and the total initial investment (FC).
a. Net Present worth b. Future worth c. Discounted Cash Flow d. Capitalized Cost

7. The total amount of money that must be available initially to purchase the equipment and simultaneously provide
funds for interest accumulation to permit perpetual replacement of the equipment
a. Net Present worth b. Future worth c. Discounted Cash Flow d. Capitalized Cost

CR
8. FC  
1  i  n  1
a. Net Present worth b. Capital Recovery c. Discounted Cash Flow d. Capitalized Cost

9.  FC  1  i  L


 SV 
i 

  1  i  1
L

a. Net Present worth b. Capital Recovery c. Discounted Cash Flow d. Capitalized Cost
CF1 CF2 CFn
  ..   FC
1  i  1  i  2
1  i n
10.
a. Net Present worth b. Capital Recovery c. Discounted Cash Flow d. Capitalized Cost

Depreciabl e Fixed Capital

11. 
Annual Cash Flow
a. Net resent worth b. Future worth c. Discounted Cash Flow d. Pay-out period
12. net sales  cost of sales 
a. Gross profit b. Net profit c. Losses d. All of these

13.  net sales  cost of sales1  tax rate  

a. Gross profit b. Net profit c. Losses d. All of these

nA
14. 
1 i
a. Future Worth of Arithmetic Gradient b. Present Worth of Arithmetic Gradient
c. Future Worth of Annuity and Geometric Gradient d. Present Worth of Annuity-Geometric Gradient

A  1  i  n  1  g  n 
15.  
1  i  n
 ig 
a. Future Worth of Arithmetic Gradient b. Present Worth of Arithmetic Gradient
c. Future Worth of Geometric Gradient d. Present Worth of Annuity and Geometric Gradient

C  1  i  n  1 
 Fr  n 

16. 1  i  n  i 1  i  
a. Present Value Of the Bond b. Par value c. Redemption Value d. Periodic interest of the bond
 i 
17. F   Fr 
 1  i   1 
n

a. Present Value Of the Bond b. Par value c. Redemption Value d. Total Periodic Cost of the Bond

 i 
18. F 
 1  i   1 
n

a. Present Value Of the Bond b. Par value c. Redemption Value

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 d. Sinking fund for the retirement of the Bond

19. Which of the following is equal to the periodic interest of bond

 1  i  n  1  C  i 
Fr  n  Fr F
a.  i 1  i   b. c.
1  i  n d. 
1  i   1
n

Fixed Costs
20. Net sales  Variable Costs 
a. Gross Profit b. Net profit c. Revenue d. Breakeven point

 1  i  n  1 
21. A m n 

 i 1  i  
a. present worth of ordinary annuity b. present worth of deferred annuity
c. present worth of annuity due d. present worth of discrete payment

22. Cash Flow  depreciation 

a. Gross Profit b. Net profit c. Revenue d. Sales

 FC  SV  L  1  n  2

23.
 L  1 L
a. Total depreciation, SYDM b. Book value- SYDM
c. Annual depreciation, SYDM d. Annual depreciation, DBM

Depreciabl e Fixed Capital  Interest

24. 
(NetProfit  Depreciati on)Annual
a. Net resent worth b. Future worth c. Discounted Cash Flow d. Pay-out

25. Liabilities  Owners' Equity 

a. Gross Profit b. Asset c. Revenue d. Sales

26. Which of the following is equal to FC (first cost)

SV BVn
a. b. c. SV  d T d. all of
1  f  L 1  f  n
them
27. Capital owned by individuals who have invested their money in a business venture in the hope of
receiving profit
a. Equity capital b. Working Capital c. Fixed capital d. Debt capital
28. Capital necessary for the operation of the company.
a. Equity capital b. Working Capital c. Fixed capital d. Debt capital

29. The capital needed to supply the necessary manufacturing and plant facilities
a. Equity capital b. Working Capital c. Fixed capital d. Debt capital
30. The total of the company’s shares that are held by shareholders. Also known as issued share capital.
a. b. Net profit b. Debt capital c. Subscribed capital d. Paid-in capital
31. The computation of the company’s total revenue and total costs for one period of fiscal year.
a. Balance sheet b. Cash flow c. Journal d.Income statement

32. An accounting book where the original record of all transaction is ordinarily recorded. It is the book
of original entry
a. Balance sheet b. Cash flow c. Journal d.Income statement

33. A method of accounting that counts income or expenses at the time they are earned or incurred,
irrespective of when money is received or paid.
a. Journal b. EBITDA c. Accrual d. GAAP

34. It is a non-GAAP (generally accepted accounting principles) metric that is measured exactly as
stated. All interest, tax, depreciation and amortization entries in the income statement are reversed out
from the bottom-line net income. It purports to measure cash earnings without accrual accounting,
cancelling tax-jurisdiction effects, and cancelling the effects of different capital structures.
a. Journal b. EBITDA c. Accrual d. GAAP

35. Which of the following is not an intangible asset.

a. Goodwill b. Franchises c. Cash d. Patents

36. The minimum income that must be earned by the investor in order to recover the cost of
depreciation of the equipment plus the interest earned by the initial investment made.
a. Net Present worth b. Capital Recovery c. Discounted Cash Flow d. Capitalized Cost

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 (1  i ) n  1
37. =
i (1  i ) n
a. Present worth annuity factor c. Single Payment future-worth factor
b. Future worth annuity factor d. Single payment present worth factor

(1  i ) n  1
38. =
i
a. Present worth annuity factor c. Single Payment future-worth factor
b. Future worth annuity factor d. Single payment present worth factor
  1  i  n 1  1 
39. A   1 
 i 
a. Present worth ordinary annuity c. Present worth of annuity due
b. Future worth of annuity due d. Future worth of ordinary annuity

 1  i  n  1 
40. A m n 

 i 1  i  
a. present worth of ordinary annuity c. present worth of deferred annuity
b. present worth of annuity due d. future worth of deferred annuity

1 i
41. The equation,   1 is used to compute
1 f
a. nominal interest rate to annual interest rate c. simple interest rate to compounded interest rate
b. continuous interest rate to real interest rate d. real interest rate from inflation rate and market rate

The equation, 1  r / m   1 is used to convert

m
42.
a. nominal interest rate to annual interest rate c. simple interest rate to compounded interest rate
b. continuous interest rate to real interest rate d. real interest rate from inflation rate and market rate

43. Represents the ownership of stockholders who have residual claim on the assets of the corporation after
all other claims have been settled. No return is guaranteed on the investment of common stockholders.
They have the right to call meetings, to vote, to elect members of the board of directors, amend charter
and constitution and by-laws, inspect books of the corporation, receive dividends, share remaining
assets if corporation is dissolved.
a. Common stock b. Preferred stock c. Dividends d. Paid up capital

44. Which of the following is equal to the periodic interest of bond

C  1  i  n  1  C
 Fr  n  Fr
a.
1  i  n
 i 1  i   b. c.
1  i  n d. All of these

 1  i  n  1 
45. A m n 

 i 1  i  
a. present worth of ordinary annuity b. present worth of deferred annuity
c. present worth of annuity due d. present worth of discrete payment

46. Cash Flow  depreciation 

a. Gross Profit b. Net profit c. Revenue d. Sales

47.  FC  SV  L  1  n  2

 L  1 L
a. Total depreciation, SYDM b. Book value- SYDM
c. Annual depreciation, SYDM d. Annual depreciation, DBM

Depreciabl e Fixed Capital  Interest

48. 
(NetProfit  Depreciati on)Annual
a. Net resent worth b. Future worth c. Discounted Cash Flow d. Pay-out
49. Liabilities  Owners' Equity 
a. Gross Profit b. Asset c. Revenue d. Sales
50.Which of the following is equal to FC (first cost)
SV BVn
b. b. c. SV  d T d. all of these
1  f  L 1  f  n

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