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PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.

UNITED ARAB EMIRATES CHAPTER


International Charter No. I-07

Special Professional Licensure Board


Examination (SPLBE)

ENGR. RICHARD M. MANALO, ce, rmp, pqp-pbrs, pem-asem


Lecturer

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

QUOTE OF THE DAY

By: Anunuzuk VI 1
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

YOUR ATITUDE DETERMINES


YOUR DIRECTION

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Engineering Economy
Engineering Economy
Present Economy Study
Time-Value Relations
Selection Among Alternatives
Present Worth Method
Annual Worth Method
Future Worth Method
Internal Rate of Return Method
External Rate of Return Method

By: Anunuzuk VI 2
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


SIMPLE INTEREST
INTEREST
Is the amount of money or payment for the use of a borrowed money or
capital

SIMPLE INTEREST
Is defined as the interest on a loan or principal that is based only on the
original amount of the loan or principal. This mean that the interest
charges grow on a linear function over a period of time

= Where:
P = principal
I = interest per period
n = number of interest period

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UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SIMPLE INTEREST
ORDINARY SIMPLE INTEREST
Is based on the bankers year. One year is
equivalent to 12 months of 30days each. 1 = =

bankers year = 360 days

EXACT SIMPLE INTEREST


Is based on the exact number of days in a
= =
given year. An ordinary year has 365 days
while leaf year (which occur once every 4
years) has 366 years. For ordinary or For leaf year
normal year

By: Anunuzuk VI 3
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM
P8,000 is borrowed for 75 days at 12% per annum simple interest. How
much will be due at the end of 75days?

It is the practice of almost all banks in the Philippines that when they
grant a loan, the interest for one year is automatically deducted from
the principal amount upon the release of the money to a borrower.
Let us assume that you applied for a loan with the bank and the
P100,000 was approved at an interest rate of 12% of which P12,000
was deducted and you were given a check of P88,000. Since you
have to pay the amount of P100,000 one year after, what then will be
the effective interest rate?

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


COMPOUND INTEREST
In compound interest, the interest is computed every end of each interest period
(compounding period), and the interest earned for that period is added to the
principal (interest plus principal)

ELEMENTS OF COMPOUND INTEREST COMPOUND INTEREST FORMULAS


P = present worth or principal
Interest, i
F = future worth or the future amount
i = effective interest per compounding = /
period
Total number of compounding, n
n = total number of compounding
I = interest earned =
r = nominal interest rate
ER = effective interest Future worth, F
t = number of years of investment
= +
m = number of compounding per year.

By: Anunuzuk VI 4
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


COMPOUND INTEREST
Values of m and n

The following examples show to get he value of i and n Nominal


interest rate, r = 18% Number of years of investment, t = 4 years

Compounded annually ( m=1 )


i = 0.18/1 = 0.18 n = 4 (1) = 4

Compounded semi - annually ( m=2 )


i = 0.18/2= 0.09 n = 4 (2) = 8

Compounded quarterly ( m=4 )


i = 0.18/4= 0.045 n = 4 (4) = 16

Compounded bi-monthly ( m=6 )


i = 0.18/6= 0.03 n = 4 (6) = 24 z

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM
A man invests $10,000 in an account that pays 8.5% interest per year,
compounded quarterly. What is the amount of money that he will
have after 3 years?

A sum of $5000 is invested at an interest rate of 9% per year. Find the


time required for the money to double if the interest is compounded
semi-annually.

By: Anunuzuk VI 5
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


COMPOUND INTEREST
CONTINUOUS COMPOUNDING
Interest may be compounded daily, hourly, per minute, etc. as a limit,
interest may be compounded an infinite number of time per year ( )

The future worth of P at an interest rate


of r compounded continuously for t =
years is

A man invests $10,000 in an account that pays 8.5% interest per year.
What is the amount of money that he will have after 3 years if it is
compounded continuously?

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


COMPOUND INTEREST
EFFECTIVE RATE, ER
Is the actual interest earned in one year period


= +

EFFECTIVE RATE OF r (%) COMPOUNDED CONINUOUSLY IS

By: Anunuzuk VI 6
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM

Find the effective rate of interest for an investment that earns 5 %


per year (a) compounded quarterly, (b) compounded continuously.

EQUIVALENT RATE
(two nominal rates ate equal if they have the same effective rates.)
If money is invested at 8% compounded semi-annually, find equivalent
nominal rate compounded quarterly.

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


ANNUITY
Is a series of uniform payment made at equal interval of time
ELEMENTS OF ANNUITY
A = periodic payment
P = present worth of all periodic payment F or S = future
worth or sum of all periodic payments.
i = interest rate per payment
n = number of payments

TYPES OF ANNUITY
An ordinary annuity is one where the payments are made at the end of each
period
An annuity due is one where the payments are made at the beginning of each
period
A deferred annuity is one where the payments do not commence until a
period of time has elapsed
A perpetuity is an annuity in which the payments continue indefinitely

By: Anunuzuk VI 7
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


ANNUITY
ORDINARY ANNUITY
ordinary annuity is one where the payments are made at the end of
each period

THE FUTURE WORTH OF ANNUITY

+
=

THE PRESENT WORTH OF ANNUITY

+
=
=
+ +

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM
A man deposits P500 every month in an investment which earns 7%
compounded monthly.

a. What is the accumulated amount in 5 years?


b. If in two years, instead of depositing P500 per month, you deposit P1000 per
month, what is the sum of your money in 5years?

A man paid 10% down payment of P2,000,000 for a house and lot. If the rate of
interest is 15% compounded monthly
a. What is the monthly installment if he agrees to pay the balance on monthly
installment for 5 years?
b. He fails to pay the monthly installment for the first three years and decides to
pay his present and future obligations at he end of the 3rd year. What single
amount must he pay to cancel all his obligation at the end of the 3rd year?

By: Anunuzuk VI 8
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


ANNUITY
DEFFERED ANNUITY
deferred annuity is one where the payments do not commence until a
period of time has elapsed

THE FUTURE WORTH OF ANNUITY

+
=

THE PRESENT WORTH OF ANNUITY

+
=
=
+ +

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM
A man paid 10% down payment of P2,000,000 for a house and lot. If the rate of
interest is 15% compounded monthly. What would be his monthly installment if
he agrees o pay his balance on a monthly installment starting at the end of
the 2nd year until the end of he 5th year?

A person buys a piece of lot for P100,000 down payment and 10 deferred
semi-annual payments of P8,000 each, starting three years from now. What is
the present value of the investment if the rate of interest is 12% compounded
semi-annually?

By: Anunuzuk VI 9
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


ANNUITY
ANNUITY DUE
annuity due is one where the payments are made at the beginning of
each period

THE FUTURE WORTH OF ANNUITY

+
=

THE PRESENT WORTH OF ANNUITY

+
=
=
+ +

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM

A contractor wish to buy a machine worth P1,000,000 after one year. If the
bank gives an investment of 1.5% monthly

a. What single amount must be deposited in order to have the desired


amount after one year?
b. What amount must be deposited at the bank at every beginning of the
month in order to have P1,000,000 after one year?

By: Anunuzuk VI 10
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


ANNUITY
PERPETUITY
A perpetuity is an annuity in which the payments continue indefinitely

THE PRESENT WORTH OF PERPETUITY



=

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UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


CAPITALIZED COST AND ANNUAL COST
CAPITALIZED COST
Capitalized cost is an application of perpetuity. The capitalized cost of
a project or structure is the sum of the first cost (FC) and the present
worth of all future payments and replacements which is assumed to
continue forever.
CAPITALIZED COST, K
SV

= + +
( + )
If RC is not specified, use RC=FC
OM OM OM OM OM OM
ANNUAL COST FC
RC
=

By: Anunuzuk VI 11
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM

A machine cost P300,000 new, and must be replaced at the end of each
15 years. If the annual maintenance required is P5,000, find the
capitalized cost, if the money is worth 5% and the final salvage value is
P50,000.

A certain equipment cost P150,000, last for 6 years, and has a salvage
value of P30,000. How much could the investor afford to pay for another
machine for the same purpose, whose life is 10 years and salvage value is
P40,000, if the money is worth 5%?

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


CAPITALIZED COST AND ANNUAL COST
ANNUAL COST
Capitalized cost is an application of perpetuity. The capitalized cost of
a project or structure is the sum of the first cost (FC) and the present
worth of all future payments and replacements which is assumed to
continue forever.

SV
CAPITALIZED COST, K


= + +
( + ) OM OM OM OM OM OM
FC
RC

By: Anunuzuk VI 12
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


DEPRECIATION
DEPRECIATION
Depreciation refers to the decrease in the value of an asset, due to usage
or passage of time. An asset may depreciate physically or functionally

ELEMENTS OF DEPRECIATION ELEMENTS OF DEPRECIATION


FC = first cost
SV = salvage value or trade-in value STRAIGHT LINE DEPRECIATION
d = depreciation charge SINGKING FUND METHOD
n = economic life of the property in yrs. SUM OF THE YEARS DIGIT METHOD (SOYD)
m = any time before n DECLINING BALANCE METHOD
BVm = book value after m years DOUBLE DECLINING BALANCE METHOD
Dm = total depreciation for m years CAPITAL RECOVERY (DEPLETION)

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


DEPRECIATION
STRAIGHT LINE DEPRECIATION
In this method, the cost of the property is assumed to vary lineary with
time

DEPRECIATION CHARGE
Sample Prob. (CE Board May 2001)
= The first value of a machine is
P1,800,000 with a salvage value of
P300,000 a the end of is life of 5
TOTAL DEPRECIATION FOR m YEARS years. Determine the book Value
after 3 years using Straight Line
= method.

By: Anunuzuk VI 13
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


DEPRECIATION
SUM OF THE YEARS DIGIT METHOD (SYOD)
In this method, the cost of the property is assumed to vary lineary with
time

SUM OF THE YEARS DIGIT DEPRECIATION EXPENSE


+
= ( + ) = ( )

DEPRECIATION FACTOR
+ ( + )
= = ( )

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM

The first value of a machine is P1,800,000 with a salvage value of


P300,000 a the end of is life of 5 years. Determine the book Value
after 3 years using sum of the years digit method

By: Anunuzuk VI 14
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


DEPRECIATION
DECLINING BALANCE METHOD (constant percentage method or
diminishing balance method)
CONSTANT PERCENTAGE, K Matheson formula


=
Sample Prob. (CE Board May 2001)
The first value of a machine is
BOOK VALUE, VBm P1,800,000 with a salvage value of

P300,000 a the end of is life of 5
= years. Determine the book Value
after 3 years using declining
DEPRECIATION EXPENSE balance method.

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


DEPRECIATION
DOUBLE DECLINING BALANCE METHOD

BOOK VALUE, VBm



Sample Prob. (CE Board May 2001)
= The first value of a machine is

P1,800,000 with a salvage value of
P300,000 a the end of is life of 5
DEPRECIATION EXPENSE years. Determine the book Value
after 3 years using double
declining balance method.
=

By: Anunuzuk VI 15
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


DEPRECIATION
SINGKING FUND METHOD

DEPRECIATION EXPENSE

Sample Prob. (CE Board May 2001)


= The first value of a machine is
+
P1,800,000 with a salvage value of
P300,000 a the end of is life of 5
years. Determine the book Value
+ after 3 years using sinking fund
=
method if the money worth 6% per
annum.

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


CAPITAL RECOVERY - DEPLETION
If you can invest FC now and desires a rate of return of r for n periods,
and you can deposit to an account earning an interest of i for n
periods to recover an amount of RC, and will also receive a salvage
value of SV from your invested property at the end of n periods, then
the periodic dividend or income D required is:


= +
( + )

If RC is not specified, use RC=FC

By: Anunuzuk VI 16
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM

A mine cost P21 million, and will last for 20years. Its Plant has a
salvage value of P1 million at the end of the time. The mine
will yield an equal dividend at the end of each year, what is
the annual dividend, if it is sufficient to pay interest annually a
the rate of 6% on the original investment and accumulate a
replacement fund invested at 4%?

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


COST-BENEFIT RATIO

A project cost P100,000. The benefits at the end of each year for a
period of 5 years is P40,000. Assuming money is worth 8% with no
salvage value.
a. Find the present worth of benefits
b. What is the benefit-cost ratio.
c. Is it profitable or not?

By: Anunuzuk VI 17
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Analytic geometry


BREAK-EVEN ANALYSIS
Is a method of determining when the costs exactly equal revenue. If
the manufactured quantity is less than the break-even quantity, a loss
is incurred. If the manufactured quantity is greater than the break-
even quantity, a profit is incurred.
ELEMENTS:
f = fixed cost which does not vary with production
a = an incremental cost which is the cost to produce one additional item. It
may also be called marginal cost or differential cost.
N = break-even point or quantity produced and sold for break-even
p = incremental revenue or selling price per unit
R = total revenue
C = total cost

= = +

PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.


UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07

Civil engineering Review 2017 mathematics Engineering Economy


SAMPLE PROBLEM
A plywood manufacturer produces a piece of plywood at a labor
cost of P0.50 and material at P3.00. The fixed charges on business
are P50, 000 a month and a variable cost is P0.50 a piece. If one
plywood sells for P6.00 each, how many pieces must be produced
each month for the manufacturer to break-even?

By: Anunuzuk VI 18

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