Professional Documents
Culture Documents
By: Anunuzuk VI 1
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
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
By: Anunuzuk VI 3
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
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?
By: Anunuzuk VI 4
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
By: Anunuzuk VI 5
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
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?
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By: Anunuzuk VI 6
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
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.
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
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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
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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
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A contractor wish to buy a machine worth P1,000,000 after one year. If the
bank gives an investment of 1.5% monthly
By: Anunuzuk VI 10
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
By: Anunuzuk VI 11
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
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%?
SV
CAPITALIZED COST, K
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RC
By: Anunuzuk VI 12
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
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
DEPRECIATION FACTOR
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By: Anunuzuk VI 14
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
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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.
By: Anunuzuk VI 15
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
DEPRECIATION EXPENSE
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By: Anunuzuk VI 16
PHILIPPINE INSTITUTE OF CIVIL ENGINEERS, INC.
UNITED ARAB EMIRATES CHAPTER
International Charter No. I-07
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%?
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
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By: Anunuzuk VI 18