Bes 30 A Eteaap

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Expanded Tertiary Education Equivalency Accreditation Program

[Mechanical Engineering]
MODULE #1 -
BES 30 A
Engineering
Economy
[Put course number and title here] 1

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Module 1
[Engineering Economy]
e concepts of time, value of money and

my study methods, decisions under
gnizing risk and decision admitting
In this module you will learn more about Engineering Economy. The module
consists of five short lessons:
 Lesson 1 – Simple Interest and Compound Interest

 Lesson 2 – Annuity
 Lesson 3 – Depreciation
 Lesson 4 – Evaluation of Economic Alternatives
 Lesson 5 – Comparing Alternatives
After going through this module you should be able to:
1. Discuss the basic principles of engineering economy

2. Illustrate the different steps in making engineering economy studies
3. Evaluate the different alternatives using the different methods used
in engineering economy.

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I. Multiple-Choice. Select the single best answer for each item and write the letter of
your answer on the space provided for.
SIMPLE INTEREST:
1. A 2-year loan of Php5000 is made with 5% simple interest. Find the interest
earned.
A. 400 B. 500 C. 600 D. 1000
2. A total $1,200 is invested at a simple interest rate of 6% for 4 months. How much
interest is earned on this investment?
A. 24 B. 26 C. 28 D. 30
3. A business takes out a simple interest loan of $10,000 at a rate of 7.5% . What is
the total amount the business will repay if the loan is for 8 years?
A. 10,000 B. 15,000 C. 16,000 D. 20,000
4. Cleopatra borrowed P2,000.00 from a bank and agreed to pay the loan at the end of
one year. The bank discounted the loan and give P1950 in cash. Determine the rate of
discount.
A. 3.75% B. 3.12% C. 2.5% D. 1.2%
COMPOUND INTEREST
1. Determine the accumulated value of P2000.00 in 5 years if it is invested at 11%
compounded quarterly.
A. P3,440.00 C. 3,044.00
B. P3,404.00 D. P4,304.00
2. You deposit $1000 into a 9% account today. At the end of two years, you will deposit
another $3000. In five years, you plan a $4000 purchase. How much is left in the
account one year after the purchase?
3. A machine costs P20,000 today. If inflation rate is 6% per year and interest is 10% per
year, what will be the appropriate future value of the machine, adjusted for inflation, in
five years?
4. Michael owes P25,000 due in 1 year and P75,000 due in 4 years. He agrees to pay
P50,000 today and the balance in 2 years. How much must he pay at the end of two
years if money is worth 5% compounded semi-annually?
Effective Interest
1. What is the effective rate equivalent of 12% compounded quarterly?
A. 12.55% B. 11.55% C.12.98% D. 13%
2. Find the nominal rate which if converted quarterly could be used instead of 12%
compounded semi-annually.
Lesson 1 – [Simple Interest and Compound Interest]

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SIMPLE INTEREST
Simple interest is the interest computed on the principal for the entire period of
borrowing. It is calculated on the outstanding principal balance and not on interest
previously earned. It means no interest paid on interest earned during the term of loan.
Key Concept
o Principal will always be constant

o Interest for every year will be the same
where
P = principal or loan
i = interest rate per year
n = no of years or fraction of a year.
F=P+I
F = P(1 + in)
where
F = future worth
COMPOUND INTEREST
Compound interest - is defined as the interest of loan or principal which is based not only on the
original amount of the loan or principal but the amount of the loan or principal plus the previous
accumulated interest. This means that the interest charges grow exponentially over a period of
time.
note :
Compound interest is used frequently in commercial practices than simple
interest.
Future worth or Total amount (F)
0 1 2 3  n
P F
mn
 r 
F  P 1  i
n
or F  P 1  
 m
The expression (1  i)n , also denoted as (F/P, i, n) is called the single payment
compound-amount factor.
where: P = present worth or principal

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r
i= (interest rate per period)
m
n = number of periods
 r 
mn

 1  i n  1   1    1
F  A 
m  [compound amount factor]
F A  or
 i   r 
 m 
 
Present worth (P)
0 1 2 3  n
P F
F F
P or P
1  i
n mn
 r 
1  m 
 
The expression 1/(1  i)n , also denoted as (P/F, i, n) is called the single payment
present worth factor.
where:
 r 
mn

 1  i n  1   1    1
P  A 
m  [present worth factor]
P A  or
 i 1  i  
n  r  r  
mn
 1   
 m  m  
Example
In an ordinary annuity (uniform series of payments) if the nominal rate of interest is 8%
compounded quarterly for 6 years. Compute the value of the present worth factor.
Ans. 18.91
TYPES OF COMPOUND INTEREST RATE
1. Effective rate of interest (i) - % per year compounded yearly.
2. Nominal rate of interest (r) - % per year compounded not yearly.
3. Discounted - is subtracted, deducted or discounted right away from the present amount.
• To convert nominal rate to effective rate

 r 
m

Effective rate  %  ER  i   1    1 100
 m 
Example 1

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A man borrowed P100,000 at the interest rate of 12% compounded quarterly.

What is the effective rate? Ans. 12.55%
• To convert nominal rate to another nominal rate
Equate the effective interest rate

ERsemiannually  ERquarterly
 r 
m
  r 
m

 1    1   1    1
 m   sa  m   q
where: m = number of nominal periods per year
Example 2
An interest rate of 8% compounded semiannually is how many percent if
compounded quarterly? Ans. 7.92%
2 4
 0.08   r
1  2   1  1  4   1
   
rq  7.92%
Examples
1. compounded annually m=1
2. compounded semi-annually or bi-annually m=2
3. compounded quarterly m=4
4. compounded semi-quarterly m=8
5. compounded monthly m = 12
6. compounded bi-monthly m=6
Compounded Continuously (m = )
- interest may be compounded daily, hourly, minute, second, etc.
F  Pe rt
e rt single payment compound-amount factor

1 / e rt single payment present worth factor

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Problem 1
Find the interest on P6,800.00 for 3 years at 11% simple interest.
Ans. P2,244.00
Problem 2 (ECE Nov 1998)
What will be the future worth of money after 12 months, if the sum of P25,000 is invested today
at simple interest rate of 1% per month?
Ans. P28,000.00
Problem 3
A man borrowed P10,000.00 from his friend and agrees to pay at the end of 90 days under 8%
simple interest rate. What is the required amount?
Ans. P10,200.00
Problem 4
What is the principal amount if the amount of interest at the end of 2½ year is P4,500 for a simple
interest of 6% per annum
Ans. P30,000.00
Problem 5
How long must a 40,000 note bearing 4% simple interest run to amount to P41,350.00?
Ans. 303.75 days
Problem 6
If 16,000 earns P480 in 9 months, what is the annual rate of interest?
Ans. 4%
Problem 7 (CE May 1997)

A time deposit of P110,000 for 31 days earns P890.39 on maturity date after deducting the 20%
withholding tax on interest income. Find the rate of interest per annum.
Ans. 11.75%
Problem 8 (ME April 1998)

A bank charges 12% simple interest on a P300.00 loan. How much will be repaid if the loan is
paid back in one lump sum after three years? Ans. P408.00
Problem 9 (EE Oct. 1996)

Annie buys a television set from a merchant who offers P25,000.00 at the end of 60 days. Annie
wishes to pay immediately and the merchant offers to compute the required amount on the
assumption that money is worth 14% simple interest. What is the required amount?
Ans. 24,429.97
Problem 10
A price tag of P1200 is specified if paid within 60 days but offers 3% discount for cash in 30
days. Find the rate of interest.
Ans. 37.11%

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If the nominal interest rate is 3%, how much is P5,000 worth in 10 years in a continuously
compounded account?
Ans.P6,749.29
Problem 2 (EE Oct 1997)
A man borrowed P100,000 at the interest rate of 12% compounded quarterly. What is the
effective rate?
Ans. 12.55%
Problem 3 (ECE April 1999)
What is the corresponding effective rate of 18% compounded semi-quarterly?
Ans. 19.48%
Problem 4 (ECE Nov 1995, Nov 1998)
By the condition of the will, the sum of P25,000 is left to a girl to be held in a trust fund by her
guardian until it amount to P45,000. When will the girl receive the money if the fund is invested
at 8% compounded quarterly
Ans. 7.42 years

P200,000 was deposited on Jan. 1, 1988 at an interest rate of 24% compounded semi-annually.
How much would the sum be on Jan. 1, 1993?
Ans. P621,169.64

A firm borrows P2,000 for 6 years at 8%. At the end of 6 years, it renews the loan for the amount
due plus P2,000 more for 2 years at 8%. What is the lump sum due?
Ans. P6034.66
Problem 7 (CE Nov. 1994)

P500,000 was deposited 20.15 years ago at an interest rate of 7% compounded semi-annually.
How much is the sum now?
Ans. P2,000,166.28

What is the present worth of two P100.00 payments at the end of the third year and fourth year?
The annual interest rate is 8%.
Ans. P152.88
Problem 9
What rate of interest compounded annually must be received if an investment of P54,000 made
now will result in a receipt of P72,000 5 years hence?
Ans. 5.92%
Problem 10
P500,000 was deposited at an interest of 6% compounded quarterly. Compute the compound
interest after 4 years and 9 months.
Ans. P163,475.37
Lesson 2 – [ANNUITY]
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Annuity is defined as a series of uniform payments made at equal interval of time.
Annuities are established for the following purposes;
1. As payment of a debt by a series of equal payment at equal time interval, also

known as amortization.
2. To accumulate a certain amount in the future by depositing equal amounts at
equal time intervals. These amounts are called sinking fund.
3. As a substitute periodic payment for a future lump sum payment.
TYPES OF ANNUITY
1. ORDINARY ANNUITY is a type of annuity where the payments are made at the end of each
period starting from the first period.
Future worth (F) of A is:
0 1 2 3 4  n
A A A A A
A[(1  i)n  1]
F
i
The factor [(1  i)n  1] / i , also denoted as (F/A, i, n) is called the compound-amount factor
The value of A if F is known
Fi
A
[(1  i)n  1]
The factor i /[(1  i)n  1] , also denoted as (A/F, i, n) is called the sinking fund factor
Present worth (P) of A is:
0 1 2 3 4  n

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A A A A A
A[(1  i)n  1]
P
(1  i)n i
The factor [(1 i)n  1] /(1  i)n i , also denoted as (P/A, i, n) is called the present worth factor.
The value of A if P is known
P(1  i)n i
A
[(1  i)n  1]
The factor (1  i)n i /[(1 i)n  1] , also denoted as (A/P, i, n) is called the capital recovery factor.
FOR COMPOUNDED CONTINUOUSLY
Future worth (F)
A[ert  1]
F
er  1
e rt  1
= compound-amount factor
er  1
er  1
= sinking fund factor
e rt  1
Present worth (P)
A[e rt  1]
P
e rt ( e r  1)

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[e rt  1]
= present worth factor.
e rt ( e r  1)
e rt [e r  1]
= capital recovery factor.
(e rt  1)
2. ANNUITY DUE is the type of annuity where the payments are made at the beginning of each
period starting from the first period.
0 1 2 3 4  n
A A A A A
A[(1  i)n  1]
F (1  i)
i
0 1 2 3 4  n
A A A A A
A[(1  i)n  1]
P (1  i)
(1  i)n i

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What will you do

Activity 2.1
Problem 1
For a uniform series of payments what is the value of
1. (F/A, 8%, 6) if it is compounded quarterly
2. (P/A, 6%, 8) if it is compounded semi-annually.
3. (F/A, 8%, 4) if it is compounded continuously.
Ans. 1. 30.42186 2. 12.5611 3. 4.528047
Problem 2
In an ordinary annuity (uniform series of payments) if the nominal rate of interest is 8%
compounded quarterly for 6 years.
1. Compute the value of the capital recovery factor.
2. Compute the value of the sinking fund factor.
3. Compute the value of the present worth factor.
Ans. 1. 0.052871 2. 0.032871 3. 18.914
Problem 3
For some interest rate “i” and some number of interest periods “n” the uniform series capital
recovery factor is 0.3091 and the sinking fund factor is 0.1941.
1. Compute the interest rate.
2. If the interest rate i = 12% compounded annually, compute the capital recovery factor
for a period n = 5 years.
3. If the rate of interest i = 16% compounded quarterly what would be the sinking fund
factor for a period of 6 years.
Ans. 1. 11.5% 2. 0.27741 3. 0.02559
Problem 4
A businessman wishes to have an amount of P2769.84 after 5 years. He deposited P500 each year
into a savings bank that pays a nominal interest per annum compounded continuously.
1. Compute the nominal rate of interest.
2. Compute the effective rate of interest.
3. Compute the sinking fund factor for this equal payment.
Ans. 1.5% 2. 5.127% 3. 0.180516
Problem 5
A man deposits P500 at the end of each year and expected to have an amount of P2,769.84 at the
end of 5 years.
1. What is the nominal rate of interest if it is compounded annually?
2. What is the nominal rate of interest if it is compounded continuously?
3. Compute the equivalent compound amount factor if it is compounded continuously
Ans. 1. 5.127% 2. 5% 3. 5.3968

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What will you do

Self-Test 2.1
Problem 1
A social worker deposits a uniform amount of P12,000 at the end of each year in order to get a
lump sum of money by the time she will retire at the end of 20 years. If the compound amount
factor for this annuity is equal to 36.78559.
1. Compute the nominal interest rate.
2. Determine how much will she receive at the end of 20 years.
3. Determine the worth of the sinking fund factor in this fund invested.
Ans. 1. 6% 2. P441,427.08 3. 0.027184557
Problem 2
A businessman is faced with the prospect of fluctuating future budget for the maintenance of the
generator. During the first 5 years, P1,000 per year will be budgeted. During the second five
years, the annual budget will be P1,500 per year. In addition, P3,500 will be budgeted for an
overhaul of the machine at the end of the fourth year and another P3,500 for an overhaul at the
end of 8th year. Assuming compound interest at 6% per annum, what is the equivalent annual cost
of maintenance?
Ans. P1,888.87
Problem 3
The following terms of payment for an annuity are as follows:
Periodic payment = P20,000
Payment interval = 1 month
Interest rate = 18% compounded monthly
Terms = 15 years
1. Find the present worth paid of all the payments if it is paid at the end of each month.
2. Find the difference between the sums of an annuity due and an ordinary annuity on these
payments.
3. Find the difference between the present values of an annuity due and an ordinary annuity
based on these payments.
Ans. 1. P1,214,911.246 2. P271,687.35 3. P18,628.67
Problem 4
An engineer is entitled to receive P25,000 at the beginning of each year for 18 years. If the rate of
interest is 4% compounded annually.
1. What is the present value of this annuity at the time he is supposed to receive the first
payment?
2. What is the sum of this annuity at the end of the 18th year?
3. Find the difference between the sum of this annuity which is paid at the beginning of
each year and an annuity paid at the end of each year.
Ans. 1. P329,141.72 2. P666,780.73 3. P25,645.41
Problem 5
A student will receive P3,000 at the beginning of each 3 months for 4 years. What is the sum of
this annuity at the end of the 4th year if the interest rate is 6% compounded quarterly?
Ans. 54,604.07

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Lesson 3 – [DEPRECIATION]
Depreciation is the decrease in the value of an asset due to the usage of time. An asset may
depreciate physically or functionally.
Elements of Depreciation
FC = first cost
SV = salvage value or trade-in value
d = depreciation charge
D = total depreciation
n = economic life of the property (in years)
m = anytime before ‘n’
BVm = book value after ‘m’ years
BVm = FC – Dm
Dm = total depreciation for ‘m’ years
cost
Dm
D
FC
BVm
SV
time
m
n
Methods in Computing Depreciation
1. Straight line method - is the most common method in computing depreciation. The property
varies linearly with time.
FC  SV
d
n
Dm = d(m)
2. Sinking Fund Method

(FC  SV )i
d=
[(1  i)n  1]

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d[(1  i)m  1]
Dm 
i
Note:
The above formula is the same as the formula for the conversion of Future worth
to Ordinary Annuity and vice versa.
3. Sum of Years Digit Method (SOYD)
n m 1
dm = (FC – SV)
S
m(2n  m  1)
Dm  (FC  SV )
S = (n/2)(n+1) 2S
4. Declining Balance Method

(Constant Percentage Method or Mathesons Method)
SV = FC 1 k n
BVm = FC 1 k m
dm = FC 1  k m1 k
Note:
This method is only applicable if the salvage value is not equal to zero
5. Double Declining Balance Method
Note: The formulas are the same as Declining Balance Method except that
2
k
n

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Problem 1
What is the value of an asset after 8 years of use if it depreciates from its original value of
P120,000.00 to its salvage value of 3% in 12 years?
Ans. P42,400
Problem 2
A man bought an equipment which cost P524,000.00. Freight and installation expenses cost him
P31,000.00. If the life of the equipment is 15 years with an estimated salvage value of
P120,000.00, find its book value after 8 years.
Ans. P292,000
Problem 3
An equipment costing P250,000 has an estimated life of 15 years with a book value of P30,000 at
the end of the period. Compute the depreciation charge and its book value after 10 years using
straight-line method.
Ans. P24,336.26
Problem 4
sinking fund method assuming i = 8%
Ans. d = P14,666.67
BV = P103,333.33
Problem 5
declining balance method.
Ans. BV = P60,832.80
d = P9,234.93

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What will you do

Self-Test 3.1
Problem 1
the end of the period. Compute the depreciation charge and its book value after 10 years using the
sum of years digit method.
Ans. d = P11,000
BV = P57,500
Problem 2
An asset costing P50,000 has a life expectancy of 6 years and an estimated salvage value of
P8,000. Calculate the depreciation charge at the end of the fourth period using fixed-percentage
method.
Ans. P5,263.87
Problem 3 (ME Oct. 1997)
An asset is purchased for P120,000.00. Its estimated economic life is 10 years, after which it will
be sold for P12,000.00. Find the depreciation for the first year using the sum-of-the-years digit
method (SOYD).
Ans. P19,636.36

An asset is purchased for P9,000.00. Its estimated economic life is 10 years, after which it will be
sold for P1,000.00. Find the book value during the third year if the sum-of-the-year’s digit
(SOYD) depreciation is used.
Ans. P5,072.73
Problem 5 (CE Nov. 1998)
A machine having a first cost of P60,000.00 will be retired at the end of 8 years. Depreciation
cost is computed using a constant percentage of the declining book value. What is the total cost of
depreciation, in pesos, up to the time the machine is retired if the annual rate of depreciation is
28.72%?
Ans. P56,001.54

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Lesson 4 – [Evaluation of Economic Alternatives]

1. Present Worth (PW) Method
is based on the concept of equivalent worth of all cash flows relative to some base or
beginning point in time called the present. All cash inflows and outflows are
discounted to the present point in time at an interest rate that is generally the
minimum attractive rate of return (MARR).
If PW  0 , the project is economically justified; otherwise, it is not acceptable.
Example
An investment of $10,000 can be made in a project that will produce a uniform
annual revenue of $5,310.38 for five years and then have a market (salvage) value of
$2,000. Annual expenses will be $3,000 each year. The company is willing to
accept any project that will earn 10% per year or more, on all invested capital. Show
whether there is a desirable investment by using the PW method.
 1.15  1 2,000
PW  10,000   5,310.38  3,000    0
 0.11.1  1.1
5 5
 the project i s ec onomically acceptable.
2. Future Worth (FW) Method

FW  PW 1  i
n
Acceptable if FW  0
3. Annual Worth (AW) Method

 i 1  in   i 
AW  PW   or AW  FW  
 1  i  1  1  i  1
n n
Acceptable if AW  0
4. External Rate of Return (ERR) Method

n n
 E P / F, %, k F / P, i'%, n   R F / P, %, n  k 

k 0
k
k 0
k
  external reinvestment rate per period

A project is acceptable when i'%  MARR
Example
A piece of new equipment has been proposed by engineers to increase the
productivity of a certain manual welding operation. The investment cost is $
25,000, and the equipment will have a salvage value of $5,000 at the end of its
expected life of five years. Increased productivity attributable to the equipment will
amount to $8,000 per year after extra operating costs have been subtracted from the
value of the additional production. Suppose that  = MARR = 20% per year. What
is the project’s ERR, and is the project acceptable?

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 1.20 5  1
25,000 1  i'   8,000 
5
  5,000
 0.20 
i'  20.88%
Because i'  MARR, the project i s justified, but just barely.
5. Internal Rate of Return (IRR) Method
6. Payback (Payout) Period Method
7. Capitalized Cost Method
8. Benefit-Cost Method

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Lesson 5 – [Comparing Alternatives]

Case 1: Useful lives are the same for all alternatives and equal to the selected study period.
Example
In the design of a new facility, the mutually exclusive alternatives in Table 1 are under
consideration. Assume that the interest rate (MARR) is 15% per year and the analysis period is
10 years. Use the FW method to choose the best of these three design alternatives.
Table 1
Design 1 Design 2 Design 3
Capital Investment $ 28,000 $16,000 $23,500
Annual revenues less expenses $5,500 $3,300 $4,800
Market value $1,500 $0 $500
Useful life (years) 10 10 10
Design 1
 1.15 10  1
FW  28,000 1.15    5,500  
10
  1,500  $105.17
 0.15 
Design 2
 1.15 10  1
FW  16,000 1.15    3,300  
10
  $2,273.35
 0.15 
Design 3
 1.15 10  1
FW  23,500 1.15    4,800  
10
  500  $2,887.24
 0.15 
Therefore, select Design 3 for the project.
Case 2: Useful lives are different among the alternatives and at least one does not match the
study period.
1. Useful life  Study period
a) Repeatability Assumption:
When the useful lives of mutually exclusive alternatives are different, the repeatability
assumption
may be used in their comparison if the study period can be infinite in length or a
common multiple of
the useful lives.
A1 A2 A3
0 4 6 12

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B1 B2
0 6 12
b) Coterminated Assumption:
A
0 4 6
B
0 6
Example
Consider the following two alternatives related to an improvement project, and recommend which
one should be implemented using the PW method. The MARR = 10% per year and the study
period is 10 years. Assume repeatability is applicable.
Machine A Machine B
Capital Investment $ 20,000 $30,000
Annual cash flow $5,600 $5,400
Market value $4,000 $0
Useful life (years) 5 10
Machine A
20,000  1.110  1 4,000 4,000
PW  20,000   5,600     $6,017.01
1.1  0.11.1  1.1 1.1
5 10 5 10
Machine B
 1.110  1 4,000
PW  30,000  5,400    $4,722.84
 0.11.1  1.1
10 10
Therefore, choose Machine A for the project.
2. Useful life > Study period
The most common technique is to truncate the alternative at the end of the study period
using an estimated market value. This assumes that the disposable assets will be sold at
the end of the study period at that value.
truncate = shorten by cutting off the top or the end.

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Unequal lives are handled in one of two ways.
1. Repeatability assumption
o The study period is either indefinitely long or equal to a common multiple
of the lives of the mutually exclusive alternatives (MEAs).
o The economic consequences expected during the MEAs’ life spans will
also happen in succeeding life spans (replacements).
Definition of mutually exclusive: Situation where the acceptance of

one alternative automatically excludes the other alternatives.
2. Coterminated assumption
o Uses a finite and identical study period for all MEAs. Cash flow
adjustments may be made to satisfy alternative performance needs over
the study period.
Example: Coterminated Assumption
Consider two projects A and B with MARR = 10% and the future cash flows given by
A B
Capital Investment – $ 3,500 – $5,000
Annual revenue $1,900 $2,500
Annual expenses – $645 – $1,020
Useful life (years) 4 6
Assumptions:
o The value at the end of the useful life is assumed to be zero.
o Suppose that the study period is chosen to be 6 years and the cash ﬂow at
the end of project A is reinvested at MARR until the end of period 6.
o Use the FW Method to compare the two alternatives.
FWA = $847 FWB = $2,561 hence, we prefer project B.

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[Put the brief summary of all the lessons here]

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University of Cebu

Expanded Tertiary Education Equivalency Accreditation Program

[Put course number and title here] 1

e concepts of time, value of money and

 Lesson 1 – Simple Interest and Compound Interest

After going through this module you should be able to:

1. Discuss the basic principles of engineering economy

[Put course number and title here] 2

Lesson 1 – [Simple Interest and Compound Interest]

[Put course number and title here] 3

o Principal will always be constant

Future worth or Total amount (F)

where: P = present worth or principal

[Put course number and title here] 4

TYPES OF COMPOUND INTEREST RATE

1. Effective rate of interest (i) - % per year compounded yearly.

2. Nominal rate of interest (r) - % per year compounded not yearly.

• To convert nominal rate to effective rate

[Put course number and title here] 5

A man borrowed P100,000 at the interest rate of 12% compounded quarterly.

• To convert nominal rate to another nominal rate

Equate the effective interest rate

e rt single payment compound-amount factor

[Put course number and title here] 6

Problem 7 (CE May 1997)

Problem 8 (ME April 1998)

Problem 9 (EE Oct. 1996)

[Put course number and title here] 7

Problem 1 (CE May 1999)

Problem 5 (CE May 1996)

Problem 6 (ME April 1996)

Problem 7 (CE Nov. 1994)

Problem 8 (ME April 1996)

Annuity is defined as a series of uniform payments made at equal interval of time.

Annuities are established for the following purposes;

1. As payment of a debt by a series of equal payment at equal time interval, also

Future worth (F) of A is:

The value of A if F is known

Present worth (P) of A is:

[Put course number and title here] 9

The value of A if P is known

FOR COMPOUNDED CONTINUOUSLY

Future worth (F)

Present worth (P)

[Put course number and title here] 10

[Put course number and title here] 11

What will you do

[Put course number and title here] 12

What will you do

[Put course number and title here] 13

Dm = total depreciation for ‘m’ years

Methods in Computing Depreciation

2. Sinking Fund Method

[Put course number and title here] 14

3. Sum of Years Digit Method (SOYD)

4. Declining Balance Method

5. Double Declining Balance Method

[Put course number and title here] 15

[Put course number and title here] 16

What will you do

Problem 4 (ME April 1998)

[Put course number and title here] 17

Lesson 4 – [Evaluation of Economic Alternatives]