MG 6863 Engineering Economics Puzzles

UNIT-I
Choose the letter of the best answer in each question.
1. First Benchmark Publishings gross margin is 50% of sales. The operating costs of the
publishing are estimated at 15% of sales. If the company is within the 40% tax bracket,
determine the percent of sales is their profit after taxes?
A. 21 %
B. 20 %
C. 19 %
D. 18 %
2. A farmer selling eggs at 50 pesos a dozen gains 20%. If he sells the eggs at the same
price after the costs of the eggs rises by 12.5%, how much will be his new gain in percent?
A. 6.89 %
B. 6.65 %
C. 6.58 %
D. 6.12 %
3. A feasibility study shows that a fixed capital investment of P10,000,000 is required for a
proposed construction firm and an estimated working capital of P2,000,000. Annual
depreciation is estimated to be10% of the fixed capital investment. Determine the rate of
return on the total investment if the annual profit is P3,500,000.
A. 28.33 %
B. 29.17 %
C. 30.12 %
D. 30.78 %
4. The monthly demand for ice cans being manufactured by Mr. Camus is 3200 pieces.
With a manual operated guillotine, the unit cutting cost is P25.00. An electrically operated
hydraulic guillotine was offered to Mr. Camus at a price of P275,000.00 and which cuts by
30% the unit cutting cost. Disregarding the cost of money, how many months will Mr.
Camus be able to recover the cost of the machine if he decides to buy now?
A. 10 months
B. 11 months
C. 12 months
D. 13 months
5. Engr. Trinidad loans from a loan firm an amount of P100,000 with a rate of simple interest
of 20% but the interest was deducted from the loan at the time the money was borrowed. If
at the end of one year, she has to pay the full amount of P100,000, what is the actual rate of
interest?
A. 23.5 %
B. 24.7 %
 C. 25.0 %
D. 25.8 %
6. A loan of P5,000 is made for a period of 15 months, at a simple interest rate of 15%, what
future amount is due at the end of the loan period?
A. 5,937.50
B. 5,873.20
C. 5,712.40
D. 5,690.12
7. Mr. Bacani borrowed money from the bank. He received from the bank P1,842 and
promised to repay P2,000 at the end of 10 months. Determine the rate of simple interest.
A. 12.19 %
B. 12.03 %
C. 11.54 %
D. 10.29 %
8. A college freshman borrowed P2,000 from a bank for his tuition fee and promised to pay
the amount for one year. He received only the amount of P1,920 after the bank collected
the advance interest of P80.00. What was the rate of discount?
A. 3.67 %
B. 4.00 %
C. 4.15 %
D. 4.25 %
9. 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 release of
money to a borrower. Let us therefore assume that you applied for a loan with a bank and
the P80,000 was approved at an interest rate of 14% of which P11,200 was deducted and
you were given a check of P68,800. Since you have to pay the amount of P80,000 one year
after, what then will be the effective interest rate?
A. 16.02 %
B. 16.28 %
C. 16.32 %
D. 16.47 %
10. A man invested P110,000 for 31 days. The net interest after deducting 20% withholding
tax is P890.36. Find the rate of return annually.
A. 11.50 %
B. 11.75 %
C. 11.95 %
D. 12.32 %
11. A investor wishes to earn 7% on his capital after payment of taxes. If the income from
an available investment will be taxed at an average rate of 42%, what minimum rate of
return, before payment of taxes, must the investment offer to be justified?
A. 12.07 %
B. 12.34 %
C. 12.67 %
D. 12.87 %
12. Mr. Jun Ramos was granted a loan of P20,000 by his employer Excel First Review and
Training Center, Inc. with an interest of 6% for 180 days on the principal collected in
advance. The corporation would accept a promissory note for P20,000 non-interest for 180
days. If discounted at once, find the proceeds of the note.
A. P18,000
B. P18,900
C. P19,000
D. P19,100
13. Miss Evilla borrowed money from a bank. She receives from the bank P1,340.00 and
promised to pay P1,500.00 at the end of 9 months. Determine the corresponding discount
rate or often referred to as the bankers discount.
A. 13.15 %
B. 13.32 %
C. 13.46 %
D. 13.73 %
14. The exact simple interest of P5,000 invested from June 21, 1995 to December 25, 1995
is P100. What is the rate of interest?
A. 3.90 %
B. 3.92 %
C. 3.95 %
D. 3.98 %
15. What is the ordinary interest on P1,500.50 for 182 days at 5.2%?
A. P39.01
B. P39.82
C. P39.45
D. P39.99
16. A loan for P50,000 is to be paid in 3 years at the amount of P65,000. What is the
effective rate of money?
A. 9.01 %
B. 9.14 %
C. 9.31 %
 D. 9.41 %
17. What is the effective rate corresponding to 18% compounded daily? Take 1 year is
equal to 360 days.
A. 19.61 %
B. 19.44 %
C. 19.31 %
D. 19.72 %
18. What rate of interest compounded annually is the same as the rate of interest of 8%
compounded quarterly?
A. 8.07 %
B. 8.12 %
C. 8.16 %
D. 8.24 %
19. Which of these gives the lowest effective rate of interest?
A. 12.35 % compounded annually
B. 11.90 % compounded annually
C. 12.20 % compounded annually
D. 11.60 % compounded annually
20. An amount of P1,000 becomes P1,608.44 after 4 years compounded bimonthly. Find
the nominal interest.
A. 11.89 %
B. 12.00 %
C. 12.08 %
D. 12.32 %
21. How long will it take money to double itself if invested at 5% compounded annually?
A. 13.7 years
B. 14.7 years
C. 14.2 years
D. 15.3 years
22. By the condition of a will, the sum of P20,000 is left to a girl to be held in trust fund by
her guardian until it amounts to P50,000. When will the girl receive the money if fund
invested at 8% compounded quarterly?
A. 11.23 years
B. 11.46 years
C. 11.57 years
D. 11.87 years
23. A sum of P1,000 is invested now and left for eight years, at which time the principal is
withdrawn. The interest has accrued is left for another eight years. If the effective annual
interest rate is 5%, what will be the withdrawal amount at the end of the 16 th year?
A. P693.12
B. P700.12
C. P702.15
D. P705.42
24. Mandarin Bank advertises 9.5% account that yields 9.84% annually. Find how often the
interest is compounded.
A. Monthly
B. Bimonthly
C. Quarterly
D. Annually
25. A student plans to deposit P1,500 in the bank now and another P3,000 for the next 2
years. If he plans to withdraw P5,000 three years from after his last deposit for the purpose
of buying shoes, what will be the amount of money left in the bank after one year of his
withdrawal? Effective annual interest rate is 10%.
A. P1,549.64
B. P1,459.64
C. P1,345.98
D. P1,945.64
26. You borrow P3,500.00 for one year from a friend at an interest rate of 1.5% per month
instead of taking a loan from a bank at a rate of 18% per year. How much lesser you will
pay by borrowing the money from the bank?
A. P 62.44
B. P44.55
C. P54.66
D. P37.56
27. What is the present worth of two P 100 payments at the end of the third year and fourth
year? The annual interest rate is 8%.
A. P 150.56
B. P 152.88
C. P 153.89
D. P 151.09
28. 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?
A. P 3,260.34
B. P 3,280.34
C. P 3,270.34
 D. P 3,250.34
29. In year zero, you invest P 10,000.00 in a 15% security for 5 years. During that time, the
average annual inflation is 6%. How much in terms of year zero pesos will be in the account
at maturity?
A. P 15,030.03
B. P 20,113.57
C. P 18,289.05
D. P 16,892.34
30. The institute of Electronics and Communications Engineers of the Philippines (IECEP) is
planning to put up its own building. Two proposals being considered are:
A. The construction of the building now to cost P 400,000
B. The construction of a smaller building now to cost P300,000 and at the end of 5 years, an
extension to be added to cost P 200,000.
By how much is proposal B more economical than proposal A if interest rate is 20% and
depreciation to be neglected?
A. P 19,122.15
B. P 19,423.69
C. P 19,518.03
D. P 19,624.49
31. What is the present worth of a P500 annuity starting at the end of the third year and
continuing to the end of the fourth year, if the annual interest rate is 10 %?
A. P 727.17
B. P 717.17
C. P 714.71
D. P 731.17
32. What annuity is required over 12 years to equate with a future amount of P 20,000?
Assume i= 6% annually.
A. P 1,290.34
B. P 1,185.54
C. P 1,107.34
D. P 1,205.74
33. A factory operator bought a diesel generator set for P 10,000.00 and agreed to pay the
dealer uniform sum at the end of each year for 5 years at 8% interest compounded
annually, that the final payment will cancel the debt for principal and interest. What is the
annual payment?
A. P 2,500.57
B. P 2,544.45
C. P 2,540.56
 D. P 2,504.57
34. What is the present worth of a year annuity paying P 3,000.00 at the end of each year,
with interest at 8% compounded annually?
A. P 7,654.04
B. P 7,731.29
C. P 7,420.89
D. P 7,590.12
35. A man loans P 187,400 from a bank with interest at 5% compounded annually. He
agrees to pay his obligations by paying 8 equal annual payments, the first being due at the
end of 10 years. Find the annual payments.
A. P 43,600.10
B. P 43,489.47
C. P 43,263.91
D. P 43,763.20
36. A person buys a piece of lot for P 100,000 downpayment and 10 deferred semi-annual
payments of P 8,000 each, starting three years from now. What is the present value of the
investment if the rate of interest is 12% compounded semi-annually?
A. P 142,999.08
B. P 143,104.89
C. P 142,189.67
D. P 143,999.08
37. A young engineer borrowed P 10,000 at 12% interest and paid P 2,000 per annum for
the last 4 years. What does he have to pay at the end of the fifth year in order to pay off his
loan?
A. P 6,999.39
B. P 6,292.93
C. P 6,222.39
D. P 6,922.93
38. Miss Calledo deposited P 1,000, P 1,500 and P 2,000 at the end of the 2nd year, 3rd year
and 4th year, respectively in a savings account which earned 10% per annum. How much is
in the account at the end of the 4th year?
A. P 4,880.00
B. P 4,820.00
C. P 4,860.00
D. P 4,840.00
39. A P 1,000,000 issue of 3%, 15-year bond was sold at 95%. What is the rate of interest
of this investment?
A. 3.0%
B. 3.4%
 C. 3.7%
D. 4.0%
40. A P 1, 000, 6% bond pays dividend semiannually and will be redeemed at 110% on
June 21, 204. It is bought on June 21, 2001 to yield 4% interest. Find the price of the bond.
A. P 1,122.70
B. P 1,144.81
C. P 1,133.78
D. P 1,155.06
41. A VOM has a selling price of P 400. If its selling price is expected to decline at a rate of
10% per annum due to obsolescence, what will be its selling price after 5 years?
A. P 222.67
B. P 212.90
C. P 236.20
D. P 231.56
42. A machine costs of P 8,000 and an estimated life of 10 years with a salvage value of P
500. What is its book value after 8 years using straight line method?
A. P 2,000.00
B. P 2,100.00
C. P 2,200.00
D. P 2,300.00
43. ABC Corporation makes it a policy that for any new equipment purchased, the annual
depreciation cost should not exceed 20% of the first cost at any time with no salvage value.
Determine the length of service life necessary if the depreciation used is the SYD method.
A. 7 eyars
B. 8 years
C. 9 years
D. 10 years
44. An asset is purchased for P 9,000.00. Its estimated economic life is 10 years after which
it will be sold for P 1,000.00. Find the depreciation in the first three years using sum-of-
years digit method
A. P 3,279.27
B. P 3,927.27
C. P 3,729.27
D. P 3,792.72
45. Shell Philippines, a multinational company, has a total gross income for a particular year
of P 50,000,000. The taxable income after taking all deductions except for depletion is P
18,500,000. What is the allowable depletion allowance for that particular year? Take
percentage of gross income for oil as 22%.
A. P 9,358.41
 B. P 9,228.45
C. P 9,250.00
D. P 9,308.45
46. The Saudi Arabian Oil Refinery developed an oil well which is estimated to contain
5,000,000 barrels of oil at an initial cost of $ 50,000,000. What is the depletion charge
during the year where it produces half million barrels of oil? Use Unit or Factor method in
computing depletion.
A. $ 5,000,000.00
B. $ 5,010,000.00
C. $ 5,025,000.00
D. $ 5,050,000.00
47. A manufacturer produces certain items at a labor cost of P 115 each, material cost of P
76 each and variable cost of P 2.32 each. If the item has a unit price of P 600, how many
units must be manufactured each month for the manufacturer to break even if the monthly
overhead is P428,000
A. 1,033
B. 1,037
C. 1,043
D. 1,053
48. A manufacturing firm maintains one product assembly line to produce signal generators.
Weekly demand for the generators is 35 units. The line operates for 7 hours per day, 5 days
per week. What is the maximum production time per unit in hours required of the line to
meet the demand?
A. 1.0 hour per unit
B. 1.2 hours per unit
C. 1.4 hours per unit
D. 1.6 hours per unit
49. A telephone switchboard 100 pair cable can be made up with either enameled wire or
tinned wire. There will be 400 soldered connections. The cost of soldering a connection on
the enameled wire will be P 1.65 on the tinned wire, it will be P 1.15. A 100- pair cable
made up with enameled wire cost P 0.55 per linear foot and those made up of tinned wire
cost P 0.75 per linear foot. Determine the length of cable run in feet so that the cost of each
installation would be the same.
A. 1,000 feet
B. 1,040 feet
C. 1,100 feet
D. 1,120 feet
50. A leading shoe manufacturer produces a pair of Lebron James signature shoes at a
labor cost of P 900.00 a pair and a material cost of P 800.00 a pair. The fixed charges on
the business are P 5,000,000 a month and the variable costs are P 400.00 a pair. Royalty to
Lebron James is P 1,000 per pair of shoes sold. If the shoes sell at P 5,000 a pair, how
many pairs must be produced each month for the manufacturer to break-even?
A. 2.590
B. 2,632
C. 2,712
D. 2,890

ANSWER KEY

1. 21 %
2. 6.65 %
3. 29.17 %
4. 12 months
5. 25.0 %
6. 5,937.50
7. 10.29 %
8. 4.00 %
9. 16.28 %
10. 11.75 %
11. 12.07 %
12. P18,000
13. 13.73 %
14. 3.90 %
15. P39.45
16. 9.14 %
17. 19.72 %
18. 8.24 %
19. 11.60 % compounded annually
20. 12.00 %
21. 14.2 years
22. 11.57 years
23. P705.42
24. Quarterly
25. P1,549.64
26. P54.66
27. P 152.88
28. P 3,260.34
29. P 15,030.03
30. P 19,624.49
31. P 717.17
32. P 1,185.54
33. P 2,504.57
34. P 7,731.29
35. P 43,763.20
36. P 143,999.08
37. P 6,922.93
38. P 4,860.00
39. 3.0%
40. P 1,144.81
41. P 236.20
42. P 2,000.00
43. 9 years
44. P 3,927.27
45. P 9,250.00
46. $ 5,000,000.00
47. 1,053
48. 1.0 hour per unit
49. 1,000 feet
50. 2,632