1. A gold mine in Mount Province has an annual output of 25,000 tons of ore.

It is expected that
the ore body will be exhausted within a period of 20 years. The management cost annually is
P750,000 , and the operating cost of the mine and the smelter plants is P120 per ton. The
processed ore produce an income of P450 per ton. If the annual dividend rate is 12% payable
annually, and the sinking fund rate is 9% annually, determine the valuation of the property now.

GIVEN:
n = 20 r = 12% i = 9%
REQD:
P = ?
SOLUTION:

Annual gross income = (25000)(P450) = P11, 250, 000
Annual management and operating costs = P750, 000 + 25000(120) = P3, 750, 000

R = P11, 250, 000 - P3, 750, 000 = P7, 500 000

( )

= P53, 745, 535. 31 ans.

2. Timber land in Palawan was purchased for P8,000,000 and earned an average annual profit of
P1,400,000 for 14 years, at the end of which time the land was sold for P200,000. Assuming that
a sinking fund earning 7% was established to provide for depletion, determine the investment
rate.

GIVEN:
n = 14 years i = 7% R = P1, 400, 000
REQD:
r = ?
SOLUTION:

( )

= P7, 922, 436.55

( )

( )

()

r = 13.2%
3. The San Fernando Manufacturing Company owns four different production machine with data
tabulated below :

Machine Number Number Owned First Cost Salvage Value Expected Life

1 8 P40, 000 P12, 000 12
2 6 32, 000 8, 000 10
3 4 18, 000 4, 000 10
4 4 24, 000 6, 000 8

One-half of the machines of the kind will be replaced after 8 years and the rest will be sold after
12 years. Compute the total annual straight-line depreciation charges by (a) the group
depreciation method, and (b) the composite depreciation method.

SOLUTION:
a.) Group Depreciation Method

() ) ( ) ( ) ( )

DEPRECIATION FOR EACH YEAR IS SHOWN IN THE TABLE BELOW.

YEAR NUMBER IN SERVICE ANNUAL DEPRECIATION ACCOMULATED
1 2 3 4 DEPRECIATION
1 8 8 6 4 4 P49, 600 P396, 400
9 12 4 3 2 2 P24, 000.05 P198, 400.40
P595, 200.05
DEPRECIATION FOR YEARS 9 12 = P2254.55(4 + 3 + 2 + 2) = P24, 800.05


b.) Composite Depreciation Method:
The annual depreciation amounts for each machine are:

( )

( )

( )

( )

Composite Depreciation amounts:
Years 1 8:
P18, 600.67 + P14, 400 + P5, 600 + P9, 000 = P47, 666.67
Accumulated Depreciation after 8 years = 8(47, 666.67) = P381, 333.36
Years 9 10:
18, 666.67 + P14, 400 + P5, 600 = P38, 666.67
Accumulated Depreciation after 10 years = P381, 333.36 + 2(38, 666.67) = P458, 666.70
Years 11 12: (Machine 1 only)
Accumulated Depreciation after 12 years = P450, 666.70 + 2(P18, 666.67) = P496, 000.00
The total accumulated depreciation by either method after 12 years = P496, 000.00

4. A firm plans to market a new minicomputer that will sell for $10,000. This financing scheme is
being considered by the company: Payments of $872 each year for 20 years would be made by
the purchaser after an initial down payment is made. If their interest is charge is 6%
compounded monthly, what down deposit should the company request?

GIVEN:
Cost = $10, 000
A =$872
n = 20 years
i = 6% compounded monthly
REQD:
DOWN DEPOSIT = ?

SOLUTION:

* (

+

( )

[
( )

( )

]





5. A man deposit $2,000 an a savings account when his son was born. The nominal interest rate
was 8% per year, compounded continuously. On the sons birthday, the accumulated sum is
withdrawn from the account. How much would this accumulated amount be?

GIVEN:
P = $2000
Nominal rate of interest = 8% per year compound continuously
N = 18
REQD:
F = ?
SOLUTION:

( )

( )

F = $8, 441


6. Maintenance costs for a new bridge with an expected 50-year life are estimated to be $1,000
each year for the first 5 years, followed by a $10,000 expenditure in the 15
th
year and a $10,000
expenditure in year 30. If I = 10% per year, what is the equivalent uniform annual cost over the
entire 50-year period?

GIVEN:

i = 10%
n = 50 years
A
1
= $ 1,000 maintenance cost each year for the first 5 years

*
()

+ money worth after 5 years

C
2
= $ 10,000 expenditure during the 15
th
year
C
3
= $ 10,000 expenditure during the 30
th
year

Required:

P = ? & A = ?

SOLUTION:

( )

( )

( )

Since,

( )

()

Therefore;

()

()
()

7. Uncle Wilburs trout ranch is now for sale for $40,000. Annual property taxes, maintenance,
supplies, and so on, are estimated to continue to be $3,000 per year. revenues from the ranch
are expected to be $10,000 next year and then decline by $500 per year thereafter through the
tenth year. if you bought the ranch, you would plan to keep it only 5 years and at the time sell it
for the value of the land, which is $15,000. If your desired annual rate of return is 12% should
you become a trout rancher?

SOLUTION:
TOTAL EXPENSES = 15, 000+ 40, 000 = $55, 000 for 5 years
An expenses every year = 11, 000
TOTAL REVENGE = 45, 000 + 15, 000 = $60, 000 for 5 years
An expenses every year = 12, 000
FPROFIT EVERY YEAR = 12, 000 11, 000 = 1, 000

( )


8. The heat loss through the exterior walls of a certain poultry processing plant is estimated to cost
the owner $3,00 next year. a salesman from super fier Insulation, Inc. has told you, the plant
engineer, that he can reduce the heat loss by 80% with the insallation of $15,000 worth of Super
fiber now. If the cost of heat loss rises by $200 per year (gradient) after next year and the
ownder plans to keep the present building for 10 more years, what would yoy recommended if
the money is 12% per year?

Illustration:






1 2 3 4 5 6 7 8 9 10

Without Super Fiber Insulation







1 2 3 4 5 6 7 8 9 10

With Super Fiber Insulation

SOLUTION:
When i = 12%
Without Super Fiber Insulation
*
()

*
()

( )

With Super Fiber Insulation
*
()

*
()

+ ( )

()

Therefore:
The owner must not accept the offer of the Salesman.

9. Solve for the value of F below so that the left-hand cash flow diagram is equivalent to the one
on the right. Let I = 8% per year.
P = ?
3000
F = ?

3200
3600
3400
3800
4000
4200
4400
4600
P = ?
F = ?

600
800
1200
1000
1400
1600
1800
2000
2200
2400
15000
4800

10. A corporations floats P200,000 worth of ten-year callable bonds is P1,000 denominations. The
bond rate is 7% compounded annually. Prepare an amortization.
GIVEN:
F = P200, 000 n = 10 i = 7%

SOLUTION:

A *
( )

( )

+ *
( )

( )

+

28475.50 14000 = P14, 475.50

YEAR PRINCIPAL
INTEREST AT
7%
NO. OF BONDS
RETIRED
AMOUNT OF
PRINCIPAL
REPAID
YEAR END
PAYMENT
1 P200, 000 P14, 000 14 P14, 000 P28, 000
2 186, 000 13, 020 15 15, 000 28, 020
3 171, 000 11, 970 17 17, 000 28, 970
4 154, 000 10, 780 18 18, 000 28, 780
5 136, 000 9, 520 19 19, 000 28, 520
6 117, 000 8, 190 20 20, 000 28, 190
7 97, 000 6, 790 22 22, 000 28, 790
8 75, 000 5, 250 23 23, 000 28, 250
9 52, 000 3, 640 25 25, 000 28, 640
10 27, 000 1, 890 27 27, 000 28, 890
TOTALS P1, 215, 000 P85, 120 200 P200, 000 P285, 120


11. A man borrowed P150, 000 from a bank for home improvement, to be repaid by month-end
payment for 60 months. The current rate of the interest charge by banks is 19% compounded
monthly. Based on this rate, prepare an amortization schedule.
GIVEN:
P = 150, 000.00
n = 60 months (period)
I = 19% compounded monthly =

SOLUTON:

A = *

+ *

()

+

PERIOD
PRINCIPAL AT
THE BEGINNING
OF EACH 6
M0NTHS
INTEREST AT 4%
PER PERIOD
PAYMENT AT
END OF EACH
PERIOD
PERIODIC
PAYMENT TO
PRINCIPAL
1 150000 2374.999995 3891.08 1516.080005

2
148483.92

2350.995395

3891.08

1540.084605

3
146943.8354

2326.610722

3891.08

1564.469278

4
145379.3661

2301.839959

3891.08

1589.240041

5
143790.1261

2276.676991

3891.08

1614.403009

6
142175.7231

2251.11561

3891.08

1639.96439

7
140535.7587

2225.149508

3891.08

1665.930492

8
138869.8282

2198.772275

3891.08

1692.307725

9
137177.5205

2171.977403

3891.08

1719.102597

10
135458.4179

2144.758278

3891.08

1746.321722

11
133712.0961

2117.108184

3891.08

1773.971816

12
131938.1243

2089.020297

3891.08

1802.059703

13
130136.0646

2060.487685

3891.08

1830.592315

14
128305.4723

2031.503307

3891.08

1859.576693

15
126445.8956

2002.06001

3891.08

1889.01999

16
124556.8756

1972.150526

3891.08

1918.929474

17
122637.9461

1941.767477

3891.08

1949.312523

18
120688.6336

1910.903362

3891.08

1980.176638

19
118708.457

1879.550565

3891.08

2011.529435

20
116696.9275

1847.701349

3891.08

2043.378651

21
114653.5489

1815.347854

3891.08

2075.732146

22
112577.8168

1782.482095

3891.08

2108.597905

23
110469.2188

1749.095961

3891.08

2141.984039

24
108327.2348

1715.181214

3891.08

2175.898786

25
106151.336

1680.729483

3891.08

2210.350517

26
103940.9855

1645.732267

3891.08

2245.347733

27
101695.6378

1610.180928

3891.08

2280.899072

28
99414.7387

1574.066693

3891.08

2317.013307

29
97097.72539

1537.380649

3891.08

2353.699351

30
94744.02604

1500.113743

3891.08

2390.966257

31
92353.05979

1462.256777

3891.08

2428.823223

32
89924.23656

1423.800409

3891.08

2467.279591

33
87456.95697

1384.735149

3891.08

2506.344851

34
84950.61212

1345.051356

3891.08

2546.028644

35
82404.58348

1304.739236

3891.08

2586.340764

36
79818.24271

1263.78884

3891.08

2627.29116

37
77190.95155

1222.190064

3891.08

2668.889936

38
74522.06162

1179.93264

3891.08

2711.14736

39
71810.91426

1137.00614

3891.08

2754.07386

40
69056.8404

1093.399971

3891.08

2797.680029

41
66259.16037

1049.10337

3891.08

2841.97663

42
63417.18374

1004.105407

3891.08

2886.974593

43
60530.20914

958.3949761

3891.08

2932.685024

44
57597.52412

911.9607966

3891.08

2979.119203

45
54618.40492

864.7914094

3891.08

3026.288591

46
51592.11633

816.8751734

3891.08

3074.204827

47
48517.9115

768.2002638

3891.08

3122.879736

48
45395.03176

718.7546681

3891.08

3172.325332

49
42222.70643

668.5261837

3891.08

3222.553816

50
39000.15261

617.5024151

3891.08

3273.577585

51
35726.57503

565.6707701

3891.08

3325.40923

52
32401.1658

513.0184574

3891.08

3378.061543

53
29023.10426

459.5324831

3891.08

3431.547517

54
25591.55674

405.1996475

3891.08

3485.880352

56
18564.60293

293.9395458

3891.08

3597.140454

57
14967.46248

236.984822

3891.08

3654.095178

58
11313.3673

179.1283152

3891.08

3711.951685

59

7601.415613

120.3557469

3891.08

3770.724253

60
3830.69136

60.65261307

3891.08

3830.427387

TOTAL
5271477.736

83465.06397

233464.8

150000


12. (M.E. Board, November 1983) On January 1, 1978 the purchasing manager of a cement company
bought a new machine costing P140,000. Depreciation has been computed by the straight-line
method, based on an estimated useful life of 5 years and residual scrap value) 12, 800.
On January 2, 1981 extraordinary repairs (almost equivalent to a rebuilding of the
machinery) were performed at a cost of P30,400. Because of the thorough going nature of these
repairs, the normal life of machinery was extended materially; the revised estimate of useful life
was 4 years in 1981.
Determine the annual provision for depreciation for the years 1978 to 1980 and the
adjusted provision for the depreciation of December 31, 1981. Assume payment in cash for the
machine and the repairs.

13. (ECE Board, August 1975) A broadcasting corporation purchased equipment worth P53,000 and
paid P1, 500 for freight and deliviery charges to the site. The equipment has a normal life of 10
years with a trade-in value of P5,000 agianst the purchase of new equipment at the end of life.

(a) Determine the annual depreciation cost by the straight-line method.
(b) Determine the annual depreciation cost by the sinking fund method. Assume
interest is 6% compounded annually.
GIVEN:

Delivery Change = P1, 800
N = 10 years

SOLUTION:
a.) Straight line Formula

b.) Sinking Fund Formula
(

)( )

( ) [

()

]


14. (M.E. Board, June 1990) A machinery supplier is offering a certain machine on a 10% down
payment and the balance payable in equal year-end payments without interest for 2 years.
Under this arrangement the price is pegged at {150,000. However, for cash purchase the
machine would only cost P195, 000. What is the equivalent interest rate that is charged on the
two-year payment plan of interest is compounded quarterly?
GIVEN:
C
1
= P 250,000 Price of the machine for 2-year payment
C
0
= P 195,000 Original cost of machine when price purchased
n = 2 years
d = down payment = .10(250,000) = 25,000
C
1-new
= 250,000 25,000 = 225,000 Remaining balance
C
A
= 225,000/2 = 112,500 Cash to be paid every year-end
C
0
= 195,000 25,000 = 170,000 Remaining amount to be paid and to be compounded
Therefore:
*
()

+ Expected total compounded amount of money after 2 years

( )

Total compounded money after 2 years

SOLUTION:
( )

*
()

( )

( )

( )

( )

( )

( )

( )

( )

( )

( )

By trial and error:
effective rate compounded annually
( )

(() )

To get for the equivalent effective rate compounded quarterly:
(

THEREFORE:





15. A debt of P10, 000 with interest at the rate law of 8% payable semi-annually is to be amortized
by equal payments at the end of each 6 months for 4 years. Find the semi-annual payment and
contract and amortization schedule.

GIVEN:
P = 10, 000 n = 4(2) = 8 quarters

SOLUTION:


A = P ( ) *

()

+

PERIOD
PRINCIPAL AT THE
BEGINNING OF
EACH 6 M0NTHS
INTEREST AT 4%
PER PERIOD
PAYMENT AT END
OF EACH PERIOD
PERIODIC
PAYMENT TO
PRINCIPAL
1 P10, 000.00 P400.00 P1,485.28 P1, 085.28
2 8, 917.72 356.59 P1,485.28 1,228.69
3 8, 786.03 311.44 P1,485.28 1, 173.84
4 6, 612.19 264.49 P1,485.28 1, 220.79
5 5, 391.70 451.66 P1,485.28 1, 269.62
6 4, 121.78 164.87 P1,485.28 1, 320.41

7 2, 801.37 112.05 P1,485.28 1, 373.23
8 1, 428.14 57. 13 P1,485.28 1, 428.15
TOTALS P47, 055.63 P1882.23 P11, 882.24 P10, 000.00