31.

A unit of welding machine cost P45,000 with an estimated life of 5

years. Its salvage value is P2,500. Find its depreciation rate by straight-line
method.

Given:

C0 = P45,000
Cn = P2,500
n=5

Solution:

C0 - Cn
d=
n

45,000 – 2,500
d=
5

d = 8,500

d
Depreciation Rate =
C0

8,500
 Depreciation Rate =
45,000

= 18.89%

32. The cost of equipment is P500,000 and the cost of installation is

P30,000. If the salvage value is 10% of the cost of equipment at the end of 5
years, determine the depreciation. Use straight line method.

Given:

C0 = P500,000 + P30,000 = P530,000

Cn = 0.10(P500,000) = P50,000
n=5

Solution:

C0 - Cn
d=
n

530,000 – 50,000
d=
5
d = P96,000
33. An asset id purchased for P500,000. The salvage value in 25years is
P100,000. What is the total depreciation in the first three years using
straight line method.
 Given:

C0 = P500,000
Cn = P100,000
n = 25
m=3

Solution:

C0 - Cn
d=
n

500,000 – 100,000
d=
25

d = P16,000

D = dm
D = (16,000)(3)
D = P48,000

34. A machine has an initial cost of P50,000 and a salvage value of P10,000
after 10 years. What is the book value after 5 years using line depreciation?
 Given:
C0 = P50,000
Cn = P10,000
n = 10
m=5

Solution:

C0 - Cn
d=
n

50,000 – 10,000
d=
10

d = P4,000

Cm = C0 – d(m)

Cm = 50,000 – 4,000(5)

Cm = P30,000
35. An equipment costs P10,000 with a salvage value of P500 at the end of
10 years. Calculate the annual depreciation cost by sinking fund method at
4% interest.

Given:
 C0 = P10,000
Cn = 500
i = 0.04
n = 10

Solution:

(C0 – Cn)i
d=
(1 + i) n – 1

10,000 – 500 (0.04)

d=
(1 + 0.04) 10 – 1

d = P791.26

36. A machine costing P720,000 is estimated to have a book value of

P40,545.73 when retired at the end of 10 years. Depreciation cost is
computed using a constant percentage of the declining book value. What is
the annual rate of depreciation rate at %?

Given:
Cm = P40,545.73
C0 = P720,000
m = 10
 Solution:

Cm = C0(1 – k) m

40,545.73 = 720,000 (1 – k) 10

(1 – k) 10 = 0.0563

k = 0.25 = 25%

37. A machine costing P45,000 is estimated to have a book value of P4,350

when retired at the end of 6 years. Depreciation cost is computed using a
constant percentage of the declining book value. What is the annual rate of
depreciation rate at %?

Given:
Cm = P45,000
C0 = P4,350
m=6

Solution:

Cm = C0(1 – k) m

4,350= 45,000 (1 – k) 6

(1 – k) 6 = 0.09666
 k = 0.3225 = 32.25%

38. A new highway is being proposed for construction. The initial cost
expected to be P9,600,000 with an annual maintenance cost of P36,000.
Every three years, minor improvements costing P20,000 are expected to be
made. The estimated income from tourist will be P1,200,000 annually.
Using planning horizon for 30 years and interest rae of 10%. Determine the
highway should be constructed. Analyze the (B – C) criterion.

Given:
B = annual benefit = P1,200,000
C = Annual costs = 960,000(0.1060 7925) + 36,000 + 20,000
(0.3021 1480)
= P1,060,400

Solution:

B–C

1,2000,000 – 1,060,400

B – C = P139,600
Since B – C > 0, therefore construct the highway

39. A government project has the ff. estimates.

Annual benefits ………………………P500,000
Annual disbenefits P450,000
Annual Cost P350,000
Annual Savings P340,000
Calculate the B/C ration.

Given:
B = net annual benefits
= annual benefits – annual disbenefits
= 500,000 – 450,000 = P50,000

C = net annual cost

= annual cost – annual savings
= 350,000 – 340,000 = P10,000

Solution:

50,000

10,000

B/C = 5.0

40. A new store is being proposed for construction. The initial cost
expected to be P9,600,000 with an annual maintenance cost of P36,000.
Every three years, minor improvements costing P20,000 are expected to be
made. The estimated income from tourist will be P1,200,000 annually.
Using planning horizon for 30 years and interest rae of 10%. Determine the
store should be constructed. Analyze the (B/C) criterion.

Given:
B = annual benefit = P1,200,000
C = Annual costs = 960,000(0.1060 7925) + 36,000 + 20,000
(0.3021 1480)
= P1,060,400

Solution:
B

1,200,000

1,060,400

B/C = 1.13

41. Four mutually exclusive alternatives for providing water supply to a

small town have the identified with ff. annual benefits and costs:
Alternatives Annual Benefits Annual Costs
A P764,000 P390,000
B P699,000 P332,000

Select the best alternatives using benefits cost ratio.

Solution:
Alternative B/C Ratios Answers

764,000
A 1.96
390,000

699,000
B 2.11
332,000

Thus, we find alternative B to be the best alternatives

42. An employee is about to receive the sum of P300,000 at the end of each
year for 5 years. One year prior to the receipt of the first sum, he decides to
discount all 5 sum, if the interest is 6%, what proceeds will he obtain?

Given:

A = P300
i = 0.06
n=5

Solution:

A [ (1 + i) n -1) ]
 P=
I (1 + i) n

300 [ (1 + 0.06) 5 -1) ]

P=
0.06 (1 + 0.06) 5

P = P1,263.71

0 1 2 3 4 5

A A A A A
P

43. Money borrowed today is to be paid in 6 equal payments at the end of 6

quarters if the interest is 12% compounded quarterly. How much was
initially borrowed if quarterly payment is P2,000.

Given:
A = P2,000
i = 0.03
n=6
 Solution:

I = 0.12 / 4 = 0.03

A [ (1 + i) n -1) ]
P=
I (1 + i) n

2000 [ (1 + 0.03) 6 -1) ]

P=
0.03 (1 + 0.0) 6

P = P10,834.38

Amount Borrowed
0 1 2 3 4 5 6

A A A A A A
P
44. A piece of machine can be bought for P10,000 cash or for P2,000 down
and payment of P750 per year for 15years. What is annual interest rate for
the time payments?

Given:
P = P10,000
Down = P2,000
A = 750
n = 15

Solution:

A [ (1 + i) n -1) ]
P=
I (1 + i) n

750 [ (1 + i) 15 -1) ]
10,000 = 2,000+
i (1 + i) 15

i (1 + i) 15 - 1
10,6667 =
i (1 + i) 15

by substitution, I = 4.61%
 10,000
0 1 2 3. . . . . . 6

A A A A A A
P

45. Mr. Ayala barrows P100,000 at 10% effective annual interest. He must
pay back the loan over 30 years with uniform monthly payments due on
the first day of each month. What does Mr. Ayala pay each month?

Given:
P = P100,000
I = 10%

Solution:
I 12
i+1=1+
12

I 12
1.10 = 1 +
12
 i = 0.007974

12

Total number of payments = 12(30) = 360

Borrowed money = A + P

A[(1 + 0.007974) 359 -1]

100,000 = A +
(1 + 0.007974)359 (0.007974)

100,000 = A + A (118.16)

100,000 = 119.16A

A = P839.31

10,000
0 1 2 3. . . . . . 359

A A A A A A
P
46. An instructor plans to retire in exactly one year and want an account
that will pay him P25,000 a year for the next 15 years. Assuming a 6%
annual effective interest rate, what is the amount he would need to deposit
now?

Given:
A = P25,000
I = 6%
n = 15

Solution:

A [ (1 + i) n -1) ]
P=
I (1 + i) n

25,000 [ (1 + 0.06) 15 -1) ]

P=
0.06 (1 + 0.06) 15
 P = P242,806

350,000
0 1 2 3.

A A A
P

47. A manufacturing firm wishes to give each 80 employees a holiday

bonus. How much is needed to invest monthly for a year at 12% nominal
interest rate compounded monthly, so that each employee will receive a
P2,000 bonus?

Given:
F = 80(2,000) = 160,000
n = 12
i = 0.12/12 = 0.01

Solution:

A [ (1 + i) n -1) ]
 F=
I (1 + i) n

A [ (1 + 0.01) 12 -1) ]
160,000 =
0.01 (1 + 0.01) 12

160,000 = A 11.26

A = P12,615.80

160,000
0 1 2 3. . . . . . 12

A A A A A A
P

48. What is the present worth of 3 year annuity paying P3,000 at the end of
each year, i = 8% compounded annually.

Given:
A = P3,000
 i = 8%
n=3

Solution:

A [ (1 + i) n -1) ]
P=
I (1 + i) n

3,000 [ (1 + 0.08) 3 -1) ]

P=
0.08 (1 + 0.08) 3

P = P7,731.29

P7,731.29

0 1 2 3.

A A A
P
49. Find present worth of 5 year annuity paying P4,000 at the end of each
year, the given i = 9% compounded annually.

Given:
A = P4,000
i = 9%
n=5

Solution:

A [ (1 + i) n -1) ]
P=
I (1 + i) n

4,000 [ (1 + 0.09) 5 -1) ]

P=
0.09 (1 + 0.09) 5

P = P15,558.61
P15,558.61
0 1 2…. 5

A A A
P

50. In exactly one year a retire person will pay P20,000 a year for the next
18 years. Assuming a 25% annual effective interest rate, what is the
amount he would need to deposit now?

Given:
A = P20,000
I = 25%
n = 18

Solution:

A [ (1 + i) n -1) ]
P=
I (1 + i) n
 20,000 [ (1 + 0.25) 18 -1) ]
P=
0.25 (1 + 0.25) 18

P = P78,558.85

P78,558.85
0 1 2 3. . . . . . 18

A A A A A A
P