Instructions: Solve The Following Problems. Provide Your Answers On The Space Provided. All

Xavier University - Ateneo de Cagayan
College of Engineering
Industrial Engineering Department
ESC 15.1 – Engineering Economics

Finals Set 4
Instructions: Solve the following problems. Provide your answers on the space provided. All
solutions must be handwritten.
1) An item which can be sold for P63.00 per unit wholesale is being produced with the following
cost data: labor cost, P10 per unit, material cost, P15 per unit, fixed charges, P10,000, variable
cost, P8 per unit.
a. What is the break-even point sales volume?
b. What is the break-even sales volume if one out of every ten units produced is defective and is
rejected with only full recovery on materials?
2) An engineer bidding on the asphalting of a 7km stretch of read is confronted with the problem
of choosing two possible sites on which to set up the asphalt-mixing machine. At site A, the
average hauling distance is 2.5 km, the monthly rental would be P3,500 and the cost of installing
and dismantling the equipment would be P17,000.00. At site B, the average hauling distance is
3.25 km, the monthly rental would be P650 and the cost of installing and dismantling the
equipment would be P7,200.00. The asphalt mix is to be hauled by a sub-contractor at P0.42 cu.
m. per km of haul. At site A, it would be necessary to hire 2 flagmen at P15 each per work day.
The job can be completed in 30 weeks or 7 months working 6 days a week. The project requires
16,670 cu. m. of asphalt mix per km of road, which site should h choose and how much lower
would his bid price be if he made the better choice?
3) In how many years will a sum of money triple itself at 12% interest?
4) A businessman invested P1,000.00 and after 4 years, it becomes P1,608.44 when he invested
at a certain rate of interest compounded bi-monthly. Determine the nominal rate and the
corresponding effective rate.
5) Determine the effective interest rate of P1.00 for one year compounded semi-annually at a
nominal rate of 6%.
6) A couple decided to save for the college education of their two-year-old son. What annual
deposit should they make on each birthday from the third to the 16 th, inclusive so that their son
will be able to withdraw P1,500 on each birthday from the 17 th to the 20th inclusive? Money is
worth 4% compounded annually.
7) A man bought a Ford Fairlane model 1965 for P21,000 on installment at the rate of 10% per
annum on the unpaid balance. If he paid a down-payment of P6000 cash and proposed to pay
the balance in 20 monthly equal payments, what should be his monthly payments?
8) Today is September 2, 1978. Ten years ago, you deposited P 10.00 per month. You made the
deposit continuously for 6 years and then stopped. In September 2, 1982, you established a belts
and nuts factory. Starting September 2, 1982, you withdraw P 100.00 a month for advertisements.
How many months can you withdraw before the money is exhausted? Interest is 6% compounded
monthly.
9) A linking machine is purchased for P20,000. It is estimated to have a useful life of 10 years and
a salvage value of P10,000. Find the depreciation for the 1st year using the SYD method.
10.) The advertising manager for Roadside Restaurants, Inc. needs to decide whether to spend
this month's budget for advertising on print media, television, or a mixture of the two. She
estimates that the cost per thousand "hits" (readers or viewers) will vary depending upon the
success of the new cable television network she plans to use, as follows:
Strategy Cable Network

Successful Failure
Print 10 10
Mixed 4 14
Television 1 21
If she uses the maximax criterion, which advertising strategy will she use?
If she uses the maximin criterion, which advertising strategy will she use?
If she uses the Laplace criterion, which advertising strategy will she use?
If she uses the minimax regret criterion, which advertising strategy will she use?
If she feels that there is a 60% chance that the new cable network will be successful, what is her
expected cost (per thousand "hits") for the strategy she will select?
If she feels that there is a 60% chance that the new cable network will be successful, what is her
expected value (per thousand "hits") of perfect information?
For what range of probability that the new cable network will be successful will she select the
print media strategy?

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Xavier University - Ateneo de Cagayan

ESC 15.1 – Engineering Economics

Strategy Cable Network

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