DEPARTMENT OF AGRICULTURAL

AND BIOSYSTEMS ENGINEERING

Visca, Baybay City, Leyte, PHILIPPINES
Telephone: (053) 525-0140 local 1015
Email: dabe@vsu.edu.ph
Website: www.vsu.edu.ph

ESci 134m – Engineering Economy

1st Semester, AY 2020 – 2021

MIDTERM OUTPUT

Name: ___________________________ Due Date: 12 March 2021

Course & Year: ___________________ Date Submitted: _______________

Instructions:
1. Write your answers/solutions on any clean sheet of paper.
2. Copy the activity information above to the first page of your solution sheets. Do not forget to write your name,
student number, date of submission. Should you utilize 2 or more pages, indicate your name and page
number on the top of each following pages. Observer proper item labelling. Make your solutions are neat
and organized.
3. Submit your solutions sheets in PDF via our Google Classroom. You can take a picture of your solutions
sheets and save it to PDF using a mobile scanning app of your choice. Make sure all your solutions sheets
are merged into one PDF file.

I. Terminology, Symbols and Cash Flow Diagrams

1. Identify the four engineering economy symbols and their values from the following problem
statement. Use a question mark with the symbol whose value is to be determined.

Thompson Mechanical Products is planning to set aside 7.5 million pesos now for
possibly replacing its large synchronous refiner motors whenever it becomes necessary.
If the replacement is not needed for 7 years, how much will the company have in its
investment set-aside account, provided it achieves a rate of return of 11% per year?

2. The symbol 𝑃 represents an amount of money at a time designated as present. The

following symbols also represent a present amount of money and require similar
calculations. Explain what each symbol stands for: 𝑃𝑊, 𝑃𝑉, 𝑁𝑃𝑉, 𝐷𝐶𝐹, and 𝐶𝐶.

3. Construct a cash flow diagram for the following cash flows: Php 1.25 million outflow at
time 0, Php 450,000 inflow in year 1 through 5 at an interest rate of 10% per year, and an
unknown future amount in year 5.

4. Construct a cash flow diagram that represents the amount of money that will be
accumulated in 15 years from an investment of 2 million pesos now at an interest rate of
8% per year.

Vision: A globally competitive university for science, technology, and environmental conservation.
Mission: Development of a highly competitive human resource, cutting-edge scientific knowledge
and innovative technologies for sustainable communities and environment.
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II. Time-Value of Money

Solve each problem. In your solutions, provide what is given, required and then box your
final answer. Round off values to two (2) decimal places only in your final answer.
Formulas that you can utilize in solving the problems are found at the last page.

1. As a principal in the consulting firm where you have worked for 20 years, you have
accumulated 5000 shares of company stock. One year ago, each share of stock was worth
200 pesos. The company has offered to buy back your shares for Php 11.25 million. At
what interest rate would the firm’s offer be equivalent to the worth of the stock last year?

2. A design/build engineering company that usually gives year-end bonuses in the amount
of Php 40,000 to each of its engineers is having cash flow problems. The company said
that although it could not give bonuses this year, it would give each engineer two bonuses
next year, the regular one of Php 40,000 plus an amount equivalent to the Php 40,000
that each engineer should have gotten this year. If the interest rate is 8% per year, what
will be the total amount of bonus money the engineers should get next year? (

3. RKI Instruments borrowed 175 million pesos from a private equity firm for expansion of its
manufacturing facility for making carbon monoxide monitors/ controllers. The company
repaid the loan after 1 year with a single payment of 194.25 million pesos. What was the
interest rate on the loan? (5 points)

4. Which of the following 1-year investments has the highest rate of return? (10 points)

(a) Php 625,000 that yields Php 56,250 in interest.

(b) Php 2.8 million that yields Php 308,000 in interest.
(c) Php 4.75 million that yields Php 380,000 in interest.

III. Simple and Compound Interest

Solve each problem. In your solutions, provide what is given, required and then box your
final answer. Round off values to two (2) decimal places only in your final answer.
Formulas that you can utilize in solving the problems are found at the last page.

1. Iselt Welding has extra funds to invest for future capital expansion. If the selected
investment pays simple interest, what interest rate would be required for the amount to
grow from Php 300,000 to Php 450,000 in five years?

2. To finance a new product line, a company that makes high-temperature ball bearings
borrowed 90 million pesos at 10% per year interest. If the company repaid the loan in a
lump sum after 2 years, what was the (a) amount of the payment and (b) the amount of
interest?

3. Because market interest rates were near all-time lows at 4% per year, a hand tool
company decided to call (i.e. payoff) the high-interest bonds that it issued 3 years ago. If
the interest rate on the bonds was 9% per year, how much does the company have to pay
the bond holders? The face value (principal) of the bond is 30 million pesos.

4. A solid waste disposal company borrowed money at 10% pe year interest to purchase
new haulers and other equipment needed at the company-owned landfill site. If the
 ESci 134m | Midterm Output Page 3 of 7

company got the loan 2 years ago, and paid it off with a single payment of 230 million
pesos, what was the principal amount of the loan?

5. If interest is compounded at 20% per year, how long will it take for 2.5 million pesos to
accumulate to 4.32 million pesos?

6. To make Certificate of Deposits look more attractive than they really are, some banks
advertise that their rates are higher than their competitors’ rates; however, the fine print
says that the rate is a simple interest rate. If a person deposits 500,000 pesos at 10% per
year simple interest, what compound interest rate would yield the same amount of money
in 3 years?

7. Ordinary simple interest is based on a banker’s year of 12 months at 30 days (360 days a
year) while exact simple interest is based on the actual calendar days of the year, 365
days for an ordinary year and 366 days for a leap year. Determine the ordinary and exact
simple interests on P5,000 for the period January 14- June 20, 1993 if the rate of simple
interest is 14%. (Note: 1993 is an ordinary year)

IV. Interest Rate Statements

1. Copy and complete the table.

Interest Rate Nominal or Compounding

Time Period
Statement Effective Interest Period

1. 12% per year Nominal Monthly Year

2. 8% per year Effective Yearly Year

compounded monthly

3. Effective 10% per Effective Monthly Year

year compounded
monthly

4. 1% per month Nominal Quarterly Year

5. 4% per quarter Nominal Weekly Month

compounded monthly

6. Effective 6% per Effective Monthly Month

quarter

7. 3% per quarter Effective Monthly Month

8. 14% per year Effective Quarterly Quarter

compounded
semiannually
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9. Effective 1% per Effective Daily Month

month compounded
daily

2. Three different bank load rates for electric generation equipment are listed below.
Determine the effective rate based on the compounding period for each rate.

(a) 9% per year compounded quarterly.

(b) 9% per year compounded monthly.
(c) 4.5% per 6 months, compounded weekly.

V. Discount

Solve each problem. In your solutions, provide what is given, required and then box your
final answer. Round off values to two (2) decimal places only in your final answer.
Formulas that you can utilize in solving the problems are found at the last page.

1. A businessman borrowed money from a bank to start up his dying business due to the
pandemic. He received Php 134,200 and agreed to pay Php 150,000 at the end of nine
months. Determine the discount rate and interest rate in this transaction.

2. While looking for a scholarship, a student applied of a Php 100,000 loan to finance the
first year of graduate studies. The loan firm approved his loan ang gave him Php 85,000.
The student agreed to pay the principal after one year. What is the interest rate in this
case?

3. University tuition and fees can be paid by using one of two plans.

Early-bird: Pay total amount due 1 year in advance and get a 10% discount.
On-time: Pay total amount due when classes start.

The cost of tuition and fees is Php 250,000 per year. (a) How much is paid in the early-
bird plan? (b) What is the equivalent amount of the savings compared to the on-time
payment at the time that the on-time payment is made?

4. During a recession, the price of goods and services goes down because of low demand.
A company that makes. Ethernet adapters is planning to expand its production facility at
a cost of 50 million pesos one year from now. However, a contractor who needs work has
offered to do the job for 39.5 million pesos if the company will do the expansion now
instead of 1 year from now. If the interest rate is 15% per year, how much of a discount is
the company getting?

VI. Inflation

Solve each problem. In your solutions, provide what is given, required and then box your
final answer. Round off values to two (2) decimal places only in your final answer.
Formulas that you can utilize in solving the problems are found at the last page.
ESci 134m | Midterm Output Page 5 of 7

1. Based on news report, it is predicted that there will be an average annual inflation of 8.20%
in the prices of commodities in the next ten years. Assuming this prediction to be accurate,
a home currently costing 5.1 million pesos will be how much ten years from now?

2. A real estate agent said that a house he sold in 1980 for 3.7 million pesos was sold by the
buyer for 9 million pesos in 1990. If the increase in price is solely due to inflation, determine
the rate of inflation between 1980 and 1990.

3. On his son’s fifth birthday, the father deposited a certain amount of money which will
become Php 280,000 (in today’s purchasing power) on his son’s eighteenth birthday for
his college education. If the bank pays 5.50% while inflation is 8.70%, how much did the
father deposited on his son’s fifth birthday?

4. A man wishes to set aside some money in a fund for his retirement at 60 years old which
will have an amount equivalent to Php 500,000 in today’s purchasing power. The
estimated inflation rate is 6.50%. If the fund will earn 9% compounded semi-annually, how
much should he invest if he is still 45 years old?

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Useful Formulas

Interest Paid

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑎𝑚𝑡. 𝑜𝑤𝑒𝑑 𝑛𝑜𝑤 − 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑎𝑚𝑡. 𝑜𝑤𝑒𝑑 𝑛𝑜𝑤 − 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑎𝑚𝑡

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑐𝑐𝑟𝑢𝑒𝑑 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑡𝑖𝑚𝑒

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 = × 100%
𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙

Interest Earned

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑎𝑚𝑡. 𝑜𝑤𝑒𝑑 𝑛𝑜𝑤 − 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑎𝑚𝑡.

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑓𝑖𝑛𝑎𝑙 𝑎𝑚𝑡. − 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑎𝑚𝑡.

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑐𝑐𝑟𝑢𝑒𝑑 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑡𝑖𝑚𝑒

𝑅𝑎𝑡𝑒 𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛 = × 100%
𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙

Simple Interest

𝐼 = 𝑃𝑖𝑛 𝐹𝑡 = 𝑃(1 + 𝑖𝑛)

Compound Interest

𝐼 = 𝑃[(1 + 𝑖)𝑛 − 1] 𝐹𝑡 = 𝑃(1 + 𝑖)𝑛

Nominal Rate

𝑟 = 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 × 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑𝑠

Effective Interest Rate

𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝑟𝑎𝑡𝑒 𝑝𝑒𝑟 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑝𝑒𝑟 𝑡

𝑖𝑒 =
𝑐𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝑡

Discount

𝐷iscount (𝐷) = 𝐹𝑢𝑡𝑢𝑟𝑒 𝑊𝑜𝑟𝑡ℎ − 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑊𝑜𝑟𝑡ℎ = 𝑆𝑖𝑚𝑝𝑙𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡
𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒 (𝑑) = × 100%
𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙

𝑑
𝑖=
(1 − 𝑑)
ESci 134m | Midterm Output Page 7 of 7

Inflation (Effect in Cost of Commodities)

𝐹 = 𝑃(1 + 𝑓)𝑛 𝐹 = 𝑃(1 + 𝑖𝑐 )𝑛

Inflation (Effect in Buying Power of Worth of Money)

𝑃 (1 + 𝑖)𝑛
𝐹= 𝐹=𝑃
(1 + 𝑓)𝑛 (1 + 𝑓)𝑛