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Republic of the Philippines

Mindanao State University - Iligan Institute of Technology


Department of Mechanical and Engineering Sciences
College of Engineering
Tibanga, 9200 Iligan City, P.O. Box No.5644 Tel. Nos. (063) 221-4050 Loc.130
Direct line: Facsimile(063) 223-2351
Homepage:http://www.msuiit.edu.ph/coe

Engineering Economy

PROBLEM SET 4
Problem 1

You are planning to sell your electronic manufacturing plant


originally costing Php Amount A when it was put up 15 years ago. Some
equipment originally costing Php 10, 000 was replaced 10 years ago
with new equipment costing Php 15,000. The equipment installed 10
years ago has now depreciated by Php 7, 500. The depreciation of the
remaining portion of the plant originally installed 15 years ago is
now Php Amount B. Determine the present book value of your plant.

Group Php Amount A Php Amount B


#1 250, 000.00 40, 000.00
#2 110, 000.00 550.00
#3 105, 000.00 600.00
#4 115, 000.00 650.00
#5 120, 000.00 800.00
#6 100, 000.00 600.00
#7 110, 000.00 550.00
#8 105, 000.00 550.00
#9 115, 000.00 500.00
#10 120, 000.00 700.00

Problem 2

A broadcasting corporation purchased equipment worth Php Amount A and


paid Php 50, 000 for freight and delivery charges to the site. The
equipment has normal life of 10 years with a trade-in value of Php
Amount B against 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 rate is R % compounded annually.

Group Php Amount A Php Amount B rate R %


#1 700, 000.00 200,000 10.00
#2 710, 000.00 180, 000 9.50
#3 705, 000.00 190, 000 9.00
#4 715, 000.00 210, 000 10.50
#5 720, 000.00 205, 000 11.00
#6 700, 000.00 200,000 10.50
#7 710, 000.00 180, 000 9.00
#8 705, 000.00 190, 000 9.50
#9 715, 000.00 210, 000 11.00
#10 720, 000.00 205, 000 10.00

Problem 3
A machine which costs Php Amount A was sold as scrap after being used
for 10 years. If the scrap value was Php Amount B, determine the total
depreciation at the end of the fifth year.

Group Php Amount A Php Amount B


#1 700, 000.00 10, 000
#2 710, 000.00 11, 000
#3 705, 000.00 12, 000

1
#4 715, 000.00 13, 000
#5 720, 000.00 14, 000
#6 700, 000.00 10, 000
#7 710, 000.00 11, 000
#8 705, 000.00 12, 000
#9 715, 000.00 13, 000
#10 720, 000.00 14, 000

Problem 4

The cost of a certain asset is Php 3,000; its life is 6 years and
scrap value is Php 500. Find the annual rate of depreciation under
constant percentage method, and construct a depreciation table.

Group Php Amount A


#1 1, 200
#2 1, 300
#3 1, 000
#4 1, 100
#5 1, 400
#6 1, 200
#7 1, 300
#8 1, 000
#9 1, 100
#10 1, 400

Problem 5

A telephone company purchased a microwave radio equipment for Php


Amount A. Freight and installation charges amounted to 3% of the
purchase price. If the equipment is depreciated over an eight-year
period with salvage value of rate R %, determine the following:
a. Annual depreciation charge using straight-line formula
b. Depreciation charge during the fifth year using SYD

Group Php Amount A rate R %


#1 9, 000, 000.00 10.00
#2 9, 100, 000.00 9.50
#3 9, 500, 000.00 9.00
#4 9, 115, 000.00 10.50
#5 9, 200, 000.00 11.00
#6 9, 000, 000.00 10.50
#7 9, 100, 000.00 9.00
#8 9, 500, 000.00 9.50
#9 9, 115, 000.00 11.00
#10 9, 200, 000.00 10.00

Problem 6

A dump truck was bought for Php Amount A six years ago. It will have a
salvage value of Php 30, 000 four years from now. It is sold now for
Php 80, 000. What is the sunk cost if the depreciation method used is:
a. Straight-line method
b. Sinking Fund method at rate R %

Group Php Amount A rate R %


#1 900, 000.00 10.00
#2 910, 000.00 9.50
#3 905, 000.00 9.00
#4 915, 000.00 10.50
#5 920, 000.00 11.00
#6 900, 000.00 10.50
#7 910, 000.00 9.00
#8 905, 000.00 9.50
#9 915, 000.00 11.00
#10 920, 000.00 10.00
2
Problem 7

A television company purchased machinery for Php Amount A on July 1,


1979. It is estimated that it will have a useful life of ten years,
scrap value of Php Amount B, production of 400,000 units and working
hours of 120,000. The company uses the machinery for 14, 000 hours in
1979 and 18, 000 hours in 1980. Compute the depreciation for 1980
using each method below.
a. Straight-line Method
b. Working Hours
c. Output Method

Group Php Amount A Php Amount B


#1 800, 000.00 10, 000.00
#2 810, 000.00 11, 000.00
#3 805, 000.00 12, 000.00
#4 815, 000.00 13, 000.00
#5 820, 000.00 14, 000.00
#6 800, 000.00 11, 000.00
#7 810, 000.00 10, 000.00
#8 805, 000.00 13, 000.00
#9 815, 000.00 12, 000.00
#10 820, 000.00 14, 000.00

Problem 8

On January 1, 1978 the purchasing manager of a cement company bought a


new machine costing Php Amount A. Depreciation has been computed by
the straight-line method based on an estimated useful life of 5 years
and residual scrap value of Amount B.

On January 2, 1981 extraordinary repairs (almost equivalent to a


rebuilding of the machinery) were performed at a cost of Php 30, 400.
Because of the thorough going nature of these repairs, the normal life
of the machinery was extended materially, the revised estimate of
useful life was 4 years from 1981.

Determine the annual provision for depreciation for years 1978 to 1980
and the adjusted provision for depreciation on December 31, 1981.
Assume payment in cash for the machine and repairs.

Group Php Amount A Php Amount B


#1 270, 000.00 10, 000.00
#2 250, 000.00 11, 000.00
#3 265, 000.00 12, 000.00
#4 255, 000.00 13, 000.00
#5 280, 000.00 14, 000.00
#6 270, 000.00 11, 000.00
#7 250, 000.00 10, 000.00
#8 265, 000.00 13, 000.00
#9 255, 000.00 12, 000.00
#10 280, 000.00 14, 000.00

Problem 9

A machine shop purchased 10 years ago a milling machine for Php Amount
A. A straight-line depreciation reserve had been provided based on a
20-year life of the machine. The owner of the machine shop desires to
replace the old milling machine with a modern unit having many
advantages costing Php 100, 000. It can sell the old unit for Php 50,
000. How much new capital will be required for the purchase?

3
Group Php Amount A Php Amount B
#1 800, 000.00 1, 000, 000.00
#2 810, 000.00 1, 110, 000.00
#3 805, 000.00 1, 105, 000.00
#4 815, 000.00 1, 115, 000.00
#5 820, 000.00 1, 120, 000.00
#6 800, 000.00 1, 000, 000.00
#7 810, 000.00 1, 110, 000.00
#8 805, 000.00 1, 105, 000.00
#9 815, 000.00 1, 115, 000.00
#10 820, 000.00 1, 120, 000.00

Problem 10

A tax and duty free importation of a 30-horsepower sand mill for paint
manufacturing costs Php Amount A. Bank charges, arrastre and brokerage
cost Php 5, 000. Foundation and installation costs were Php 25, 000.
Other incidental expenses amount to Php 20, 000. Salvage value of the
mill is expected to be Php Amount B after 20 years. Find the appraisal
value of the mill using straight-line depreciation at the end of a. 10
years; b. 15 years.

Group Php Amount A Php Amount B


#1 370, 000.00 60, 000.00
#2 350, 000.00 55, 000.00
#3 365, 000.00 65, 000.00
#4 355, 000.00 50, 000.00
#5 380, 000.00 65, 000.00
#6 370, 000.00 60, 000.00
#7 350, 000.00 55, 000.00
#8 365, 000.00 65, 000.00
#9 355, 000.00 50, 000.00
#10 380, 000.00 65, 000.00

Problem 11

A trenching machine maybe used to dig irrigation ditches or pipeline


trenches. A contractor purchases one for Php Amount A and he estimates
that it will be able to dig 500, 000 meters during its life and he
expects to receive Php Amount B as scrap value when he sells it.
During a certain year he used the machine to dig L meters of trench.
Determine the depreciation cost for that year.

Group Php Amount A Php Amount B L


#1 470, 000.00 5, 000 90,000
#2 450, 000.00 6, 000 80, 000
#3 465, 000.00 5, 500 85, 000
#4 455, 000.00 4, 500 70, 000
#5 480, 000.00 6, 500 85, 000
#6 470, 000.00 5, 500 90,000
#7 450, 000.00 4, 000 80, 000
#8 465, 000.00 5, 000 85, 000
#9 455, 000.00 6, 000 70, 000
#10 480, 000.00 6, 500 85, 000

Problem 12

A mining company invested Php Amount A to develop an oil well which is


estimated to contain 1, 000, 000 barrels of oil. During a certain
year, N barrels were produced from this well. Compute the depletion
charge during the year.

Group Php Amount A N Barrels


#1 25, 000, 000 200, 000
#2 26, 000, 000 210, 000
#3 27, 000, 000 220, 000
4
#4 28, 000, 000 230, 000
#5 29, 000, 000 240, 000
#6 29, 000, 000 250, 000
#7 28, 000, 000 240, 000
#8 27, 000, 000 230, 000
#9 26, 000, 000 220, 000
#10 25, 000, 000 210, 000

Problem 13

The total gross income of the oil company in Problem 12 from the 200,
000 barrels of oil produced is Php Amount A. The taxable income after
deducting all expenses excluding depletion is Php Amount B. Determine
the allowable depletion allowance for the year.

Group Php Amount A Php Amount B


#1 70, 000, 000.00 28, 000, 000
#2 50, 000, 000.00 16, 000, 000
#3 65, 000, 000.00 35, 000, 000
#4 55, 000, 000.00 24, 000, 000
#5 80, 000, 000.00 46, 000, 000
#6 70, 000, 000.00 28, 000, 000
#7 50, 000, 000.00 26, 000, 000
#8 65, 000, 000.00 25, 000, 000
#9 55, 000, 000.00 24, 000, 000
#10 80, 000, 000.00 36, 000, 000

Problem 14

During a certain month, a mining company has a gross income of Php


Amount A from the production of gold. The expenses for this month
excluding depletion is Php Amount B. What is depletion allowance for
the month?

Group Php Amount A Php Amount B


#1 120, 000, 000.00 84, 200, 000
#2 110, 000, 000.00 74, 200, 000
#3 100, 000, 000.00 64, 200, 000
#4 105, 000, 000.00 74, 200, 000
#5 110, 000, 000.00 74, 200, 000
#6 100, 000, 000.00 84, 500, 000
#7 120, 000, 000.00 74, 500, 000
#8 115, 000, 000.00 64, 500, 000
#9 105, 000, 000.00 74, 500, 000
#10 100, 000, 000.00 74, 500, 000

Problem 15

a. A coal mining company has owned a mine for the past five years.
During this time the following tonnage of ore has been removed
each year: Tonnage T tons. The mine is estimated to contain a
total of 500, 000 tons of coal. The initial cost of the mine is
Php Amount A. If the company had a gross income for this coal of
Php 220 per ton for the first two years, and Php 300 per ton for
the last three years, a. determine the depletion charge for each
year using the larger values for the two methods, and b. compute
the percent of the initial cost that has been written off in the
five years.

Group Tonnage T Php Amount A


#1 25, 000; 12, 000, 000
32, 000;
36, 000;
30, 000;
and 28, 000 tons
5
#2 26, 000; 11, 000, 000
33, 000;
37, 000;
31, 000;
and 29, 000 tons
#3 24, 000; 12, 000, 000
31, 000;
35, 000;
29, 000;
and 27, 000 tons
#4 25, 000; 10, 000, 000
32, 000;
36, 000;
30, 000;
and 28, 000 tons
#5 26, 000; 13, 000, 000
32, 000;
36, 000;
33, 000;
and 29, 000 tons
#6 25, 000; 13, 000, 000
32, 000;
36, 000;
30, 000;
and 28, 000 tons
#7 26, 000; 12, 000, 000
33, 000;
37, 000;
31, 000;
and 29, 000 tons
#8 24, 000; 11, 000, 000
31, 000;
35, 000;
29, 000;
and 27, 000 tons
#9 25, 000; 10, 000, 000
32, 000;
36, 000;
30, 000;
and 28, 000 tons
#10 26, 000; 13, 000, 000
32, 000;
36, 000;
33, 000;
and 29, 000 tons
Problem 16

The Carryall Trucking Company uses three delivery trucks that cost Php
100, 000; Php 120, 000; and Php 150, 000. The estimated salvage values
are Php 20, 000; Php 25, 000; and Php 35, 000. All trucks have an
expected service life of N years. Determine group depreciation rate
and annual depreciation.

Group N years
#1 10
#2 12
#3 10
#4 12
#5 10
#6 12
#7 10
#8 12
#9 10
#10 10

6
Problem 17

The Rainbow Electric Company uses three production machines described


below.

Machine Type of Machine First Cost Salvage Value Life, N


A Cutting Machine Php 30, 000 Php 5, 000 NA
B Drill Press 22, 000 4, 000 NB
C Sanding Machine 15, 000 15, 000 NC

Determine a. Composite life, b. the composite depreciation rate, c.


annual depreciation.
Group Machine A, N Machine B, N Machine C, N
#1 8 6 5
#2 9 7 6
#3 7 5 4
#4 7 5 5
#5 8 6 6
#6 9 6 5
#7 8 7 6
#8 9 7 4
#9 8 5 5
#10 7 4 4

Problem 18

The San Fernando Manufacturing Company owns four different production


machines with data tabulated below.

Machine Number First Salvage Expected


Owned Cost Value Life
A 8 Php 40, 000 Php 12, 000 NA
B 6 22, 000 8, 000 NB
C 4 18, 000 4, 000 NC
D 4 24, 000 6, 000 ND

Group Machine A, N Machine B, N Machine C, N Machine D, N


#1 12 10 10 8
#2 14 12 12 10
#3 13 11 11 9
#4 12 10 8 8
#5 11 9 10 9
#6 13 12 8 8
#7 12 9 9 6
#8 11 8 8 6
#9 12 9 8 8
#10 10 7 7 6