1.) What is the annual rate of interest if P265 us earned in four months on an investment of P 15,000?

Ans. 5.3%
2.) A loan of P2,000 is made for a period of 13 months, form January 1 to January 31 the following year, at a sim
ple interest rate of 20%. What is the future amount is due at the end of the loan period?
Ans. P 2,433.33
3.) If you borrow money from your friend with a simple interest of 12%, find the present worth of P 20,000, whi
ch is due at the end of nine months.
Ans.P18,348.6
4.) Determine the exact simple interest on P5,000 for the period from Jan. 15 to Nov. 28, 1992, if the rate of int
erest is 22%.
Ans. P955.74
5.) A man wishes his son to receive P 200,000 ten years from now. What amount should he invest if it will earn i
nterest of 10% compounded annually during the first 5 years and 12% compounded quarterly during the nex
t 5 years?
Ans P68,758.67
6.) By the conditions of a will, the sum od P25,000 is left to a girl to be hold in trust by her guardian until it amou
nts to P45,000. When will be the girl receive the money If the fund is invested at 8% compounded quarterly?
Ans. 7.2 years
7.) At a certain interest rate compounded semi-annually, P5,000 will amount to P20,000 after 10 years. What is
the amount at the end of 15 years?
Ans P40,029.72
8.) Jones Corporation borrowed P9,000 from Brown Corporation on Jan.1 , 1978 and P12,000 on Jan. 1 ,1980. Jo
nes Corporation made a partial payment of P7,000 on Jan. 1, 1981. It was agreed that the balance of the loan
would be amortized by the two payments, one of Jan. 1 ,1982 and the other on Jan. 1, 1983, the second bein
g 50% larger than the first. If the interest rate is 12%, what is the amount of each payment?
Ans. P9,136.91; P13,705.36
9.) A woman borrowed P3,000 to be paid after 1 ½ years with interest at 12% compounded semi-annually and P
5,000 to be paid after 3 years at 12% compounded monthly. What single payment must she pay after 3 ½ yea
rs at an interest rate 16% compounded quarterly to settle the two obligations?
Ans. P12,627.59
10.) Mr. J de la Cruz borrowed money from the bank. He received from the bank P1,342 and promise to repay P1,
500 at the end of 9 months. Determine the simple interest rate and corresponding discount rate or often ref
erred to as the “Banker’s discount.”
Ans. 11.7%,10.53%
11.)A man deposits P50,000 in a bank account at 6% compounded monthly for 5 years. If the inflation rate 6.5%
per year continues for this period, will effectively protect the purchasing power of the original principal?
Ans. No; P49,225
12.)What is the future worth of P600 deposited at the end of every month for 4 years if the interest rate is 12% c
ompounded quarterly?
Ans. P36,641
13.)A young woman, 22 years old, has just graduated from college. She accepts a good job and desires to establis
h her own retirement fund. At the end of each year thereafter she plans to deposit P2,000 in a fund at 15% a
nnual interest. How old will she be when the fund has accumulated value of P1,000,000?
Ans. 53 years old
14.)Mr. Reyes borrows P600,000 at 12% compounded annually, agreeing to repay the loan to repay 15 equal ann
ual payments. How much of the original principal is still unpaid after he has made the 8th payment?
Ans. P 402,040
15.) M purchased a small lot in a subdivision, paying P200,000 down and promising to pay P15,000 every 3 mont
hs for the next 10 years. The seller figured interest at 12% compounded quarterly.

(a) What was the cash price of the lot?

(b) If M missed the 12 payments, what must he pay at the time the 13th is due to bring himself up to date?
 (c) After making 8 payments, M wished to discharge his remaining indebtedness by a single payment at the
time when the 9th regular payment was due, what must he pay in addition to the regular payment the du
e?
(d) If M missed the first 10 payments, what must he pay when the 11th payment is due to discharge his entir
e indebtedness?
Ans. (a) P546,722;(b) P234.270;(c) P300,006;(d) P479,948
16.) A man approaches the ABC Loan Agency for P100,000 to be paid in 24 monthly instalments. The agency adv
ertises an interest rate of 1.5% per month. They proceed to calculate the amount of his monthly payment in
the following manner.

Amount requested P100,000

Credit investigation 500
Credit risk insurance 1,000
_______
Total P101,500

Interest: (P101,500) (24) (0.015) = P36,540

Total owed: P101,500 + P36,540= P138,040

Payment =P138,040/24=P5,751.67

What is the effective rate of interest of the loan?

Ans. 38.83%
17.) A new office building was constructed 5 years ago by a consulting engineering firm. At that time the firm obt
ained the bank loan for P 10,000,000 with a 20% annual interest rate, compounded quarterly. The terms of t
he annual of the loan called equal quarterly payments for a 10year period with the right of payment at any ti
me without penalty.

Due to internal changes in the firm, it is now proposed to refinance the loan through an insurance company.
The new loan is planned for a 20year term with an interest rate of 24% per annum, compounded quarterly. T
he insurance company has a onetime service charge of 5% of the balance. This new loan also calls for equal q
uarterly payments.

(a) What us the balance due on the original mortgage (principal) if all payments have been made through a f
ull five years?
(b) What will be the difference between the equal quarterly payments in the existing arrangement and the r
evised proposal?
Ans. (a) P 7,262,733; (b) P120,862
18.)An asphalt road requires no upkeep until the end of 2 years when P60,000 will be needed for repairs. After t
his P90,000 will be needed for repairs at the end of each year for the next 5 years, then P120,000 at the end
of each year for the next 5 years.
If money is worth 14% compounded annually, what was the equivalent uniform annual cost for the 12 year p
eriod?
Ans. P79,245
19.)A man wishes to provide a fund for his retirement such that from his 60th to 70th birthdays he will be able to
withdraw equal sums P18,000 fir his yearly expenses. He invests equal amount for his 41 st to 59th birthdays in
a fund earning 10% compounded annually. How much should each of these amounts be?
Ans P2,285
20.) Juan Reyes inherited P280,000 in his birthday. This placed in his own pension fund (bank account), which ea
rns interest at 12% compounded annually. He withdraw P450,000 on his 35 th birthday to make the initial pay
ment in the house. He drew his annual uniform payment for the pension fund on his 65 th birthday and plann
ed to make 20 such withdrawals so as to just exhaust the fund. He died at the age of 71, however, Just befor
 e withdrawing the amount due on that date. How much is left in the fund to be passed on the heirs at the ti
me of Juan’s death?
Ans.P1,155,980
21.) Determine the present worth and the accumulated amount of an annuity consisting of 6 payments of P 120,
000 each, the payment are made at the beginning of each year. Money is worth 15% compounded annually
Ans P52,226.40; P120,801.60
22.)Calculate the capitalized cost of a project at has initial cost of P3,000,000 and an additional investment cost
of P1,000,000 at the end of every ten years. The annual operating cost will be P100,000 at the end of every y
ear for the first four years and P160,000 thereafter. In addition, there is expected to be a recurring major re
work cost of P300,000 every 13 years. Assume i=15%.
Ans. P4,281,990
23.) The will of the wealthy philanthropist left P5,000,000 to establish a perpetual charitable foundation. The fou
ndation trustees decided to spend P1,200,000 to provide facilities immediately and to provide P 100,000 of c
apital replacement at the end of each 5year period. If the invested funds earned 12% per annum, what woul
d be the year-end amount available in perpetuity form the endowment for charitable purposes?
Ans. P440,259
24.)The surface are of a certain plant that requires painting is 8,000 sq. ft. Two kinds of paint are available whose
brands are A and B. Paint A costs P1.40 per sq. ft. If money is worth 12% effective, how often should paint B
be renewed so that it will be as economical as Paint A?
Ans. 5.58 years
25.) A contract has been signed to lease a building at P200,000 per year with an annual increase pf P1,500 for 8 y
ears. Payments are to be made at the end of each year, starting one year from now. The prevailing interest r
ate is 7%. What lump sum paid today would be equivalent to the 8-year lease-payment plan?
Ans. P147,609

DEPRECIATION

1.) A machine shop purchased 10 years ago a milling machine for P60,000. A straight line depreciation reser
ve had been provided on a 20 year life of the machine. The owner of the machine shop desires to replac
e the old milling machine with a modern unit of many advantages costing P100,000. It can sell old unit fo
r P20,000. How much new capital will be required for the purchase?
Ans. P50,000
2.) A tax and duty free importation of a 30 HP sand mill (for paint manufacturing) cost P 360,000, CIF manila.
Bank charges, arrastre and brokerage cost P5,000. Foundation and installation cost were P25,000. Other
incidental expenses amounted to P20,000. Salvage value of the mill is estimated to be P60,000 after 20 y
ears. Find the appraisal value of the mill, using the straight-line depreciation, at the end of (a) 10 years a
nd (b) 15 years.
Ans. (a) P 235,000 (b) P147,500
3.) On January 1,1978, the purchasing engineer of a Cement Co. purchased a new machine at a cost of P140,
000. Depreciation has been computed by the straight-line method based on an estimated useful life of fi
ve years and residual scrap value of P12,800. On January 2,1981, extraordinary repairs (which were almo
st equivalent to a rebuilding of the machinery) were performed at a cost of P30,400. Because of the thro
ugh going nature of these repairs, the normal life of the machinery was extended materially. The revised
estimate of useful life was four years from January 1, 1981.
Determine the annual provisions for depreciation fir the years 1978 to 1980 and the adjusted provisio
ns for depreciation on December 31,1981. Assume payment in cash for the machine and extraordinary r
epairs.
Ans. P25,440; P20,320
4.) Power to remote transmitting station is provided by a Diesel-electric generator unit. The original cost of t
he unit is P65,000. It costs P2,000 to ship the unit to the job site. An additional cost of P3,000 was incurr
ed for installations.
(a) Determine, the annual depreciation cost by the straight line method , If the unit has an expected life
of 10years. The salvaged value of the unit at the end of its life was estimated at P5,000.
 (b) Determine the annual depreciation cost by the sinking fund method. Assume that the annual charge
for depreciation was deposited in a fund drawing compound interest at the rate of 5%.
Ans. (a) P6,500 (b)P5,168
5.) An industrial plant bought a generator set for P90,000. Other expenses including installation amounted t
o P10,000. The generator set is to have a life of 17 years with a salvage value at the end of life of P5,000.
Determine the depreciation charge during the 13th year and the book value at the end of 13 years by the
(a) declining balance method, (b) double declining balance method, (c) sinking fund method at 12% and
(d) SYD method
Ans. (a) P1,949; P10,118 (b)P2,620; P19,649 (c) P1,943; P45,539 (d)P3,105; P11,209
6.) A telephone compony purchased a microwave radio equipment for P6,000,000. Freight and installation c
harges amounted to 3% of the purchased price. If the equipment shall be depreciated over a period of 8
years with a salvage value of 5%, determine the following:
(a) Annual depreciation charge using the straight line method.
(b) Depreciation charge during the fifth year using the sum-of-the-years-digits method.
Ans. (a) P733,875 (b)P652,333
Comparing alternatives
1. ) An oil company is being offered a special coating for the gasoline underground tank installation in its service
stations which will increase the life of the tank from the usual 10 years to 15 years. The cost of the special costing
will increase the cost of the P40,000 tank to P58,000. Cost of installation for either of the tanks is P24,000. If salvage
value for both is zero, and the interest of the tanks is P24,000. If recommend the use of the special coating?
Ans. The special coating should not be used
2. ) An electric cooperative is considering the use of a concrete electric pole in the expansion of its power
distribution lines. A concrete pole cost P18,000 each and will last 20 years. The company is presently using creosoted
wooden poles which cost P12,000 per pole and will last 10 years. If money is worth 12 percent, which pole should be
used? Assume annual taxwes amount to 1 percent of first cost and zero salvage value in both cases.
Ans. The creosoted wooden poles should be used

3. ) It is proposed to place a cable on an existing pole line along the shore of a lake to connect two points on
opposite sides.

Land route Submarine Route

Length, miles 10 5
First cost of cable per mile P40,000 P68,000
Annual maintenance per mile 950 3,500
Interest on investment 18% 18%
Taxes 3% 3%
Net salvage value per mile 12,000 22,000
Life, Years 15 15

Which is more economical?

Ans. The submarine cable is more economical the rate of return on additional investment is only 8.97%.
4. ) In a cold storage plant, it is desired to determine whether to use insulation two inches thick or three inches in
insulating the walls of the cold storage warehouse. Heat absorbed through the walls without insulation would cost
P96.00 per year per square meter. A two-inch insulation will cost P30.40 per square meter and will cut out 89% of
the loss. A three-inch insulation will cut out 92% of the loss and will cost P65.00 per square meter. Using a life of 15
years for the insulation with no salvage value and a minimum attractive return of 8%, what thickness of insulation
should be used?
Ans. 2-inch thick insulation

5. ) In building their plant, the officers of the international leather Company had the choice between alternatives:
One alternative is to build in Metro Manila where the plant would cost P2,000,000. Labor would cost annually
P120,000 and annual overhead P40,000. Taxes and insurance would total 5% of the first cost of the plant.
 The second alternative would be to build in Bulacan a Plant costing P2,250,000. Labor would cost annually
P100,000 and overhead would be P55,000. Taxes and insurance would be 3% of the first cost. The cost of raw
materials would be the same in either plant. If capital must be recovered within 10 years and money is worth at least
20%, which site should the officers of the company choose?
Ans. Plant in metro manila

6. ) A utility company is considering the following plans to provide a certain service required by present demand
and the prospective growth of demand for the coming 18 years.
Plan R requires an immediate investment of P500,000 in property that has an estimated life of 18 years and with
20% terminal salvage value. Annual disbursements for the operation and maintenance will be P50,000. Annual
property taxes will be 2% of first cost.

Plan S requires an immediate investment of P300,000 in property that has an estimated life of 18 years with 20%
terminal salvage value. Annual disbursements for its operation and maintenance during the first 6 years will be
P40,000. After 6 years, an additional investment of P400,000 will be required In property having an estimated life of
12 years with 40% terminal salvage value. After this additional property installed, annual disbursements for
operation and maintenance of the combined property P60,000. Annual property taxes will be 12%, What would you
recommend?

Ans. Plant S

Break-even Analysis

1. ) A company is considering two alternative with regards to an equipment which it needs. The alternative are as
follows:
Alternative A : Purchase
Cost of equipment P700,000
Salvage vlaue 100,000
Daily operating cost 500
Economic life , years 10

Alternative B: Rental at 1,500 per day.

At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.
Ans. 152 days
2. ) Data for two 50-hp motors are as follows:;

Alpha motor Beta motor

Original cost P35,000 P48,000
Annual maintenance 1,500 750
Life, years 10 10
Efficiency 87% 92%
Taxes and insurance 3% 3%

Power cost is P2.00 per kwh. If money is worth 20% , how many hours per year would the motors have to be
operated at full load for them to be equally economical? If the expected number of hours of the operation per year
exceeds the break-even point, which motor is more economical?
Ans. 444 hours, beta motor
3. ) A small shop in Bulacan fabricates portable threshers for palay producers in the locality. The shop
can produce each thresher at a labor cost of P1,800. The cost of materials of each unit is P2,500. The variable
cost amount to P650 per unit, while foxed charges incurred per annum totals P69,000. If the portable
threshers are sold at P7,800 per unit, how many units must be produced and sold per annum to break-even?
Support your answer with computations and also by graphical solution.
Ans. 25 units
4. ) Compute the number of blocks that an ice plan must be able to sell per moth to break-even based
on the following data:

Cost of electricity per block P20

Tax to be paid per block 2
Real estate tax 3,500/month
Salaries and wages 25,000/month
Others 12,000/month
Selling price of ice 55/block

Ans. 1.228 blocks

5. ) A local company assembling stereo radio cassette produces 300 units per moth at a cost of P800
per unit. Each stereo radio cassette sells for P1,200. If the firm makes a profit of 10% on its 10,000 shares
with a par value of P200 per share, and the fixed cost are P20,000,000 per month.

(a) What is the break-even point?

(b) How much is the loss or profit if only 100 units are produced in a given month?
Ans. (a) 50 units per month, (b)P3,333 per month

6. ) A plant produces 300 units of an equipment a month of P3,600 each. A unit sells for P4.00. The
company has 10,000 share of stock at P200 par value whose annual dividend is 20%. The fixed cost of
production is P120,000 a month.

(a) What is the break-even point?

(b) What is the “unhealthy point”?
(c) What is the profit or loss if production is 60% of capacity?

Ans. (a) 100 units/month, (b) 128 units/month, (c) P62,667 per month