CECA 1 – PROBLEM SET NO.

06

Solve the following problems legibly and accurately.

1. You owe P120,000 from a friend and promise to pay 6% simple interest. How much will you pay at the end of 9
months? How about at the end of 1 year and 6 moths?
2. A price tag of P150,000 is payable in 60 days. A 3% discount is offered if paid in 30 days. What is the rate of simple
interest?
3. A man borrowed from a bank under a promissory note that he signed in the amount of P60,000 for a period of
one year. He received only P50,150 a er the bank collected the advanced interest and an addi onal amount of
P850 for notarial and inspec on fees. What was the rate of simple interest that the bank collected in advance?
4. An investment of P3M earns interest of 9% compounded con nuously. What is the effec ve rate of interest?
5. What rate in percent compounded monthly is equivalent to 18% compounded semi-annually?
6. When compounded bi-monthly, P150,000 becomes P223,183 a er 5 years. What is the nominal rate of interest?
7. A man paid 10% as down payment of P200,000 for a house and lot and agreed to pay the balance on monthly
installments for 5 years at an interest rate of 15%, compounded monthly. What was the monthly installment in
pesos?
8. Money is worth 8% compounded annually. For a uniform series of payments, what would be its capital recovery
factor for a period of 6 years?
9. An investor deposits P10,000 at the end of each year in an account which gives a nominal annual interest of 5%,
compounded con nuously. How much sum will he accumulate in 10 years?
10. Annual deposits were made in the fund earning 10% per annum. The first deposit was 2,000 and each deposit
therea er was 200 less than the preceding one. Determine the amount in the fund a er sixth deposit.
11. A P2,000 in 2 years has an average infla on rate of 6% and the real interest rate of money is 10%. Determine the
infla on-adjusted interest rate.
12. A company invests P10,000.00 today to be repaid in 5 years in one lump sum at 12% compounded annually. If the
rate of infla on is 3% compounded annually, how much profit is relieved over 5 years?
13. If the cost of money is 9% and the infla on rate is 5%, what interest rate will take care of the cost of money and
infla on?
14. An equipment worth P5,000 has an an cipated salvage value of P5,000 at the end of 5 years’ depreciable life.
Compute the deprecia on of the equipment on the 3rd year only using MACRS method.
15. A cement mixer costs P45,000 with an es mated life of 5 years. Its salvage value is P2,500. Find its yearly
deprecia on charge using sinking fund method at 8.5%.
16. A coin making machine cos ng P200,000 has a salvage value of P20,000 at the end of its economic life of five years.
The schedule of produc on is as follows:
Year No. of coins
1 100,000
2 80,000
3 60,000
4 40,000
5 20,000
Determine the annual reserve for deprecia on for the 2nd year only
17. A machine cos ng P280,000 has a useful life of 20000 hours at the end of which its salvage value is P30,000. In the
first year, it was used for 2080 hours, in the second year, 3160 hrs. Find the book value at the end of the second
year.
18. A machine has a first cost of P73500 and a salvage value of P3500 at the end of its useful life of 8 years. Evaluate
the deprecia on of the machine at during the 5th year using the Matheson’s method.
19. A dump truck was bought for P30,000 six years ago. It will have a salvage value of P3,000 four years from now. It
is sold now for P8,000. What is its sunk cost (a cost that can be recovered due to certain reason) if the deprecia on
method used is sinking fund at 6%?
20. A manufacturing plant installed a new boiler at a total cost of P150,000. It is es mated to have a useful life of ten
years with the scrap value of P5,000. Annual maintenance cost is P10,000. If the interest is 12% compounded
annually;
a. determine the equivalent present worth of the annual maintenance cost.
b. determine the equivalent annual cost of the net amount required to replace the boiler.
c. determine its capitalized cost.
21. Steel drum manufacturers incur a yearly fixed opera ng cost of P200,000. Each drum manufactured costs P160 to
produce and sells P200. What is the manufacturer’s break-even sales volume in drums per year?
22. P180,000 was spent in a project that yields annual benefit of P60,000 for a period of 8 years without any salvage
value. Determine the benefit cost ra o considering the cost of money of 7%.
23. An investment of P275,000 in a new machine could reduce the annual cost of opera ons by P80,000. It would cost
P12,000 per year to maintain the machine which would last for 10 years with negligible scrap value. A constant
annual deposit in a fund is made at an interest of 8% per annum to accumulate and recover the first cost of the
machine in 10 years. Find the rate of return on the investment in percent.
24. A new engine will cost P12,000 with an es mated life of 15 years and a salvage value of P800 and guaranteed to
have an opera ng cost of P3500 per year. The new engine is considered as a replacement of the old one. The old
engine had a total annual cost of P5200 to operate. Determine the rate of return of the new investment using 6%
sinking fund to cover deprecia on, if the old engine could be sold now for P2,000.
25. Determine the approximate size of an annual payment needed to re re Php70,000,000 in bonds issued by a city
to build a dam. The bonds must be repaid over a 50-year period, and they earn interest at an annual rate of 6%
compounded annually.
26. DEF Corpora on just paid a P1.57 dividend and investors expect that dividend to grow by 5% each year. If the
required return on the stock investment is 14%, what should be the price of the stock today.