# MCQs in Engineering Economics Part XIV

Compiled MCQs in Engineering Economics Part 14 of the series as one topic in General Engineering and Applied Sciences (GEAS) in the ECE Board Exam.

This is the Multiples Choice Questions Part 14 of the Series in Engineering Economics as one of the General Engineering and Applied Sciences (GEAS) topic. In Preparation for the ECE Board Exam make sure to expose yourself and familiarize in each and every questions compiled here taken from various sources including past Board Questions in General Engineering and Applied Sciences (GEAS), Engineering Economy Books, Journals and other Engineering Economy References.

### Online Questions and Answers in Engineering Economics Series

Following is the list of multiple choice questions in this brand new series:

Engineering Economics MCQs
PART 1: MCQs from Number 1 – 50                        Answer key: PART I
PART 2: MCQs from Number 51 – 100                   Answer key: PART II
PART 3: MCQs from Number 101 – 150                 Answer key: PART III
PART 4: MCQs from Number 151 – 200                 Answer key: PART IV
PART 5: MCQs from Number 201 – 250                 Answer key: PART V
PART 6: MCQs from Number 251 – 300                 Answer key: PART VI
PART 7: MCQs from Number 301 – 350                 Answer key: PART VII
PART 8: MCQs from Number 351 – 400                 Answer key: PART VIII
PART 9: MCQs from Number 401 – 450                 Answer key: PART IX
PART 14: MCQs from Number 651 – 700                 Answer key: PART XIV

### Continue Practice Exam Test Questions Part XIV of the Series

Choose the letter of the best answer in each questions.

651. A machine is under consideration for investment. The cost of the machine is P25,000.00. Each year it operates, the machine will generate a savings of P15,000.00. Given the effective annual interest rate of 18%, what is the discounted payback period, in years, on the investment of the machine?

• A. 3.15
• B. 1.75
• C. 2.15
• D. 2.75

652. A machine costs P20,000.00 today and has an estimated scrap value of P2,000.00 after 8 years. Inflation is 2% per year. The effective annual interest rate earned on money invested is 8%. How much money needs to be set aside each year to replace the machine with an identical model 8 years from now?

• A. P3,345.77
• B. P3,389.32
• C. P3,489.11
• D. P3,573.99

653. Engr. Santos borrows P100,000.00 at 10% effective annual interest. He must pay back the loan over 30 years with uniform monthly payment due on the first day of each month. What does Engr. Santos pay each month?

• A. P838.86
• B. P849.12
• C. P850.12
• D. P840.21

654. Instead of paying P100,000.00 in annual rent for office space at the beginning of each year for the next 10 years, an engineering firm has decided to take out a 10-year P1,000,000.00 loan for a new building at 6% interest. The firm will invest P100,000.00 of the rent saved and earn 18% annual interest on that amount. What will be the difference between the firm’s annual revenue and expenses?

• A. P10,200.12
• B. P10,205.13
• C. P10,210.67
• D. P10,215.56

655. A service car whose cash price was P540,000 was bought with a downpayment of P162,000 and monthly installment of P10,874.29 for 5 years. What was the rate of interest if compounded 5monthly?

• A. 20%
• B. 24%
• C. 21%
• D. 23%

656. What uniform annual amount should be deposited each year in order to accumulate P100,000.00 at the end of the 5th annual deposit if money earns 10% interest?

• A. P16,002.18
• B. P15,890.12
• C. P16,379.75
• D. P15,980.12

657. In five years, P18,000 will be needed to pay for a building renovation. In order to generate this sum, a sinking fund consisting of three annual payments is established now. For tax purposes, no further payment will be made after three years. What payments are necessary if money worth 15% per annum?

• A. P3,919.52
• B. P3,871.23
• C. P3,781.32
• D. P3,199.52

658. Find the present value in pesos, of a perpetuity of P15,000 payable semi-annually if money is worth 8% compounded quarterly.

• A. P371,719.52
• B. P371,287.13
• C. P371,670.34
• D. P371,802.63

659. If P500.00 is invested at the end of each year for 6 years, at an annual interest rate of 7%, what is the total peso amount available upon the deposit of the sixth payment?

• A. P3,671.71
• B. P3,712.87
• C. P3,450.12
• D. P3,576.64

660. How many years must you invest today in order to withdraw P1,000.00 per year for 10 years if the interest rate is 12%?

• A. P5,467.12
• B. P5,560.22
• C. P5,650.22
• D. P5,780.12

661. A man paid a 10% 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?

• A. P42,821.87
• B. P42,980.00
• C. P43,102.23
• D. P43,189.03

662. A man inherited a regular endowment of P100,000.00 every end of 3 months for x years. However, he may choose to get a single lump sum of P3,702,939.80 at the end of 4 years. If the rate of interest was 14% compounded quarterly, what is the value of x?

• A. 10
• B. 11
• C. 12
• D. 13

663. If you obtain a loan of P1M at the rate of 12% compounded annually in order to build a house, how much must you pay monthly to amortize the loan within a period of 10 years?

• A. P13,994.17
• B. P14,801.12
• C. P13,720.15
• D. P14,078.78

664. Rej Averion borrowed P50,000.00 from Social Security System, in the form of calamity loan, with interest at 8% compounded quarterly payable in equal quarterly installments for 10 years. Find the quarterly payments.

• A. P1,590.83
• B. P1.609.23
• C. P1,778.17
• D. P1,827.79

665. For having been loyal, trustworthy and efficient, the company has offered a supervisor a yearly gratuity pay of P20,000.00 for 10 years with the first payment to be made one year after his retirement. The supervisor, instead, requested that he be paid a lump sum on the date of his retirement less interact that the company would have earned if the gratuity is to be paid on the yearly basis. If interest is 15%, what is the equivalently lump sum that he could get?

• A. P100,357.37
• B. P100,537.73
• C. P100,375.37
• D. P100,735.37

666. In anticipation of a much bigger volume of business after 10 years, a fabrication company purchased an adjacent lot for its expansion program where it hopes to put up a building projected to cost P4,000,000.00 when it will be constructed 10 years after, To provide the required capital expense, it plans to put up a sinking fund for the purpose. How much must the company deposit each year if interest to be earned is computed at 15%?

• A. P194,089.17
• B. P195,780.12
• C. P196,801.56
• D. P197,008.25

667. A man purchased a car with a cash price of P350,000. He was able to negotiate with the seller to allow him to pay only a downpayment of 20% and the balance payable in equal 48 end of the month installment at 1.5% interest per month. Once the day he paid the 20th installment, he decided to pay monthly payment. How much is his monthly payment?

• A. P8,929.29
• B. P8,225.00
• C. P8,552.00
• D. P8,008.20

668. A man purchased a car with a cash price of P350,000. He was able to negotiate with the seller to allow him to pay only a downpayment of 20% and the balance payable in equal 48 end of the month installment at 1.5% interest per month. Once the day he paid the 20th installment, he decided to pay monthly payment. What is the remaining balance that he paid?

• A. P186,927.24
• B. P188,225.00
• C. P187,701.26
• D. P185,900.20

669. A company purchased for a cash price of P500,000.00 a machine which is estimated to have a salvage value of P50,000.00 at the end of its 10 years economic life. How much yearly deposit must the company deposit in a sinking fund that will pay 18% interest, compounded yearly, to accumulate the needed fund to purchase the new machine at the end of the 10th year economic life of the machine it purchased if a new machine will cost 75% more by that time?

• A. P34,859.78
• B. P35,890.12
• C. P35,074.58
• D. P34,074.85

670. A car dealer advertises the sale of a car model for a cash price of P280,000. If purchased on installment, the regular downpayment is 15% and balance payable in 18 equal monthly installments at an interest rate of 1.5% per month. How much will be required monthly payments?

• A. P15,185.78
• B. P15,289.12
• C. P15,783.90
• D. P15,632.11

671. A machinery supplier is offering a certain machinery on a 10% downpayment and the balance payable in equal end of the year payments without interest for 2 years. Under this arrangement, the price is pegged to be P250,000. However, for cash purchase, the machine would only cost P195,000. What is the equivalent interest rate that is being charged on the 2-year payment plan if interest is compounded quarterly?

• A. 18.47%
• B. 19.21%
• C. 19.47%
• D. 19.74%

672. A company has approved a car plan for its six senior officers in which the company will shoulder 25% of the cost and the difference payable by each officer to a financing company in 48 equal end of the month installments at an interest rate of 1.5% per month. If the cost of each car is P350,000, determine the amount each officer has to pay the financing company per month?

• A. P7,523.90
• B. P7,619.22
• C. P7,190.00
• D. P7,710.94

673. If P10,000 is deposited each year for 9 years, how much annuity can a person get annually from the bank every year for 8 years starting 1 year after the 9th deposit is made. Cost of money is 14%.

• A. P34,467.21
• B. P34,567.81
• C. P34,675.18
• D. P34,867.37

674. An employee is earning P12,000.00 a month and he can afford to purchase a car which will require a downpayment of P10,000.00 and a monthly amortization of not more than 30% of his monthly salary. What should be the maximum cash value of a car he can purchase if the seller will agree to a downpayment of P10,000.00 and the balance payable in four years at 18% per year payable on monthly basis? The first payment will be due at the end of the first month?

• A. P135,267.21
• B. P135,507.42
• C. P135,605.48
• D. P135,807.30

675. A new company developed a program in which the employees will be allowed to purchase shares of stocks of the company at the end of its fifth year of operation, when the company’s thought to have gained stability already. The stock has a par value of P100.00 per share.

Believing in the good potential of the company, an employee decided to save in a bank the amount of P8,000.00 at the end of every year which will earn for him 9% interest, compounded annually.

How much shares of stocks will he be able to purchase at the end of the fifth year of his yearly deposits?

• A. 476
• B. 478
• C. 480
• D. 482

676. Mr. Juan dela Cruz borrows P100,000 at 10% compounded annually, agreeing to repay the loan in twenty equal annual payments. How much of the original principal is still unpaid after he has made the tenth payment?

• A. P69,890.42
• B. P72,000.80
• C. P72,173.90
• D. P72,311.44

677. A debt of P12,000 with an interest of 20% compounded quarterly is to be amortized by equal semi-annual payments over the next three years, the first due in 6 months. How much is the semi-annual payments?

• A. P2,775.50
• B. P2,662.89
• C. P2,590.04
• D. P2,409.78

678. A fund donated by a benefactor to PICE to provide annual scholarships to deserving CE students. The fund will grant P5,000 for each of the first five years, P8,000 for the next five years and P10,000 each year thereafter. The scholarship will start one year after the fund is established. If the fund earns 8% interest, what is the amount of the donation?

• A. P99,490.00
• B. P99,507.35
• C. P99,601.71
• D. P99,723.54

679. If a low cost house and lot worth P87,000 were offered at 10% downpayment and P500 per month for 25 years, what is the effective monthly interest rate on the diminishing balance?

• A. 0.492%
• B. 4.92%
• C. 0.0492%
• D. 49.2%

680. The average annual cost of damages caused by floods at Dona Rosario Village located along Butuanon river is estimated at P700,000. To build a gravity dam to protect the area from the floods, would cost P2,500,000 and would involve an annual maintenance cost of P20,000. With interest at 8% compounded annually, how many years will it take for the dam to pay for itself?

• A. 4.0 years
• B. 4.5 years
• C. 5.0 years
• D. 5.5 years

681. A businessman borrowed P10,000.00 from a bank at 12% interest, and paid P2,000.00 per annum for the first 4 years. What does he pay at the end of the fifth year in order to pay-off the loan?

• A. P6,812.54
• B. P6,782.31
• C. P6,917.72
• D. P6,660.90

682. Engr. Rodel Narito agreed to pay the loan he is borrowing from a development bank in six annual end-of-the-year payments of P71,477.70. Interest is 18% per annum compounded annually and is included in the yearly amount he will be paying the bank. How much money Engr. Narito is borrowing from the bank?

• A. P250,000
• B. P260,000
• C. P270,000
• D. P280,000

683. Rona wishes to purchase a 29-inch flat-screened colored TV at Bodega Appliance Center an amount of P20,000.00. She made a downpayment of P5,000.00 and the balance payable in 24 equal monthly installments. If financing charge is 12% for each year computed on the total balance to be paid by installment and interest rate 12%, how much would Rona pay every month for the colored TV? What will be the actual cost of the money?

• A. 36.71%
• B. 36.21%
• C. 35.89%
• D. 35.23%

684. Engr. Bacolongan of Main Engineering decided to purchase a machine which is to be used for their refrigeration and airconditioning works at an amount of P1,200,000. The useful life of the machine is estimated to be 5 years with a salvage value of P80,000 as based on current prices. The average annual rate of inflation during the next 5 years will be 7%. The machine will be replaced with a duplicate and the firm will accumulate the necessary capital by making equal end-of-year deposits in a reserve fund that earns 6% per annum. Determine the annual deposit.

• A. P277,189.56
• B. P278,664.54
• C. P279,180.00
• D. P280,673.12

685. Engr. Bacolongan of Main Engineering decided to purchase a machine which is to be used for their refrigeration and air-conditioning works at an amount of P1,200,000. The useful life of the machine is estimated to be 5 years with a salvage value of P80,000 as based on current prices. The average annual rate of inflation during the next 5 years will be 7%. The machine will be replaced with a duplicate and the firm will accumulate the necessary capital by making equal end-of-year deposits in a reserve fund. If money is worth 6% per annum, determine the annual deposit.

• A. P367,890.12
• B. P366,062.33
• C. P365,089.34
• D. P364,890.43

686. Because of the peso devaluation, a car costing P150,000 is to be purchased through a finance company instead of paying cash. If the buyer is required to pay P40,000 as downpayment and P4,000 each month for 4 years, what is the effective interest rate on the diminishing balance?

• A. 35.28%
• B. 35.82%
• C. 34.89%
• D. 34.29%

687. Engr. Edwin Astorga plans to purchase a new office building costing P1,000,000. He can raise the building by issuing 10%, 20-year bond that would pay P150,000 interest per year and repay the face amount at maturity. Instead of buying the new building, he can least it for P140,000 per year, first payment being due one year from now. The building has an expected life of 20 years. Ignoring effects on income tax, what is the difference between buying the building and leasing the building?

• A. P233,779.27
• B. P233,070.12
• C. P234,070.34
• D. P234,560.12

688. Triple J Construction Firm had put up for sale of some of their heavy equipments for construction works. There were two interested buyers submitting their respective bids for the heavy equipments. The bids are as follows:

Buyer A offers P10,000,000 payable 20% downpayment, the balance payable P1,000,000 annually for 8 years. Buyer B offers P9,000,000 payable P2,000,000 down payment, the balance payable P500,000 semi-annually for 7 years.

How much is the difference between the two bids if money is worth 10% effective?

• A. P346,520.05
• B. P346,980.12
• C. P347,019.45
• D. P347,733.29

689. Froyd Review & Training Center Inc. is expanding its school facilities starting 2001. The program requires the following estimated expenditures:

P1,000,000 at the end of 2001

P1,200,000 at the end of 2002

P1,500,000 at the end of 2003

To accumulate the required funds, it establish a sinking fund constituting of 15 uniform annual deposits, the first deposit has been made at the end of 1992. The interest rate of the fund is 2% per annum. Calculate the annual deposit.

• A. P217,520.05
• B. P216,980.12
• C. P217,679.01
• D. P216,733.29

690. Froyd Review & Training Center Inc. is expanding its school facilities starting 2001. The program requires the following estimated expenditures:

P1,000,000 at the end of 2001

P1,200,000 at the end of 2002

P1,500,000 at the end of 2003

To accumulate the required funds, it establish a sinking fund constituting of 15 uniform annual deposits, the first deposit has been made at the end of 1992. The interest rate of the fund is 2% per annum. Calculate the balance in the fund on January 1, 2002.

• A. P2,185,902.11
• B. P2,195,600.03
• C. P2,165,399.54
• D. P2,175,380.00

691. Padilla Pawnshop sells jewelries on either of the following arrangements:

Cash Price: Discount of 10% of the marked price

Installment: Downpayment of 20% of the marked price and the balance payable in equal annual installments for the next 4 years.

If you are buying a necklace with a marked price of P5,000, how much is the difference between buying in cash and buying in installment? Assume that money is worth 5%.

• A. P40.76
• B. P41.90
• C. P43.54
• D. P45.95

692. Lim Bon Fing Y Hermanos Inc has offered for sale its two-storey building in the commercial district of Cebu City. The building contains two stores on the ground floor and a number of offices on the second floor.

A prospective buyer estimates that if he buys this property, he will hold it for about 10 years. He estimates that the average receipts from the rental during this period to be P350,000.00 and the average expenses for all purpose in connection with its ownership and operation (maintenance and repairs, janitorial services, insurance, etc.) to be P135,000.00. He believes that the property can be sold for a net of P2,000,000 at the end of the 10th year. If the rate of return on this type of investment is 7%, determine the cash price of this property for the buyer to recover his investment with a 7% return before income taxes.

• A. P2,526,768.61
• B. P2,490,156.34
• C. P2,390,189.00
• D. P2,230,120.56

693. Bicol Hardware Inc is considering two alternative strategies for a new power tool. According to Jun Ramos who is introducing the power tool, the new product will require an outlay of P30,000 with a low price strategy. The product will generate cash proceeds of P20,000 per year and will have a life to two years. With a high price strategy, the product will generate cash proceeds of P36,000 but will have a life of only one year. The cost of money for the company is 10%. Determine the net present value of the low price strategy.

• A. P34,389.12
• B. P34,490.10
• C. P34,518.89
• D. P34,710.74

694. Bicol Hardware Inc is considering two alternative strategies for a new power tool. According to Jun Ramos who is introducing the power tool, the new product will require an outlay of P30,000 with a low price strategy. The product will generate cash proceeds of P20,000 per year and will have a life to two years. With a high price strategy, the product will generate cash proceeds of P36,000 but will have a life of only one year. The cost of money for the company is 10%. Determine the net present value of the high price strategy.

• A. P32,727.27
• B. P33,737.34
• C. P33,747.20
• D. P33,757.89

695. John Smith plans to purchase a new house costing P1,000,000. He can raise the building by issuing a 10%, 20 year old bond that would pay P150,000 interest per year and repay the face amount at maturity. Instead of buying the new house, Jan Michael has an option of leasing it for P140,000 per year, the first payment due one year from now. The building has an expected life of 20 years. If interest charge for leasing is 12%, which of the following is true?

• A. Lease is more economical than borrow and buy.
• B. Lease has same result with borrow and buy.
• C. Borrow and buy is half the value than lease.
• D. Borrow and buy is economical by almost a hundred thousand than lease.

696. Engr. Edward Zuela is considering establishing his own business. An investment of P100,000 will be required which must be recovered in 15 years. It is estimated that sales will be P150,000 per year and that annual operating expenses will be as follows:

 Materials P40,000 Labor P70,000 Overhead P10,000 + 10% of sales Selling expenses P5,000

Engr. Zuela will give up his regular job paying P15,000 per year and devote full time to the operation of the business. This will result in decreasing labor cost by P10,000 per year, material cost by P7,000 per year and overhead cost by P8,000 per year. If he expects to earn at least 20% of his capital, is investing in this business a sound idea?

• A. Yes, it is a sound idea
• B. No, it is not a sound idea
• C. Neither yes nor no because it simply breakeven
• D. It depends on the current demand of the market.

697. A housewife bought a brand new washing machine costing P12,000 if paid in cash. However, she can purchase it on installment basis to be paid within 5 years. If money is worth 8% compounded annually, what is her yearly amortization if all payments are to be made at the beginning of each year?

• A. P2,617.65
• B. P2,782.93
• C. P2,890.13
• D. P2,589.90

698. A Civil Engineering student borrowed P2,000.00 to meet college expenses during his senior year. He promised to repay the loan with interest at 4.5% in 10 equal semi-annual installments, the first payment to be made 3 years after the date of the loan. How much will this payment be?

• A. P252.12
• B. P261.89
• C. P273.90
• D. P280.94

699. A father wishes to provide P40,000 for his son on his son’s 21st birthday. How much should he deposit every 6 months in a savings account which pays 3% compounded semi-annually, if the first deposit was made when the son was 3 ½ years old?

• A. P829.68
• B. P815.80
• C. P830.12
• D. P846.10

700. A group of Filipino Mechanical Engineers formed a corporation and the opportunity to invest P8,000,000 in either of the two situations. The first is to expand a domestic operation. It is estimated that this investment would return a net year end cash flow of P2,000,000 each year for 10 years and at the end of that time, the physical assets, which would no longer be needed, could be sold at P5,000,000. The alternative opportunity would involve building and operating a plant in a foreign country. This operation would involve no net cash flow during the first 3 years, but it is believed that, beginning with the end of the fourth year, an annual flow of P4,000,000 would be received, running through the end of the 10th year. After that time, it is believed that the operation and facilities might be expropriated, with little, if any, compensation, being paid. Which of the following is true?

• A. Foreign operation yields bigger rate of return.
• B. Domestic and foreign operations yield the same rate of return.
• C. Domestic operation has double the rate of return of the foreign operation.
• D. Foreign operation yields approximately 3% less rate of return than domestic operation.

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