Engineering Economy

CONTENTS

Cash Flow Diagrams

Simple Interest
Compound Interest
Rates of Interest
Annuity
Ordinary Annuity
Annuity Due

Ordinary Annuity
Deferred Annuity
Perpetuity
Capitalized Cost
Depreciation
Straight Line Depreciation
Sinking Fund
Declining Balance Method
Sum of Years digit Method

I. Cash Flow Diagrams

- Is a graphical representation of cash
flows drawn on a time scale.
- Arrow Convention:
- Up arrow represents positive cash flow
or cash inflow ( receipts).
- Down-arrow represents negative cash
flow or cash outflow ( disbursement)

 Single Payment Cash Flow

Can occur at the beginning of the time
line (t=0), at the end of the time line
(t=n), or any time in between.
Uniform Series Cash Flow
consists of a series of equal payments
starting at t=1 A and ending at t=n.

 Gradient Series Cash Flow

- starts with a cash flow G at t=2
and increases by G each year until
t=n, at which time the final cash flow
is (n-1)G

II. Simple Interest

A. Ordinary Simple Interest
The simple interest computed based on
a bankers year.
I = Pin
FUTURE WORTH, F :
F=P+I

where:
I = Interest earned
i = I / 360 rate of interest per day
P = resent Worth, ( capital)
F = Future Worth
n = Total number of interest
periods in days
r = interest in one year

Note:
For ordinary simple interest, the
interest is computed based on one
bankers year.
1 bankers year = 12 months = 360
days
Each month = 30 days

Computation for n and I for

ordinary simple interest
Example 1.
An interest rate of 10% for a period of 9
months:

Example 2.
An interest of 15% for 3 years:

 > I = Prt
Where:
r = simple interest rate (per year)
t = time in years or fractions of a year

Example

4 years ; t =4
3 months ; t = 3/12 =
90 days ; t = 90 / 360
2 years and 4 months; t = 2 + 4/12

B. Exact Simple Interest

The simple interest computed based
on the exact number of interest
periods.
> I = Pin
Future Worth, F
>F=P+I

Where:
i = r / 365 ( ordinary year)
I = r / 366 ( leap year)

Note:
A year is a leap year if it is divisible
by 4 and divisible by 400 by a
centennial year.
Centennial Years are 1800, 1900.
2000. etc.

C. Discount
Relationship Between Rate of Interest and
Rate of Discount
> i= d / ( 1 d )

Successive Discount
Two successive discounts of p% and q% allowed
on an item are equivalent to a single discount of:
> d = ( p + q (pq) / 100) %
Where:
I = rate of interest
D = rate of discount

Example
Two discounts of 15% and 5% are
equivalent to what single discount?

ECE BOARD EXAM

QUESTIONS
1. A loan of P5,000 is made for a
period of 15 months at a simple
interest of 15%. What future amount
is due at the end of a loan period?
A. P5,397.5
B. P5,973.5

C. P6,937.5
D. P5,937.5

ECE BOARD EXAM

QUESTIONS
A man barrowed money from a bank.
He received from the bank P1,842
and promise to repay P2,000 at the
end of 10 months. Determine the
simple interest (in percent).
A. 10.28
B. 10.20

C. 10.30
D. 10.29

ECE BOARD EXAM

QUESTIONS
A customer buys a rice cooker from a
store that charges P1,500 at the end
of 90 days. The customer wishes to
pay cash. What is the cash price if
the money worth 10% simple
interest?
A. P1,436.41
B. P1,463.41

C. P1,346.41
D. P1,364.41

ECE BOARD EXAM

QUESTIONS
Sir Yokai borrowed money from a
lending firm. He received P1,842 and
promised to pay P2,000 at the end of
10 months. Determine the simple
interest.
A. 10.28
B. 10.20

C. 10.30
D. 10.29

ECE BOARD EXAM

QUESTIONS
Compute the rate of interest if the
exact simple interest of P5,000
invested fro June 21, 1995 to
December 25, 1995 is 100.
A. 3.9%
B. 4.9 %

C. 2.9%
D. 5.9%

ECE BOARD EXAM

QUESTIONS
Mr. Wakamura made a loan of P5,000
for a period of 15 months, at a
simple interest of 15%, compute
future amount due to at the end of
the loan period.
A. 5973.50
B. 937.50

C. 5793.50
D. 5937.50

ECE BOARD EXAM

QUESTIONS
Find the ordinary interest on
P1,500.50 for 182 days at 5.2%.
A. 29.45
B. 39.45

C. 19.45
D. 49.45

ECE BOARD EXAM

QUESTIONS
A man borrowed P4000 for 75 days
at 16% per annum simple interest.
How much will be the due at the end
of 75 days?
A. P4033
B. P4233

C. 4133
D. 4433

ECE BOARD EXAM

QUESTIONS
Compute the interest on P5000 for the
period from January 10 to October
28, 2004 at 16% interest?
A. 638.25
B. 637.25

D. 635.25
D. 636.25