ENGINEERING ECONOMICS a) in one year

I. SIMPLE INTEREST
Elements:
ER=
interest earned in one year
principal at the beginning of the year
= 1+ ( )
r m
m
−1

P = principal or present worth

I = interest earned Equivalent Nominal Rates:
F = future worth Two nominal rates are equal if they have the same effective
R = simple interest rate per year rates.
T = time in years
I = Prt III. ANNUITY
F = P + I = P(1 + rt) Annuity is a series of uniform payments made at equal intervals of
A. Ordinary Simple Interest time established for the following purposes:
1 banker’s year = 12 months = 360 days 1. As payment of a debt by a series of equal payments at equal
1 month = 360 days intervals, also known as amortization
B. Exact Simple Interest 2. To accumulate a certain amount in the future by depositing
Interest is based on the exact number of days of the year equal amounts at equal time intervals, also known as sinking
fund.
II. COMPOUND INTEREST 3. As substitute periodic payment for s future lump sum payment
Elements: (i.e. insurance premium).
P = present worth or principal Elements:
F = future worth or compound amount R = periodic payment
r = nominal rate P = present worth of all periodic payments
m = number of compounding periods per year F or S = future worth or sum of all the periodic payments
i = effective interest per compounding period, i = r/m after the last payment is made
t = number of years i = interest rate per payment
n = total number of compounding, n = tm n = number of payments
I = interest earned, I = F – P Types of Annuity:
1. Ordinary Annuity – payment is made at the end of each period
F=P ( 1+i )n ; (1+i )n =( F /P ,i , n ) is called the single payment starting from the first period
compound-amount factor Future Worth:
F 1 R [ ( 1+i )n −1 ]
P= ; =( P /F ,i , n ) is called the single payment F=
(1+i ) n
(1+i )n i
( 1+i )n −1
present-worth factor i
=( F / R ,i , n ) - equal-payment-series-
Continuous Compounding (m  ) compound-amount factor
F=Pert
Present Worth:
Effective rate of interest (ER)
1
 R [ ( 1+i )n −1 ] R [ 1−( 1+i )−n ] 1. Arithmetic Uniform Gradient – if the increase in succeeding
P= = period is constant
(1+i )n i i
[ ( 1+i )n−1 ]
n
( 1+i ) i i
=
[ 1−( 1+i ) ] =( P/ R , i, n ) -
−n

Present Worth:
P=R
[ ] [
( 1+i )n −1
i ( 1+i ) n
+ A
( 1+i )n −1
2
i ( 1+i ) n
−
n
i ( 1+i )n ]
Future Worth:

[ ] [ ]
equal-payment-series present-worth factor
Periodic Payment if F is known: (Sinking – fund) ( 1+i )n−1
n ( 1+i )n −1 n
F=P(1+i) =R +A −
i i2 i
Fi 2. Geometric Uniform Gradient – if the increase in succeeding
R= period is a percentage
( 1+i ) n−1
1+ r
i a=
=( R /F ,i , n ) - equal-payment-sinking- 1+i
( 1+i )n −1
[
( 1+i )n −1
] [ ]
n
1−a
fund factor P=R +A
Periodic Payment if P is known: (Capital Recovery) i ( 1+i ) n ( 1+i ) ( 1+a )
Present Worth:
P ( 1+i )n i Future Worth: F=P(1+i)
n
R=
( 1+i ) n−1
VI. DEPRECIATION
( 1+i )n i
=( R /P , i ,n ) - equal-payment-series- Depreciation – the decrease in value of a physical property due to
( 1+i )n −1 the passage of time.
capital-recovery factor 1. Physical Depreciation – caused by lessening of the physical
2. Deferred Annuity – the first payment if postponed for a certain ability of the property to produce results, such as physical
number of periods after the first. damage, wear and tear.
3. Annuity Due – the payment is made at the beginning of each 2. Functional Depreciation – caused by lessening in the demand
period starting from the first for which the property is designed to render, such as
obsolescence and inadequacy.
IV. PERPETUITY
Perpetuity is and annuity where the payment periods extend Purposes of Depreciation:
forever or the periodic payments continue indefinitely. 1. to provide recovery of capital which has been invested in the
A property.
P= 2. to enable the cost of depreciation to be charged to the cost of
i
producing the products that are turned out by the property.

First Cost – total amount invested on the property until it is put into
V. UNIFORM GRADIENT
operation

2
 Economic Life - length of time at which the property can be ( FC−SV ) i
operated at a profit d=
( 1+i )n −1
Value - the present worth of all the future profits that are to be
received through ownership of the property. d [ ( 1+i )n 1 ]
Dm=
Valuation (Appraisal) – process of determining the value or worth i
of a specific property for specific reasons 3. Sum of the Years Digit Method (SOYD)
n
Classification of Values: SUM= ( 1+ n )
Sum of the year’s digit, 2
1. Market Value – the price that will be paid by a willing buyer to a
willing seller for a property where each has equal advantage n−m+1
d m= ( FC−SV )
and is under no compulsion to buy or sell SUM
2. Book Value – the worth of a property as shown in the m ( 2 n−m+1 )
accounting records of an enterprise. Dm= ( FC−SV )
2 SUM
3. Salvage or Resale Value – the price of a property when sold 4. Declining Balance Method (Constant Percentage Method)
second hand; also called trade-in value.
4. Scrap Value – the price of a property when sold for junk
5. Fair Value – the worth of a property as determined by a
disinterested party which is fair to both seller and buyer.
Constant Percentage,
d m=FC (1−K ) m−1
K
K=1−
√ SV
FC

6. Use Value – the worth of property as an operating unit

m
BV m=FC ( 1−K )
Elements:
FC = first cost
SV =FC ( 1−K )n
SV = salvage value or trade-in value 5. Double Declining Balance Method
d = depreciation charge 2
xBV
n = economic life of the property in years Depreciation charge to date = n at the beginning of the
m = any time before n year
BVm = book value after m years
Dm = total depreciation for m years
Book Value of the Property at any time:
2 m
n ( )
BV m=FC 1− ≥SV

BVm = FC – Dm 2
d m= BV m
n
Methods of Computing Depreciation: 6. Service Output or Production Units Method
1. Straight Line Depreciation FC−SV
FC −SV d ( per unit)=
d= Dm=d⋅m No. of Units Capacity
n 7. Working Hours or Machine Hours Method
2. Sinking Fund Method
FC−SV
d ( per hour )=
No. of Hours Capacity
3
VII. CAPITAL RECOVERY AC = Ki
If you invest FC now and desires a rate of return r for n periods, and ( RC −SV ) i
if you can deposit to an account earning an interest of i for n AC= ( FC ) i +OM +
( 1+i )n −1
periods to recover an amount RC and will also receive a salvage
value of SV from your invested property at the end of n periods,
IX. BREAK-EVEN ANALYSIS
then the periodic dividend or income D required is:
Break-even Analysis – method of determining the income to
1) using the sinking fund method:
equal the expense or the cost of two alternatives are equal
( RC −SV ) i Break-even Point – the value of a certain variable for which the
D= ( FC ) r+
( 1+i )n −1 revenues are equal to the expenses
If RC is not specified, RC = FC.
2) using the straight line method X. BUSINESS ORGANIZATIONS

[( ) ]
1 n+1 FC−SV A. Types of Business Organizations
D= ( FC−SV ) +i( SV ) + 1. Individual Ownership or Single Proprietorship – also
2 n n
termed as sole proprietorship and is the type of
ownership in business where individuals exercise and
VIII.CAPITALIZED COST AND ANNUAL COST enjoy rights in their own interest. The owner has the
Capitalized Cost, K , of a project or a structure is the sum of the first total control of the business and makes all decisions.
cost (FC) and the present worth of all future payments and 2. Partnership – also termed as general partnership and is
replacements which is assumed to continue forever. Future an association of two or more individuals for the
payments and replacements include operation and maintenance purpose of operating a business as co-owners of a
(OM) for n years, a salvage value (SV) after every n years, and a profit.
replacement cost (RC) after every end of n years. The capitalized 3. Corporation – is an artificial being created by operation
cost is: of law, having the right of succession and the powers,
1. for perpetual life attributes, and properties expressly authorized by law
OM or incident to its existence. It is an association of not
K=FC +
i less than five but not more than 15 persons, all of legal
If RC is not specified, use RC = FC age.
2. For life n: a. Private Corporation – formed for some private
OM RC −SV purposes or benefits
K=FC + + b. Public Corporation – formed or organized by
i ( 1+i )n −1
the government
NOTE: Capitalized cost may also be defined as the first cost plus the
c. Semi-public Corporation – partly government
present worth of annual maintenance and operation cost plus the
and partly private individual/s
present worth of depreciation assumed to continue forever.
d. Quasi-Public Corporation - formed for public
utilities and contracts involving public duties
Annual Cost, AC, of a project is the sum of the annual interest on
but which are organized for profit.
investment, the annual operation and maintenance cost and the
annual depreciation cost.
4
 e. Non-Profit Corporation – formed for community C. BOND
service and religious activities, organized for Bond – certificate of indebtedness of a corporation usually
non-profit for a period of not less than 10 years and guaranteed by a
Four Classes of Persons Composing a Corporation: mortgage on certain assets of the corporation or its
1. Corporators – those who compose the corporation subsidiaries.
2. Incorporators – those original corporators who formed – a written contract to pay a certain redemption
the corporation value C on a specified redemption date and to pay equal
3. Stockholders – owners of share of stock dividends D periodically.
4. Members – corporators who has no capital stocks
Stock – certificate of ownership of the corporation Types of Bonds
a. Common Stock – residual owners of the 1. Mortgage Bond – the security behind are the assets of
corporation the corporation
b. Preferred Stock – entitles holders to certain 2. Collateral Bond – the security behind are the assets of
preferences over the holders of common stocks well-known subsidiary
3. Debenture Bond – no security behind except a promise
B. Contracts to pay.
Contract – is a legally binding agreement to exchange
services Elements:
F = face value or par value of the bond
Four Basic Requirements in a Contract: C = redemption value on a specified redemption
1. There must be a clear, specific and definite offer with no date
room for misunderstanding. r = bond rate or dividend rate
2. There must be some form of conditional future D = periodic dividend, D = F x r
payments. i = investor’s interest rate of return
3. There must be an acceptance of the contract and the P = price of bond at given interest i
agreement must be voluntary.  A bond is said to be redeemable at par
4. Both parties must have legal capacity and the purpose if the redemption value C equals the
must be legal. face value F
 A bond is said to be redeemable at a
Breach of Contract – occurs when on party fails to premium if C > F
satisfy all obligations of the contract.  A bond is redeemable at a discount if C
Negligence – is an action, whether willful or unwillful, < F.
which is taken without proper care for safety, resulting Price of a bond at a given i:
to property damages or injury to persons.
C D [ ( 1+i )n −1 ]
Torts – a civil wrong committed by one person causing P= +
damage to another person or his property, emotional ( 1+i )n (1+i )n i
well-being, or reputation
XI. BASIC INVESTMENT STUDIES
5
 Basic Investment Studies are made to determine whether an 1. Rate of Return
investment should be made or not, based on the following Savings Incurred by Replacement
criteria: Rate of Return =
Additional Capital Required
1. Rate of Return – usually stated in percent per year and is an
2. Annual Cost
effective annual interest rate
Net Profit XIV. ECONOMIC ORDER QUANTITY
Rate of Return =
Total Investment Economic Order Quantity (EOQ) – order quantity which
2. Payout Period – length of time the investment can be minimize the inventory cost per unit time. An assumption of the
recovered basic EOQ with no shortages: “There is no upper bound to the
Total Investment - Salvage Value quantity ordered.”
Payout Period =

√
Net Annual Cash Flow 2 ak
EOQ=
h
XII. SELECTION OF ALTERNATIVES where a = the constant depletion rate (items per unit of
Studies on selection of alternatives are made to determine in time)
what manner an investment should be undertaken, based on k = the fixed cost per order (P)
the following criteria: h = the inventory storage cost (P per item per unit
1. Present Economy – involves selection of alternatives in of time)
which interest or time value of money is a factor; usually
involves the selection between alternative designs, XV. PRINCIPLES OF ACCOUNTING
materials, or methods. A. Bookkeeping System – use to record all financial
2. Rate of Return – the alternative which gives the highest rate transactions of the company. All transactions are recorded
of return on investment is selected in a journal then categorized and posted in a ledger. A
3. Payout Period – the alternative with a shorter payout period ledger is classified into asset, liability and owner’s equity.
is selected B. Balancing System – balancing the book means maintaining
4. Annual Cost – the alternative with lower annual cost is the the equality of the basic equation: ASSETS =
more economical alternative LIABILITIES + OWNER’S EQUITY
5. Present Worth – applicable when alternatives involve future Double entry bookkeeping system is a balancing system by
expenses whose present value can be easily determined maintaining the equality by entering each transaction into
6. Future Worth – applicable when the alternatives involves two ledger accounts. All transactions are either debits or
expenses whose future worth is a more suitable basis of credits. For liabilities and owner’s equity, credit increases
comparison the account, a debit decreases the account.
C. Cash System – simplest form of bookkeeping system and
XIII. REPLACEMENT STUDIES transactions recorded into the journals are the present cash
This is an application of selection of alternatives in which the and expenses
alternatives are a) to replace the old equipment with a new one, D. Financial Statements
or b) to continue using the old equipment. Two criteria
commonly used are:
6
Financial Statement – a way of determining the success or Net Sales on Credit
failure of the company. This is usually evaluated by Receivable Turnover=
Average Receivables
accountants, business management and stockholders.
d) Gross Margin – gross profit as a percentage of sales
1. Balance Sheet – presentation of the basic accounting
Gross Profit
equation Gross Margin =
2. Profit and loss statement – presentation of income Net Sales
source and expenses. This also known as the statement e) Profit Margin Ratio – percentage of sales that is net
of income and retained earnings. Examples of income or income
revenue are sales, interests, etc. and for expenses are Net Incme Before Tax
Profit Margin Ratio =
salaries, supplies, utilities, etc. Net Sales
f) Return on Investment Ratio – percent return on
Terms used in the Balance Sheet: investment
a) Current Assets – also known as liquid assets and Net Income
defined as cash and other assets that can be Return on Investment =
Owner's Equity
converted quickly into cash such as accounts
receivables and merchandise.
b) Fixed Assets – properties that will not be converted
into cash or difficult to convert into cash such as
buildings, land, machinery, equipment, fixtures, etc.
c) Current Liabilities – liabilities which are due within a
short period, usually a year such as accounts
payable and accrued expenses
d) Long-term liabilities – liabilities which are not
payable within a short period of time such as notes
payable, and mortgages.

Terms used to evaluate financial statements:

a) Current Ratio – an index of short term paying ability
Curent Assets
Current Ratio =
Current Liabilities
b) Acid Test Ratio – also known as quick ratio and
defined as a measure of short-term paying ability
Quick Assets
Acid-Test Ratio =
Current Liabilities
c) Receivable Turnover – measure the speed of
collection of accounts receivable

7
 PROBLEMS IN ENGINEERING ECONOMY AND PROBEM SET 2: ANNUITY
1. A man wishes his son to receive P 500 000 ten years from now.
ACCOUNTING What amount should be invested now if it will earn interest of 12%
compounded annually during the first 5 years and 15% compounded
PROBLEM SET 1: SIMPLE AND COMPOUND INTEREST quarterly during the next 5 years?
1. A man lends P 6 000 at 6% simple interest for 4 years. At the end of 2. A contractor bought a concrete mixer at P120 000 if paid in cash.
this time, he invests the entire amount at 5% compounded annually The mixer may also be purchased by installment to be paid within 5
for 12 years. How much would he have at the end of the 16-year years. If money is worth 8% and all payments are made at the
period? beginning of each year, how much is the amount of annual
2. Annie buys a television set from a merchant who offers P 25 000 at payment?
the end of 60 days. Annie wishes to pay immediately and the 3. A man receives P 125 000 credit for his old car when buying a new
merchant offers to compute the required amount on the model costing P375 000. What cash payment will be necessary so
assumption that money is worth 14% simple interest. What is the that the balance can be liquidated by payments of P12 500 at the
required amount? end of each month for 18 months when interest is charged at the
3. A bank charges 12% simple interest on a P300 000 loan. How much rate of 6% compounded monthly?
will be repaid if the loan is paid back in one lump sum after 3 years. 4. A man borrowed P 200 000 from a bank at 12% compounded
4. A time deposit of P110,000 for 31 days earns P890.39 on maturity monthly which is payable in 10 years (120 payments). If the first
date after deducting the 20% withholding tax on interest income. payment is to be made after 3 months, how much is the monthly
Find the rate of interest per annum. payment?
5. The tag price of a certain commodity is for 100 days. If paid in 31 5. To maintain its newly acquired equipment, the company needs P 40
days, there is a 3% discount. What is the simple interest paid? 000 per year for the first 5 years and P 60 000 per year for the next
6. How long will it take for an investment to double its amount if five years. In addition, an amount of P 140 000 would also be
invested at an interest rate of 6% compounded bi-monthly? needed at the end of the fifth and eighth years. At 6%, what is the
7. Mr. Adam deposited P 120 000 in a bank who offers 8% interest present worth of these costs?
compounded quarterly. If the interest is subject to a 14% tax, how 6. A man inherited a regular endowment of P 100 000 every end of 3
much will he receive after 5 years? months for 10 years. However, he may choose to get a single lump
8. In year zero, you invest P 10 000 in a 15% security for 5 years. sum payment at the end of 4 years. How much is this lump sum if
During that time, the average annual inflation is 6%. How much will the cost of money is 14% compounded quarterly?
be in the account at the maturity? 7. A service car whose cash price was P 540 000 was brought with a
9. By the conditions of a will, the sum of P 25 000 is left to a girl to be down payment of P 162 000 and monthly of P10 874.29 for 5 years.
held in a trust fund by her guardian until it amount to P 45 What was the rate of interest if compounded monthly?
000.When will the girl receive the money if the fund is invested at 8. A house and lot can be acquired at a down payment of P 500 000
8% compounded quarterly? and a yearly payment of P 100 000 at the end of each year for a
10. With interest at 6% compounded annually, how much is required 7 period of 10 years starting at the end of 5 years from the date of
years hence to repay an P 8 M loan made today? purchase. If money is worth 14% compounded annually, what is the
cash price of the property?
9. Find the present value of a perpetuity of P 15 000 payable semi-
annually if money is worth 8% compounded quarterly.
8
 10. A debt of x pesos, with interest rate of 7% compounded annually 8. It is estimated that a timber tract will yield an annual profit of P 100
will be retired at the end of 10 years through the accumulation of 000 for 6 years, at the end of which time the timber will be
deposit in the sinking fund invested at 6% compounded semi- exhausted. The land itself will then have an anticipated value of P 40
annually. The deposit in the sinking fund every end of six months is 000. If the prospective purchaser desires a return of 8% on his
P 21 962.68. What is the value of x? investment and can deposit money in a sinking fund at 4%, what is
the maximum price he should pay for the tract?
PROBLEM SET 3: DEPRECIATION AND CAPITALIZED COST 9. An investor pays P 1 100 000 for amine which will yield a net income
1. A man bought an equipment which cost P524 000. Freight and of P 200 000 at the end of each year for 10 years and then will
installation expenses cost him P 31 000. If the life of the equipment become useless. He accumulates a replacement fund to recover his
is 15 years with an estimated salvage value of P120 000, find its capital by annual investments at 4.5%. At what rate does he receive
book value after 8 years? interest on his investment at the end of each year?
2. An equipment costing P 250 000 has an estimated life of 15 years 10. Machine cost = $15 000; life = 8 years; salvage value = $3 000. What
with a book value of P 30 000 at the end of the period. Compute the minimum cash return would the investor demand annually from the
depreciation charge and its book value after 10 years using (a) operation of this machine if he desires interest annually at the rate
straight line method, (b) sinking fund method, (c) declining balance of 8% on his investment and accumulates a capital replacement
method, and (d) SOYD. fund by investing annual deposits at 5%.
3. A machine costing P 45 000 is estimated to have a salvage value of P
4 350 when retires at the end of 6 years. Depreciation cost is PROBLEM SET 4: BONDS AND BREAK EVEN ANALYSIS
computed using a constant percentage of declining book value. 1. A P 100 00, 6% bond, pays dividend semi-annually and will be
What is the annual rate of depreciation in %? redeemed at 110% on July 1 2009. Find its price if bought of July 1,
4. An engineer bought an equipment for P 500 000. Other expenses 2006, to yield an investor 4% compounded semi-annually.
including installation amounted to P 30 000. At the end of its 2. A community wishes to purchase an existing utility valued at P 500
estimated useful life of 10 years, the salvage value will be 10% of 00 by selling 5% bonds that will mature in 30 years. The money to
the first cost. Using straight line method of depreciation, what is the retire the bond will be raised by paying equal annual amounts into a
book value after 5 years? sinking fund that will earn 4%. What will be the total annual cost of
5. A company purchased an asset for P 10 000 and plans to keep it for the bonds until they mature?
20 years. If the salvage value is zero at the end of the 20th years, 3. A man paid P 110 000 for a P 100 000 bond that pays P 4000 per
what is the depreciation in the third year? Use sum-of-the-years year. In 20 years, the bond will be redeemed for P 105 000. What
digit depreciation. net rate of interest will the man obtain on his investment?
6. A company uses a type of truck which costs P 2M with life of 3 years 4. A man wants to make 14% nominal interest compounded semi-
and a final salvage value of P 320 000. How much could the annually on a bond investment. How much should the man be
company afford to pay for another type of truck for the same willing to pay now for a 12%, P 10 000 bond that will mature in 10
purpose whose life is 4 years with a final salvage value of P 400 000, years and pays interest semi-annually?
if money is worth 4%. 5. A company issued 50 bonds of P 1 000 face value each, redeemable
7. At 6%, find the capitalized cost of a bridge whose cost is P200 M and at par at the end of 15 years. To accumulate the funds required for
life is 20 years, if the bridge must be partially rebuilt at a cost of P redemption, the firm established a sinking fund consisting of annual
100 M at the end of each 20 years. deposits, the interest rate of the fund being 4%. What was the
principal in the fund at the end of the 12th year?
9
 6. XYZ Corporation manufactures bookcases that it sells for P 65 each. to accumulate an amount equal to the total depreciation of an asset
It cost XYZ P 35 000 per year to operate its plant. This sum includes at the end of the asset’s estimated life is known as:
rent, depreciation charges on equipment, and salary payments. If a) Straight line method b) SOYD Method c) Declining
the cost to produce one bookcase is P 50, how many bookcases balance method
must be sold each year for XYZ to avoid taking loss? d) sinking fund method
7. Determine the break-even point in terms of number of units 7. The term used to express the series of uniform payments occurring
produced per month using the following data: at equal interval of time is:
Selling price per unit P 600 a) Compound interest b) annuity c)
Total monthly overhead expenses 428 000 perpetuity d) depreciation
Labor Cost per unit 112 8. The profit derived from a project or business enterprise without
Cost of materials per unit 76 consideration of obligations to financial contributors and claims of
Other variable cost 2.32 others based on profit is known as:
a) Yield b) economic return c) earning value
PROBLEM SET 5: ELEMENTS OF ENGINEERING ECONOMY d) expected yield
1. The recorded current value of an asset is known as: 9. As applied to capitalized asset, the distribution of the initial cost by
a) Scrap value b) book value c) salvage value periodic changes to operation as in depreciation or the reduction of
d) present worth the debt by either periodic or irregular prearranged program is
2. The ratio of the interest payment to the principal for a given unit of called;
time and is usually expressed as a percentage of the principal is a) Amortization b) annuity c)
known as: depreciation d) capital recovery
a) Investment b) nominal interest c) interest 10. Those funds that are required to make the enterprise or project a
d) interest rate going concern.
3. A method of depreciation whereby the amount to recover is spread a) Banking b) accumulated amount c) working
over the estimated life of the asset in terms of the periods or units capital d) principal or present worth
of output is called: 11. These are products or services that are desired by humans and will
a) SOYD Method b) Declining balance c) straight line be purchased if money is available after the required necessities
method d) sinking fund method have been obtained.
4. The interest rate at which the present worth of cash flow on a a) Utilities b) necessities c) luxuries d)
project is zero, or the interest earned by an investment. producer goods and services
a) Rate of return b) effective rate c) nominal rate 12. These are product or services that are required to support human
d) yield life and activities that will be purchased in somewhat the same
5. The lessening of the value of an asset due to the decrease in the quantity even though the price varies considerably.
quantity available. This refers to the natural resources such as coal, a) Utilities b) necessities c) luxuries d)
oil, and timber in the forest. producer goods and services
a) Depreciation b) depletion c) inflation 13. A condition where only few individuals produce a certain product
d) incremental cost and that any action of one will lead to almost the same action of the
6. The method of depreciation where a fixed sum of money is regularly others.
deposited at compound interest in a real or imaginary fund in order
10
 b) Oligopoly b) semi-monopoly c) monopoly d) 22. The amount received from the sale of an additional unit of a
perfect competition product is termed as:
14. This occurs in a situation where a commodity or service is supplied a) Marginal cost b) marginal utility c) marginal unit
by a number of vendors and there is nothing to prevent additional d) marginal revenue
vendors entering the market. 23. An accounting book where the original record of all transactions is
a) Perfect competition b) monopoly c) oligopoly ordinarily recorded.
d) elastic demand a)journal b) credit entry c) debit entry d)
15. It is the amount that a willing buyer will pay to a willing seller for a transaction record
property where each has equal advantage and is under no 24. An interest-earning fund in which equal deposits are made at equal
compulsion to buy or sell. interval of time for the purpose of gradually accumulating a specific
a) Fair value b) use value c) market value sum of money required at some future date.
d) book value a) Amortization b) sinking fund c) annuity d)
16. It is defined to be the capacity of a commodity to satisfy human capitalized cost
want. 25. What is work-in-process classified as?
a) Discount b) luxuries c) utility a) An asset b) a liability c) an expense
d) necessity d) owner’s equity
17. A form of summary of assets, liabilities and net worth.
a) Balance method b) break-even point c) balance sheet
d) production
18. The worth of a property which is equal to the original cost less
depreciation is known as:
a) Earning value b) scrap value c) book value
d) face value
19. When using the present worth calculations to compare two
projects, which of the following could invalidate the calculations?
a) Mutually exclusive projects c) evaluation over different
periods
b) Non-conventional cash flow d) difference in the
magnitude of the projects
20. Which of the following is a form of business/company ownership?
a) Partnership b) corporation c) single
proprietorship d) all of these
21. What must two investments with the same present worth and
unequal lives have?
a) Identical salvage value c) different salvage values
b) Identical equivalent uniform annual cash flows d) different
equivalent annual cash flows

11