ENGINEERING
ECONOMICS
ENGINEERING ECONOMY
• involves formulating, estimating and evaluating the expected
economic outcomes of alternatives designed to accomplish a defined
purpose. Mathematical techniques simplify the economic evaluation
of alternatives.
• besides applications to projects in your future jobs, what you learn
from this subject may well offer you an economic analysis tool for
making personal decisions such as a car purchases, house purchases,
and purchases on credit for enjoyment, e.g., electronics, games,
drones, vacation, etc.
As a professional engineer
• When engineering economy study is performed, it is important for the
engineer performing the study to consider all ethically related matters
to ensure that the cost and revenue estimates reflect what is likely to
happen once the project or system is operating.
TIME VALUE OF MONEY
• It is well-known fact that money makes money. The time value of
money explains the change in the amount money over time for funds
that are owned (invested) or owed (borrowed). This is the most
important concept in engineering economy.
INTEREST
• Interest is the manifestation of the time value of money.
• Computationally, it is the difference between ending amount of
money and the beginning amount.
Where: I = interest; F = future value; P = present value
• If the difference is zero or negative, there is no interest.
SIMPLE INTEREST
1. Ordinary Simple Interest
Future worth, F:
Where:
I = interest earned
, rate of interest per interest period
P = present worth (capital)
F = Future worth
n = total number of interest periods
r = annual percentage rate/ nominal rate of
interest
ORDINARY SIMPLE INTERESTS
Ex:
An interest rate of 10% for a period of 9 months:
interest per day
ORDINARY SIMPLE INTERESTS
Ex:
An interest rate of 15% for 3 years:
interest per day
ORDINARY SIMPLE INTERESTS
Ex:
Determine the ordinary simple interest on Php 5000 for 9 months if the
rate of interest is 12%.
Ans: Php 450
ORDINARY SIMPLE INTERESTS
Ex:
Determine the ordinary simple interest on Php 5000 for 10 days if the
rate of interest is 12%.
Ans: Php 16.67
ORDINARY SIMPLE INTERESTS
Ex:
Determine the ordinary simple interest on Php 5000 for 9 months and
10 days if the rate of interest is 12%.
Ans: Php 466.67
ORDINARY SIMPLE INTERESTS
Ex:
Jeffry buys an electric fan from a merchant who asks Php 1250 at the
end of 60 days (cash in 60 days). Jeffry wishes to pay immediately and
the merchant offers to compute the cash price on the assumption that
money is worth 8% simple interest. What is the cash price today?
Ans: P = 1233.55
ORDINARY SIMPLE INTERESTS
Ex:
A man borrowed Php 10000 from a loan firm at a simple interest of
15%. If the interest is to be deducted from the loan at the time the
money is borrowed and at the end of 1 year he has to pay back Php
10000. Calculate the actual rate of interest.
Ans: r = 17.65%
SIMPLE INTEREST
2. Exact Simple Interest
Future worth, F:
Where:
for ordinary year
for leap year
Exact Simple Interest
Ex:
Determine the exact simple interest on Php 10000 for the period from
January 15 to June 20, 2004, if the rate of simple interest is 14%.
Ans: 600.55
Exact Simple Interest
Ex:
Determine the exact simple interest on Php 1000 for the period from
January 10 to October 28, 2005 at 12% interest.
Ans: 95.67
1. Your parents borrowed P20,000.00 and after 6 months they paid your loan with an interest amounting to P2,300.00.
Find the interest rate.
2. Your sibling borrowed P15,000.00 at 6% interest for 12 months payable monthly for the same period. Find the
amount that he/she will pay every month.
3. How long will it take for P21,000.00 at 9% simple interest to earn P7,000?
4. Find the approximate number of days from:
a. March 15, 2010 to September 12, 2013
b. July 25, 2005 to May 25, 2006
5. Find the exact number of days from:
a. July 14, 2010 to November 25, 2012
b. May 15, 2012 to October 15, 2012
6. Find the exact interest on P20,000.00 at 10% interest rate for 150 days.
7. Find the ordinary interest using approximate number of days on P 40,000.00 at 15% interest from July 4, 2003 to
March 16, 2004.
8. Find the principal amount invested on June 16, 2003 to accumulate P4,500.00 at 10% interest on October 14, 2003
LONG QUIZ
1. Your parents borrowed P20,000.00 and after 6 months they paid your loan with an interest amounting to
P2,300.00. Find the interest rate. 23%
2. Your sibling borrowed P15,000.00 at 6% interest for 12 months payable monthly for the same period. Find
the amount that he/she will pay every month. P 1325
3. How long will it take for P21,000.00 at 9% simple interest to earn P7,000? 3.7 yrs
4. Find the approximate number of days from:
a. March 15, 2010 to September 12, 2013 :1257 days
b. July 25, 2005 to May 25, 2006 :300 days
5. Find the exact number of days from:
a. July 14, 2010 to November 25, 2012 :864 days
b. May 15, 2012 to October 15, 2012 :154 days
6. Find the exact interest on P20,000.00 at 10% interest rate for 150 days. :821.92
7. Find the ordinary interest using approximate number of days on P 40,000.00 at 15% interest from July 4,
2003 to March 16, 2004. :Php 4060.27
8. Find the principal amount invested on June 16, 2003 to accumulate P4,500.00 at 10% interest on October 14,
2003 :Php 4355.61
