1analysis and evaluation of the monetary consequences using the theories and principles of economics to engineering application
Engineering Economics
2Simple Interest Formulas
F = P+I; I = Pin
3interest computed based on one banker's year.
Ordinary Interest
i = r/360
4based on the exact number of days
Exact Interest
i = r/365 = r/366<leap year>
5based not only on original amount but the amount of loan plus the previous accumulated interest
Compound interest
F = P(1+r/m)^(mt) I = F-P
6Single Payment Compound Amount Factor
(1+i)^n
7Single Payment Present Worth Factor
(1+i)^(-n)
8based on the assumption that cash payment occurs once per year but compounding continuously throughout the year
Continuous Compounding
F = Pe^(rt)
9describing a variety of compound interest and the number of interest periods per year
Nominal Rate of Interest(NRI)
r = im
10actual interest earned in 1yr period
Effective Rate of Interest (ERI)
ERI = (1+[r/m])^m -1
11Effective rate of interest for continuous compounding
ERI = e^r - 1
12series of uniform payments made at equal intervals of fixed time
Annuities
13payments are made at end of each period starting from the first period
Ordinary Annuity
F = A( [1+i]^n - 1)/i
P = A(1 - [1+i]^-n )/i
14payments made several periods after the beginning of annuity
Deferred Annuity
F = A( [1+i]^n - 1)/i
P = A( [1+i]^n - 1)/ i(1+i)^(o+n)
15payments made at the beginning of each period
Annuity Due
F = A( [1+i]^n - 1)/i
P = A( [1+i]^n - 1)/ i(1+i)^(n-1)
16payments extends forever
Perpetuity
F = infinite
P = A/i
17Calc Tech for Annuity
1) Mode-3-6
2) table= [0, 1]; [1, 1+(r/m)]
3) P = A $(B^(-x), A, B)
18sum of the first cost and present worth of all future payments, assumed to continue forever
Capitalized Costs
19General Formula for Depreciation Calc Tech
BVn = ny^
Dn = FC - BVn
dn = Dn - Dn-1
20Capitalized Costs Formula
CC = FC + A/i + (RC-SV) / (1+i)^n - 1
21Decrease in value of physical property due to the passage of time
Depreciaction
22assume that the loss in value of the property is directly proportional to the age of the propery
Straight line method
23Straight lime method Calc tech
1) mode 3-2
2) table: [time, value]; [time2, value2]
3) AC - Formula
24Sinking Fund Formula
d = (FC - SV)i / (1+i)^L -1
Dn = d([1+i]^n -1) / i
BVn = FC - Dn
25Constand percentage/ Matheson Formula
Declining Balance
26Declining Balance Calc Tech
1) Mode 3 6
2) table: [0, FC], [L, SV]
3) Formula
27like DBM but use 2/L to replace the rate of depreciation k
Double Declining Balance
28Double Declining Balance Calc Tech
1) Mode 3 6
2) tabele: [0, FC], [l, FC(1 - 2/L)^L]
3) Formula
29assumes depeciation change vary directly to the number of yrs and inversely to the sum of the year's digit
Sum-of-the-year's Digits
30Sum-of-the-year's Digits Calc Tech
1) Mode 3-3
2) table: [time, value], [time2, value2], [time3, value3
3) Formula
31cost exactly equal revenue(break even point)
Break-even Analysis
income = expenses