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Engineering Economy Formula

1) The document discusses various methods for calculating interest, annuities, depreciation, and capitalized costs that are important for engineering economy analysis. 2) It introduces formulas for compound interest, simple interest, effective interest rates, ordinary annuities, deferred annuities, annuities due, perpetuities, capitalized costs, straight-line depreciation, sinking fund depreciation, declining balance depreciation, and sum of years digits depreciation. 3) The summaries provide essential information on calculating things like present value, future value, payments, salvage value, depreciation amounts, and book value for economic analysis.

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Allan Abobon Bulatao
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2K views8 pages

Engineering Economy Formula

1) The document discusses various methods for calculating interest, annuities, depreciation, and capitalized costs that are important for engineering economy analysis. 2) It introduces formulas for compound interest, simple interest, effective interest rates, ordinary annuities, deferred annuities, annuities due, perpetuities, capitalized costs, straight-line depreciation, sinking fund depreciation, declining balance depreciation, and sum of years digits depreciation. 3) The summaries provide essential information on calculating things like present value, future value, payments, salvage value, depreciation amounts, and book value for economic analysis.

Uploaded by

Allan Abobon Bulatao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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ENGINEERING ECONOMY

𝑑 Compound Interest
𝑖=
1−𝑑 𝐹 = 𝑃(1 + 𝑖)𝑛
𝑑1 𝑑2 𝑟 𝑛𝑚
𝑑 = 𝑑1 + 𝑑2 − 𝐹 = 𝑃 (1 + )
100 𝑚

Simple Interest Continuous Compounding


𝐼 = 𝑃𝑖𝑛 𝐹 = 𝑃𝑒 𝑟𝑡
𝐹 =𝑃+𝐼
ENGINEERING ECONOMY

Rates of Interest: Effective compounded


continuously
Nominal – compound interest 𝐸𝑅 = 𝑒 𝑟 − 1
𝑟 = 𝑖𝑚
Effective – actual interest in one
year
𝑟 𝑚
𝐸𝑅 = (1 + ) − 1
𝑚
ENGINEERING ECONOMY

Ordinary Annuity – payments at Deferred Annuity – first


end of each period payment made later

𝐴[(1 + 𝑖)𝑛 − 1] 𝐴[(1 + 𝑖)𝑛 − 1]


𝑃= 𝑃=
𝑖(1 + 𝑖)𝑛 𝑖(1 + 𝑖)𝑚+𝑛

𝐴[(1 + 𝑖)𝑛 − 1] 𝐴[(1 + 𝑖)𝑛 − 1]


𝐹= 𝐹=
𝑖 𝑖
ENGINEERING ECONOMY

Annuity Due – payments at start Perpetuity – payments extend


of each period forever or continue indefinitely

𝐴[(1 + 𝑖)𝑛 − 1] 𝐴
𝑃= 𝑃=
𝑖(1 + 𝑖)𝑛−1 𝑖

𝐴[(1 + 𝑖)𝑛 − 1] 𝑨𝒖𝒕𝒉𝒐𝒓𝒊𝒛𝒆𝒅 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝑺𝒕𝒐𝒄𝒌 =


𝐹= 16(𝑃𝑎𝑖𝑑 − 𝑢𝑝 𝐶𝑎𝑝𝑖𝑡𝑎𝑙)
𝑖
ENGINEERING ECONOMY

𝐶𝐶 = 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑒𝑑 𝑐𝑜𝑠𝑡
Capitalized Cost – application of
𝐹𝐶 = 𝑓𝑖𝑟𝑠𝑡 𝑐𝑜𝑠𝑡
perpetuity; sum of first cost and
present worth of all future 𝑂𝑀 = 𝑎𝑛𝑛𝑢𝑎𝑙 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 𝑜𝑟
payments which is assumed to𝑚𝑎𝑖𝑛𝑡𝑒𝑛𝑎𝑛𝑐𝑒 𝑐𝑜𝑠𝑡
continue forever 𝑅𝐶 = 𝑟𝑒𝑝𝑙𝑎𝑐𝑒𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡
𝑆𝑉 = 𝑠𝑎𝑙𝑣𝑎𝑔𝑒 𝑣𝑎𝑙𝑢𝑒
𝑂𝑀 𝑅𝐶 − 𝑆𝑉 𝐿 = 𝑎𝑠𝑠𝑢𝑚𝑒𝑑 𝑙𝑖𝑓𝑒 𝑜𝑓 𝑝𝑟𝑜𝑝𝑒𝑟𝑡𝑦
𝐶𝐶 = 𝐹𝐶 + +
𝑖 (1 + 𝑖)𝑛 − 1 𝑘 = 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
ENGINEERING ECONOMY

Depreciation: Straight Line Depreciation: Sinking Fund


Method – cost of property varies Method – imaginary fund called
linearly with time sinking fund is invested yearly at
rate 𝑖 to amount to (𝐹𝐶 − 𝑆𝑉)
𝐹𝐶 − 𝑆𝑉 (𝐹𝐶 − 𝑆𝑉)𝑖
𝑑= 𝑑=
𝐿 (1 + 𝑖)𝐿 − 1
𝐷 = 𝑑𝑛 𝑑[(1 + 𝑖)𝑛 − 1]
𝐵𝑉 = 𝐹𝐶 − 𝐷 𝐷=
𝑖
𝐵𝑉 = 𝐹𝐶 − 𝐷
ENGINEERING ECONOMY

Depreciation: Declining Balance Declining Balance (𝐴 ∙ 𝐵 𝑥 )


Method – constant percentage 𝑥 𝑦
or Matheson formula 0 𝐹𝐶 𝐵𝑉𝑛 = 𝑛𝑌̂
*k = 2/L for double DDB 𝐿 𝑆𝑉
Double Declining Balance
𝐿 𝑆𝑉
𝑘 =1− √ 𝑥 𝑦
𝐹𝐶 0 𝐹𝐶
𝑛−1 1 2
𝑑 = (𝑘)(𝐹𝐶)(1 − 𝑘) 𝐹𝐶 (1 − )
𝐵𝑉 = 𝐹𝐶(1 − 𝑘)𝑛 𝐿
𝑑𝑛 = (𝑛 ̂
− 1)𝑌 − 𝑛𝑌 ̂
ENGINEERING ECONOMY

Depreciation: SYD – varies Sum of Years Digit


directly to number of years and ( _ + 𝐶𝑥^2)
inversely to SYD 𝑥 𝑦
𝐿(𝐿 + 1) 0 𝐹𝐶
𝑆𝑌𝐷 = 𝐿 𝑆𝑉
2
𝐿−𝑛+1 𝐿 + 1 𝑆𝑉
𝑑 = (𝐹𝐶 − 𝑆𝑉) ( ) 𝐵𝑉𝑛 = 𝑛𝑌̂
𝑆𝑌𝐷
2𝐿 − 𝑛 + 1
𝐷 = 𝑛(𝐹𝐶 − 𝑆𝑉) ( )
2𝑆𝑌𝐷

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