Park - Fundamentals of Engineering Economics.pdf

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Summary of Discrete Compounding Formulas with Discrete Payments
--=-
Flow Type
Factor
Notation
Formula
Excel
Command
Cash Flow -
Diagram
i
S
Compound
amount
(F/e i, N)
Present
worth
(PIE i, N
Compound
amount
i, N)
I
= FV(i, N. P.,0)
N
G
i L
E
= PV(i, N, F, -0)
E
: Q
=
u
-A
L
= PV(i,N, A,. 0)
Sinking
fund
(ME i. N)
P
A
/
Y
i M
r E
I
AAA AA
N
Present
worth
(P/A, i, N)
i(1 + i)" I
I
f
T
= .[(I
i;
i s
D E
$ R
i I E
r
S
Capital
recovery
(Me i, N)
A = P[ (1 + ilN - 1
"
Linear
gradient
+ i)" - iN - 1
8 I
I E
j
Present
worth
(P/G, i, N)
Conversion fact01
(AIG, i, Rr)
Geometric
gradient
T
S
E
R
I
E
s
Present
worth
(PIA ,, g, i, N)
--.----
5
i.
+ illv - 1
"r
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Summary of Formulas
Effective Interest Rate per Payment Period
Discrete compounding i = [(I + ~/(cK)]' - 1
where i - effective interest rate per payment period
r = nominal interest rate or APR
C = number of interest periods per payment
period
K = number of payment periods per year
r/K = nominal interest rate per payment period
Market Interest Rate
Recovery Period (Year
i - i' + f + i'f
where i = market interest rate
if = inflation-free interest rate
-
,f = general inflation rate
Present Value of Perpetuities
p = market related risk index
r, = market rate of return
Capital Recovery with Return
Cost of Debt
CR(i) = (I - S)(A/P,i, N) + iS
Book Value
= I - x D,
11
c, - the amount of term loan
1'1
Straight-Line Depreciation
c,, = the amount of bond financing
D,? - -
(I - S)
c,, = total debt = c, t c,,
k, = the before-tax interest rate on the term loan
N
kh = the before-tax interest rate on the bond
t,,, = the firm's marginal tax rate
D,, - aI(1 - a)"-'
-
Weighted-Average Cost of Capital
1
where a = declining balance rate. and 0 < a 5 N
Cost of Equity
where i, = cost of equity
rf = risk-free interest rate
where k = cost of capital
c,, = total equity capital
V = Cd + C,
Continuous compounding i - erlK - 1
where id = cost of debt
Declining Balance Depreciation
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Library of Congress Cataloging-in-Publication Data on File
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Table of Contents
nderstanding Money and Its Management
1.1 The Rational Decision-Making Process
1.1.1 How DoWe Make Typical Personal Decisions?
1.1.2 How Do We Approach an Engineering Design Problem?
1.1.3 What Makes Economic Decisions Differ from Other
Design Decisions?
1.2 The Engineer's Role in Business
1.2.1 Making Capital-Expenditure Decisions
1.2.2 Large-Scale Engineering Economic Decisions
1.2.3 Impact of Engineering Projects on Financial Statements
1.3 Types of Strategic Engineering Economic Decisions
1.4 Fundamental Principles in Engineering Economics
Summary
2.1 Interest: The Cost of Money
2.1.1 The Time Value of Money
2.1.2 Elements of Transactions Involving Interest
2.1.3 Methods of Calculating Interest
2.2 Economic Equivalence
2.2.1 Definition and Simple Calculations
2.2.2 Equivalence Calculations Require a Common Time
Basis for Comparison
2.3 lnterest Formulas for Single Cash Flows
2.3.1 Compound-Amount Factor
2.3.2 Present-Worth Factor
2.3.3 Solving forTime and Interest Rates
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