Formula

Simple and Compound Interest

 Simple Interest
I – interest
I = Pin P – principal or present worth
F=P+I n – number of interests periods
i – rate of interests
F = P (1 + in) F – future worth
 Compound Interest
F=P+I  Effective Rate

( )
m
F = P (1 + i)n r
Effective rate= 1+ −1
o Discrete Compounding m
 Interest Rate
( )
nm
r
F=P 1+
m r
i=
o Continuous Compounding m
rn
F=Pe

Annuities
FC – future cost of a commodity
 Inflation PC – present cost of a commodity
FC = PC (1 + f)n f – annual inflation rate
n – number of years

 Ordinary Annuity
o Present Worth of Annuity o Finding Annuity when Present Worth is given

[ ] [ i
]
−n
1− (1+i ) A=P
P= A −n
i 1− (1+i )
o Future Worth of Annuity o Finding Annuity when Future Worth is given

F= A [ ( 1+ i )n −1
i ] A=F
[ i
( 1+ i )n −1 ]
 Annuity Due
o Present Worth of Annuity o Future Worth of Annuity

[ ] [
( 1+ i )n +1−1
]
−(n−1)
1− (1+i )
P= A F= A −1
i i
 Deferred Annuity
o Present Worth of Deferred Annuity

P= A [
1− (1+i )−n
i
( 1+i )−m ]
 Present Worth of Perpetuity

P=
[ ]
A
i
Capitalized Cost and Gradient
 Case 1: No replacement, only maintenance and/or operation per period
Capitalized Cost = First Cost + Present Worth of Perpetual Operation and Maintenance
OM FC = First Cost
CC =FC +
i
OM = Operation and Maintenance Cost

 Case 2: Replacement Only, no maintenance and or operation

Capitalized Cost = First Cost + Present Worth of Perpetual Replacement
RC−SV RC = Replacement Cost
CC =FC+ n
(1+i) −1
SV = Salvage Value

 Case 3: Replacement, Maintenance and or operation every period

Capitalized Cost = First Cost + Present Worth of Perpetual Operation and Maintenance + Present
Worth of Perpetual Replacement
OM RC −SV
CC =FC+ +
i n
(1+i) −1
 Arithmetic Gradient
P=P A + PG

[ ][ ]
n
G ( 1+i ) −1 1
PG = −n
i i ( 1+i )
n

P A =A [1−( 1+i )−n

i ]