QUAID-E-AWAM UNIVERSITY OF ENGINEERING, SCIENCE &

TECHNOLOGY NAWABSHAH, SINDH, PAKISTAN

Presentation of Engineering Economics

Presented to:
Sir Rao Ahsan Atta

Presented by Group members:

Ranjeet (18CH-62)
Mariam Arain (18CH-63)
Shahabuddin Brohi (18CH-64)
BECh (2nd year/3rd semester).
Department of Chemical Engineering

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CONTENTS

• Introduction.
• Definition.
• Formula.
• STEPS.
• Examples.
• Applications.

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 UNIFORM ANNUAL COST METHOD
ANNUAL COST :
Money does not have same value at difference point of time .

UNIFORM ANNUAL COST:

• Uniform annual cost is the cost per year for owning or maintaing an asset
over its life time .

• Calculating uniform annual cost (UAC) is useful in budgeting decision

making by converting the price of an asset to an uniform annual cost.

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WHY WE CALL IT UNIFORM COST METHOD ?

 When only cost are involved . The annual uniform method is called the annual cost
method .

 Revenues must cover two kinds of costs operating costs and capital cost.

Capital Cost
+ Operating Cost

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FORMULA

The formula of uniform Annual Cost is

UAC = Asset * Discount Rate + annual maintains

1- (1+discount rate) power (-periods)

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STEPS TO SOLVE UNIFORM ANNUAL COST

 STEP#1: determine the price of the asset.

 STEP#2: determine the expected lifespan.

 STEP#3: determine the discount rate.

 STEP#4: determine the annual maintaince cost .

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EXAMPLE
Suppose you are comparing two analyzers A and B Costing $100,000 and $130,000
respectively and the expected lifespan of analyzer A is 5 years while analyzer B is expected 7
years. And having discount rate 10 present and the annual maintaince cost of analyzer A
expense $11,000 while analyzer B has an annual maintaince Expense $8,000 determine
uniform annual cost.

Analyzer A

Analyzer B

Should be apparent that analyzer B is the more cost effective option with a net
saving of $2,677.03 a year compared to analyzer A

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APPLICATION
 Assessing whether leasing an asset would be more economical then purchasing

 assessing weather increase maintaince cost will economically change the useful
life of an asset .

 Comparing to estimated annual cost saving in order to determine whether it

make Economic sense to invest

 Estimating the cost saving required to justify to purchase of new equipment.

 It can apply on any type of things for comparison like :- vehicles ,stock, etc.

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THANK YOU 