Engineering Economics

Chapter 4
MORE INTEREST FORMULAS

1
 Components of Engineering Economic
Analysis

• Calculation of P,A,and F are fundamental.

• Some problems are more complex and
require an understanding of added
components:
• Uniform series
• Arithmetic or geometric gradients
• Nominal and effective interest rates
• Continuous compounding

2
 Uniform Payment Series
Compound Amount Factor F
• The future value of an investment

• A = An end-of-period cash receipt or disbursement in a uniform series, continuing for n periods, the entire series equivalent to P or F at interest rate i

F= P(1+i)n

3
 Uniform Payment Series
Compound Amount Factor F

• Uniform series compound amount factor

4
 Uniform Payment Series
Compound Amount Factor F
• Example 4-1

5
 Uniform Payment Series
Compound Amount Factor F
• Example 4-1

6
 Uniform Payment Series
Compound Amount Factor F
• Solve previous equation for A

• Uniform series sinking fund factor

7
 Uniform Payment Series
Compound Amount Factor F
• A sinking fund is a separate fund into which one makes a uniform series of money
deposits (A) with the goal of accumulating some desired future sum (F) at a given future
point in time.

8
 Uniform Payment Series
Compound Amount Factor F
• Example 4-2

9
 Uniform Payment Series
Compound Amount Factor F
• substitute for F, we get

• Uniform series capital recovery factor

10
 Uniform Payment Series
Compound Amount Factor F
• Example 4-3

11
 Uniform Payment Series
Compound Amount Factor F
• Present sum P

• Uniform series present worth factor

12
 Uniform Payment Series
Compound Amount Factor F
• Example 4-4

13
 Uniform Payment Series
Compound Amount Factor F
• Example 4-4

14
 Summary
• Donald G. Newnan, et al., “Engineering Economic
Analysis,” 9th Edition, Oxford University Press
(Read Chapter No 4)