Engineering Economics

F  P(1  i)n (2.1)

P  F (1  i)n (2.3)

(1  i)n  1
PA (2.9)
i(1  i)n
(1  i ) n  1
FA (2.10)
i
F  A( F | A, i %, n) (2.11)

ieff  (1  r / M )M / K  1 (2.31)
Thus, the present and future worth equivalent of a gradient series can be obtained using the following
equations

1  (1  ni)(1  i)  n 
P G  (2.19)
 i2 

P = G(P|G, i%, n) (2.20)

1 n 
AG  G   ( A | F , i %, n) 
i i 

AG  G( AG | G, i%, n)

A  A1  AG  A1  G( AG | G, i%, n)
 (1  i ) n  (1  ni ) 
F G 
 i2 

F  G ( F | G, i %, n)

The present and future worth equivalent of the geometric series is obtained by multiplying equation
2.27 by the future worth factor (1 + i)n, which results in the following equations

 (1  (1  j ) n (1  i)  n )
A i j
P 1 (i  j )
 nA / (1  i ) i j
 1
   (1  i )n  (1  j )n 
 A1   i j
F    i j  (2.28)

nA1 / (1  i) i j

F = A1(F|A1, i%, j%, n) (2.29)

Nominal interest rate r

Period interest rate = 
Number of interest period per year M
Given P, r, and n, the future worth can be computed using continuous compounding as follows:
F  Pern (2.33)
F  ( P | F , r %, n) (2.34)
Note that the subscript ∞ indicates that continuous compounding is being used.
Similarly, we the present worth given F, r, and n using continuous compounding is given by,
P  Fe rn (2.35)
P  ( F | P, r %, n) (2.36)

ieff  er  1 (2.37)

ieff  ( F | P, r %,1) 1 (2.38)

Table 2.1 Continuous Compounding Interest Factors for Discrete Flows

Table 2.2 Continuous Compounding Interest Factors for Continuous Flows

Find Given Factor Symbol

P Ā (ern-1)/(rern) (P|Ā r%, n)

Ā P rern/(ern-1) (Ā|P r%, n)

 1.1
Interest and Principal Payments
When we study the different methods to repay a loan, we learn that we make a payment, the lender
apply the payment first to cover the interest of the unpaid principal balance, and then the remaining to
reduce the principal balance. We can generalize the procedure as follows: if $P is borrowed (at t = 0)
with a period interest rate i% /period for n periods and is to be repaid in n equal end-of-period
payments (starting at t =1), then the amount of the payments, $A, can be determined by
A  P( A | P, i %, n) .

The amount of principal remaining Ut to be repaid immediately after making payment at time t is given
by

U t  A( P | A, i%, n  t ) = PV(i%, n-t, A) (3.1)

where A, n and i are defined as above.

A related quantity is the payoff quantity. Payofft is the total amount required to payoff the loan
at time t, including both the current payment and the unpaid balance.

Payoff t  A  U t  A  A( P | A, i%, n  t )  A1  ( P | A, i%, n  t ) (3.2)

The interest accrued It during any payment period is given by

I t  A1  ( P | F , i%, n  t  1) (3.3)

The portion of payment Pt that does pay accrued interest goes to principal reduction, and is
given by

Pt  A  I t (3.4)
 ATCF  BT & LCF  LCF  T (6.1)

TI  BT & LCF  IPMT  DWO (6.2)

T  itr (TI ) (6.3)

TI n  BT & LCF (including Fn )  IPMTn  DWOn  Bn (6.4)

Section 179

Amount expensed = max(0, (min(250, K )  max(0, ( K  800, 000)))) (6.5)

EOY 3-year 5-year 7-year 10-year 15-year 20-year

0 0
1 0.3333 0.2 0.1429 0.1 0.05 0.0375
2 0.4445 0.32 0.2449 0.18 0.095 0.07219
3 0.1481 0.192 0.1749 0.144 0.0855 0.0677
4 0.0741 0.1152 0.1249 0.1152 0.077 0.06177
5 0.1152 0.0893 0.0922 0.0693 0.05713
6 0.0576 0.0892 0.0737 0.0623 0.05285
7 0.0893 0.0655 0.059 0.04888
8 0.0446 0.0655 0.059 0.04522
9 0.0656 0.0591 0.04462
10 0.0328 0.059 0.04461
11 0.0591 0.04462
12 0.059 0.04461
13 0.0591 0.04462
14 0.059 0.04461
15 0.0591 0.04462
16 0.0295 0.04461
17 0.04462
18 0.04461
19 0.04462
20 0.04461
21 0.02231