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B .......... Benefit
BV........ Book value
C .......... Cost BREAK-EVEN ANALYSIS
d........... Combined interest rate per interest period By altering the value of any one of the variables in a situation,
Dj ......... Depreciation in year j holding all of the other values constant, it is possible to find a
value for that variable that makes the two alternatives equally
F .......... Future worth, value, or amount
economical. This value is the break-even point.
f ........... General inflation rate per interest period
Break-even analysis is used to describe the percentage of
G.......... Uniform gradient amount per interest period
capacity of operation for a manufacturing plant at which
i ........... Interest rate per interest period income will just cover expenses.
ie .......... Annual effective interest rate
The payback period is the period of time required for the profit
m.......... Number of compounding periods per year or other benefits of an investment to equal the cost of the
n........... Number of compounding periods; or the expected life investment.
of an asset
P .......... Present worth, value, or amount INFLATION
r ........... Nominal annual interest rate To account for inflation, the dollars are deflated by the general
Sn ......... Expected salvage value in year n inflation rate per interest period f, and then they are shifted
over the time scale using the interest rate per interest period
Subscripts i. Use a combined interest rate per interest period d for
j ........... at time j computing present worth values P and Net P.
n........... at time n The formula for d is d = i + f + (i × f)
†........... F/G = (F/A – n)/i = (F/A) × (A/G)
_C - Sni
n+1-j Bond Yield equals the computed interest rate of the bond
Dj = n
! j value when compared with the bond cost.
j=1