Ch 10

IT-390 Engineering Economy

2

Engineering Economy

ROI or return-on-investment is required for ROI or return-on-investment is required for project existenceproject existence

““Time value of money” is applied to engineering Time value of money” is applied to engineering decision making.decision making.

Engineering EconomyEngineering Economy - a collection of 6 - a collection of 6 mathematical techniques which simplify economic mathematical techniques which simplify economic comparisonscomparisons

3

Engineering Economy

Symbol DefinitionsSymbol Definitions P = present amount or valueP = present amount or value F = future amount or valueF = future amount or value A = annuityA = annuity n = number of periodsn = number of periods i = interest ratei = interest rate

4

Engineering Economy

Equation 1Equation 1

Find Find FutureFuture if if PresentPresent is known is known

SPCAFSPCAF -- Single Payment Compound Amount FormulaSingle Payment Compound Amount Formula

P = 1000

F = ?

niPF )1(

5

Engineering Economy

Equation 2Equation 2

Find Find PresentPresent if if FutureFuture is known is known

SPPWFSPPWF -- Single Payment Present Worth FactorSingle Payment Present Worth Factor

niFP

)1(

1

P = ?

F = 1000

6

Engineering Economy

Equation 3Equation 3

Find Find SeriesSeries if if PresentPresent is known is known

CRFCRF -- Cost Recovery FactorCost Recovery Factor

1)1(

)1(n

n

i

iiPA

P = 1000

A = ?

7

Engineering Economy

Equation 4Equation 4

Find Find PresentPresent if if SeriesSeries is known is known

USPWFUSPWF -- Uniform Series Present Worth FactorUniform Series Present Worth Factor

n

n

ii

iAP

)1(

1)1(P = ?

A = 1000

8

Engineering Economy

Equation 5Equation 5

Find Find SeriesSeries if if FutureFuture is known is known

SFFSFF -- Sinking Fund FactorSinking Fund Factor

1)1( ni

iFA

A = ?

F = 1000

9

Engineering Economy

Equation 6Equation 6

Find Find FutureFuture if if SeriesSeries is known is known

USCAFUSCAF -- Uniform Series Compound Amount FactorUniform Series Compound Amount Factor

i

iAF

n 1)1(

A = 1000

F = ?

10

Engineering Economy

To solve any Engineering Economy Problem, Follow these steps:To solve any Engineering Economy Problem, Follow these steps:

Identify each termIdentify each term

F_________F_________

P_________P_________

A_________A_________

n_________n_________

i__________i__________

Only Only fourfour are needed to solve the problem. are needed to solve the problem. OneOne will be unknown and will be unknown and oneone will will be unusedbe unused

Select the proper formula and plug in the Select the proper formula and plug in the threethree known to find the unknown known to find the unknown