Engineering Economics Blog

  The  most fundamental factor in engineering economy  is the one that determines the amount of money   F  accumulated after   n  years (or periods) from a   single  present worth P, with interest compounded one time per year (or period). Recall that compound interest refers to interest paid on top of interest. Therefore, if an amount   P  is invested at time t = 0, the amount F1 accumulated 1 year hence at an interest rate...

  The cash fl ow is fundamental to every economic study. Cash fl ows occur in many confi  gurations and amounts - isolated single values, series that are uniform, and series that increase or decrease by constant amounts or constant percentages. This chapter develops derivations for all the commonly used engineering economy factors that take the time value of money into account.    The application of factors is illustrated using their mathematical forms and a standard notation format....

A Japan-based architectural fi rm has asked a United States–based software engineering group to infuse GPS sensing capability via satellite into monitoring software for high-rise structures in order to detect greater than expected horizontal movements. This software could be very benefi  cial as an advance warning of serious tremors in earthquake-prone areas in Japan and the United States. The inclusion of accurate GPS data is estimated to increase annual revenue over that for the current software...

The functions on a computer spreadsheet can greatly reduce the amount of hand work for equivalency computations involving   compound interest  and the terms   P, F, A , i, and n . The use of a calculator to solve most simple problems is preferred by many students and professors as described in Appendix D. However, as cash fl  ow series become more complex, the spreadsheet offers a good alternative.  Microsoft Excel   is used throughout this book because...

  For any investment to be profi  table, the investor (corporate or individual) expects to receive more money than the amount of capital invested. In other words, a fair   rate of return,  or   return on investment,  must be realizable. The defi nition of ROR in Equation [1.4] is used in this discussion, that is, amount earned divided by the principal.    Engineering alternatives are evaluated upon the prognosis that a reasonable ROR can be expected. Therefore,...

Table 1–1 details four different loan repayment plans described below. Each plan repays a $5000 loan in 5 years at 8% per year compound interest.    • Plan 1: Pay all at end.  No interest or principal is paid until the end of year 5. Interest accumulates each year on the total of principal and all accrued interest.    • Plan 2: Pay interest annually, principal repaid at end.  The accrued interest is paid each year, and the entire principal is repaid at the end of year...

Assume an engineering company borrows $100,000 at 10% per year compound interest and will pay the principal and all the interest after 3 years. Compute the annual interest and total amount due after 3 years. Graph the interest and total owed for each year, and compare with the previous example that involved simple interest.   Solution To include compounding of interest, the annual interest and total owed each year are calculated by Equation [1.8].    The repayment plan requires...