1. Engineering economics
Interest
Time value of money
Evaluating economic alternatives
Breakeven economics

2. Interest Interest = total amount owed – principal amount (12.1) (12.2)
Interest = (principal)(number of interest periods)(interest rate)
= Pni
(12.3)

3. Single payment compound amount
F = ? 1 2 3 4
n-2
n-1 n P
period
(12.4)
(12.5)

4. Single payment present worthF 1 2 3 4
n-2
n-1 n
P=?
period
(12.6)

5. Uniform series compound amount1 2 3 4
n-2
n-1 n A
period
(12.7)

6. Capital recovery P 1 2 3 4
n-2
n-1 n
A=?
period A
(12.8)

7. Nominal interest i = effective interest rate r = nominal interest rate
m = interest periods per year
y = number of years
(12.9)
(12.10)

8. Uniform series compound amount1 2 3 4
n-2
n-1 n A
period
(12.11)
(12.12)

9. Uniform series sinking fund1 2 3 4
n-2
n-1 n
A=?
period A
(12.13)

10. Gradient series (12.14) (12.15) (12.16) P = ? 1 2 3 4 n-2 n-1 n A1 2 3 4
n-2
n-1 n A
period
A+2G
A+4G
A+3G
A+(n-2)G
A+(n-1)G
A+(n-3)G
(12.14)
(12.15)
(12.16)

11. Present worth method
(12.17)
(12.18)

12. Least common multiple $30,000 $45,000 years 1 2 3 4 5 6 least common1 2 3 4 5 6
least
common
multiple

13. Future worth method
(12.19)
(12.20)
(12.21)

14. Equivalent annual worth method
(12.22)
(12.23)

15. Rate of return method
(12.24)

16. Simple payback period
(12.25)

17. Discounted payback period
(12.26)

18. Breakeven analysis breakeven point R Cost Profit TC Loss FC q q*
Breakeven quantity
Loss
Profit
breakeven point

19. Summary
Engineering economic analyses should consider the time value of money
Interest factor formulas and tables are useful in evaluating alternatives
The PW and FW methods can be used to evaluate alternatives having different lives by using the least common multiple of years.
The EUAW method is preferred because it has the advantage of not requiring the use of the least common multiple.
The breakeven point is that level of production (and sales) that results in a zero profit