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Park Fundamentals of Engineering Economics

# Park Fundamentals of Engineering Economics

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04/01/2013

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--=-
Flow
Type
S
I
N
G
i
L
E
E
:
Q
=
u
-A
L
P
A
Y
i
M
r
E
I
N
f
T
i;
i
s
D
E
\$
R
i
I
E
r
S
"r
"
I
I
E
j
T
S
E
R
I
E
s
--.----
Summary of Discrete Compounding Formulas with Discrete Payments
FactorNotation
Compoundamount
(F/e
,
N)
Presentworth
(PIE
i,
N
Compoundamount
i,
N)
Sinkingfund
(ME
.
N)
Presentworth
(P/A,
,
N)
Capitalrecovery
(Me
,
N)
(P/G,
,
N)
Conversion fact01
(AIG,
,
Rr)
(PIA
,,
g,
i,
N)
Formula
=
.[(I
+
illv
-
1
i(1
+
i)"
I
A
=
P[
(1
+
ilN
-
1
+
i)"
-
iN
-
1
ExcelCommand
=
FV(i,
N.
P.,
0)
=
PV(i, N,
F,
-0)
=
PV(i, N,
A,.
0)
Cash Flow
-
Diagram
i
AAA
AA
/
5
i.
I

Summary
of
Formulas
Effective Interest Rate per Payment Period
Discrete compounding
i
=
[(I
+
~/(cK)]'
1
Continuous compounding
i
-
erlK
-
1
Recovery Period (Year
where
i
-
effective interest rate per payment period
r
=
nominal interest rate or
APR
C
=
number of interest periods per paymentperiod
K
=
number of payment periods per year
r/K
=
nominal interest rate per payment period
Market Interest Rate
i
-
'
+
f
+
i'f
where
i
=
market interest rate
if
=
inflation-free interest rate
-
,f
=
general inflation rate
Present Value of Perpetuities
p
=
market related risk index
r,
=
market rate of return
Capital Recovery with ReturnCost of Debt
CR(i)
=
(I
-
S)(A/P, ,
N)
+
iS
Book Value
11
=
I
-
x
D,
where
id
=
cost of debt
11
c,
-
he amount of term loan
Straight-Line Depreciation
c,,
=
the amount of bond financing
(I
-
S)
c,,
=
total debt
=
c,
t
c,,
D,?
-
k,
=
the before-tax interest rate on the term loan
Declining Balance Depreciation
kh
=
the before-tax interest rate on the bond
t,,,
=
the firm's marginal tax rate
D,,
-
aI(1
-
a)"-'
-
Weighted-Average Cost of Capital
1
where
a
=
declining balance rate. and
0
<
a
5
N
Cost of Equity
where
i,
=
cost of equity
rf
=
risk-free interest ratewhere
k
=
cost of capital
c,,
=
total equity capital
V
=
Cd
+
C,