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𝑂𝑈𝑇𝑃𝑈𝑇
1. 𝑇𝐸𝐶𝐻𝑁𝐼𝐶𝐴𝐿 𝐸𝐹𝐹𝐼𝐶𝐼𝐸𝑁𝐶𝑌 = × 100
𝐼𝑁𝑃𝑈𝑇
𝑊𝑂𝑅𝑇𝐻
2. 𝐸𝐶𝑂𝑁𝑂𝑀𝐼𝐶 𝐸𝐹𝐹𝐼𝐶𝐼𝐸𝑁𝐶𝑌 = × 100
𝐶𝑂𝑆𝑇
3. Prime Cost = Direct Material Cost +Direct Labour Cost+ Direct Expenses
2. The total cost of the firm TC = Total variable cost + Fixed Cost
TC = v × Q + FC
3. Profit = Total sales – Total cost = ( s × Q) – (v × Q + FC )
𝐹𝐼𝑋𝐸𝐷 𝐶𝑂𝑆𝑇
4. Break even quantity =
(𝑆𝐸𝐿𝐿𝐼𝑁𝐺 𝑃𝑅𝐼𝐶𝐸/𝑈𝑁𝐼𝑇 −𝑉𝐴𝑅𝐼𝐴𝐵𝐿𝐸 𝐶𝑂𝑆𝑇/𝑈𝑁𝐼𝑇 )
𝐹𝐶
𝐵𝑅𝐸𝐴𝐾 𝐸𝑉𝐸𝑁 𝑄𝑈𝐴𝑁𝑇𝐼𝑇𝑌 =
𝑠−𝑣
𝐹𝐼𝑋𝐸𝐷 𝐶𝑂𝑆𝑇
× 𝑆𝐸𝐿𝐿𝐼𝑁𝐺 𝑃𝑅𝐼𝐶𝐸/𝑈𝑁𝐼𝑇
𝑆𝐸𝐿𝐿𝐼𝑁𝐺 𝑃𝑅𝐼𝐶𝐸/𝑈𝑁𝐼𝑇 − 𝑉𝐴𝑅𝐼𝐴𝐵𝐿𝐸 𝐶𝑂𝑆𝑇 /𝑈𝑁𝐼𝑇
𝐹𝐶
𝐵𝑅𝐸𝐴𝐾 𝐸𝑉𝐸𝑁 𝑆𝐴𝐿𝐸𝑆 = ×𝑠
𝑠−𝑣
Notations used:
P = Principle amount
F = Future amount at the end of the year ‘n’
n = Number of interest periods
i = Interest rate
A = Equal amount deposited at the end of every interest period
G = Uniform amount which will be added/subtracted period after period to/from
the amount of deposit A1 at the end of the period 1.
Formula :
1. To find the future worth of money F = P × (1+i)n = P(F/P, i, n)
𝐹
2. To find the present worth of money P = 𝑛 = F(P/F, i, n)
(1+𝑖)
3. Equal payment series compound amount
(1+𝑖)𝑛 −1
F=A = A (F/A i, n)
𝑖
𝑖
4. Equal payment series sinking fund A = F = A (F/A,i,n)
(1+𝑖)𝑛 −1
5. Equal payment Series Present worth amount
(1+𝑖)𝑛 −1
P=A = A (P/A,i,n)
𝑖(1+𝑖)𝑛
6. Equal payment series capital recovery amount
𝑖(1+𝑖)𝑛
A=P = P (A/P,i,n)
(1+𝑖)𝑛 −1
7. Uniform Gradient series amount equivalent amount
(1+𝑖)𝑛 −𝑖𝑛−1
A = A1 + G = A1 + G (A/G,i,n)
𝑖(1+𝑖)𝑛 −1
𝑖
8. Effective Interest Rate R = (1 + )𝑐 – 1 where i = nominal interest rate,
𝐶
C = Number of interest periods in a year.
DEPARTMENT OF MECHANICAL ENGINEERING
MG 6863 ENGINEERING ECONOMICS
FORMULA SHEET
UNIT III
Present Worth Method of Comparison:
Revenue Dominated Cash Flow Diagram: S
R1 R2 R3 . Rj Rn
0 1 2 3 . j n
P
Pw(i) = - P + R1[ 1/(𝟏 + 𝒊)𝟏 ] + R2[ 1/(𝟏 + 𝒊)𝟐 ] + …. +Rj [ 1/(𝟏 + 𝒊)𝒋 ] +
Rn [ 1/(𝟏 + 𝒊)𝒏 ] + S [ 1/(𝟏 + 𝒊)𝒏 ]
Where P = Initial investment
R1, R2, …Rj = Net Revenue at the end of the 1,2,…jth period
S = Salvage Value at the end of the nth year.
In this method the expenditure is assigned a (-) sign with arrow pointing
downwards and the revenue assigned a (+) sign with arrow pointing
upwards
C1 C2 . Cj Cn
P
Pw(i) = P + C1[ 1/(1 + 𝑖)1 ] + C2[ 1/(1 + 𝑖)2 ] + …. +Cj [1/(1 + 𝑖)𝑗 ] +
Cn [1/(1 + 𝑖)𝑛 ] - S [1/(1 + 𝑖)𝑛 ]
Where P = Initial investment
C1, C2, …Cj = Net Cost at the end of the 1,2,…jth period
S = Salvage Value at the end of the nth year.
In the above formula the expenditures is assigned with (+) sign with the
arrow pointing downwards
In the above formula the revenue is assigned with (-) sign with the arrow
pointing upwards.
R1 R2 R3 . Rj Rn
0 1 2 3 . j n
P
P C1 C2 C3 Cj Cn
R1 R2 R3 . Rj Rn
0 1 2 3 j n
Steps :
1. In this method the first step is to find the net present worth using the
formula
PW(i) = - P + R1[ 1/(𝟏 + 𝒊)𝟏 ] + R2[ 1/(𝟏 + 𝒊)𝟐 ] + …. +Rj [ 1/(𝟏 + 𝒊)𝒋 ] +
Rn [ 1/(𝟏 + 𝒊)𝒏 ] + S [ 1/(𝟏 + 𝒊)𝒏 ]
Where P = Initial investment
R1, R2, …Rj = Net Revenue at the end of the 1,2,…jth period
S = Salvage Value at the end of the nth year.
In this method the expenditure is assigned a (-) sign with arrow pointing
downwards and the revenue assigned a (+) sign with arrow pointing
upwards
𝑖(1+𝑖)𝑛
A = PW(i)
(1+𝑖)𝑛 −1
A = PW(i) (A/P,i,n)
A = - P (A/P,i,n) + A + S (A/F,i,n)
P C1 C2 C3 Cj Cn
Steps :
1. In this method the first step is to find the net present worth using the
formula
FW(i) = 𝑷(𝟏 + 𝒊)𝒏 + 𝑪𝟏(𝟏 + 𝒊)𝒏−𝟏 + C2(𝟏 + 𝒊)𝒏−𝟐 +
… 𝑪𝒋(𝟏 + 𝒊)𝒏−𝟏 + 𝑪𝒏 − 𝑺
Where P = Initial investment
C1, C2, …Cj = Net Cost at the end of the 1,2,…jth period
S = Salvage Value at the end of the nth year.
In the above formula the expenditures is assigned with (+) sign with the
arrow pointing downwards
In the above formula the revenue is assigned with (-) sign with the arrow
pointing upwards.
𝑖(1+𝑖)𝑛
A = PW(i)
(1+𝑖)𝑛 −1
A = PW(i) (A/P,i,n)
A = P (A/P,i,n) + A - S (A/F,i,n)
Where (A/P,i,n) is called equal payment series capital
recovery factor.
3. The above steps 1 and 2 are repeated for all the alternatives
4. Finally the alternative with the minimum annual equivalent revenue
should be selected as the best alternative.
(OR)
Alternate Approach
1. Step 1 : Find the future worth of the cash flow diagram for the
Given alternatives.
UNIT V
1. Straight line method of depreciation:
Depreciation Dt = (P-F)/n
Book value = Bt-1 – Dt = P-t [(P-F)/n]
Where P = First cost of the asset
F = Salvage value, n = number of years,
Dt = depreciation amount for the period “t”
Bt = Book value at the end of the period “t”
Depreciation Dt = K x Bt-1
Book value Bt = (1-K) Bt-1
Where K = a fixed percentage
For double declining balance method K = 2/n
Depreciation = (P-F)/ X
(𝑷−𝑭)
Depreciation = (𝒙)
𝑿
X = Maximum capacity
x = quantity of service rendered for a period.