Compute Given Equation Graphics

P = F(1 + i)–n P F
P F
(P/F, i%, n) t=0 t=n
10.3: Uniform Series P F
F = P(1 + i)n
F P
Uniform series represents a series of payments that occur with the same amount and at the same interval (F/P, i%, n) t=0 t=n

(for example, a payment occurs every year). The uniform payment is noted as A and it can be used to find A each

( ​ i ​(​ 1 + i )​ n​    )
​( 1 + i )​ n​ − 1
​P = A​  _______ ​  ​ P
both the present and future worth that is equivalent to the series of uniform payments. P A
(P/A, i%, n) t=0 t=1 t=2 t=n
A each

( ​(​ 1 + i )​ n​ − 1  )​
i ​(​ 1 + i )​ n​
​  = P​  _______
A  ​  P
10.4: Uniform Gradient
A P
(A/P, i%, n) t=0 t=1 t=2 t=n

The uniform gradient factor applies to a uniformly increasing cash flow, which may be positive (revenue) A each F
​  = A​( _______ ​ )​
(​ 1 + i )​ n​ − 1
F ​ i     
or negative (costs). If the cash flow is in the proper form, one can determine its: F A
(F/A, i%, n)
t=0 t=1 t=2 t=n
• Present worth, P, using the uniform gradient factor (P/G, i%, n) A each F
• Future worth, F, using the uniform gradient factor (F/G, i%, n) ( ​( 1 + i )​ n​ − 1 )
i
​A = F​  ​_______      ​ ​
A F

• Equivalent uniform series, A, using the uniform gradient factor (A/G, i%, n) (A/F, i%, n)
t=0 t=1 t=2
(n – 1)G

( ​i ​2​ ​( 1 + i )​ n​ i ​(​ 1 + i )​ n​)
​( 1 + i )​ n​ − 1 ______
 − ​  n   ​ ​
Note that only one of the above three gradient factors is needed. Once one of the three cash flows—P, F, P G
​P = G​  _______
​  ​  P
G 2G 3G 4G
or A—is determined, the other two cash flows can easily be determined using other cash flow factors,
(P/G, i%, n)
t=0 t=1 t=2 t=3 t=4 t=n

such as P/F, F/P, A/P, and so forth. For the purpose of this discussion, only the P/G factor will be used. Legend: Given Value Computing Value
The uniform gradient factor can be used to find the present worth of a uniformly increasing or decreasing
cash flow that starts in year 2. A
S

10.5: Annual Cost Method

The annual cost method can compare alternatives that accomplish the same purpose but have different
useful lives. The calculated cost is known as the equivalent uniform annual cost (EUAC). I A
A

R
10.6: Net Present Worth P

The net present worth (NPW) can be used to compare alternatives based on the inclusion of annual
benefits. It is defined as the present worth, P, of benefits minus the P of costs. Furthermore, the NPW
must be greater than zero for the project to be considered acceptable. Table 10.3: Modified Accelerated Cost Recovery System (MACRS) Factors

10.7: Benefit-Cost Ratio Method

The benefit-cost (B/C) ratio method is often used on public works projects where benefits and costs are
allocated to different parts of the community. Using this method, the present worth of all benefits is
divided by the P of all costs. The project is considered acceptable if the B/C ratio equals or exceeds one.

B/C = P of benefits/P of costs

10.8: Rate of Return Method

The rate of return (ROR) is the interest paid on the unpaid balance of a loan. The payment schedule, when
the final payment is made, makes the unpaid loan balance equal zero. To calculate the ROR of the
investment, we must convert the various consequences of the investment into a cash flow (P of benefits –
P of costs = 0; B/C = 1).

Source: NCEES FE Reference Handbook, v. 10.0.1 (p. 232).

10.9.1: Straight-Line Depreciation Commonly Used Abbreviations and Symbols

The straight-line method is used if the depreciation is the same each year. The depreciation basis is
𝐷𝐷𝑗𝑗 =
allocated to the years (n) during the period of depreciation. Depreciation in year j is calculated as:
10.9.2: Sum-of-Years Digits Depreciation
The sum-of-years digits (SOYD) depreciation method results in larger depreciation -values in the early
years of an asset’s life and smaller values as the asset nears the end of its estimated useful life. In SOYD,
the digits from one to n are summed. The total, T, can be calculated by T = (1/2)(n)(n + 1). The
depreciation in year j can be calculated using Dj = (C – Sn)(n – j + 1)/T.
10.9.3: MACRS Depreciation
Property placed into service must use MACRS, under which the cost recovery amount in year j of an
asset’s cost recovery period is calculated by multiplying the initial cost by a factor.
Dj = C × factor
The table below shows the factor that is applied to a specific year, based on the recovery period.
𝐶𝐶 − 𝑆𝑆𝑛𝑛
m an integer
𝑛𝑛
A annual amount
ie annual effective interest rate
t composite tax rate
C cost or present worth of costs
D depreciation
Dj depreciation year j
i effective rate per period
EUAC equivalent uniform annual cost
Sn expected salvage value in year n
f federal income tax rate
F future worth
f general inflation rate
r nominal annual interest rate
n number of compounding periods or life of asset
k number of compounding periods per year
P present worth
DR present worth of after-tax depreciation recovery
s state income tax rate
t time
G uniform gradient amount

10.10: Compound Interest

Compound interest refers to an interest rate that is compounded (accumulated) multiple times in a period Compute the effective interest rate per period.
𝑟𝑟
of time. A compounded interest rate can be converted to an effective annual interest rate. 𝑖𝑖 =
𝑚𝑚
Compute the effective annual interest rate.
𝑟𝑟 𝑚𝑚
10.11: Breakeven Analysis 𝑖𝑖𝑒𝑒 = �1 + � − 1
𝑚𝑚
Breakeven analysis is a way to determine when the value of one option becomes equal to the value of
Where:
another option. This type of analysis can be used to help determine the best of two or more alternatives.
r = annual interest rate
Breakeven analysis involves identifying the -variable of interest and then finding the value of that
m = number of compounded periods per year
variable that will lead to a breakeven condition.
ie = [1 + (0.1/12)]12 − 1 = 10.5%