ENGINEERING ECONOMY FORMULAS

Price Demand: p=a−dB

Optimal Demand:
^ a
D=
2b
D that maximizes profit: a−c
D¿ = v
2b
Cost: b
Cost =aX + +k
X
Total Revenue: TR=pD =( a−bD )=aD−b D 2
Profit: 2
P=−b D + ( a−c v ) D−C F
Breakeven:
'
−( a−c v ) ± √ ( a−c v ) −4 (−b ) (−C F )
D=
2 (−b )
Simple Interest: I =PNi

[ ]
N
1 ( 1+i ) −1 N
( P/G ,i % , N )= −
Present Value in terms of Gradient: i i ( 1+i ) N
(1+i ) N

Annuity and Future Value in terms of Gradient: 1 N

( A/G , i% , N ) = −
i ( 1+i )N −1
Future Equivalent of an arithmetic series: F=P ( F / P ,i % , N )

{[ ]}
N
1 ( 1+ i ) −1 N
F=G − ( 1+ i )N
i i ( 1+ i ) N
( 1+i )
N

{[ ]}
N
1 ( 1+ i ) −1
F=G −N
i i
G NG
F= ( F/ A , i % , N )−
i i

TO FIND: GIVEN: FACTOR BY WHICH FACTOR NAME FACTOR

TO MULTIPLE FUNCTIONAL
“GIVEN” SYMBOL
For single cash flows:
F P ( 1+i )N Single Payment ( F /P , i % , N )
Compound Amount
P F 1 Single Payment ( P/ F , i % , N )
Present Worth
( 1+i ) N
For uniform series (annuities):
F A ( 1+i ) N −1 Uniform Series ( F / A ,i % , N )
Compound Amount
i
 P A ( 1+i ) N −1 Uniform Series ( P/ A , i% , N )
Present Worth
N
i (1+i )
A F i Sinking Fund ( A/ F ,i % , N )
( 1+i ) N −1
A P i (1+i )
N Capital Recovery ( A/ P , i% , N )
N
( 1+i ) −1

{
Geometric Sequence of Cash Flows
A 1 [ 1−( 1+ i ) ( 1+ f ) ]
−N N

P= f ≠1
i−f
−1
A1 N (1+i ) f =1
or

{
A 1 [1−( P /F ,i % , N )(F/ P , f % , N )]
P= f ≠1
i−f
A 1 N (P/F , i% ,1) f =1
Interest Rates that Vary with Time FN
P= N
∏
k =1
(1+i k )

( ) −1
Nominal and Effective Interest Rates M
r
i= 1+
M

Effective Interest Rates for Various Nominal Rates and Compounding Frequencies

Number of Effective Rate (%) for Nominal Rate

Compounding Compounding
Frequency Periods per 6% 8% 10% 12% 15% 24%
Year, M
Annually 1 6.00 8.00 10.00 12.00 15.00 24.00
Semiannually 2 6.09 8.16 10.25 12.36 15.56 25.44
Quarterly 4 6.14 8.24 10.38 12.55 15.87 26.25
Bimonthly 6 6.15 8.27 10.43 12.62 15.97 26.53
Monthly 12 6.17 8.30 10.47 12.68 16.08 26.82
Daily 365 6.18 8.33 10.52 12.75 16.18 27.11

Nominal and Effective Interest Rates Number of payments ( N )=( yr ) ( compoundings

yr )
interest rate
Interest rate per period=
compounding periods

Continuous Compounding and Discrete Cash Flows: Interest Factors and Symbols

TO GIVEN: FACTOR BY WHICH TO FACTOR NAME FACTOR FUNCTIONAL

 FIND: MULTIPLY “GIVEN” SYMBOL
For single cash flows:
rN Continuous compounding compound
F P e amount (single cash flow) ( F /P , r % , N )
−rN Continuous compounding present
P F e amount (single cash flow) ( P/ F , r % , N )

For uniform series (annuities):

rN
e −1 Continuous compounding compound
F A
amount (uniform series)
(F / A ,r % , N )
e r−1
rN
e −1 Continuous compounding present
P A rN r equivalent (uniform series)
(P/ A , r % , N )
e (e −1)
e r−1
A F Continuous compounding sinking fund ( A /F ,r % , N )
e rN −1
e rN (e r−1) Continuous compounding capital
A P rN recovery
( A /P , r % , N )
e −1
Bond Value V N =C ( P/ F , i % , N)+rZ (P / A ,i % , N )

()
Capitalized Worth 1
CW = A
i
Annual Worth AW ( % )=R−E−CR(i %)
Capital Recovery CR (i % )=I ( A / P ,i % , N )−S( A /F , i% , N )
Internal Rate of Return It is the interest r% at which
N N

∑ R k (P/ F , i' % , k )=∑ R k =( P /F ,i ' % , k )

k=0 k=0
External Rate of Return It is the interest i'% at which
N N

∑ E k ( P/ F , ε % , k)( F / P ,i ' % , N )=∑ R k=( F / P , ε ' % , N−k )

k=0 k=0
Payback Period Smallest value of θ(θ ≤ N ) for which the relationship below is satisfied
θ

∑ ( R k−E k )−I ≥ 0
k =1
Discounted Payback Cash Discounted back to the present, so the relationship to satisfy becomes
Flows θ

∑ ( R k−E k ) (P/ F , i% , k )−I ≥ 0

k =1

Present Worth (Investment PW =−Capital + Annual revenue less expense¿

Alternative)
Present Worth (Cost PW =−Capital− Annual expense ¿
Alternative)

Straight Line (Depreciation

in k) B−S V N
dk =
N
Declining Balance Method
d k =B ( 1−R )k−1 ( R )
k
Units of Production Method BV k =B (1−R )

B−S V N
MACRS
( Estimated lifetime productionunits)

d k =r k B ; 1 ≤ k ≤ N +1