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# NES124 Engineering Economy

## It is a series of equal payments at equal interval of

time.
It can occur in the following instances.

## Payment of a debt by a series of equal payments at equal

intervals of time.
Accumulation of a certain amount by setting equal
payments periodically.
Substitution of a series of equal payments periodically in
lieu of a lump sum of retirement of an individual

## Ordinary Annuity one whose payments are made at the

end of each period.
1+ 1
=

1 1+
=

## A father deposits 1,000PhP every three months for

five years in a bank that pays 12% compounded
quarterly. Assuming that no withdrawals are made,
how much would be in his account at the end of five
years?

1+ 1
=

= 1,000

0.12 4
1+
4
0.12
4

= 26,870.37

## Deferred Annuity one whose payments does not begin

until some later date or some time in the future. If the annuity
is deferred d periods, then the first payment begins at the
end of period d + 1

1 1+
=

1+

(1)

## If money is worth 16% compounded semi-annually,

find the present value of a sequence of 12 semiannual payments of 3,000PhP each. The first of which
is due at the end of 3 years.

1 1+
=

0.16
1 1+
2
= 3,000
0.16
2

1+

12

0.16
1+
2

= 14,247.02

[2 3.5 1]

## Annuity Due one whose payments begin on the present

and ends at the beginning of the last period.
1 1+
=

1+

(1)

+1

+
1

## The monthly rental of an apartment in Malate is

9,000PhP payable at the beginning of each month. If
money is worth 12% compounded monthly, what is
the cash equivalent of one year rent?

1 1+
=

0.12
1 1+
12
= 9,000
0.12
12

(1)

+
12 1 1

= 102,308.65

+ 9,000

## A philanthropist wants to provide a perpetual

6,000PhP yearly scholarship to be given in one year.
If the money can be invested at 7.5%, how large must
be the grant?

6,000
=
0.075
= 80,000

## land, buildings, construction, and equipment to be

used in the production of foods or the rendering of
services, in other words, the total cost needed to
bring a project to a commercially operable status.

every period.
= + /

= +

## Case II: Perpetual Replacement replacement only,

no maintenance or operation.
= +

= +
1+ 1

## Replacement with replacement, maintenance

and/or operation every period.
= + / +

= + +

1+ 1

## Determine the amount needed now to purchase a

machine for 100,000PhP provided an annual fund of
15,000PhP for operation and maintenance, and to
replace it at the same cost at the end of every tenyear period. Money is worth 7.5% compounded
annually.

= + +

1+ 1
15,000
100,000
= 100,000 +
+
0.075
1 + 0.075 10 1
= 394,247.90

## Calculate the capitalized cost of a project that has an

initial cost of 3,000,000PhP and an additional
investment cost of 1,000,000PhP at the end of every
10 years. The annual operating cost will be
100,000PhP at the end of every year for the first four
years and 160,000PhP thereafter. In addition, there is
an expected recurring major rework cost of
300,000PhP every 13 years. Assume i = 15%.

= + 1 +

+
+

1+ 1

160,000
1,000,000
= 3,000,000 +
1 + 0.15 4 +
10 1
0.15
1 + 0.15
300,000
1 1 + 0.15 4
+
+ 100,000
13
1 + 0.15 1
0.15
= 4,281,935.96

## the interest included usually by a series of equal

payments at equal intervals of time.
1+ 1
=
1+

## A man made a loan of 20,000PhP to be repaid in

equal payments at the end of each year for 6 years. If
the interest is at 7.5% compounded annually,
construct an amortization schedule.

Beginning
Balance

Interest

Payment

Principal

Ending
Balance

1
2
3
4
5
6

20,000.00
17,239.10
14,271.14
11,080.57
7,650.72
3,963.63

1,500.00
1,292.93
1,070.34
831.04
573.80
297.27

4,260.90
4,260.90
4,260.90
4,260.90
4,260.90
4,260.90

2,760.90
2,967.97
3,190.56
3,429.85
3,687.09
3,963.63

17,239.10
14,271.14
11,080.57
7,650.72
3,963.63
0.00

## either increases or decreases by a constant amount

over certain time periods.
A linear gradient is always comprised of two
components:
the base annuity component

= +
1 1+
=

1+ 1

1+
1+

= +
1+ 1

=
+

1+ 1

Aries will pay Leo under Leos terms that Aries shall

pay 1,250PhP next year and years after that until the
10th year with an increase of 250PhP for each year
that passes. If money is worth 9% compounded
annually, how much would Aries pay instead if he
will only pay in one lump sum at the end of the 10 th
year?

= +
1+ 1

=
+

1+ 1

1 + 0.09 10 1
250 1 + 0.09 10 1
10(250)
= 1,250
+

0.09
0.09
0.09
0.09

= 33,415.97

## 10,000PhP from first year to fourth year, 7,500PhP

from fifth year to tenth year and 5,000PhP years
after the tenth year. If money is worth 12%
compounded semi-annually, what present amount
should she deposit to be able to do as she wants?