1.

Amortization
– Any method of repaying a debt, the principal and interest included, usually by a
series of equal payments at equal interval of time.

2. Annuities
– A series of equal payments occurring at equal periods of time.

3. Annuity Due
– One where the payments are made at the beginning of each period.

4. Benefit/Cost Method
– Based on the ratio of the benefits to costs associated with a particular project.

5. Benefit/cost Ratio
– Used by the government agencies for analysing the desirability of public project.

6. Benefits
– Advantages, expressed in terms of pesos which happen to the owner.

7. Bond value
– The value of the bond is the present worth of all future amounts that are expected to
be received through ownership of the bond.

8. Book value
– Sometimes called depreciated book value, is the worth of a property as shown on the
accounting records of an enterprise.

9. Borrowed fund or capital

– Those supplied by others on which a fixed rate of interest must be paid and the debt
must be repaid at specified time.

10. Break-even Chart

– A graphical representation of break-even analysis.

11. Break-even point

– The quantity of production at which the income is equal to total cost.
12. Capital Recovery CR
– is the equivalent annual amount an asset or system must earn to recover the initial
investment plus a stated rate of return.

13. Capitalized Cost

– One of the most important applications of perpetuity, the sum of the first cost and the
present worth of all costs of replacement, operation and maintenance for a long time or
forever.

14. Cash Flow

– The flow of money into and out of a company, project, or activity.

15. Cash Flow Diagram

– Simply a graphical representation of cash flows drawn on a time scale.

16. Common Stock

– Represents ordinary ownership without special guarantees or return.

17. Compound Interest

– The interest for an interest period is calculated on the principal plus total amount of
interest accumulated in previous periods. Thus compound interest means “interest on top of
interest.”

18. Consumer goods and services

– Products or services that are directly used by the people to satisfy their wants.

19. Continuous Compounding

– It is assumed that cash payments occur once per year, but the compounding is
continuous throughout the year.

20. Corporation
– A distinct legal entity, separate from the individuals who own it, and which can
engage in almost any type of business transaction in which a real person could occupy
himself or herself.

21. Declining Balance Method

– Sometimes called the constant percentage method or the Matheson Formula, it is
assumed that the annual cost of depreciation, is fixed percentage of the salvage value at the
beginning of the year.
22. Deferred Annuity
– One where the first payment is made several periods after the beginning of the
annuity.

23. Demand
– The quantity of a certain commodity that is bought at a certain price at a given place
and time.

24. Depletion
– Refers to the decrease in the value of a property due to the gradual extraction of its
contents.

25. Depreciation
– The decrease in the value of physical property with the passage of time.

26. Discount
– The interest paid in advance.

27. Discrete compounding

– The interest is compounded at the end of each finite – length period, such as a month,
a quarter or a year.

28. Do Nothing
- The DN alternative is always an option, unless one of the defined alternatives must be
selected. DN is status quo; it generates no new costs, revenues, or savings.

29. Economic Equivalence

- A combination of time value of money and interest rate that makes different sums of
money at different times have equal economic value.

30. Economic life

– The length of time during which the property may be operated at a profit.

31. Economic Service Life

- The ESL is the number of years n at which the total AW of costs, including salvage and
AOC, is at its minimum, considering all the years the asset may provide service.

32. Effective rate of interest

– The actual or exact rate of interest on the principal during one year.
33. Elastic Demand
– Occurs when a decrease in selling price results in a greater proportionate increase in
sales.

34. Engineering Economy

– the analysis and evaluation of the factors that will affect the economic success of
engineering projects to the end that a recommendation can be made which will insure the
best use of the capital.

35. Equation of value

– Obtained by setting the sum of the values on a certain comparison or focal date of one
set of obligations equal to the sum of the values on the same date of another set of
obligations.

36. Equity Capital or ownership fund

– Those supplied and used by the owners of an enterprise in the expectation that a profit
will be earned.

37. Exact simple interest

– Based on the exact number of days in a year, 3665 days for an ordinary and 366 days
for a leap year.

38. Fair value

– The value which is usually determined by the disinterested third party in order to
establish a price that is fair to both seller and buyer.

39. Financing with Bonds

– A bond is a certificate of indebtedness of a corporation usually for a period not less
than ten years and guaranteed by mortgage on certain assets of the corporation or its
subsidies.

40. Fixed Cost

– Costs which remain constant, whether or not a given change in operations or policy is
adopted.
41. Franchise
– An intangible item of value arising from the exclusive right of a company to provide a
specific product or service in a stated region of the country.

42. Functional depreciation

– Due to the lessening in the demand for the function which the property was designed to
render.

43. Going Value

– An intangible value which an actually operating concern has due to its operation.

44. Goodwill
– That element of value which a business has earned through the favourable
consideration and patronage of its customers arising from its well-known and well conducted
policies and operation. In the amount of money over time for both owned and borrowed
funds.

45. Inadequacy
– The existing asset does not have sufficient capacity to meet the present demands that
are placed on it.

46. Increment Costs

– Those that arise as the result of a change in operations or policy.

47. Individual Ownership

– Also known as Sole proprietorship, the simplest form of business organization, wherein
a person uses his or her own capital to establish a business and is the sole owner.

48. Inelastic Demand

– Occurs when a decrease in the selling price produces a less than proportionate increase
in sales.

49. Inflation
– The increase in the prices for goods and services from one year to another, thus
decreasing the purchasing power of money.

50. Intangible Values

– The determination of the value of the industrial property or equipment.
51. Interest
– The amount of money paid for the use of borrowed capital or the income produced by
money which has been loaned.

52. Luxuries
– Products or services that are desired by human and will be purchased if money is
available after the required necessities have been obtained.
53. Marginal Cost
– The additional cost of producing one more unit of a product.

54. Minimum Attractive Rate of Return (MARR)

- A reasonable rate of return established for the evaluation of an economic alternative.

55. Monopoly
– The opposite of perfect competition. A perfect monopoly exists when a unique product
or service is available from a single vendor and that vendor can prevent the entry of all others
into the market.

56. Necessities
– Products or services that are required to support human life and activities.

57. Obsolescence
– This may be caused either by a lessening in the demand for the service rendered by the
asset or the availability of more efficient assets which will operate with lower- out of pocket
costs.

58. Oligopoly
– Exist when there are so few suppliers of a product or service that action by one will
almost inevitably result in similar action by others.

59. Ordinary Annuity

– One where the payments are made at the end of each period.

60. Ordinary simple interest

– Computed on the basis of 12 months of 30 days each or 365 days a year.

61. Organization cost

– The amount of money spent in organizing a business and arranging for its financing and
building.
62. Partnership
– An association of two or more persons for the purpose of engaging in a business for
profit.

63. Perfect competition

– Occurs in a situation where a commodity or service is supplied by a number of vendors
and there is nothing to prevent additional vendors entering the market.

64. Perpetuity
– An annuity in which the payments continue indefinitely.

65. Physical depreciation

– Due to the lessening of the physical ability of a property to produce result.

66. Physical Impairment

– The existing asset is completely or partially worn out and will no longer function
satisfactorily without extensive repairs.

67. Physical life of a property

– The length of time during which it is capable of performing the function for which it
was designed and manufactured.

68. Preferred Stock

– Preferred stockholders are guaranteed a definite dividend on their stock.

69. Producer goods and services

– Used to produce consumer goods and services or other producer goods.

70. Rate of return

– A measure of the effectiveness of an investment of capital.

71. Rental or lease possibilities

– It is possible to rent identical or comparable asset or property, thus freeing capital for
other and more profitable use.

72. Salvage or resale value

– The price that can be obtained from the sale of the property after it has been used.
73. Sample interest
– Paid in short-term loans in which the time of the loan is measured in days.

74. Scrap value

– The amount the property would sell for if disposed off as junk.

75. Simple interest

– Calculate using the principal only, ignoring any interest that had been accrued in
preceding periods.

76. Sunk Cost

– represents money which has been spent or capital which has been invested and which
cannot be recovered due to certain reasons.

77. Supply
– The quantity of a certain commodity that is offered for sale at a certain price at a given
place and time.

78. The Annual Cost Method

– The annual cost of the alternatives including interest on investment is determined.

79. The Annual Worth Method

– This method, interest on the original investment (sometimes called minimum required
profit.) is inclined as a cost.

80. The capital of corporation

– Acquired through the sale of stock.

81. The Capitalized Method

– A variation of the present worth cost pattern.

82. The Equivalent Uniform Annual Cost Method

– All cash flows must be converted to an equivalent uniform annual cost, that is, a year-
end amount which is the same each year.

83. The face or par velue of a bond

– The amount stated on the bond.
84. The Future Worth Method
– For economy studies is exactly comparable to the present worth method except that all
cash inflow and outflows are compounded forward to a reference point in time call the future.

85. The Law of Diminishing Returns

– When the use of one factors of production is limited, either in increasing cost or by
absolute quantity, a point will be reached beyond which an increase in the variable factors
will result in a less than proportionate increase in output.

86. The market value of a property

– The amount which a willing buyer will pay to a willing seller for the property where
each has equal advantage and is under no compulsion to buy or sell.

87. The Payback Period Method

– Commonly defined as the length of time required to recover the first cost of an
investment from the net cash flow produced by that investment for an interest rate of zero.

88. The Present Worth Cost Method

– Determined the present worth of the net cash outflows for each alternative for the same
period of time.

89. The Present Worth Method

– This pattern for economy studies is based on the concept of present worth, if the
present worth of the net cash flow is equal to, or greater than zero, the project is justified
economically.

90. The Rate of discount

– The discount on one unit of principal for one unit of time.

91. The Service – Output Method

– This method assumes that the total depreciation that has taken place is directly
proportional to the quantity of output of the property up to that time.

92. The Sinking Fund Formula

– This method assumes that a sinking fund is established in which funds will accumulate
for replacement.

93. The Straight Line Method

– This method assumes that the loss in value is directly proportional to the age of the
property.
94. Time Value of Money
- It is a fact that money makes money. This concept explains the change
95. Unamortized value of an Equipment or property
- The different between its book value and its resale value when replaced.

96. Unitary Elasticity of Demand

– Occurs when the mathematical product of volume and price is constant.

97. Utility
– What the property is worth to the owner as an operating unit.

98. Valuation or appraisal

– The process of determining the value of certain property for specific reasons.

99. Value
– The present worth of all future profits that are to the received through ownership of a
particular property.

100. Variable Cost

– Costs which vary with output or any change in the activities of an enterprise.

REFERENCE:
Engineering Economy 3rd Edition by Hipolito B. Sta. MariaP