Engineering Economic Analysis

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122 MORE INTERESTFORMULAS

th~ month. If the bank pays 9% nominal interest, compounded continuously, how much will be

in the gasoline station bank account at the end of the month?

The exampleproblem may be solvedby either Equation 4-47 or 4-48. Here the latter, the general

equation,is used. "

.."

N .al. th

0.09

r = omm mterest rate per mon = - 12 = 0.0075

_

[

(er_1)(ern)

] [

(eO.OO75_ l)(eo.oo 75(1))

]

F = P rer =40,000 0.0075eo.OO75

= 40000

[

(0.0075282)(1.0075282)

]

= $40 150

, 0.00755646 '

p

LJ

9

F

Therewillbe $40,150 in the station's bank account.

Spreadsheets for Economic Analysis

Spreadsheets are used in most real world applications of engineering economy. Common

tasks include the following:

1. Constructing tables of cash flows.


2. Using annuity functions to calculate aP, F, A, N,ori.


3. Using a block function to find the present worth or internal rate of return for a table
   of cash flows.


4. Making graphs for analysis and convincing presentations.


5. Calculating "what-if' for different assumed values of problem variables.

Constructing tables of cash flowsrelies mainly on the spreadsheet basics that are covered in

Appendix A. These basics include using and naming spreadsheet variabl~s,understanding

the difference between absolute and relative addresses when copying a formula, and for-

matting a cell. Appendix A uses the example of the amortization schedule shown in Table

3-1, Plan 3. This amortization schedule divides each scheduled loan payment into principal

and interest and includes the outstanding balance for each period..

Becausespreadsheetfunctionscan be foundthroughpointingandclickingon menus,

those steps are not detailed. In Excel the starting point is theIxbutton. Excel functions are

used here, but there are only minor syntax differences for most other spreadsheetprograms.

Spreadsheet Annuity Functions

In tables of engineering economy factors,iis the table,nis the row, and two ofP, F, A,and

G definea column. The spreadsheetannuity functions list four arguments chosenfromn, A,

P, F,andi,and solve for the fifth argument. TheTypeargument is optional. If it is omitted

or 0, then theAvalue is assumedto be theend-of-periodcash flow.If theAvaluerepresents

the beginning-of-periodcash flow,then a value of 1 can be entered for the Type variable.