Engineering Fundamentals: An Introduction to Engineering, 4th ed.c

Additional values of interest – time factors for other interest rates can be created using

Excel. Keep in mind that you can use those tables or other similar tables found in the back of

most engineering economy text books to determine interest – time factors for interest rates that

compound more frequently than once a year. To do so, however, you must first divide the

quoted nominal interest rateiby the number of compounding frequencymand use the result-

ing number to pick the appropriate interest table to use. You must then multiply the number

of yearsnby the number of compounding frequencymand use the outcome ofntimesmas the

period when looking up interest – time factors. For example, if a problem states an interest rate

of 18% compounding monthly for four years, you use the 1.5% interest table (18/12 1.5),

and for the number of periods, you will use 48 (4  12 48).

20.8 Summary of Engineering Economics Analysis 671

PW =?

0

1 2 3 4 5 67

$1000

$3000

$5000

■Figure 20.5 The cash flow diagram for Example 20.10.

TABLE 20.9 The Interest–Time Factors fori8% (continued)

n (F/P,i,n)(P/F,i,n)(P/A,i,n)(A/P,i,n)(F/A,i,n)(A/F,i,n)

45 31.92044939 0.03132788 12.10840150 0.08258728 386.50561738 0.00258728

46 34.47408534 0.02900730 12.13740880 0.08238991 418.42606677 0.00238991

47 37.23201217 0.02685861 12.16426741 0.08220799 452.90015211 0.00220799

48 40.21057314 0.02486908 12.18913649 0.08204027 490.13216428 0.00204027

49 43.42741899 0.02302693 12.21216341 0.08188557 530.34273742 0.00188557

50 46.90161251 0.02132123 12.23348464 0.08174286 573.77015642 0.00174286

Example 20.10 What is the equivalent present worth of the cash flow given in Figure 20.5? Put another way,

how much money do you need to deposit in the bank today in order to be able to make the

withdrawals shown? The interest rate is 8% compounding annually.

The present worth (PW) of the given cash flow is determined from

PW 10001 P /A, 8%, 4 2  30001 P /F, 8%, 5 2  50001 P /F, 8%, 7 2

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