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Beatrice Amistoso Abesamis

Simple Interest
F=P+ I
I =Pin

F=P(1+)

Remember:
- Default interest is per year.
- Value of m if:
Semi - Annually - 2
Quarterly - 4
Monthly - 12
Daily - 360
Ordinary Simple Interest
- 1 year = 360 days
Exact Simple Interest
One year is:
- 365 days if ordinary year.
- 366 days if leap year.
It is leap year if:
- Divisible by 4
- If it is century year, it must be
divisible by 400.

Compound Interest
F=P(1+i)n
F=P(1+

r mt
)
m

F=P ern

Effective Rate
ER=(1+ i)n1
ER=er 1

Cash Flow Diagram


1. Draw the cash flow diagram.
Lender's Side - F up, P down
Borrower's Side - P up, F down
2. Set the focal point.
3. Equate up = down.

Annuity

[
[

(1+i)n 1
F=A
i
P= A

1(1+i)
i

DeferredAnnuity
P= A

1(1+i)
i

(1+i)k

Perpetuity
P=

A
i

VARIABLES
F = Future Amount
P = Present Amount
I = Interest
i = Interest Rate
n = Number of Years
m = No. of Compounding Years
t = Number of Years
ER = Effective Rate
A = Annuity
k =Number of Years Before

Beatrice Amistoso Abesamis

Depreciation
Straight Line Method
- Simplest Method
d=

C oC n
n

C
( ndismantle)
C o
n
d=
D m=d (m)

d
x 100
Co

C oC n

(1+i ) 1
i

D m=d

k=

2
n

m1

2
n

( )

d m=C o 1

2
n

Sinking Fund Method


- Annuity-like
- Fixed cost for every year
- Sinking Fund Deposit Factor (Just
multiply with Co
d=

Double Declining Balance


Method
- Exactly similar as DBM but k is
2/n.

2
Cm =C o (1 )
n

Cm =C oDm
k=

Dm=C oCm

(1+i ) 1
i

Dm=C oCm

Sum of the Year's Digit Method


ReverseYear=nm+1

Years=

2
n C
=1 n
n
Co

Cm =C oDm

d m=C o Cn

d m=C o (1k )m1 k

ReverseYear
Years

Dm=d 1+ d2
D m=

Declining Balance
Method/Matheson Formula
- Fixed percentage

n(n+1)
2

(RY 1 + RY 2 )
(C oC n )
Years

Cm =C oDm

Service-Output Method

Cm =C o (1k )

k =1

k =1

Cm
Co
Cn
Co

a. Working Hours Method


d n=

Co Cn
H year
Ht

b. Output Method

Beatrice Amistoso Abesamis

d n=

Co Cn
Q year
Qt

VARIABLES
Co = First Cost
Cn = Cost After n Years / Trade-in Value
n = Life of the Property
Dm = Total Depreciation After m Years
i = Interest Rate
k = Rate of Depreciation
Ht = Total No. of Hours
Hyear = No. of Hours for a Certain Year
Qt = Total No. of Output
Qyear = No. of Output for a Certain Year

Beatrice Amistoso Abesamis

Bonds
Total Periodic Expense
A=

( 1+i )n1
i

I =Fr
A+I

Bond Value

1(1+i)
V n=Fr
i

+C(1+i )

I =Fr
A = Periodic Deposit to the Sinking Fund
Vn = Value of the Bond in n Periods Before
Redemption
F = Face Value
C = Redemption Price/Selling Price
r = Bond rate
I = Interest on the Bond per Period
F = Accumulated Amount, Amount
Needed to Retire the Bond

Gradient
P= A

] [

1( 1+i )n G 1( 1+i )n

n(1+i)n
i
i
i

P = Present Worth of All Cash


Disbursement

Economic Studies
Rate of Return Method
Net Annual Profit
Capital Invested
*Total Annual Cost
> Expenses + Owner's Salary (If given) +
Depreciation Value (Depreciation is not always
an outcome. It can also be an income.): Use
Sinking Fund and Revenue or Sales.
> When given is in %, multiply by the
investment
> If two are given like the other one is the cost
after n years, use depreciation. If ever that the
cost becomes higher after n years, it will be an
income.
* Investment is also called first cost and
project cost.
* Net Annual Profit = Revenue or Sales - Total
Annual Profit (also means earnings before
income taxes)

Beatrice Amistoso Abesamis

Annual Worth Method


*
*
*
*

Given Percent x Investment


Product +Total Annual Cost
Given Revenue - Sum
If Negative (Not Justifiable)

Present Worth Method


* Inflow: Revenue (P/A,%,n) + Salvage
Value(P/A,%,n)
^ Do this if the given has salvage value.
* Outflow: Investment + Expenses (Total
Annual Cost without Depreciation) (P/A,%,n)
* Inflow - Outflow

Future Worth Method

* Payroll taxes are deducted from labor cost.


* Annual Savings = Annual Cost A - Annual
Cost B
* Additional Investment = First Cost A - First
Cost B
* ROR less than interest rate: NO

Annual Cost Method


* Given Percent x Investment
* Product +Total Annual Cost
* Pick the lesser one.

Present Worth Method

* Refer to the Present Worth's Cash Flow


Diagram

* Two different years: Get the multiple.


* Depreciation, Final Year, and First Cost must
be aligned.

Payback (Payout) Method

EUAC

Investment Salvage Value


Net Annual Cash Flow
* Net Annual Cash Flow = Revenue - Total
Annual Cost without Depreciation

Comparing Alternatives
Rate of Return on Additional
Investment
Annual Net Savings
Additional Investment

Annual Cost ( Without Depreciation )+


n

1( 1+ i )
i

Capitalized Cost
Co +

C oC n
n

( 1+i) 1

A
i