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Period
1
(1)
(2)=(1)x10%
Amount owed
Interest
at beginning of amount for
period
period
$1,000
$100
(3)=(1)+(2)
Amount
owed at end
of period
$1,100
$1,100
$110
$1,210
$1,210
$121
$1,331
Problem #1
The manager of a canned food processing plant
must decide between two different labeling
machines. Machine A will have a first cost of
$42,000, an annual operating cost of $28,000, and
a service life of 4 years. Machine B will cost
$51,000 to buy and will have an annual operating
cost of $17,000 during its 4-year life. At an
interest rate of 10% per year, which should be
selected on the basis of a present worth analysis?
Engineering Economy, Fourteenth Edition
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
Finding N
Acme borrowed $100,000 from a local bank, which
charges them an interest rate of 7% per year. If Acme
pays the bank $8,000 per year, now many years will it
take to pay off the loan?
So,
Finding i
Jill invested $1,000 each year for five years in a local
company and sold her interest after five years for
$8,000. What annual rate of return did Jill earn?
So,
Cash Flows
2G
(N-1)G
End of Year
2,000
3,000
4,000
5,000
End of Year
Annuity ($)
Gradient ($)
2,000
2,000
1,000
2,000
2,000
2,000
3,000
End of Year
1,000
1,200
1,440
1,728
Copyright 2009 by Pearson Education, Inc.
Upper Saddle River, New Jersey 07458
All rights reserved.
Where
Continuous compounding
interest factors.