Professional Documents
Culture Documents
Page No. 1
K/
@'E <!@ST %FU,)L'?E=M*OL$ )8)
QR
)'=YKKKKK/F5=V
8/M*LV
81?XYLQ6
'$37 876V*/+ W
KR +section[[ [\E=$*
1.2 Simple interest:
J %(%GQ8_!`Fa&%V
'Esimple interestF/M*LFV
'
/FLe, ('%
)*+QF*/ %&QF
)*
8D ,*)+
&'QF61 %(%
U& *
6'/ f/FL?Rgh'6*)+(%
_!`Fa&
K34KKK)*+1 %*)+
W/_Cm
Simple interest: it is calculated based on principle amount
only.
Example 1.1: what is the future equivalent of L.E 1,000
invested at 8% simple interest per year for 2 years?
Solution:
V< F/ f &'D V
'&QF
simple interest rate /nLa a U
K)*+(%
_!`Fa
C/FLe4(%
1 %'future equivalent [ [ oLQ* %FU
Kfuture equivalent = L.E 1160 [ [ [ =Dr(%
)*+Z
/F5=aVs '
)Y /M*LFV
' 5$C4o*U
Engineering Economy
Page No. 2
Amount owed at
beginning of year
Interest amount
per year
L.E 1,000
L.E 100
L.E 1100
L.E 1,100
L.E 110
L.E 1210
L.E 1,200
L.E 121
L.E 1331
$5 /M*LFV
' x/F5=aVs ' ,gy g5="@%6 '
D %
K/F5=aVs '&1z w{a/*Qg4
/ #=?}5 81x)
Y1fR L
RY
+TagQ&Q,
KR +section[[[ [\$C44Fu ?@R8woUz ;LW
1.4 The concept of Equivalence:
)*+JJ@A'?$ ua ?"%6equivalence @F'?
/+ oL?@@e+*4'6%a)
*)+[[
)\Yg%6=4';?@;h8
%,
t8;7 &;MFDV/;+/ %V;/UCF;M7?@ %6
;\'FL5;?@&QF
R*)+/UCF;%M;@'187@;
Ke=LD;FL5e=LD
Engineering Economy
Page No. 3
[[ (%
;
>=<6'=a@'7Q V <"*)! e=LD;?@/=7
R L6,*)+@/MQ?;+ / %Cu)*+QF
,*)+
Kequivalence[[ [ [@F$K/ %)*+
The concept of equivalence: L.E 1,000 today is economically
equivalent to L.E 1100 one year from now if you have an
interest rate 10 % per year.
@?;)
+/L*)+[
8 4,*)KTa7m@
(
K *;
==<67 8
K$e Ffg5 + 5 ;_;\!5\!7 R[ [ [Z[ [ R;8w
(%
;
>6 'a U +//+ V
+/+ WgQ?o*U
/C tT6e <g%? @gh8!&QF
;
&'$</C)5$
34KKKK/
+/L 5
%&Q;6 8/L 5
% 5 @tT6(%
; '
cash flow[[[= 6RKcash flow diagram[ [ [K$<diagram[[
KR +section [ [ [="*)\%$K)6 ?4)
1.5 Cash Flow Diagrams:
K;'1/C%%/<Rcash flow diagram[[
D$5/u u/*? uX!/L(%
;guV<
\w;?@ RQ8@GD4
/+ ? 6/ 46 ?@(%
=wx/ >= =@4
(%
VRn4
4;@7
\<(%
*6,VA'/
VA8/
?guGm&o4*<R@ @7 D 6
K> !< 34/ /L/
/*? /L/
?gu$/=
$ %'Gm<;/* @<M uR'cash flow diagram[[ 4? 6
*YKKK=QgDRREcash in flowF D (%
7F*+/D@'
< aREcash out flowF %8(%
7F*+/% U'$ %&QF
;Gm<;
KYKKKKK *4
Cash inflow (revenues, income, receipts)
Payment Period (year, month, quarter)
x)
YKR
5)'6
!R/=L F846/Q%
3
*5=6%g4&\Q,
='y >+<C
x%'6 Re 5=W
K? 6$=5<
Engineering Economy
Page No. 4
K/nLR@ cash flow diagram [[ [= 6R
L.E 2,000
L.E 5,310
0 1
L.E 3,000
L.E 10,000
Engineering Economy
Page No. 5
P/A
[[[/*R
;?@factor
14
1.2485
$
Engineering Economy
Factor
Factor Formula
F = P ( 1 + i )N
Single Payment
Compound amount
factor.
Finding F(Future
Worth) when given
P(Present Worth)
F = P (F/P , i% , N)
Page No. 6
P=
P = F ( 1 + i )-N
Single Payment
Present Worth
factor.
Finding P when given
F
P = F (P/F , i% , N)
Uniform Series
Payment Compound
Amount Factor
Finding F when given
A ( Annual Worth )
F = A (F/A , i% , N)
P =??
F=
N
( 1 + i )N - 1
F=A
F = ??
A=
0 1
Example
Cash Flow
Diagram
Solution
F = 8,000 (F/P , 10% , 4 )
F= 8,000 ( 1.4641 )
F = L.E 11,712.8
P = 10,000 (P/F , 8% , 6)
P = 10,000 ( 0.6302)
P = L.E 6302
Engineering Economy
Uniform series
payment present
worth factor
Page No. 7
( 1 + i )N - 1
P=A
N
i( 1+i )
A=
01
P =??
Uniform Series
payment sinking fund
factor.
i
A=F
N
( 1 + i) - 1
F=
A =??
01
Uniform series
payment capital
recovery factor
Finding A when given
P
A = P (A/P , i% , N)
i(1 + i)N
A=P
N
(1 + i) - 1
P =
A =??
01
If a certain machine
undergoes a major overhaul
now , its output can be
A = 20,000
increased by 20% which
translates into additional cash
flow of L.E 20,000 at end of
01
5
each year for five years , if i =
15% per year , how much can
P =??
we afford to invest to
overhaul this machine ?
An enterprising student is
planning to have personal
saving totaling L.E 1,000,000
F = 1,000,000
when she retires at age 65,
she is now 20 years old, if the
annual interest will average
01
45
7% over the next 45 years on
A = 1,000
her savings account, what
equal end of year amount must
she have to accomplish her
goal?
What uniform payment at end
P = L.E 1,000
of eight successive years is
01
8
equivalent to L.E 1,000 at the
beginning of the first year,
A =??
Assume that interest rate =
10% per year.
Engineering Economy
Uniform gradient
present worth factor
Finding P when given
G (Gradient)
P=G(P/G , i% , N)
Uniform gradient
annual series factor.
Finding A when given
G
A = G (A/G , i% , N)
Uniform gradient
compound amount
factor
Finding F when given G
F = G (P/G , i% , N)
( F/P , i% , N)
Geometric Series
Page No. 8
1 (1 + i)N - 1
N
P=G
N
(1 + i)N
i i ( 1 + i )
N
A=G
to cash flow in previous
N
i (1 + i) - 1
example.
G (1 + i)N - 1
F=
- N
i
i
( 1 + E )N
- 1
( 1 + i)N
P =D
E -i
P
0
D
1
E
N
( 1 + 0.2 ) 4
- 1
4
( 1 + 0.25)
P = 1,000
0.2 - 0.25
P = L.E 3,103.07
K F3\/MQ?=D@V
+/MQgQ?,)QX %6
5 ' 846a$5Q;57?@"< ?@KKKKKKfactors [[[;DD@$
Engineering Economy
Page No. 9
?!/_ xRV
'@+ST/*V
8/5&%$
67 =a
Kg@@/Q*QWV
'A5@464
7*/nLa\interest rate [[ [7
* ?7gs La\R ?'=*o*U
i = 9 % per year compounded Monthly.
interest *LVA'RPer /5%VA87
$5%<7
*(%
r M
) -1
M
Engineering Economy
Page No. 10
Example 1.4: if the interest rate is 12% per year, what is the
nominal effective per year compounded monthly?
Solution:
&QF6 ?Q-LM %FUmonth XYYear CP [[[
R/nLa \%FU
RgW&QF
R=a*)nL6&M = 12 [[ [i = 12% [[ [*
Rr
K$5
w;?
i=(1+
r M
) -1
M
0.12 = ( 1 +
r 12
) -1
12
r = 11.4 %
Engineering Economy
Page No. 11
Engineering Economy
Page No. 12
5
L.E 25,000
#o*/+ g5g*?(%
Present worth equivalent[[[ o*
Y$5%
*? f/+ *8g@ x8='[[ 25000 [[[ [/
='[[ [ cash flow
?@Factor[ [ [V<_&V +0[ [ P F*+@ Annual [ [ 8,000 [ [ [
Present F*+@
Futureg4w&5,000 [[[D@P/A $)8
V L6 7?/nLaggVD@/+ gT 8KFactor P/F[[[ -L*5@
K$/nLago4?$5Ko ;o+8[[ e <w
PW = - 25,000 + 8,000 (P/A, 20%, 5) + 5,000 (P/F, 20%, 5)
= -25,000 + 8,000 (2.9906) + 5,000 (0.4019) = L.E 934.3
Engineering Economy
Page No. 13
Example 2.2:
Determine the AW of the following engineering project when
the MARR is 15% per year.
Proposal A
Investment cost
L.E 10,000
Expected life
5 years
Market ( Salvage ) value
- L.E 1,000
Annual Receipts
L.E 8,000
L.E 4,000
Annual expenses
Solution:
a(<@%6Investment cost [ [ 8+g R/nLa Cash flow [[[ < %FU
$5%0 [[[cash out flow=Dn[(%
/
F=\a)\M
5 yearsR/nLa\cash flow[[[ < &VA'(%6expected life [ [
4*)%* $=/
?\=a*>+ a(%6Market (salvage) value [[[ $5%
@Annual receipts [[[ $5%cash flow[[[ [/
?\cash in flow M (%
L.E 4,000
0
5
L.E 1,000
L.E 10,000
@BC %FU$cash flow [[[ equivalent [[ Annual worth [ [ $5%
%factor A/P [[[ - (%
Annual F*+ present FR10,000 [[ [
W/nLagSF
Factor A/F - (%
A F*+ F %61,000 [ [ $5
AW = 4,000 10,000 (A/P, 15%, 5) 1,000 (A/F, 15%, 5)
= 4,000 10,000 (0.29882) 1,000 (0.14832) = L.E868.48
Engineering Economy
Page No. 14
Example 2.3:
Determine the FW of
the following cash flow:
L.E 5,000
L.E 8,000
0
L.E 25,000
Solution:
KF /+ g4o* "@CDg56 81nLa * /Q
=M '%FU
FW = 5,000 + 8,000 (F/A, 20%, 5) - 25,000 (F/P, 20%, 5)
= 5,000 + 8,000 (7.4416) 25,000 (2.4883) = L.E 2325.3
Future , present and annual worth equivalent [[[ D %, %FU
KInternal rate of return V
+/+ &x-
2.3 The internal rate of return (IRR):
*_ D D/
Interest rate IRR [[ [ [IRR )
Y(%
"=%?
/
F\
- cash flow [[ PW or AW or FW [ [ o* aY *V'=aV*
K=Dr(%
K0 $$C4C6factor [[[ \Mti [ [? Y& *%6(%
L.E 7,500
24
Engineering Economy
Page No. 15
K='[[ [ )
L?cash flow diagram [[[ PW[[[ o*/+ @
P0 = - 7,500 + 350 (P/A, i%, 24) = zero
(P/A, i%, 24) = 21.43
W@/ %ai [[ [ /*oL@R)L'?E=M
OL$5%
=I%6 )/ %a)GFactor g5g*67?@/Q
=U@Ki [[ [ LW/Q
=U$35\
5Rcash flow [[[ 5Y/_ D+/
U/F%_/Q
=URi [[ [/*o* W
K/Q
=M$3x-L $5 KR/nLaRg x
>M6P [[[ "6i = 10% [[ [G(%
i [[ /'*Q%67?@&%6/*? u/Q
=M
[[ -LE=6o ? o+*8V ?;\5P [[ [ 1=g_6 W 4*J %
Ki /* interpolation
\i [[[/*>M? RY/Q
=M3FM?"? %67
/+ x8 7?@"< ?@ %FU
K8/nLa
Ko+ 1;F*P [[ 1*Q _ Wi [[ *Q%? h8 @
i= 0.75 %
i= 1.00 %
P = L.E 161.185
P = - L.E 64.81
6r 5;? 5Kx <&i [[ Y <&P [[ [1/*? */C <$5%
Present Worth P0
L.E 161.185
1.00%
- L.E 64.81
Interest rate i%
0.75%
W@Q?(%
interpolation [[ [ -L?$5%
161.185 + 64.81 =
1% 0.75%
0.75% i%
1.00%
64.81
1%- i%
i = 0.93%
*/
wP [[[ 5*/
wo
+E=67?@
=U?1?z/nLag4 5
i[[ o*&t*g_6scale [[[ R*Qgu* ?F= /t'S
<E=6i [ [ 5
Ki [ [ [<>&ta>U Q6/MQ?8/=&
K u F>D&48?*/Q/
?XYg? XY
KD&tF6C
Engineering Economy
Page No. 16
Engineering Economy
Page No. 17
Example 3.1:
Two projects are being considered to update power station,
the table below show the cash flow diagram for the two
projects, if MARR is 15% per year, which project should be
selected?? (Using PW Method)
Project A
Project B
Initial Investment
Net Annual Cash
flow
Salvage Value
Useful Life
Solution:
(
'> <%
study period
L.E 9,000
L.E 2,400
L.E 0
6
L.E 6,000
L.E 1,600
L.E 300
6
[[[ \1
LRcash flows16@ST %FU
KPW Method [ [ - M*
Kcash flows1f ? = %/+ @
L.E 2,400
0 1
L.E 9,000
L.E 300
L.E 1,600
0 1
L.E 6,000
K*8g4Present worth [[[ o* %6/+ ? 6
PWA = -9000 + 2400 (P/A, 15%, 6) = -9000 + 2400 (3.7845) =
L.E 82.8
PWB = - 6000 + 1600 (P/A, 15%, 6) + 300 (P/F, 15%, 6) =
= -6000 + 1600 (3.7845) + 300 (0.4323) = L.E 184.89
PWB > PWA!Proposal A [[[ [ gh8@Proposal B [ [ !< @%FUST
KB is selected &QF*8
- study period [ [ \1
LxCash flows161 <Q*R + ua
KRY* <Q"? %6PW Method [ [
Engineering Economy
Page No. 18
Example 3.2:
The following data have been estimated for two mutually
exclusive investment alternatives, A and B, associated with a
small engineering project for which revenues as well as
expenses are involved. They have useful lives of four and six
years, respectively. If MARR = 10% per year, show whish
alternative is more desirable by using present worth method.
A
B
L.E 5,000
Capital Investment
L.E 3,500
L.E 1,480
Annual Cash flow
L.E 1,255
6
Useful life (years)
4
Market Value at end
0
0
of useful life
$5 study period [[[ \1
Lxcash flows 16@ST %FU
study [[[SF16=? e=?!e<=5 L*?@ST L
W<=5@
K/ 12 #period
KRY ?<=5 Y"w=
=4%gFcash flows [ [ &
L.E 1,255
01
L.E 1,255
L.E 1,255
4
L.E 1,255
8
L.E 3,500
12
L.E 3,500
L.E 1,480
0 1
L.E 5,000
L.E 5,000
L.E 3,500
0 1
L.E 3,500
01
L.E 1,480
L.E 1,480
6
L.E 5,000
Cash Flow Diagram for Project (B)
12
Engineering Economy
Page No. 19
Engineering Economy
Page No. 20
A
Capital Investment
L.E 390,000
L.E 920,000
L.E 69,000
L.E 167,000
Annual Cost savings
Solution:
KAlternativeg5/ cash flows[ [@ ?= /nLa \%/+ @%FU
L.E 69,000
01
L.E 167,000
10
L.E 390,000
01
10
L.E 920,000
Engineering Economy
Page No. 21
Example 3.4:
Suppose we are analyzing the following two mutually exclusive
alternatives for a small investment project, the useful life of
each alternative is four years, and the MARR is 10% per year,
which alternative should be chosen using IRR method?
A
B
L.E 73,000
Capital Investment
L.E 60,000
Annual revenues
L.E 22,000
L.E 26,225
less expenses
Solution:
capital [ [ [oLR 6o*6=6Jcash flows[ [ [o6=67?@ %6/+ @
K=D!)\MF4)\!Mcapital investment [ [ \y(%
investment
capital [[ [=\y_!A !F4yC%81F6A*C8K\G*L %FU
KB [[[ investment
(%
Ey F4 %FUFcash flow 16E=U{6 ?
+cash flow o*$5%
KB A o*=Dr
Capital investment
Annual revenues less expenses
BA
L.E 13,000
L.E 4,225
>+<RYIRR [[[ o*=5 8x %FUcash flow B-A [[[ IRR [[[ e $5%
K? F>+<
P0 = -13,000 + 4,225 (P/A, i%, 4) = 0
i = 11.4% per year.
L.E 4,225
01
L.E 13,000
* <Q?B A Incremental cash flow [[[ IRR [ [ [o* % %FU
KMARR[[[ 1
KA < D@g@;%UB < DMARR[[[ [5@;%U
KB < -$5 MARR[[[ 5@;%U /nLa \%FU
Engineering Economy
Page No. 22
L.E 900
L.E 150
L.E 1,500
L.E 276
L.E 2,500
L.E 400
L.E 4,000
L.E 925
L.E 5,000
L.E 1,125
L.E 7,000
L.E 1,425
Solution:
capital 5capital investment =y_!F6=67?@ %6/+ @%FU
o*16=y_@7L$5%/
FF6=7= ?@ %FUinvestment
?< Q6IRR[[[$FLB A )incremental cash flow [ [
7=U@?n '5 %FU ?@E;6 8/nLa \RF< -*1"6MARR[[[
<E=6;?@'=aF;%UIRR [[[ 7 $5%%cash flows [ [
K=7*xU aE {6 ?< Q6IRR[[[Fcash flow [ [
KRYTa?;'R +
Capital investment
Annual revenues less
expenses
IRR
Whish project is
selected
BA
CB
DB
ED
FE
L.E 600
L.E 126
L.E 1,000
L.E 124
L.E 2,500
L.E 649
L.E 1,000
L.E 200
L.E 2,000
L.E 300
16.4 %
B
< 10%
B
22.6 %
D
15.1%
E
8.1%
E
Yes
No
No
Is this the last cash flow?
Yes
Engineering Economy
Page No. 23
AW
i
K * uD ? %6g5 * 8 D/ R/Q
=MRY 8w
Example 3.6:
The city council wants to build new water treatment station,
the city engineers proposed the following two alternatives, if
MARR = 5%, which alternative should be selected?
Nuclear Power
Natural gas
(A)
(B)
L.E 20,000,000
Capital investment
L.E 1,000,000
L.E 250,000
L.E 100,000
Operating cost
L.E 400,000
L.E 600,000
Overhaul every 10
years
30
Life years
Solution:
xG*FL'?g@K/
? ) life years[ [ [;8w?@?
DR
KR cash flows1f [
' < w
0
10
20
L.E 250,000
L.E 400,000
L.E 1,000,000
30
01
10
20
L.E 100,000
30
L.E 600,000
L.E 20,000,000
E/
Lxlife years [ [ %FUF*/?< QAW[[[-L?@e<= ?$5%
K) AW[ [ [)F* @Rg A =a %FU
Engineering Economy
Page No. 24
Engineering Economy
Page No. 25
Chapter 4: Replacement
4.1 Introduction:
g_@$ %* '=8&QF*K+/
*/
/**replacement[[ [/*
3o _@ SF_@- A5o%6g_!3EKKKKKKKg
/*=/4FAsset1%
@Y)Ma=\@L
, ag_!3#/? *_g
@Y
< *D< *Dg_!
K
+g_n)F
=D!(%
gs/
w1/?< Q/*A5@xreplacement[ [ [/*Y7 D
old asset and new 1comparison/nLA5@xreplacement[[[/nL
KE
=D@
g_@1Fasset
x z!Re Ca/
w7 Ireplacement[[[&gs Lg\@F? gF
)87?!R +section [ [\5<7**wC
FKreplacement[ [ /nLg"=%6
KReplacement[ [ e=5&QF6
4.2 Factors that must be considered in replacement study:
/
/Q_cash flows[ [@?= Kreplacement[[[ /*\@7 D 6EF
/ 15TA8 = 5*)+150000[[ 1 /4;
Aw@7?@CuA'?(%
r
1000/? * *46;? 5)*+5000W[[/L/
?\/4a$3#salvage value[[
x1 10)=(%
,=)@/4a$3#cash flow[[= 6*6 a
)*+
)?!/+ \
%x='
)*;
Aw/4a=% 5/L m/L@? ,!?/ 15
K$5&QF*/4cash flow[[[ Y7 I=D!(%
g $x* ?@T a\
L.E 5000
0 1
10
L.E 1000
V
+/47%/4aF6 7?@7 Dn6replacement [[ [ /*g%6*6 aEF
trade [[[ [ /+ )*8$5 K7 /4a*>F*5@/ 3\7 /4aAx*5@
K, %Y/4a=% guin value
&/
K/4a cash flow[[ [)&Mt18$/4a=% Gt;?="%6+
cash out )Mtcash in flow )Mt=6
/Q/4a cash flow [ [
Kflow
/*%_ ;?@(%
replacement[[[ /*%76=?g%*$C47 D
replacement[ [/*g%@?;7?n5(%
insider view[ replacement [ [
Engineering Economy
Page No. 26
V
K/4a=% 7Q*7*cash in flow)?n5 *%*F;?/Q/4a=% 7? F&QF
K/
K/4a cash flow&cash in flow)A=Dr(%
replacement[ /*$=7?n5(%
outsider view [[T;*;?@
,/4a*)RA=%L$?)n5/Q/4a=% 7? F
8V
K@/Q/4aRA6
;8wGFh 7?n5/Q/4a cash flow [ = &cash out flow F*(%
K
A6S
<L\R/4a
/**g%6
Kg_!)F =a
Qg_! cash flow [ [ = 6 %EF
Annual worth [[;GAnnual worth method[ - comparison
K/*? 6/Q
=URn <Q6%'
(%
KGD*method
$n ?Replacement[ [ /*\ 7 D e + W;87?@ XYQ@
K$C4&Examples/
w"6
4.3 Typical Replacement Problems:
Example 4.1:
A firm owns a pressure vessel that is contemplating
replacement. The old pressure vessel has annual operating and
maintenance expenses of L.E 60,000 per year and it can be
kept for five more years, at which time it will have zero
market value. It is believed that L.E 30,000 could be obtained
for the old pressure vessel if it were sold now.
A new pressure vessel can be purchased for L.E 120,000. The
new pressure vessel will have a market value of L.E 50,000 in
five years and will have annual operating and maintenance
expenses of L.E 30,000 per year. Using MARR of 20% per
year, determine whether or not the old pressure vessel
should be replaced. A study period of five years is
appropriate. (Use the insider view point)
Solution:
trade [ [@J< FY\G14a cash flows[[[ A7?@/nLa \%6/+ @
- !?) V
K/4a&cash in flow [ [ 5Gtin value = L.E 30,000
Kinsider view point[ [
01
5
L.E 60,000
L.E 50,000
L.E 30,000
0 1
5
L.E 30,000
L.E 120,000
Engineering Economy
Page No. 27
KCash flow g5 AW[[[ [o*$5%
L.E 2,000
6
L.E 7,000
L.E 6,000
L.E 3,000
0 1
10
L.E 4,000
L.E 24,000
K m F&x$nC
+y_ Y$ 8w> =F
XY
Engineering Economy
Page No. 28
Chapter 5: Depreciation
5.1 Introduction:
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Depreciation: it is the decrease in value of Asset with the
passage of time and use.
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Annual depreciation should be covered during the life year.
5.2 Depreciation Terminology:
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1- Initial Cost (B): the initial cost of Asset.
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2- Book Value (BV): it is the original cost less all value
depreciation, and it represents the amount of capital that
remains invested.
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3- Salvage Value (SV): the estimated value of asset at the
end of its useful life.
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4- Useful life (n): the estimated period that the asset will
be used in.
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Engineering Economy
Page No. 29
B - SV
n
Where: D: Depreciation amount,
B: Initial cost,
SV: Salvage value,
n: useful life.
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BVt =B tD
Where: BVt: Book value at time t,
B: initial cost.
t: time,
D: Depreciation amount.
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5.3.2 Declining Balance Method (DB):
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Engineering Economy
Page No. 30
SV
B
BVt = B (1 - R) t
R =1-n
Dt = BR (1 - R) t-1
Where R: depreciation rate.
D: Depreciation amount.
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Example 5.1:
A new electric saw for cutting small pieces of lumber in
furniture manufacturing plant has an initial cost of L.E 4,000
and 10 year depreciable life. The estimated salvage value of
the saw is L.E 400 at the end of 10 years.
(a) Determine the annual depreciation amount and the book
value at the year 5 using the straight line method.
(b) Determine the depreciation amount at year 5 and the book
value at the same year using declining balance method.
Solution:
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B - SV 4,000 - 400
=
= L.E 360
(a)
n
10
BV5 = B - 5D = 4,000 - 5 360 = L.E 2,200
D=
R =1-n
SV
400
= 1 - 10
= 0.206
B
4,000