AMBO UNIVERSITY

Hachalu Hundessa Campus

Engineering Economics

BY: Hunde Hailu

March 8, 2022, 2022

AMBO, ETHIOPIA
 Course Contents

Chapter 1: Introduction to Construction Economics & Basic

concepts
Chapter 2: Interest and Time Value of Money
Chapter 3: Economic Analysis and Comparison Methods
Chapter 4: Depreciation and inflation
Chapter 5: Replacement Analysis
 Introduction
Definitions: Economics is defined as the study of allocation of scarce resources among unlimited
ends (or wants).
Our wants are unlimited or at least increasing ever and to satisfy all these wants, we need
unlimited supply of productive resources which could provide necessary goods and services to the
community.
However, resources are scarce i.e. limited in supply and obtained at some cost.
Therefore, scarce resources should be used wisely judiciously and more effectively at optimum
level, minimizing the cost and maximizing profit and benefit without compromising the quality of
product or service.
Decisions are made routinely to choose one alternative over another by individuals in everyday life;
by engineers on the job; by managers who supervise the activities of others; by corporate
presidents who operate a business; and by government officials who work for the public good. Most
decisions involve money, called capital or capital funds, which is usually limited in amount.
 Cont’d

Engineers translate an idea into reality. However an idea may be technically excellent incorporating
sound design, latest technology but if it does not convert into real product or service that is affordable
and fit for purposes satisfying needs and requirements of its end users, clients, target group,
beneficiary group, then it is not worthwhile to invest in such ventures.
Engineering economy involves the systematic evaluation of the economic merits of proposed
solutions to engineering problems
By definition

Engineering economy involves formulating, estimating, and evaluating the expected

economic outcomes of alternatives designed to accomplish a defined purpose. Mathematical
techniques simplify the economic evaluation of alternatives.
 Why Engineering Economy is Important?

There are lots of factors that are considered in making decisions. These factors are combinations of
economic and non-economic ones. Engineers play a major role in investment by making decisions
based on economic analysis and design considerations. Thus, decisions often reflect the engineer‟s
choice of how to best invest funds by housing the proper alternative out of a set of alternatives.
The estimates and the decision usually involve four essential elements:
Cash flows
Times of occurrence of cash flows
Interest rates for time value of money
Measure of economic worth for selecting an alternative
 Cont’d
The criterion used to select an alternative in engineering economy for a specific set of estimates
is called a measure of worth. These measures of worth are:

Present worth (PW) Rate of return (ROR) Payback period

Future worth (FW) Benefit/cost (B/C) Economic value added (EVA)
Annual worth (AW) Capitalized cost (CC) Cost Effectiveness

All these measures of worth account for the fact that money makes money over time. This is the
concept of the time value of money.
It is a well-known fact that money makes money. The time value of money explains the change in the
amount of money over time for funds that are owned (invested) or owed (borrowed). This is the most
important concept in engineering economy.
 Performing an Engineering Economy Study

An engineering economy study involves many elements: The steps in an engineering economy study
are as follows:
1. Identify and understand the problem; identify the objective of the project.
2. Collect relevant, available data and define viable solution alternatives.
3. Make realistic cash flow estimates.
4. Identify an economic measure of worth criterion for decision making.
5. Evaluate each alternative; consider noneconomic factors; use sensitivity analysis as needed.
6. Select the best alternative.
7. Implement the solution and monitor the results.
Elements of Engineering Costs

Fixed and Variable

Marginal and average
Direct and Indirect
Sunk and Opportunity
Recurring and Non-recurring
Incremental
Cash and Book
Life-Cycle
 Cont’d

Fixed Costs: They are constant or unchanging regardless of the level of

output or activity. e.g. Depreciation, Taxation, Insurance and Interest.
Variable Costs: They vary with the level of output or activity e.g. Labour costs since they depend on
the number of employees.
Marginal Cost: The variable cost for one more unit
Used to decide whether the additional unit should be made, purchased, or enrolled in
Average Cost: The total cost divided by the number of units
Used to attain an overall cost picture of the investment on a per unit basis
Total cost = Total fixed cost + Total variable cost
 Cont’d

Sunk Costs
Money already spent as a result of a past decision.
Should be disregarded in our engineering economic analysis (because current decision
cannot change the past)
As economists, we deal with present and future opportunities
Opportunity Cost
It is the benefit that is forgone by engaging a business resource in a chosen activity instead
of engaging that same resource in the forgone activity.
 Recurring and Nonrecurring Costs
Recurring Costs
Costs referring to any expense that is known, anticipated, and occurs at regular intervals.
Modelled as cash flows that occur at regular intervals. e.g. resurfacing a highway, annual
operation and maintenance expenses.
Nonrecurring Costs
One-of-a-kind expenses that occur at irregular intervals.
Difficult to plan for or anticipate from a budgeting perspective, both in terms of timing and
size.
You don‟t need to worry about paying them again and again.
e.g. fire or theft losses, installing a new machine, emergency maintenance expenses,
moving expenses.
Incremental Costs
When making a choice among competing alternatives, focus should be placed on the differences
between those alternatives, i.e. incremental costs, not on the costs that are
the same.
Cash Costs versus Book Costs
Cash costs: A cash cost requires the cash transaction of dollars/birr “out of one person‟s pocket”
into “the pocket of someone else”.
i.e. you are incurring a cash cost or cash flow.
Cash costs and cash flows are the basis for engineering economic analysis
Book Costs: Book costs are costs that do not involve cash payments but it represent the recovery of
past expenditures over a fixed period of time. Examples: depreciation charge is a book value for the
use of plant and equipment.
Life-cycle cost: Life cycle cost is equal to sum of all the estimated costs associated with a product,
service or system over its life span starting from
 conceptual planning at the beginning to
 schematic design,
 detailed design,
 construction or production,
 operation and maintenance
 till its disposal at the end of the life span.
Engineers should consider all life-cycle costs when designing products and the systems that produce
them.
l
 Break-even Analysis

The main objective of break-even analysis is to find the cut-off production volume from where a firm
will make profit.
Let
s = selling price per unit
v = variable cost per unit
FC = fixed cost per period
Q = volume of production
The total sales revenue (S) of the firm is given by the following formula:
𝑆 =𝑠×𝑄
The total cost of the firm for a given production volume is given as
𝑇𝐶 = 𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 + 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
= 𝑣 × 𝑄 + 𝐹𝐶
 Cont’d

The linear plots of the above two equations are shown in Fig. below The
intersection point of the total sales revenue line and the total cost line is called the break-even point.

The corresponding volume of production on the X-axis is known as the break-even sales quantity.
 Cont’d

At the intersection point, the total cost is equal to the total revenue. This point is also called the no-
loss or no-gain situation. For any production quantity which is less than the break-even quantity, the
total cost is more than the total revenue. Hence, the firm will be making loss. For any production
quantity which is more than the break-even quantity, the total revenue will be more than the total cost.
Hence, the firm will be making profit.
Profit = Sales – (Fixed cost + Variable costs)
= s × Q – (FC + v × Q)
The formulae to find the break-even quantity and break-even sales quantity
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
Break−even quantity =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒/𝑢𝑛𝑖𝑡 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡/𝑢𝑛𝑖𝑡
 Cont’d
𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
Break-even sales = x 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒/𝑢𝑛𝑖𝑡
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒/𝑢𝑛𝑖𝑡−𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡/𝑢𝑛𝑖𝑡
𝐹𝐶
= xs
𝑠−𝑣
Ex-1
Company A has fixed expenses of ETB15,000 per year and each unit of product has a ETB 0.5
variable cost. Company B has fixed expenses of ETB5,000 per year and can produce the same
product at a ETB 1 variable cost. At what number of units of annual production will Company A have
the same total cost as Company B?
Ex-2
HCB Producing company has the following details:
Fixed cost = ETB 200,000
Variable cost per unit = ETB 10
Selling price per unit = ETB 20
 Cont’d

Find
a) The break-even sales quantity,
b) The break-even sales
c) If the actual production quantity is 6000 find total cost the company ,Sales of the company ,and
profit/loss of the company
 Chapter 2
Interest and Time Value of Money
 …value of money
The principle of time value of money defined as:

The earning power of money, which is related to interest rate,

The buying(purchasing) power of money, which is related to
inflation.

AU, HHIT 20
 Time Value Money

The relationship between money and time leads to the concept of time value of money. A birr or
dollar in hand is worth more than a birr or dollar received „N‟ years from now.
The time value of money is important when one is interested either in investing or borrowing the
money
Money has time value because the purchasing power of money as well as the earning power of
money changes with time.
The time value of money is generally expressed by interest amount.
Interest: is a measure of the increase between the original sum borrowed or invested and the final
amount owed or accrued. It is the growth in value with time.
The original investment or the borrowed amount (i.e. loan) is known as the principal.

Interest = Total amount accumulated – Original investme𝒏𝒕 … … … … … … . (2.1)

 Cont’d

On the other hand, if you had borrowed money from the bank at some time in the past:
Interest = Present amount owed – Original loan … … … … . . (𝟐. 𝟐)
Interest Calculations :When interest is expressed as a percentage of the original amount per
unit time, the result is what is called an interest rate. The most common period or unit of
time is one year.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑐𝑐𝑟𝑢𝑒𝑑 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑡𝑖𝑚𝑒
% 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 = 𝑥100% … . (2.3)
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡
ex.3
A person deposited ETB.1,00,000 in a bank for one year and got ETB.1,10,000 at the end of
one year. Find out the total amount of interest and the rate of interest per year on the
deposited money.
 Cont’d

Solution:
1. using equation 2.1"Interest = Total amount accumulated – Original investment”
E𝑇𝐵110,000 − 𝐸𝑇𝐵100,000 = 𝐸𝑇𝐵10,000
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑐𝑐𝑟𝑢𝑒𝑑 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑡𝑖𝑚𝑒
2. Using equation 2.3 % 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 = 𝑥100
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡

10,000
= 𝑥100%
100,000
i(%)=10%
 Simple interest

The interest is said to simple, when the interest is charged only on the principal amount
for the interest period. No interest is charged on the interest amount accrued during the
preceding interest periods.
In case of simple interest, the total amount of interest accumulated for a given interest
period is simply a product of the principal amount, the rate of interest and the number of
interest periods. It is given by the following expression
𝑰= 𝑷× 𝒏× 𝒊…..(𝟐.𝟒)
𝒘𝒉𝒆𝒓𝒆
𝐼 = 𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
𝑃 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡
𝑛 = 𝑛𝑢𝑏𝑒𝑟𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑠𝑡 𝑝𝑒𝑟𝑖𝑜𝑑
𝑖 = 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑠𝑡
Simple interest reflects the effect of time value of money only on the principal amount.
 Compound interest

The interest is said to be compound, when the interest for any interest period is
charged on principal amount plus the interest amount accrued in all the previous
interest periods.

Compound interest takes into account the effect of time value of money on both
principal as well as on the accrued interest also. The following example will explain
the difference between the simple and the compound interest.
 Cont’d

Ex4:
A person has taken a loan of amount of ETB.10,000 from a bank for a period of 5 years.
Estimate the amount of money, the person will repay to the bank at the end of 5 years for
the following cases;
a) Considering simple interest rate of 8% per year
b) Considering compound interest rate of 8% per year.
Solution:
a) Considering the simple interest @ 8% per year;
The interest for each year ETB.10,0000.08 ETB.800
The interest for each is year is calculated only on the principal amount i.e. ETB.10,000.
Thus the interest accumulated at the end of each year is constant i.e. ETB.800.
The year-by-year details about the interest accrued and amount owed at the end of each
year are shown in Table1.1
 Cont’d
Table 2.1 Payment using simple interest

End of year Amount of interest Total amount owed

(EOY) (ETB) (ETB)
1 800 10,800
2 800 11,600
3 800 12,400
4 800 13,200
5 800 14,000*
* The amount repaid to the bank at the end of year 5 (since the person has to
repay at
EOY 5).
 Cont’d
b) Considering the compound interest @ 8% per year;
The amount of interest and the total amount owed at the end of each year,
considering compound interest are presented in Table 1.2
Table 2.2 Payment using compound interest
End of year Amount of interest Total amount owed
(EOY) (ETB.) (ETB.)
1 800.00 10,800.00
2 864.00 11,664.00
3 933.12 12,597.12
4 1007.77 13,604.89
5 1088.39 14,693.28**
** The amount repaid to the bank at the end of year 5.
 Equivalence
Two things are said to be equivalent when they have the same effect. Economic equivalence refers
to the fact that a cash flow – whether single payment or series of payments - can be converted to
an equivalent cash flow at any point in time
Equivalence indicates that different amount of money at different time periods are equivalent by
considering the time value of money. The following simple example will explain the meaning of
equivalence.
Ex:5
What are the equivalent amounts of ETB.10000 (today) at an interest rate of 10% per year
for the following cases?
a) 1 year from now (future)
b) 1 year before
 Cont‟d
Solution:
a) At interest rate of 10% per year, ETB.10000 (now) will be equivalent to ETB.11000
one year from now as shown below; Amount accumulated at the end of one year 
ETB.100001.10 ETB.11000
b) Similarly ETB.10000 now was equivalent to Rs.9090.90 one year ago at interest rate of
10% per year.
Amount one year before  ETB 10000/1.1 ETB 9090.90
Thus due to the effect of time value of money, these amounts ETB.9090.90 (one year
before), ETB 10000 (today) and ETB 11000 (one year from now) are equivalent at the
interest rate of 10% per year.
 Nominal and Effective Interest Rate
In general, interest charged or earned on the principal amount is quoted as ' i % compounded
annually or i % per year'.
Some times the interest period or time between successive compounding, is less than year. It has
become customary to quote interest rates an annual basis, followed by the compound period if
different from one year in length.
For example, if the interest rate is 6% per six month, it is customary to quote this rate as '12%
compounded semi-annually. The basic annual interest rate, 12% in this case, is known as nominal
interest rate and denoted by „r'.
The actual or exact rate of interest rate earned on the principal during one year is known as effective
interest rate and dented by „i'. The effective interest rate is always expressed on annual basis or per
annum.
 Cont’d

The relationship between effective interest rate 'i' and nominal interest rate 'r' is
𝑟 𝑀
𝑖 = 1 + − 1
𝑀

Where M is number of compounding periods per year.

When M > 1, then i > r
The effective interest rate is useful for describing the compounding effect of interest earned on
interest within one year.
Ex:6
Determine the effective interest rate for a nominal annual rate of 12% that is compounded:
a. Semi annually
b. Quarterly
c. Monthly
 Cash Flow Diagram

Cash flow: The actual Birr or dollar coming into or out of the treasure of a firm. A cash flow occurs
when money is transferred from one organization or individual to other. Thus, cash flow represents
the economic effects of an alternative in terms of money spend or received.
Cash Inflow or Positive Cash Flow: Actual Birr or dollar coming into firm. i.e. receipts or incomes.
Cash Outflow or Negative Cash Flow: Actual Birr or dollar paid out by a firm. i.e. expenditures or
payment.
Net Cash Flow: Difference between total cash inflows (receipts) and the total cash outflows for a
specified period of time. e.g. one year.
 Cash Flow Diagram

Cash flow: Cash flow is the sum of money recorded as receipts or disbursements in a project‟s
financial records.. A cash flow occurs when money is transferred from one organization or individual
to other. Thus, cash flow represents the economic effects of an alternative in terms of money spend
or received.
Cash Inflow or Positive Cash Flow: Actual Birr or dollar coming into firm. i.e. receipts or incomes.
Cash Outflow or Negative Cash Flow: Actual Birr or dollar paid out by a firm. i.e. expenditures or
payment.
Net Cash Flow: Difference between total cash inflows (receipts) and the total cash outflows for a
specified period of time. e.g. one year.
 Cont’d
A cash flow diagram presents the flow of cash as arrows on a time line scaled to the magnitude of the
cash flow, where expenses are down arrows and receipts are up arrows.
Cash outflows are represented by downward arrows
 Cash inflows are represented by upward arrows
Compound interest factors
The compound interest factors and the corresponding formulas are used to find out the unknown
amounts at a given interest rate continued for certain interest periods from the known values of
varying cash flows. The following are the notations used for deriving the compound interest factors.
P = Present worth or present value
F = Future worth or future sum
A = Uniform annual worth or equivalent uniform annual worth of a uniform series
continuing over a specified number of interest periods
n = number of interest periods (years or months)
i = rate of interest per interest period i.e. % per year or % per month
Cont’d
F
 Single payment compound amount factor (SPCAF)
The single payment compound amount factor is used to compute the future worth (F) accumulated
after “n” years from the known present worth (P) at a given interest rate „i‟ per interest period. It is
assumed that the interest period is in years and the interest is compounded once per interest period.
The known present worth (P), unknown future worth (F) and the total interest period “n”
 Cont’d

. If an amount of money P is invested at some time t = 0, the total amount of money (F) that would
be accumulated after one year would be:
Fn = P(1 + i)n………………………….(2.5)
This is the “single-payment compound amount formula” and the values between the parenthesis
(1 + i)n is called the “single-payment compound amount factor”
This equation could be written in the functional notation as:
(F/P, i, n)
Read as: find a future sum “F” given a present sum “P” at an interest rate “i” per period and “n”
interest periods.

Ex:7
If you borrow ETB1,000 at 6% per year compound interest, compute the total amount owed after
three year period?
 Single Payment Present Worth
A
. present sum P can be determined, easily, knowing a future sum F by rewriting Equation 2.5 as
follows:
P = F / (1 + i)n = F (1 + i)−n..........................(2.6)

This is the “single-payment present worth formula” and the values between the parenthesis [1 /
(1 + i)n is called the “single-payment present worth factor”. This equation could be written in the
functional notation as: (P/F, i, n)
Ex:8
How much should be put in an investment with a 10% effective annual rate today to have $10,000
in five years?
 Exercise 1
1. If the population of Ambo is currently 800,000 and the annual constant growth rate is estimated
to be 10%, what will the population be in 10 years from now?
2. How long would it take any sum to triple itself at a 5% annual interest rate?
3. Given a sum of money Q that will be received six years from now. At 5% interest rate, the
present worth now of Q is ETB 60. At this same interest rate, what would be the value of Q ten
years from now?
 Uniform series compound amount
In.this type of investment mode, the objective is to find the future worth of n equal payments which are
made at the end of every interest period till the end of the nth interest period at an interest rate of i
compounded at the end of each, interest period.

A = equal amount deposited at the end of each interest period

n = No. of interest periods
i = rate of interest
F = single future amount
The formula to get F is
𝟏 +𝒊 𝒏−𝟏
𝑭 =𝑨 = A(F/A, i, n)…………………………….(2.7)
𝒊
where
(F/A, i, n) is termed as equal-payment series compound amount factor.
 Cont’d
Ex.9
.
A person who is now 35 years old is planning for his retired life. He plans to invest an
equal sum of ETB10,000 at the end of every year for the next 25 years starting from
the end of the next year. The bank gives 20% interest rate, compounded annually.
Find the maturity value of his account when he is 60 years old.
 Uniform series Sinking Fund
In. this type of investment mode, the objective is to find the equivalent amount (A) that should be
deposited at the end of every interest period for n interest periods to realize a future sum (F) at the end
of the nth interest period at an interest rate of i.

𝒊
𝑨 = 𝑭 = A(A/F, i, n)…………………………….(2.8)
(𝟏 +𝒊 )𝒏−𝟏

where
(A/F, i, n) is called as equal-payment series sinking fund factor.
 Cont’d
Ex:10
.
A company has to replace a present facility after 15 years at an outlay of ETB. 5,00,000. It plans to
deposit an equal amount at the end of every year for the next 15 years at an interest rate of 18%
compounded annually. Find the equivalent amount that must be deposited at the end of every year for
the next 15 years.
 Uniform series present worth factor (USPWF)

The objective of this mode of investment is to find the present worth of an equal payment made at
the end of every interest period for n interest periods at an interest rate of i compounded at the end
of every interest period.

The formula to compute P is

𝟏+𝒊 𝒏−𝟏
P =A = P(P/A, i, n) ------------------(2.9)
𝒊 𝟏+𝒊 𝒏

where
(P/A, i, n) is called uniform series present worth factor
Ex: 11
A company wants to set up a reserve which will help the company to have an annual equivalent
amount of ETB 10,00,000 for the next 20 years towards its employees welfare measures. The
reserve is assumed to grow at the rate of 15% annually. Find the single-payment that must be made
now as the reserve amount.
 Uniform Series Capital Recovery Amount

The objective of this mode of investment is to find the annual equivalent amount (A) which is to be
recovered at the end of every interest period for n interest periods for a loan (P) which is sanctioned
now at an interest rate of i compounded at the end of every interest period.

The formula to compute A is

𝟏+𝒊 𝒏
A=Pi = A(A/P, i, n) -----------(2.9)
𝟏+𝒊 𝒏−𝟏

where
(A/P, i, n) is called uniform series capital recovery
factor.
Ex: 12
A bank gives a loan to a company to purchase an equipment worth ETB10,00,000 at an interest
rate of 18% compounded annually. This amount should be repaid in 15 yearly equal instalments.
Find the instalment amount that the company has to pay to the bank.
 Uniform Gradient Series Annual Equivalent Amount

An arithmetic gradient series is a cash flow series that either increases or decreases by a constant
amount each period. The amount of change is called the gradient
The objective of this mode of investment is to find the annual equivalent amount of a series with an
amount A1 at the end of the first year and with an equal increment (G) at the end of each of the
following n – 1 years with an interest rate i compounded annually.

The formula to compute A under this situation

𝟏+𝒊 𝒏−𝒊𝒏−𝟏
A= A1+G = A1 + G (A/G, i, n) ............(2.10)
𝒊 𝟏+𝒊 𝒏−𝒊

where
(A/G, i, n) is called uniform gradient series factor
Ex: 13
A person is planning for his retired life. He has 10 more years of service. He would like to deposit
20% of his salary, which is ETB4,000, at the end of the first year, and thereafter he wishes to
deposit the amount with an annual increase of ETB500 for the next 9 years with an interest rate of
15%. Find the total amount at the end of the 10th year of the above series.
 Uniform Series Infinite Payments Every t Period

In this case, equal payments, A‟, are invested at the end of equal periods, t (not one year) for an
infinite time. In this case, the interest rate is given annually while the periods are given in different
times (e.g., 4 years). The following equation is used:
𝑨′
A=( )i--------------------(2.14)
(𝟏+𝒊)−𝟏
And from equation

𝟏+𝒊 𝒏−𝟏
P =A using limit of P as n goes to ∞
𝒊 𝟏+𝒊 𝒏
𝑨
P= --------------------------------------------(2.15)
𝒊
Ex: 14
The maintenance of a bridge costs ETB15,000 every 3-years. Calculate
the equivalent uniform annual cost if the interest rate is 5%. Consider this is
an aged project.
Generally to save time
use this table to calculate
interest factors