New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

ISYE 3025 Engineering Economy - Study Guide for Test 1

by: Moriah Mattson

ISYE 3025 Engineering Economy - Study Guide for Test 1 ISYE 3025

Marketplace > Georgia Institute of Technology > Industrial Engineering > ISYE 3025 > ISYE 3025 Engineering Economy Study Guide for Test 1
Moriah Mattson
Georgia Tech
GPA 3.67

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

This study guide summarizes the previous two notes and goes over concepts in the HW.
Engineering Economy
Kelly Bartlett
Study Guide
Engineering, economy, Economics
50 ?




Popular in Engineering Economy

Popular in Industrial Engineering

This 10 page Study Guide was uploaded by Moriah Mattson on Thursday September 8, 2016. The Study Guide belongs to ISYE 3025 at Georgia Institute of Technology taught by Kelly Bartlett in Fall 2016. Since its upload, it has received 59 views. For similar materials see Engineering Economy in Industrial Engineering at Georgia Institute of Technology.

Similar to ISYE 3025 at Georgia Tech

Popular in Industrial Engineering


Reviews for ISYE 3025 Engineering Economy - Study Guide for Test 1


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 09/08/16
ISYE 3025 Engineering Economics ­ Test 1 Study Guide    Four Basic Principles  1) All alternatives must be considered.   ­ An economic decision is not always the best choice.  ­ Not all choices are obvious  ­ There are always alternatives (at least two options)  ­ One alternative could be to simply “do nothing”       2) The most economic decision is no better than the forecasts   describing each alternative.  ­ Forecasting is trying to predict how something will look like in the future. In  this setting it is talking about the effect each alternative will have on the  future if it were to be chosen.  ­ The decision relies on the certainty of the facts of the other alternatives.  ­ Forecasting includes monetary amounts, monetary timing, and  non­monetary factors.        3) The differences among the alternatives should be used to determine    the most economic decision.  ­ The similarities between alternatives are irrelevant.  ­ The past is also irrelevant, unless it is being used in forecasting.  ­ One example of relevant history is if it is a “sunk cost”  ­ Sunk cost: a cost that has already been incurred and cannot be  recovered.        4) An economics decision should be based on the objective of making    the “best” use of limited resources.  ­ This includes both monetary and non­monetary resources.    Two Viewpoints of Interest:  1) Borrower’s Viewpoint:​ Interest is the cost/the money they paid for the use of  borrowed funds.  2) Investor’s Viewpoint:​ Interest is the return/capital growth from the productive  investment of capital (money loaned with the expectation of a return greater than  the initial investment)    Interest Rate:  ​ ​i = Amount accrued/unit time    Compound Interest:  N Capital Growth = P(1 + i)​   Capital Growth (can be represented as F)​: the total amount of   money after a period of time  N​: amount/number of units of time after initial investment   (e.g. number of years)  P​: initial investment at time equals zero  i​: interest rate in decimal form    Interest Gained = iP(1 + i)​   N Interest Gained​: the interest accrued from time (t) to time (t+1)  ­> all variables are same as above)    Compounding​: Calcula​ting an equivalent amount of money in the ​future amount given  ​ some amount of money in the p ​ resent. (aka: calculating how a present amount of  money will grow over time)  ­ Equivalence: determining if an investment of a certain amount is equal to  receiving an amount in the future  ­ Equivalence depends on amount, timing, and interest rate    Discounting​: Calc ​ ulating an equivalent amount of money in the p ​ resent amount given  ​ some amount of money in the f ​ uture. (opposite of compounding)    Examples of Equivalence:    Conventions​­> The amount is assumed to be paid by the ​end​ of the time frame.      Model 1: Single Cash Flow  This model involves a single payment, which is then analyzed at a later period of time.  The general formula to find the Final amount from a Payment is…  N​ F = P(1 + i)​  =  P(F/P,i,N) ​<­ The part in the parenthesis is read as “Finding F given P   with an interest rate of i, compounded over a period of N” This value can be looked up  in the Appendix with this notation. You can also find an equivalent P for a value at F  with the formula…    ­N​ P = F(1 + i)​  = F(P/F,i,N)      Model 2: Uniform Cash Flow  This model shows a series of equal payments (A) over a certain period of time.  The general formula to find the Final amount from this cash flow model is…  Before Simplification: ​F = A(1 + i)​ N­1+ A(1 + i)​ N­2 + … + A(1 + i) + A  After Simplification: ​F = A [(1 + i)​  ­ 1] / i = A(F/A,i,N)      The general formula to find the payment amount (A) from a Final amount over a period  of time is…  N​ A = Fi / [(1 + i)​  ­ 1] = F(A/F,i,N)      The general formula to find the equivalent Payment (P) to a cash flow (A) so they have  the same Final amount…  P = A [((1 + i)​  ­ 1) / i(1 + i)​ ] = A(P/A,i,N)  The general formula to find an equivalent cash flow (A) to a one time Payment (P)...  N​ N​ A = P [i(1 + i)​  / ((1 + i)​  ­ 1)] = P(A/P.i.N)      Model 3: Arithmetic Gradient Series  This model shows a series of payments that increase linearly over a period of time.    The general formula to find an equivalent one time Payment (P) to the linearly  increasing payments (G) is…  P = G [((1 + i)​  ­ iN ­ 1) / (i​ (1 + i)​ ] = G(P/G,i,N)  The general formula to find an equivalent uniform cash flow (A) for a arithmetic gradient  series (G) is…  A = G [((1 + i)​  ­ iN ­ 1) / (i(1 + i)​  ­ i)] = G(A/G,i,N)      Model 4: Geometric Gradient Series  This model shows a series of payments that increase by a given percentage (g) each  year. The shape of the series changes as g changes.           The general formula for finding an equivalent one time Payment (P) to a geometric  gradient series (A​ ) that incr1​sed at a specified rate (g) is…  N​ ­N​ P = {A​ [(11​ (1 + g)​  (1 + i)​ ) / (i ­ g)] for ​i does not g         {A​ N(1 + i)​  for ​i equals g  1​ P = A​ (P/1​ ,i,g,N1​ Time scale conversions​: a unit change from one time measurement to another.    Formula:​ ​iM1​= (1 + iM2​​2/M1 ­ 1    Nominal Annual Interest Rate:​ The stated interest rate without taking any fees or  compounding interest into account   Rate, r = Mi​ M   Effective Annual Interest Rate:​ The actual interest rate that is associated with an  investment due to compounding over a period of time  M​ i = (1 + iM​)​  ­ 1 ​where i should include all costs and M = number of payments in a  year      NOTES FROM EXAMPLES AND PRACTICE TESTS:    Cash Proceeds = The final amount you will end up with.    Deferred Annuity = The payments/amount of money are/is delayed by a certain  amount of time until an investor chooses to receive them. To solve these  problems, if you are given a final value or uniform cash flow value, you must first  figure out the equivalent amount you will need to make those payments or pay an  amount for a certain time period. Then, you must use that number to figure out  the equivalent amount of money in present conditions. (i.e. You currently have  $A, which will then be $B in 29yrs, which will then allow you to pay $C per year  for 10yrs starting in year 30.)      Convert a Linear Gradient into a Uniform Cash Flow Model = This can be done  using the A/G conversion factor. However, if your G is negative (negative slope)  you must remember that the uniform series was initially subtracted to get the  linear gradient. (i.e. your A will be negative if your G is negative, so you must add  your ­A to the initial value of your linear gradient)    Types of Problems:  ­ Single step cash flow problems  ­ Multi step cash flow problems (use multiple models)  ­ Determine the equivalent for another cash flow model  ­ Determine which option is the better monetary deal  Things to Look Out For/Recommendations:  ­ When being asked how many years it takes, round up to year  ­ Map out problems and recognize how many steps the problem will take  ­ Pay close attention to the differences when given multiple scenarios    Example Monetary Variables:  ­ Rent  ­ Gas  ­ Food  ­ Utilities    Example Non­Monetary Variables:  ­ Commute time  ­ Traffic  ­ Convenience  ­ Social/friends  ­ Amenities   


Buy Material

Are you sure you want to buy this material for

50 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Allison Fischer University of Alabama

"I signed up to be an Elite Notetaker with 2 of my sorority sisters this semester. We just posted our notes weekly and were each making over $600 per month. I LOVE StudySoup!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.