Engineering Economics

A dollar today is worth more than a dollar in the future because money can earn interest over time.

I = P × i × n, where P is principal, i is the interest rate per period, and n is the number of periods; interest is computed only on the principal.

F = P(1 + i)^n; interest is earned on both the principal and previously accumulated interest.

(F/P, i, n) = (1 + i)^n; multiply a present amount P by it to get future worth F.

(P/F, i, n) = 1 / (1 + i)^n; multiply a future amount F by it to discount to present worth P.

(P/A, i, n) = [(1 + i)^n − 1] / [i(1 + i)^n]; converts an equal annual amount A into present worth P.