Engineering Economics
Excel
Excel
Example:
P = $10,000, i = 8% per year, n = 5 years, F = ?
P = $10,000
5
F = ???
Hint, when entering numbers, don’t use commas or percent symbols,
dollar signs, etc.
Excel
Use the FV function to find F, the future value.
Note:
PMT and
Type are
blank
($14,693.28)
i = Rate = .08 (not 8)
n = Nper = 5 years
P = Pv = 10000
(no dollar sign or commas)
F=
Excel
Example:
P = $2,000, A = $? Per year for 10 years, i = 7% per year,
n = 10 years.
A = $?
P = $2,000
1
2
3
4 5
i = 7%
6
7
8
9
10
n = 10 years
Excel
Use the PMT function to find A, the equal annual payment.
($284.76)
i = Rate = .07 (not 7)
n = Nper = 10 years
P = Pv = 2000
(no dollar sign or commas)
A=
Excel
Useful financial functions in Excel:
 Present value P: PV (Rate, Nper, Pmt, Fv)
 Future value F: FV (Rate, Nper, Pmt, Pv)
 Equal sum series A: PMT (Rate, Nper, Pv, Fv)
 Number of periods n: NPER (Rate, Pmt, Pv, Fv)
 Compound interest rate i: RATE (Nper, Pmt, Pv, Fv)
Where: Rate = i, Nper = N, Pmt = A, Pv = P, Fv = F
Present Worth of Annuity Series
Example: Lottery
 The lottery company agreed to pay annually an amount of $3.4 M for 15 years
with interest i = 8% find the present worth of those payments using Excel
functions.
P=?
1
2
3
0
N
A
Contemporary Engineering Economics, 5th edition, © 2010
Excel Solution
 Given:
 A = $3.4M
 i = 8%
 N = 15
 Find: P
P =PV(8%,15,3.4,0)
= ??
A = $7.92 million
0
1
2
25
i = 8%
P=?
Example: Early Savings Plan – 8% interest
?
Option 1: Early Savings Plan
0
1
2
3
4
5
6
7
8
9
10
44
$2,000
?
Option 2: Deferred Savings Plan
0
1
2
3
4
5
6
7
8
9
10 11 12
44
$2,000
Option 1 – Early Savings Plan
?
F10  $2,000( F / A,8%,10)
 $28,973
Option 1: Early Savings Plan
0 1 2 3 4 5 6 7 8 9 10
F44  $28,973( F / P,8%,34)
 $396,645
44
$2,000
Age
31
65
Option 2: Deferred Savings Plan
F44  $2,000( F / A,8%,34)
?
 $317,233
Option 2: Deferred Savings Plan
0
11 12
44
$2,000
At What Interest Rate These Two Options Would be
Equivalent?
Option 1:
F44  $2, 000( F / A, i,10)( F / P, i,34)
Option 2:
F44  $2, 000( F / A.i,34)
Option 1 = Option 2
$2, 000( F / A, i,10)( F / P, i,34)  $2, 000( F / A.i,34)
Solve for i
Using Excel’s Goal Seek Function
Result
$396,644
Option 1: Early Savings Plan
0
1
2
3
4
5
6
7
8
9
10
44
$2,000
$317,253
Option 2: Deferred Savings Plan
0
1
2
3
4
5
6
7
8
9
10 11 12
44
$2,000
Unconventional Equivalence Calculations
 Situation 2:
What value of A
would make the two
cash flow
transactions
equivalent if i =
10%?