Case Study 1 BULLY Arena

ENCE 202
FORTRAN
Handout 1
Introduction to FORTRAN
A. J. Clark School of Engineering Department of Civil and Environmental Engineering
by
Dr. Ibrahim A. Assakkaf

ENCE 202
Spring 2000
Department of Civil and Environmental Engineering
University of Maryland
Dr. Assakkaf
Slide No. 1
ENCE 202
FORTRAN
Handout 1
Introduction
n FORTRAN
FORTRAN = FORmula TRANslation
Developed for the IBM 704 Computer
Developed by John Backus and a team of
13 other programmers
Developed between 1954 and 1957
Dr. Assakkaf
Slide No. 2
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ENCE 202
FORTRAN
Handout 1
Introduction
n FORTRAN is a high-level language

such as BASIC, C, and C++
n A compiler translates each statement in
the program into a sequence of basic
machine language instruction
X = A* B + C
Dr. Assakkaf
Slide No. 3
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FORTRAN
Handout 1
Introduction
Source Program
(high level language)
Compiler
Object Program
(machine language)
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Slide No. 4
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FORTRAN
Handout 1
Program Development
n A program consists of
Input
An execution logic (computation)
Output
n A flow chart is used to develop the
structure
Dr. Assakkaf
Slide No. 5
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FORTRAN
Handout 1
Program Development
n EXAMPLE 1: Volume of a Cylinder

Input:
Diameter, D
Height, h
Computation
D 2
V= h
4

Output:
Volume, V
Dr. Assakkaf
Slide No. 6
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FORTRAN
Handout 1
Program Development
n Flow Chart for Example 1
CALCULATE:
V
OUTPUT:
ENTER:
BEGIN Display END
D and h 2
D Volume(V)
V= h
4

A flow chart is a block diagram that summarizes

the program structure and logic flow
Dr. Assakkaf
Slide No. 7
ENCE 202
FORTRAN
Handout 1
Program Development
n EXAMPLE 2: Height of a Cylinder

Input:
Diameter, D
Volume, V
Computation
4V
h=
2
D
Output:
Height, h
Dr. Assakkaf
Slide No. 8
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ENCE 202
FORTRAN
Handout 1
Program Development
n Flow Chart for Example 2

CALCULATE:
V
OUTPUT:
ENTER:
BEGIN 4V Display END
D and V
h= Height(h)
2
D
A flow chart is a block diagram that summarizes

the program structure and logic flow
Dr. Assakkaf
Slide No. 9
ENCE 202
FORTRAN
Handout 1
Fundamentals of FORTRAN
n The following is a format of a simple

program:
PROGRAM NAME
Opening documentation use
Variables declaration
Program statements
END
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Slide No. 10
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ENCE 202
FORTRAN
Handout 1
n FORTRAN Statements
Positions 7 to 72 of a line can be used. To
continue on the next line, use any character on
position 6 of the next line
n Constants
Examples
-12
1.2345
12.45-e10
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Slide No. 11
ENCE 202
FORTRAN
Handout 1
1 2 3 4 5 6 7 8
1234567890123456789012345678901234567890123456789012345678901234567890 1234567890
C
Statement in columns 7 to 72
Column 73
Character different from 0 or blank in column 6 And beyond
Indicates a continuation of the preceding line Are ignored
Statement labels in columns 1 to 5
C or * in column 1 indicates a comment

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Slide No. 12
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FORTRAN
Handout 1
n Data Types
Integer
Real
Double Precision
Complex
Character
Logical
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Slide No. 13
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FORTRAN
Handout 1
n Variables
Variables starts with a letter
The first letter defines the variable type
Integer or real
The default types are
I, J, K, L, M, and N
These are integers variables if they are used as
the first letter in names
Otherwise, they are treated as real variables
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Slide No. 14
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FORTRAN
Handout 1
n Type Statements
REAL list of variables
INTEGER list of variables
CHARACTER*n list of variables with size
n (default n = 1)
PARAMETER (param1 = value1, param2 =
value2, .etc)
DATA list1/data1/, list2/data2/, , listn/datan?
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Slide No. 15
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FORTRAN
Handout 1
n Examples: Type statements

REAL X, Speed, Height
INTEGER I, M, Q
CHARACTER*2 Var1, Var2
PARAMETER (PI = 3.14159, E = 2.71)
DATA w/1.3/, x,y/2.3, 5.6/
DATA w,x,y/1.3, 2.3, 5.6
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Slide No. 16
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FORTRAN
Handout 1
n Arithmetic Operations
Addition +
Subtraction -
Multiplication *
Division /
Exponentiation **
Example:
Area = (3.14)*(D**2)/4
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Slide No. 17
ENCE 202
FORTRAN
Handout 1
n Priority Rules
** from right to left
* and / from left to right
+ and - from left to right
NOTE:
To avoid confusion, always use parentheses
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Slide No. 18
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FORTRAN
Handout 1
n Standard Library Functions

Examples
SQRT (argument), Square Root
ABS (x), Absolute value
COS (y) Cosine of argument
LN(x) Natural Logarithm
Etc.
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Slide No. 19
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FORTRAN
Handout 1
n Assignment Statements
Variable = expression
Examples
x = 0.234
y = sqrt(x) / 2 + height**3
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Slide No. 20
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FORTRAN
Handout 1
n List-directed Input and Output
PRINT *, output-list (separators are commas)
n Examples:
PRINT * (print a blank line)
PRINT *, Test, Test Test, Test
PRINT *, Interest =, Int Interest = 5
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Slide No. 21
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FORTRAN
Handout 1
n List-directed Input and Output

READ *, input-list (separators are commas)
n Examples:
PRINT *, Enter Velocity and Time?
READ *, VELOC0, TIME
READ *, Int, A
Note: It is a good practice to prompt the user that
input is needed, using PRINT statement before
READ with prompt information
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Slide No. 22
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FORTRAN
Handout 1
Example: Simple Program
n This program calculates the velocity and

height of a projectile given its initial
height, velocity,and constant
acceleration
1 2
Height : h = at + v0t + h0
2
Velocity : v = at + v0
Dr. Assakkaf
Slide No. 23
ENCE 202
FORTRAN
Handout 1
Example: Simple Program
PROGRAM PROJECT
C This program calculates the velocity and height of a projectile given its
C initial height, initial velocity, and constant acceleration. Variables used are:
C HGHT : initial height
C HGHT : height at any time
C VELOC : initial vertical velocity
C VELOC : vertical velocity at any time
C ACCEL : vertical acceleration (Gravity)
C TIME : time elapsed since projectile was launched
REAL HGHT , HGHT, VELOC , VELO, ACCEL, TIME
ACCEL = - .
PRINT *, Ènter initial height, initial velocity, and time?`
READ *, HGHT , VELOC , TIME
HGHT = . * ACCEL * TIME ** +VELOC * TIME + HGHT

VELOC = ACCEL * TIME + VELOC
PRINT *, ÀT TIME `, TIME, ` THE VERTICAL VELOCITY IS `, VELOC

PRINT *, ÀND THE HEIGHT IS `, HGHT
END
Dr. Assakkaf
Slide No. 24
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ENCE 202
FORTRAN
Handout 2
by

ENCE 202
Spring 2000
Dr. Assakkaf
Slide No. 1
ENCE 202
FORTRAN
Handout 2
Structured Programming
n Control Structures
In a structured program, the logical flow
can be of the following types:
Sequential straight-line programs
Selection If statements
Repetition Do loops
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Slide No. 2
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ENCE 202
FORTRAN
Handout 2
n Logical Expressions
Relational Operators
Expression-1 relational-operator expression-2
Relational Operators are:
.LT. Is less than
.GT. Is greater than
.EQ. Is equal to
.LE. Is less than or equal to
.GE. Is greater than or equal to
.NE. Is not equal to
Dr. Assakkaf
Slide No. 3
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FORTRAN
Handout 2
n Logical Operators
They can be used to combine the previous
operators or negate them
Logical operators are:
.NOT. negation
.AND. both true
.OR. one is true
.EQV. both true or false
.NEQV. negation of .EQV.
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Slide No. 4
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FORTRAN
Handout 2
n Logical IF Statement
IF(logical-expression) statement
Logical
Statement TRUE
Expression
FALSE
Example
IF (1.5 .LE. X .AND. X .LE. 2.5) PRINT *, X
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Slide No. 5
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FORTRAN
Handout 2
n Block IF Statement
Type I
IF (logical-expression) THEN
statement 1
statement 2 Block-1 Logical
Block 1 TRUE
Expression
:
:
FALSE
END IF
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Slide No. 6
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FORTRAN
Handout 2
Example: Type 1
IF (X .GT. 0) THEN
Y=X*X
Z = SQRT (X)
Slope = TAN (Z)
END IF
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Slide No. 7
ENCE 202
FORTRAN
Handout 2
Type II
IF (logical-expression) THEN
Block-1
Logical
Block 1 TRUE
ELSE Expression
Block-2 FALSE
END IF Block 2
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Slide No. 8
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ENCE 202
FORTRAN
Handout 2
Sample runs:
n Example: Type II ENTER 3 POLLUTION READINGS:

55, 39, 48
PROGRAM POLLUT SAFE CONDITION
CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC
C Program that reads 3 pollution LEVELS, calculates a pollution INDEX as their ENTER 3 POLUTION READINGS:
C average, and then displays a safe condition message if this index is less than some 68, 49, 57
C CUTOFF value, otherwise displays a hazardous condition message. HAZARDOUS CONDITION
CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC
INTEGER CUTOFF, LEVEL1, LEVEL2, LEVEL3, INDEX

PARAMETER (CUTOFF = 50)
PRINT *, ` ENTER 3 POLLUTION READINGS:`

READ *, LEVEL1, LEVEL2, LEVEL3
INDEX = (LEVEL! + LEVEL2 + LEVEL3) / 3.0
IF (INDEX .LT. CUTOFF) THEN
PRINT *, `SAFE CONDITION`
ELSE
PRINT *, `HAZARDOUS CONDITION`
END IF
END
Dr. Assakkaf
Slide No. 9
ENCE 202
FORTRAN
Handout 2
n Nested IF Statements
They are used for multi-alternative selection
structure as follows:
IF (logical-expression-1) THEN
Block-1
ELSE
Block-2
ELSE
Block-3
END IF
END IF
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Slide No. 10
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ENCE 202
FORTRAN
Handout 2
n Nested IF Statements
An alternative format for the previous nested IF
structures is as follows:
Block-1
ELSE IF (logical-expression-2) THEN
Block-2
ELSE IF (logical-expression-3) THEN
Block-3
:
ELSE
Block-n
END IF
Dr. Assakkaf
Slide No. 11
ENCE 202
FORTRAN
Handout 2
n Repetition Structure (The DO and

CONTINUE statements)
DO n, control-variable = initial-value, limit, step-size
statement
:
DO n, control-
: variable =
Exit initial-value, loop
n continue limit, step-
size
Body
NOTE that the default for step size =1

Also, note that statement number must be in columns 1 to 5
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Slide No. 12
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ENCE 202
FORTRAN
Handout 2
n Nested DO Loops
Legal Structure Illegal Structure
DO 5, I = 1, 10 DO 5, I = 1, 10
Statement-Set-1 Statement-Set-1
DO 6, J = 1, 5 DO 6, J = 1, 5
6 CONTINUE 5 CONTINUE
5 CONTINUE 6 CONTINUE
DO 5, I = 1, 10 DO 5, I = 1, 10
IF (expression) THEN IF (expression) THEN
END IF 5 CONTINUE
Statement-Set-3 END IF
5 CONTINUE Statement-Set-3
Dr. Assakkaf
Slide No. 13
ENCE 202
FORTRAN
Handout 2
n The WHILE (repetition) Statement

The WHILE loop is similar to the DO loop with
unknown number of repetitions. The number of
repetitions is determined by a logical expression.
Two forms for WHILE statement can be used:
Form I of WHILE Loop Form II of WHILE Loop
WHILE (logical expression) DO DO WHILE (logical expression)

statements Statements
: :
: :
END WHILE END DO
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Slide No. 14
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ENCE 202
FORTRAN
Handout 2
n GO TO Statement
Form I
n IF (logical-expression) THEN
Statements
:
:
GO TO n
END IF
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Slide No. 15
ENCE 202
FORTRAN
Handout 2
n GO TO Statement
Form II
n statements
:
:
IF (logical-expression) GO TO n
NOTE: Standard FORTRAN does not include a WHILE statement. Nevertheless, this
Important control structure can be implemented in standard FORTRAN by using a
GO TO statement within an IF construct
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Slide No. 16
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ENCE 202
FORTRAN
Handout 2
n Examples: DO WHILE & GO TO

DO WHILE GO TO
(standard Fortran)
DO WHILE (SUM .LE. LIMIT) 10 IF (SUM .LE. LLIMIT) THEN

NUMBER = NUMBER + 1 NUMBER = NUMBER + 1
SUM = SUM + NUMBER SUM = SUM + NUMBER
END DO GO TO 10
END IF
Dr. Assakkaf
Slide No. 17
ENCE 202
FORTRAN
Handout 2
Input and Output
n Non-formatted input and output was

discussed earlier
n Formatted Output
There are two output statement in
FORTRAN, the PRINT statement and the
WRITE statement. The PRINT statement
is the simpler of the two and has the form
PRINT format-identifier, output-list
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Slide No. 18
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ENCE 202
FORTRAN
Handout 2
Input and Output
n EXAMPLE: Formatted Output

PRINT 10, N, Y, Z
10 FORMAT (list of format descriptors)
OR
10 FORMAT (1X, I5, 2F8.2)

NOTE: the 2 is to repeat the instruction
Dr. Assakkaf
Slide No. 19
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FORTRAN
Handout 2
Input and Output
n Control Characters
I = integer
F = real number in decimal format
E = real number in scientific format
D = F or E input/output, depending on value
nX = horizontal spacing
/ = vertical spacing
A = character data
Example:
FORMAT (1X, 2(A, F6.2)) Dr. Assakkaf
Slide No. 20
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FORTRAN
Handout 2
Input and Output
n Formatted Input
The READ statement is for reading from the
default input device (such as the keyboard)
READ format-identifier, input-list
It is common to use non-formatted (or called free

format) read as follows:
READ *, input-list
Dr. Assakkaf
Slide No. 21
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FORTRAN
Handout 2
Input and Output
n The WRITE Statement

This statement is used to write to output files
WRITE (control-list) output-list
Control-list consists of the following:

unit-specifier for output device such as printers (*prints
on screen)
Format-identifier statement (*means free format)
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Slide No. 22
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FORTRAN
Handout 2
Input an Output
n EXAMPLES: WRITE Statement
WRITE (6, *) X, Y
WRITE (UNIT = 6, FMT = *) X, Y
WRITE (*, *) X, Y
same as PRINT *, X, Y
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Slide No. 23
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FORTRAN
Handout 2
Input and Output
n The General READ Statement
READ (control-list) input-list

n Examples:
READ (UNIT = 5, FMT = *) X, Y
READ (5, *) X, Y
READ (*, *) X, Y ==> same as READ, * X, Y
READ (12, *, END = 50) X, Y
The last statement means go to statement 50 when the end of data is encountered
Dr. Assakkaf
Slide No. 24
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ENCE 202
FORTRAN
Handout 2
Input and Output
n File Processing
It is common to have a need for large
input/output. Files can be on magnetic
tapes, disks, or hard drive. Using files
requires the following steps:
To open an existing file or create a new file:
OPEN (open-list)
To close a file:
CLOSE (close-list)
Dr. Assakkaf
Slide No. 25
ENCE 202
FORTRAN
Handout 2
Input and output
n Example: File Processing
OPEN (UNIT = 13, FILE = `File-name`, SATAUS = `NEW`)

(You may use also STATUS = ÒLD` to open an existing file)
CLOSE (13)
(where 13 is the unit number
Dr. Assakkaf
Slide No. 26
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ENCE 202
FORTRAN
Handout 2
Input and Output
n File Processing
Other features
REWIND unit
(go to initial point for unit such as 13 (use a
number))
BACKSPACE unit
(go to the beginning of preceding record in unit
such as 13 (use a number))
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Slide No. 27
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ENCE 202
FORTRAN
Handout 3
by

ENCE 202
Spring 2000
Dr. Assakkaf
Slide No. 1
ENCE 202
FORTRAN
Handout 3
Nonnumeric Data Types
n Logical Data Type

Logical variables can take one of the
following two values
.TRUE.
.FALSE.
Declare logical variables using:
LOGICAL list-of-variables
Dr. Assakkaf
Slide No. 2
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ENCE 202
FORTRAN
Handout 3
Nonnumeric Data Type
n Logical Data Type

Assignment Statements
logical-variable = logical-expression
e.g.
X = .TRUE.
Y=x
Logical Operators
.NOT. .AND. .OR. .EQV. .NEQV.
Dr. Assakkaf
Slide No. 3
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FORTRAN
Handout 3
Nonnumeric Data Type
n Logical Data Type

Examples
Z = X .OR. Y
Z = (X .LT. 1.5) .AND. .NOT. Y
The latter statement means assign the value
true to Z if an only if X < 1.5 and Y is false.
Note X = real variable, Y = logical variable
Dr. Assakkaf
Slide No. 4
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FORTRAN
Handout 3
Character Data Type
n Declare using the type statement

CHARACTER *n, list
where n = length of each variable in the list
Examples:
X = `COMPUTER`
X (4:6) = `PUT`
They are treated like arrays
X ( :4) = `COMP` (default is 1 for the first #)
X (n:n+2) = `COM` (for n = 1)
Dr. Assakkaf
Slide No. 5
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FORTRAN
Handout 3
Character Data Type
We can compare character values using

.LT., .GT., .EQ., .LE., and .NE. They are
based on the sequence of ASCEII number
equivalent.
Printing Logical Values
PRINT *, A, B
Dr. Assakkaf
Slide No. 6
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FORTRAN
Handout 3
One Dimensional Arrays
n Variables can be classified as:

Simple Variables
data structure or arrays
n To establish a data structure use
DIMENSION X(1:10)
REAL X
OR
REAL X(10)
DIMENSION X(10)
Dr. Assakkaf
Slide No. 7
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FORTRAN
Handout 3
which means that X can take values X(1), X(2), ...

X(10). In general, the statement is as follows:
DIMENSION List
The list consists of array-name (l : u), where l =

lower size, and u = upper size as integers. l and u
are integers, e.g., -2, -1, 3, 10, 1000, 0.
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Slide No. 8
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FORTRAN
Handout 3
One dimensional Arrays
n Input and Output of Arrays

Three Methods:
1. Do loops
2. Array names
3. Implied Do loops
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Slide No. 9
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FORTRAN
Handout 3
n Examples: Input and Output of Arrays

Example 1
DIMENSION X(5)
DO 10 I = 1, 5
10 READ *, X (I)
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Slide No. 10
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FORTRAN
Handout 3
n Examples: Output and Input of Arrays

Example 2
READ *, X(1), X(2), X(3), X(4), X(5)
Example 3
READ 10, X
10 FORMAT (5F6.1)
Note: It reads X(1) to X(5)
Dr. Assakkaf
Slide No. 11
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FORTRAN
Handout 3
n Examples: Output and Input of Arrays

Example 4
READ *, (X(I), I = 1, 5)
or
N=5
READ *, (X(I), I = 1, N)
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Slide No. 12
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FORTRAN
Handout 3
n In general the READ or PRINT can be:
READ *, (input/output list, control-variable = initial value, limit)
PRINT *, (input/output list, control-variable = initial value, limit)
Example
READ (*, *, END = 10) (X(I), I = 1, 100)
The END means that once data are read go to statement number 10
Dr. Assakkaf
Slide No. 13
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FORTRAN
Handout 3
n PARAMETER and DATA Statements

These statements are used to input
constants in programs. The values can be
real, integer, or character
PARAMETER (par1 = val1, par2 = val2, )
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Slide No. 14
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FORTRAN
Handout 3
n Examples: PARAMETER Statements

Example
REAL PI
PARAMETER (PS = 3.14)
Example
CHARACTER * (*) X
PARAMETER (X = TEST)
The (*) in the firs statement means that length is the
same as the value of X. In the second statement
the length is 4
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Slide No. 15
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FORTRAN
Handout 3
n DATA Statement
DATA list1/data1/, list2/data2, ..., listk/datak/
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Slide No. 16
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FORTRAN
Handout 3
n Examples: DATA Statements

Example
REAL X(5)
DATA X/1,2,3,4,5/
Example
INTEGER N, I
REAL X(10)
DATA N, (X(I), I = 1, 5)/5, 5 *0.0/
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Slide No. 17
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FORTRAN
Handout 3
Multi-Dimensional Arrays
n Multi-dimensional arrays can be

declared using DIMENSION statements
or type (e.g., REAL, INTEGER, etc.)
statements.
n Example
REAL array-name (l1 : u1, l2 : u2, ..., lk : uk)
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Slide No. 18
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Handout 3
n Example
REAL X(2,5)
The result of statement is declaring X as a
2 by 5 array. Also, it can declared using
one of the following statements:
DIMENSION X(2, 5)
REAL X(1:2, 1:5)
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Slide No. 19
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FORTRAN
Handout 3
n Processing multi-dimensional arrays

Two-dimensional arrays can be processed
either (1) row-wise, (2) column-wise.
Column-wise processing is the default.
Multi-Dimensional arrays, process them
column wise that is first subscript is varied
first, then second subscript followed by
third ... and so on.
Dr. Assakkaf
Slide No. 20
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FORTRAN
Handout 3
n Input and Output of Arrays

The input and output of arrays can be
performed using (1) DO loops, (2) array
name, or (3) Implied Do loops
Example
REAL X(4,3)
DO 20 I = 1,4
DO 10 j = 1, 3
READ *, X(I, J)
10 CONTINUE
20 CONTINUE Dr. Assakkaf
Slide No. 21
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FORTRAN
Handout 3
Example
INTEGER X(2,3)
READ *, X
The above statements results in reading X
column wise. If we read 3, 4, 8, 9, 10, 5,
the result is the following matrix:
3 8 10

4 9 5
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Handout 3
n Example
In general use a read or write statement
with (input/output list, control-variable =
initial-value, limit) as an implied DO loop.
For example
READ*, ((X(I, J), J = 1,4), I = 1,3)

column row
Dr. Assakkaf
Slide No. 23
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FORTRAN
Handout 3
This is the same as

READ *, (X(I,1), X(I,2), X(I,3), X(I,4)), I = 1, 3)
which is the same as

READ *, X(1,1), X(1,2), X(1,3), X(1,4), X(2,1), X(2,2),
+X(2,3), X(2,4), X(3,1), X(3,2), X(3,3), X(3,4)
Dr. Assakkaf
Slide No. 24
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ENCE 202
FORTRAN
Handout 4
by

ENCE 202
Spring 2000
Dr. Assakkaf
Slide No. 1
ENCE 202
FORTRAN
Handout 4
Functions and Subroutines
n The objective herein is to use a top-

down approach to solve complex
problems by dividing them into a
structured modular computational form
n The following topics are covered:
(1) standard functions,
(2) statement functions,
(3) function subprograms, and
(4) subroutine subprograms
Dr. Assakkaf
Slide No. 2
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FORTRAN
Handout 4
n Standard (Library) Functions

SIN(x) Sine of x (in radian)
COS(x) Cosine of x (in radian)
TAN(x) Tangent of x (in radian)
LOG(x) Natural logarithm of x
LOG10(x) Common (base 10) logarithm
.
.
Refer to attached Table for more functions
Dr. Assakkaf
Slide No. 3
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FORTRAN
Handout 4
n Statement Functions
The statement should be used in the same
unit of program where function is used and
immediately after the specification
statements (before any executable
statements).
name (argument-list) = expression
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Slide No. 4
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FORTRAN
Handout 4
n Statement Functions (contd)

The function name follows the same rules
of variables for type (real or integer). The
argument list can be empty
Example:
REAL A, B, Z, T The result is T = 9
Z(A,B) = A+B
:
X=3
Y=4
T = Z(X,Y) + 2
PRINT *, T Dr. Assakkaf
Slide No. 5
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FORTRAN
Handout 4
n Function Subprograms
The structure for a function subprogram is the
same as a FORTRAN programs as follows:
FUNCTION name(argument-list)
Declaration part
Subprogram statements
RETURN
END
Dr. Assakkaf
Slide No. 6
3
ENCE 202
FORTRAN
Handout 4
n The statement return is not needed all

the time
n It is used to return to the main program
n The computed value goes to the
location were the function was called
n The result from the function is returned
by the function name
Dr. Assakkaf
Slide No. 7
ENCE 202
FORTRAN
Handout 4
n Example:
FUNCTION F(X,Y,N)
REAL X, Y
INTEGER N
F = X**N + Y**N
RETURN
END
Dr. Assakkaf
Slide No. 8
4
ENCE 202
FORTRAN
Handout 4
n The above function of the example can

be called in the main program as
follows:
W = F(A,B+3.0,2)
or
Z = F(R(I),SIN(A),K)
Dr. Assakkaf
Slide No. 9
ENCE 202
FORTRAN
Handout 4
FUNCTION FUNC (...)

Statements
Main Program RETURN
PROGRAM MAIN END
Statements
:
Y=FUNC (...) SUBROUTINE SUB (...)
: Statements
CALL SUBROUTINE SUB RETURN
: END
CALL SUBROUTINE SUB
:
:
END SUBROUTINE SUB (...)
Statements
RETURN
END
Dr. Assakkaf
Slide No. 10
5
ENCE 202
FORTRAN
Handout 4
Subroutines
n Subroutine Subprograms
Similar to Function subprograms with the following
differences:
1.Functions return one value; whereas Subroutines return
no value, one or more values.
2.Returned values by Functions are their names; whereas
Subroutine names do not return values, Subroutine
output is part of the arguments
3.A Function is referenced using its name in an
expression; whereas subroutines are referenced by a
CALL statement
Dr. Assakkaf
Slide No. 11
ENCE 202
FORTRAN
Handout 4
Subroutines
n Structure of Subroutines
SUBROUTINE name(argument-list)
Declaration Part
Subprogram Statements
RETURN
END
Dr. Assakkaf
Slide No. 12
6
ENCE 202
FORTRAN
Handout 4
Subroutines
n The input and output list is the argument list

which can be empty
n The arrays in a subroutine can be of variable
sizes that are declared using the DIMENSION
or REAL statement (among others) with a
size that is specified by a variable in the
argument list
n In the main program, use CALL subroutine-
name (argument-list) to execute the
subroutine
Dr. Assakkaf
Slide No. 13
ENCE 202
FORTRAN
Handout 4
Subroutines
n Example:
SUBROUTINE MEAN(X,N,Z)
SUM = 0
INTEGER N
REAL X(N), Z, SUM
DO 10 I = I, N
SUM = SUM + X(I)
10 CONTINUE
Z = SUM/N
RETURN
END
Dr. Assakkaf
Slide No. 14
7
ENCE 202
FORTRAN
Handout 4
Subroutines
n In the main program, the following is

permissible:
REAL Y(100) , AVERAG

M = 10
CALL MEAN(Y,M,AVERAG)
Dr. Assakkaf
Slide No. 15
ENCE 202
FORTRAN
Handout 4
Subroutines
n COMMON Statement
This statement is used to share information
between main Program and Subprograms and
among subprograms. It takes the following form:
COMMON list
The list is the list of variables or arrays separated

by commas
Dr. Assakkaf
Slide No. 16
8
ENCE 202
FORTRAN
Handout 4
Subroutines
n Example
In the main program, use
COMMON A, B, C
In the subprograms, use
COMMON X, Y, Z
The results of these two statements is that
A takes on the same value as X, B takes
on same values as Y, and C takes on the
same value as Z.
Dr. Assakkaf
Slide No. 17
ENCE 202
FORTRAN
Handout 4
Subroutines
n In general, the statement can be as follows:

COMMON /name1/list1/ name2/list2 ...
Example:
In the main programs, use
COMMON/N1/ X, Y, Z/N2/A, B, C/N3/D, E, F
In subprogram 1, use
COMMON/N1/ XX, YY, ZZ/N3/DD, EE, FF
In subprogram 2, use
COMMON/N3/DD, EE, FF
Dr. Assakkaf
Slide No. 18
9
ENCE 202
FORTRAN
Handout 4
Double Precision
n Real data are commonly treated using

single precision, i.e., single memory
location for each number which
corresponds to 32-bit word. The result
is an accuracy of about 7 significant
digits. Double precision allows for
doubling the above quantities
Dr. Assakkaf
Slide No. 19
ENCE 202
FORTRAN
Handout 4
Double Precision
n Use a type statement to specify double

precision as follows:
DOUBLE PRECISION Z, X(2, 3)
FUNCTION F(X, Y)
DOUBLE PRECISION F, X, Y
END
n In writing or printing numbers 1.E-3
becomes 1.D-3
Dr. Assakkaf
Slide No. 20
10
ENCE 202
FORTRAN
Handout 4
Double Precision
n In general, the read and write control is
rDw.d
where
r = repetitions,
w = width, and
d = number of digits
Dr. Assakkaf
Slide No. 21
ENCE 202
FORTRAN
Handout 4
Fortran Application Examples
n Newtons Method (Numerical Analysis)

This program illustrates the Newtons
method on the function:
f ( x) = x 3 3x 2 x + 9 = 0
Calls: NEWT
Output (form Function F)
X=Value of X at current iteration
F=Functional value at x
Dr. Assakkaf
Slide No. 22
11
ENCE 202
FORTRAN
Handout 4
f
p( x) = f ( x0 ) + f ( x0 )( x x0 )
(Tangent line)
Approximation
Given by a
Newton Step f ( x0 )
f ( xi )
xi +1 = xi
f ( xi )
f (x )
x
x1
x0
Dr. Assakkaf
Slide No. 23
ENCE 202
FORTRAN
Handout 4
PROGRAM NEWTON
X0=-2.0
EPS=0.00001
C
C SUBROUTINE NEWT IS USED TO FIND A
C ROOT STARTING WITH THE INITIAL GUESS
C X0
CALL NEWT(X0,X,EPS)
STOP
END
Dr. Assakkaf
Slide No. 24
12
ENCE 202
FORTRAN
Handout 4
SUBROUTINE NEWT(X0,X,EPS)
C **************************************************************************
C * FUNCTION: THE SUBROUTINE APPROXIMATES THE ROOT
C* OF F(X)=0 GIVEN THE INITIAL POINT X0 AND
C* THE DERIVATIVE FUNCTION DF(X) USING THE
C* NEWTON METHOD
C * USAGE:
C* CALL SEQUENC: CALL NEWT(X0,X,EPS)
C* EXTERNAL FUNCTIONS/SUROUTINES:
C* FUNCTION F(X)
C* FUNCTION DF(X)
Dr. Assakkaf
Slide No. 25
ENCE 202
FORTRAN
Handout 4
C* PARAMETERS:
C* INPUT:
C* X0=INITIAL ROOT APPROXIMATION
C* EPS=ERROR BOUND
C* OUTPUT:
C* X=NEWTON APPROXIMATION OF THE ROOT
C ***********************************************************************
C **** INITIALIZATION ****
X=X0-(F(X0)/DF(X0))
C *** COMPUTE APPROXIMATE ROOT ITERATIVELY ***
Dr. Assakkaf
Slide No. 26
13
ENCE 202
FORTRAN
Handout 4
DO WHILE(ABS(X-X0) .GT. EPS)

X0=X
X=X0-(F(X0)/DF(X0))
END DO
RETURN
END
Dr. Assakkaf
Slide No. 27
ENCE 202
FORTRAN
Handout 4
C FUNCTION F IS CALLED BY NEWT TO CALCULATE

C FUNCTIONAL VALUES FOR THE PASSED POINT X
FUNCTION F(X)
F=X**3-3.0*X**2-X+9.0
WRITE(6,10)X,F
10 FORMAT(22X,F16.7,4X,F16.7)
RETURN
END
Dr. Assakkaf
Slide No. 28
14
ENCE 202
FORTRAN
Handout 4
C
C FUNCTION DF(X) IS CALLED BY NEWT TO CALCULATE
C THE DERIVATIVE AT X
C
FUNCTION DF(X)
DF=3.0*X**2-6.0*X-1.0
RETURN
END
Dr. Assakkaf
Slide No. 29
ENCE 202
FORTRAN
Handout 4
n Area of a Circle
Demonstrating the use of Input and Output files
PROGRAM AREA_CIRCLE
DIMENSION DIA(10), AREA(10)
OPEN(5,FILE='TEST.DAT', STATUS='UNKNOWN')
OPEN(6,FILE='TEST.OUT', STATUS='UNKNOWN')
PI=22./7
DO 1 I=1,10
READ(5,*)DIA(I)
AREA(I)=PI*DIA(I)**2/4
WRITE(6,*)DIA(I),AREA(I)1
1 CONTINUE
END Dr. Assakkaf
Slide No. 30
15
ENCE 202
FORTRAN
Handout 4
n INPUT File (area.dat)

1
2
3
6
8
9
5
7
9
11
Dr. Assakkaf
Slide No. 31
ENCE 202
FORTRAN
Handout 4
n OUTPUT File (area.out)

1.00000 0.785714
2.00000 3.14286
3.00000 7.07143
6.00000 28.2857
8.00000 50.2857
9.00000 63.6429
5.00000 19.6429
7.00000 38.5000
9.00000 63.6429
11.0000 95.0714
Dr. Assakkaf
Slide No. 32
16
ENCE 202
FORTRAN
Handout 4
n Numerical Analysis
The Trapezoidal Rule of Integration
xn
1 1

x1
f ( x )dx h f ( x0 ) + f ( x1 ) + ... + f ( xn 1 ) + f ( xn )
2 2
h = xi +1 xi
Dr. Assakkaf
Slide No. 33
ENCE 202
FORTRAN
Handout 4
f (x )
f ( xi ) f ( xi +1 ) h = xi +1 xi
x
x1 x2 xi xi +1
A B Dr. Assakkaf
Slide No. 34
17
ENCE 202
FORTRAN
Handout 4
Need for Trapezoidal Formula
Complex Integral that can not be evaluated
analytically
x cos( x 2 )
e x dx
Set of discrete values obtained from

experiments
Dr. Assakkaf
Slide No. 35
ENCE 202
FORTRAN
Handout 4
PROGRAM TRAPEZOID
A=0.0
B=10.0
N=10
CALL TRAP(A,B,N,EST)
WRITE(5,*)EST
END
Dr. Assakkaf
Slide No. 36
18
ENCE 202
FORTRAN
Handout 4
n The Trapezoidal Rule of Integration (contd)

SUBROUTINE TRAP(A,B,N,E)
H = (B-A)/N
E = (F(A)+F(B))/2.0
IF (N.GT.1) THEN
X=A
DO 1 I=1, N-1
X=X+H
E = E+F(X)
1 CONTINUE
END IF
E=E*H
RETURN
END Dr. Assakkaf
Slide No. 37
ENCE 202
FORTRAN
Handout 4
n The Trapezoidal Rule of Integration (contd)

FUNCTION F(X)
F = 1+(x**2*exp(x))/(1+x)
RETURN
END
Dr. Assakkaf
Slide No. 38
19
INTRODUCTION TO
ENGINEERING ECONOMICS
by

ENCE 202
Spring 2000
ENCE 202
Eng. Econ
Handout 6
Introduction
n Definition of Engineering
Engineering is the profession in which
knowledge (math and natural sciences
gained by study, experience and practice)
is applied with judgment to develop ways
to utilize, economically, the materials and
forces of nature for the benefit of mankind.
Dr. Assakkaf
Slide No. 2
1
ENCE 202
Eng. Econ
Handout 6
Introduction
n Two environments are needed for the

work of an engineer
physical and
economical environments
n An engineer needs to establish
efficiency in both environments that are
not independent
Dr. Assakkaf
Slide No. 3
ENCE 202
Eng. Econ
Handout 6
Introduction
n Engineering Process
Determination of objectives
Identification of strategic factors
Determination of means (engineering
proposals)
Evaluation of engineering proposals
Assistance in decision making
Dr. Assakkaf
Slide No. 4
2
ENCE 202
Eng. Econ
Handout 6
Introduction
n Engineering Economic Studies

Creative step
Definition step
Conversion step to same scale to facilitate
comparative evaluation
Decision step
Dr. Assakkaf
Slide No. 5
ENCE 202
Eng. Econ
Handout 6
Introduction
n EXAMPLES:
Infrastructure expenditure decision
Replace versus repair decisions
Selection of inspection method
Selection of a replacement for an
equipment
Dr. Assakkaf
Slide No. 6
3
ENCE 202
Fundamental Economic
Eng. Econ
Handout 6
Concepts
n Economics deals with the behavior of

people
n Utility
Utility is the power of a good or service to
satisfy human needs
Dr. Assakkaf
Slide No. 7
ENCE 202
Eng. Econ
Handout 6
Concepts
n Value
Value designate the worth that a person
attaches to an object or service
Value is a measure or appraisal of utility in
some medium of exchange.
Value is not the same as cost or price
Dr. Assakkaf
Slide No. 8
4
ENCE 202
Eng. Econ
Handout 6
Concepts
n Consumer and Producer Goods

Consumer goods are the goods and
services that directly satisfy human wants.
For example, TV, shoes, houses.
Producer goods are the goods and
services that satisfy human wants indirectly
as a part of the production or construction
process. For example, factory equipment,
industrial chemicals ands materials.
Dr. Assakkaf
Slide No. 9
ENCE 202
Eng. Econ
Handout 6
Concepts
n The Utilities of Goods

Consumer goods: Basic human needs of
food, clothing and shelter. In commercial
advertisements, emphasis is given to
senses not reasoning. The utility in this
case is considered objectively and/or
subjectively.
Producer goods: The utility stems for their
means to get to an end. The utility in this
case is considered objectively. Dr. Assakkaf
Slide No. 10
5
ENCE 202
Eng. Econ
Handout 6
Concepts
n Economy of Exchange
Economy of exchange occurs when utilities
are exchanged by two or more people.
It is possible because consumer utilities
are evaluated subjectively.
Mutual benefit in exchange
Persuasion in exchange. Salesperson
Dr. Assakkaf
Slide No. 11
ENCE 202
Eng. Econ
Handout 6
Concepts
n Economy of Organization
Through organizations, ends can be
attained or attained more economically by:
1. Labor saving
2. Efficiency in manufacturing or capital use
Dr. Assakkaf
Slide No. 12
6
ENCE 202
Eng. Econ
Handout 6
Concepts
n Classification of Cost (contd)

First (or initial) cost: Cost to get activity
started such as property improvement,
transportation, installation, and initial
expenditures)
Operation and maintenance cost: They
are experienced continually over the useful
life of the activity
Dr. Assakkaf
Slide No. 13
ENCE 202
Eng. Econ
Handout 6
Concepts

Fixed cost: It does not depend on output
volume (cost of management for example).
Variable cost: It is per unit produced.
Incremental or marginal cost: Cost per unit
or production increase. It is determined
from the variable cost.
Dr. Assakkaf
Slide No. 14
7
ENCE 202
Eng. Econ
Handout 6
Concepts

Sunk cost: It cannot be recovered or
altered by future actions. Usually this cost
is not a part of engineering economic
analysis.
Life-cycle cost: Feasibility, design,
construction, operation and disposal costs
Dr. Assakkaf
Slide No. 15
ENCE 202
Eng. Econ
Handout 6
Concepts
n Supply and Demand

Demand curve shows the number of units
people are willing to buy and cost per unit
(decreasing curve).
Supply curve shows the number of units
that vendors will offer for sale and unit
price (increasing curve).
The intersection defines the exchange
price.
Dr. Assakkaf
Slide No. 16
8
ENCE 202
Eng. Econ
Handout 6
Concepts
n Supply and Demand (contd)

Elasticity of demand. Price changes and
their effect on demand changes. It
depends on whether the consumer product
is a necessity or a luxury.
Law of diminishing return. A process can
be improved at a rate with a diminishing
return. Example: cost of inspection to
reduce cost of repair and lost production.
Dr. Assakkaf
Slide No. 17
ENCE 202
Eng. Econ
Handout 6
Concept
n The Interest Rate

Called also the rate of capital growth, it is the
rate of gain received from an investment.
It is expressed on an annual basis.
For the lender, it consists, for convenience, of
(1) risk of loss, (2) administrative expenses,
and (3) profit or pure gain.
For the borrower, it is the cost of using a
capital for immediately meeting his or her
needs.
Dr. Assakkaf
Slide No. 18
9
ENCE 202
Eng. Econ
Handout 6
Concepts
n The Time Value of Money (TVM)

As a result of the earning power of money
(through interest), time increases the
purchasing power of money by its increase
through earning
Dr. Assakkaf
Slide No. 19
ENCE 202
Eng. Econ
Handout 6
Concepts
n The Time Value of Money (TVM)

Money has a time value
One dollar today is worth more than $1
tomorrow
Failure to pay the bills results in additional
charge termed interest
Dr. Assakkaf
Slide No. 20
10
ENCE 202
Eng. Econ
Handout 6
Concepts
n The interest i
Interest is usually expressed as a
percentage of the amount owed
It is due and payable at the close of each
period of time involved in the agreed
transaction (usually every year or month).
Dr. Assakkaf
Slide No. 21
ENCE 202
Eng. Econ
Handout 6
Concepts
n The interest i
EXAMPLE:
If $ 1,000.00 is borrowed at 14% interest, then
interest on the principal of $ 1,000.00 after one
year is 0.14 x 1, 000, or $140.00
If the borrower pays back the total amount

owed after one year, she will pay $1,140.00
Dr. Assakkaf
Slide No. 22
11
ENCE 202
Eng. Econ
Handout 6
Concepts
n The interest i
EXAMPLE (contd):
If she does not pay back any of the amount
owed after one year, then normally the interest
owed, but not paid, is considered now to be
additional principal, and thus the interest is
compounded
After two years she will owe $1,140.00+0.14 X
1,140.00,or 1,299.60.
Dr. Assakkaf
Slide No. 23
ENCE 202
Eng. Econ
Handout 6
Concepts
n Equivalency
The banker in the previous example normally
does not care whether you pay him $1,140.00
after one year or $1,299.60 after two years. To
him, the three values ($1,000, $1,140, and
$1,299.60) are equivalent.
$ 1,000 today is equivalent to $1,140 one year
from today,
$ 1,000 today is equivalent to $1,299.60 two
years from today.
Dr. Assakkaf
Slide No. 24
12
ENCE 202
Eng. Econ
Handout 6
Concepts
n Equivalency
The banker in the previous example normally
does not care whether you pay him $1,140.00
after one year or $1,299.60 after two years. To
him, the three values ($1,000, $1,140, and
$1,299.60) are equivalent.
$ 1,000 today is equivalent to $1,140 one year
from today,
$ 1,000 today is equivalent to $1,299.60 two
years from today.
NOTE: The three values are not equal but equivalent Dr. Assakkaf
Slide No. 25
ENCE 202
Eng. Econ
Handout 6
Concepts
n Equivalency
It is to be noted that:
1.The concept of equivalence involves time and
a specified rate of interest. The three
preceding values are only equivalent for an
interest rate of 14%, and then only at the
specified times.
2.Equivalence means that one sum or series
differs from another only by the accumulated
interest at rate i for n periods of time.
Dr. Assakkaf
Slide No. 26
13
ENCE 202
Eng. Econ
Handout 6
Concepts
F
n Cash Flows Over Time

A A A A A A A A
0 1 2 3 4 5 6 n-1
n
Dr. Assakkaf
Slide No. 27
ENCE 202
Eng. Econ
Handout 6
Concepts

Symbols
P = a present single amount of money
F = a future single amount of money, after n
periods of time
A = a series of n equal payments
i = the rate of interest per interest period (usually
one year)
n = the number of periods of time (usually years)
Dr. Assakkaf
Slide No. 28
14
ENCE 202
Eng. Econ
Handout 6
Concepts

Example
3,200
Cash Flow Diagram
4,500
0
12.34 (1,400)
3,200 3,200 3,200
6,000
45,000
Dr. Assakkaf
Slide No. 29
ENCE 202
Eng. Econ
Handout 6
Concepts
n Financial Analysis
Single payment
Uniform series of payments
Discounted present worth analysis
Rate of return analysis
Dr. Assakkaf
Slide No. 30
15
ENCE 202
Eng. Econ
Handout 6
Concepts
n The earning power of money

This power is there because money can be
exchanged by production tools
n The purchasing power of money
The prices of goods and services can go
upward or downward, therefore the
purchasing power of money can change
with time
Dr. Assakkaf
Slide No. 31
ENCE 202
Eng. Econ
Handout 6
Concepts
n Example Economic Studies

Design and Economy
Elimination of overdesign should not be an
objective.
Designing for economic production
Economy in the design of producer goods
Design for the economy of maintenance
Design for the economy of shipping
Economy of interchangeable design
Dr. Assakkaf
Slide No. 32
16
ENCE 202
Eng. Econ
Handout 6
Concepts
n Example Economic Studies

Economy of Material Selection
Standardization and Simplification
Selection of Personnel
Range of human capacities
Economy of proficiency
Economy of specialization
Economy of dependability
Dr. Assakkaf
Slide No. 33
17
INTRODUCTION TO
by

ENCE 202
Spring 2000
ENCE 202
Eng. Econ
Handout 7
Types of Interest
n Simple Interest
I = Pni
P = principal $1,000
i = interest rate 0.12
n = number of years or periods 1
I= interest $120.00
Interest is due at the end of the time period.

For fractions of a time period, multiply the
interest by the fraction Dr. Assakkaf
Slide No. 2
1
ENCE 202
Eng. Econ
Handout 7
Types of Interest
n Compound Interest: The interest of the

interest.
A loan of $1,000 is made at an interest of
12% for 5 years. The interest is due at the
end of each year with the principal is due
at the end of the fifth year. The following
table shows the resulting payment
schedule:
Dr. Assakkaf
Slide No. 3
ENCE 202
Eng. Econ
Handout 7
Type of Interest
P = principal $ ,
i = interest rate .
n = number of years or periods
Year Amount at start of year Interest at year end Owed amount at year end Payment
$ , . $ . $ , . $ .
$ , . $ . $ , . $ .
$ , . $ . $ , . $ .
$ , . $ . $ , . $ .
$ , . $ . $ , . $ , .
Dr. Assakkaf
Slide No. 4
2
ENCE 202
Eng. Econ
Handout 7
Types of Interest
n Compound Interest (contd)

A loan of $1,000 is made at an interest of
12% for 5 years. The principal and interest
are due at the end of the fifth year. The
following table shows the resulting
payment schedule:
Dr. Assakkaf
Slide No. 5
ENCE 202
Eng. Econ
Handout 7
Types of Interest
i = interest rate .
n = number of years or periods
Year Amount at start of year Interest at year end Owed amount at year end Payment
$ , . $ . $ , . $ .
$ , . $ . $ , . $ .
$ , . $ . $ , . $ .
$ , . $ . $ , . $ .
$ , . $ . $ , . $ , .
Dr. Assakkaf
Slide No. 6
3
ENCE 202
Eng. Econ
Handout 7
Cash Flow
n Cash flow over time: Upward arrow

means positive flow, downward arrow
means negative flow. There are two
cash flows to each problem (borrower
and lender flows).
n Net cash flow: The arithmetic sum of
receipts (+) and disbursements (-) that
occur at the same point in time.
Dr. Assakkaf
Slide No. 7
ENCE 202
Eng. Econ
Handout 7
Cash Flow
F
A A A A A A A A
0 1 2 3 4 5 6 n-1
n
Dr. Assakkaf
Slide No. 8
4
ENCE 202
Eng. Econ
Handout 7
Notations

F = a future single amount of money, after
n periods of time
i = the rate of interest per interest period
(usually one year)
n = the number of periods of time (usually
years)
Dr. Assakkaf
Slide No. 9
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Single Payment Compound-Amount

Factor (SPCAF)
F = P(1 + i )
n
OR
F
F = , i, n
P
Dr. Assakkaf
Slide No. 10
5
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example:
Let the principle P = 1000, the interest rate
i = 12%, and the number of periods n = 4
years.
The future sum is therefore
F = P (1 + i ) = 1000 (1 + 0.12 ) = 1,573 .5

n 4
Dr. Assakkaf
Slide No. 11
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Single Payment Present-Worth Factor

(SPPWF)
P
P=
(1 + i )n
OR
P
P = , i, n
F
Dr. Assakkaf
Slide No. 12
6
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example 1:
Let the principle F = 1000, the interest rate
i = 12%, and the number of periods n = 4
years.
The present worth is therefore
F 1000
P= = = 635.5
(1 + i ) (1 + 0.12)4
n
Dr. Assakkaf
Slide No. 13
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example 2:
Let the principle F = 1,573.5, the interest
rate i = 12%, and the number of periods n
= 4 years.
The present worth is therefore
F 1,573.5
P= = = 1000.0
(1 + i ) (1 + 0.12)4
n
Dr. Assakkaf
Slide No. 14
7
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Uniform (Equal payment) Series

Compound-Amount Factor (USCAF)
(1 + i ) n 1
F = A
i
OR
F
F = , i, n
A
Dr. Assakkaf
Slide No. 15
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example:
Let A = 100, the interest rate i = 12%, and
the number of periods n = 4 years.
The future value is therefore
(1 + i ) n 1 (1 + 0.12) 4 1
F = A = 100 = 477.9
i 0 .12
Dr. Assakkaf
Slide No. 16
8
ENCE 202
Eng. Econ
Handout 7
Interest Formulas

Sinking-Fund Factor (USSFF)
i
A = F
(1 + i )n
1
OR
A
A = , i, n
F
Dr. Assakkaf
Slide No. 17
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example:
Let the future value F = 1000, the interest
= 4 years.
Therefore
i 0.12
A = F = 1000 = 209.2
(1 + i ) n
1 (1 + 0. 12 )4
1
Dr. Assakkaf
Slide No. 18
9
ENCE 202
Eng. Econ
Handout 7
Interest Formulas

Capital-Recovery Factor (USCRF)
i (1 + i ) n
A = P
(1 + i )n
1
OR
A
A = , i, n
P
NOTE: This is the case of loans (mortgages)
Dr. Assakkaf
Slide No. 19
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example:
Let the present worth P = 1000, the interest
= 4 years.
Therefore
i (1 + i )n 0.12(1 + 0.12 )4
A = P = 1000

(1 + 0.12)4 1 = 329.2
(1 + i ) n
1
Dr. Assakkaf
Slide No. 20
10
ENCE 202
Eng. Econ
Handout 7
Interest Formulas

Present-Worth Factor (USPWF)
(1 + i ) n 1
P = A n

i (1 + i )
OR
P
P = , i, n
A
Dr. Assakkaf
Slide No. 21
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example:
Therefore
(1 + i )n 1 (1 + 0.12 )4 1
P = A = 100
n

0.12(1 + 0.12)4 = 303.7
i (1 + i )
Dr. Assakkaf
Slide No. 22
11
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Uniform Gradient-Series Factor

The gradient (G) is a value in the cash flow
that starts with 0 at the end of year 1, G at
the end of year 2, 2G at the end of year 3,
and so on to (n-1)G at the end of year n
1 n
P = G
i (1 + i ) 1
n
Dr. Assakkaf
Slide No. 23
ENCE 202
Eng. Econ
Handout 7
Interest Formulas
n Example:
Let G = 100, the interest rate i = 12%, and
Therefore
1 n 1 4
A = G
= 100
0.12 (1 + 0.12 )4 1 = 135.9

i (1 + i ) n
1
Dr. Assakkaf
Slide No. 24
12
ENCE 202
Discrete and Continuous
Eng. Econ
Handout 7
Compounding
n Nominal Interest Rate

It is expressed in annual basis
Financial institutions refer to this rate as the
annual percentage rate or APR
n Effective Interest Rate
It is an interest rate that is compounded using a
time period less than a year
The nominal interest rate in this case is the
effective rate times the number of compounding
periods in a year
It is referred to as nominal rate compounded at the
period less than a year Dr. Assakkaf
Slide No. 25
ENCE 202
Eng. Econ
Handout 7
Compounding
n Example:
Effective rate is 1% per month
Therefore
Nominal Rate = 1% (12) = 12% compounded
monthly
Dr. Assakkaf
Slide No. 26
13
ENCE 202
Eng. Econ
Handout 7
Compounding
n Relationship Between the Effective

Interest Rate for any given time interval
and the Nominal Interest Rate per Year
n Define
r =nominal interest rate per year
i = effective interest rate in the time interval
l = length of the time interval (in years)
m = reciprocal of the length of the compounding
period (in years)
Dr. Assakkaf
Slide No. 27
ENCE 202
Eng. Econ
Handout 7
Compounding
n The effective interest rate

lm
r
i = 1 + 1
m
period (in years)
Dr. Assakkaf
Slide No. 28
14
ENCE 202
Eng. Econ
Handout 7
Compounding
n If the interest is compounded only once

in the time interval, then l (m) =1, and
r
i=
m

period (in years) Dr. Assakkaf
Slide No. 29
ENCE 202
Eng. Econ
Handout 7
Compounding
n To find the applicable effective interest

rate for any time interval, the following
equation can be used:
c
r
i = 1 + 1 c 1
m

c = number of compounding periods in the time interval
period (in years) Dr. Assakkaf
Slide No. 30
15
ENCE 202
Eng. Econ
Handout 7
Compounding
n Continuous Compounding
The limiting case for the effective rate is when
compounding is performed an infinite times in a
year, that is continuously. Using l = 1, the
following limit produces the continuously
compounded interest rate ( ia):
m
r
ia = Lim1 + 1 = e r 1
m
m
Dr. Assakkaf
Slide No. 31
ENCE 202
Eng. Econ
Handout 7
Compounding
n Example 1
If the nominal rate of 12% is compounded
monthly with time interval of one year, then
c =12, and
12
012
i = 1 + 1 = 0.1268 or 12.68% per year
12
Dr. Assakkaf
Slide No. 32
16
ENCE 202
Eng. Econ
Handout 7
Compounding
n Example 2
weekly with time interval of one year, then
c =52, and
52
018
i = 1 + 1 = 0.1968 or 19.68% per year
52
Dr. Assakkaf
Slide No. 33
ENCE 202
Eng. Econ
Handout 7
Compounding
n Example 3
monthly with time interval of six months, then
c =6, and
6
014
i = 1 + 1 = 0.0721 or 7.21% per six months
12
Dr. Assakkaf
Slide No. 34
17
ENCE 202
Eng. Econ
Handout 7
Compounding
n Example 4
semiannually with time interval of two years,
then
c =4, and
4
0.09
i = 1 + 1 = 0.1925 or 19.25% per two years
2
Dr. Assakkaf
Slide No. 35
ENCE 202
Eng. Econ
Handout 7
Compounding
n Example 5
The effective interest rates corresponding to a
nominal annual interest rate of 18%
compounded annually, semiannually, quarterly,
monthly, weekly, daily, and continuously are
shown in the following Table:
Dr. Assakkaf
Slide No. 36
18
ENCE 202
Eng. Econ
Handout 7
Compounding
n Example 5 (contd)
Compounding Number of periods Effective interest rate Effective annual interest
frequency per year per period rate
Column 1 Column 2 Col. 3 = 18%/Col 2 . Col .2
018
i = 1 + 1
Col .2
Annually 1 18% 18%
Semiannually 2 9 18.81
Quarterly 4 4.5 19.2517
Monthly 12 1.5 19.5618
Weekly 52 0.3642 19.6843
Daily 365 0.0493 19.7412
Continuously 0.00000 19.7217 = exp(0.18) - 1
Dr. Assakkaf
Slide No. 37
ENCE 202
Eng. Econ
Handout 7
Compounding
n Comparing Interest Rates

Since the effective interest rate represents the
actual interest earned, this rate should be used to
compare the benefits of various nominal rates of
interest
For example, one might be confronted with the
problem of determining whether it is more
desirable to receive 16% compounded annually or
15% compounded monthly
Dr. Assakkaf
Slide No. 38
19
ENCE 202
Eng. Econ
Handout 7
Compounding
n Comparing Interest Rates

The effective rate of interest per year for 16%
compounded annually is, of course, 16%
However, for 15% compounded monthly, the
effective annual rate is
12
0.15
ia = 1 + 1 = 16.08%
12
Thus, 15% compounded monthly yields an actual

rate of interest that is higher than 16%
compounded annually Dr. Assakkaf
Slide No. 39
ENCE 202
Eng. Econ
Handout 7
Use of Interest Tables
n To aid in calculations using the

relationships between P, F, A, n, and i,
you can also find values for F/A, A/F,
P/A, and A/P in tables for typical values
for i and n
n The following table gives these factors
for i = 23 and
Dr. Assakkaf
Slide No. 40
20
ENCE 202
Eng. Econ
Handout 7
Dr. Assakkaf
Slide No. 41
ENCE 202
Eng. Econ
Handout 7
Use of Interest Tables
n Example
Using the table, then
P P
P = , i, n = ,20,5 = 300(2.9906) = 897.2
A A
F F
F = , i, n = ,20,5 = 300(7.4416) = 2,232.5
A A
Dr. Assakkaf
Slide No. 42
21
INTRODUCTION TO
by

ENCE 202
Spring 2000
ENCE 202
The Time Value of Money
Eng. Econ
Handout 8
(TVM)
Money has a time value

One dollar today is worth more than
$1 tomorrow
Failure to pay the bills results in
additional charge termed
Dr. Assakkaf
Slide No. 2
1
ENCE 202
Eng. Econ
Handout 8
The Interest (i)
Interest is usually expressed as a percentage of the amount owed.

It is due and payable at the close of each period of time involved in the
agreed transaction (usually every month).
Example:
If $ 1,000.00 is borrowed at 14% interest, then interest on the principal
of $ 1,000.00 after one year is 0. 14 x 1, 000, or $140.00.
If the borrower pays back the total amount owed after one year, she will
pay $1,140.00.
If she does not pay back any of the amount owed after one year, then
normally the interest owed, but not paid, is considered now to be
additional principal, and thus the interest is compounded.
After two years she will owe $1,140.00+0.14 X 1,140.00,or 1,299.60.

Dr. Assakkaf
Slide No. 3
ENCE 202
Eng. Econ
Handout 8
Equivalency
The banker normally does not care whether you pay him $1,140.00 after
one year or $1,299.60 after two years. To him, the three values ($1,000,
$1,140, and $1,299.60) are equivalent.
$ 1,000 today is equivalent to $1,140 one year from today,
$ 1,000 today is equivalent to $1,299.60 two years from today.
The three values are not equal but equivalent.

Note:
1.The concept of equivalence involves time and a specified rate
of interest. The three preceding values are only equivalent for an
interest rate of 14%, and then only at the specified times.
2. Equivalence means that one sum or series differs from another
only by the accumulated interest at rate i for n periods of time.
Dr. Assakkaf
Slide No. 4
2
ENCE 202
Financial Engineering
Eng. Econ
Handout 8
Analysis
Single payment
Uniform series of payments
Discounted present worth analysis
Rate of return analysis
Dr. Assakkaf
Slide No. 5
ENCE 202
Eng. Econ
Handout 8
Cash Flow
n Cash flow over time: Upward arrow

means positive flow, downward arrow
means negative flow. There are two
cash flows to each problem (borrower
and lender flows).
n Net cash flow: The arithmetic sum of
receipts (+) and disbursements (-) that
occur at the same point in time.
Dr. Assakkaf
Slide No. 6
3
ENCE 202
Eng. Econ
Handout 8
Cash Flow
F
A A A A A A A A
0 1 2 3 4 5 6 n-1
n
Dr. Assakkaf
Slide No. 7
ENCE 202
Eng. Econ
Handout 8
Notations

F = a future single amount of money, after
n periods of time
i = the rate of interest per interest period
(usually one year)
n = the number of periods of time (usually
years)
Dr. Assakkaf
Slide No. 8
4
ENCE 202
Eng. Econ
Handout 8
Single Payment
n Single Payment Compound-Amount

Factor (SPCAF)
F = P(1 + i )
n
OR
F
F= , i, n
P
Dr. Assakkaf
Slide No. 9
ENCE 202
Eng. Econ
Handout 8
Single Payment
n Single Payment Present-Worth Factor

(SPPWF)
F
P=
(1 + i )n
OR
P
P= , i, n
F
Dr. Assakkaf
Slide No. 10
5
ENCE 202
Eng. Econ
Handout 8
Single Payment Analysis
To calculate the future value F of a single payment P after n

periods at an interest rate i, we make the following calculation:
At the end of the first period: F1 = P + Pi

At the end of the second period: F2 = P + Pi + (P + Pi)i = P(1 + i)2
At the end of the nth period: Fn = P(1 + i)n
The future single amount of a present single amount is
F = P(1 + i)n
Dr. Assakkaf
Slide No. 11
ENCE 202
Eng. Econ
Handout 8
Note:
F is related to P by a factor which depends only on i and n.
This factor, termed the single payment compound amount
factor (SPCAF), makes F equivalent to P.
SPCAF may be expressed in a functional form:
F F
(1 + i ) n = , i, n or F = P , i, n
P P
The present single amount of a future single amount is
F P
P= or P = F , i, n
(1 + i ) n F
Dr. Assakkaf
Slide No. 12
6
ENCE 202
Eng. Econ
Handout 8
Note:
The factor 1/(1+i)n is called the present worth compound
amount factor (PWCAF)
1 P
n
= , i, n
(1 + i ) F
Dr. Assakkaf
Slide No. 13
ENCE 202
Eng. Econ
Handout 8
Example 1: Single Payment
A contractor wishes to set up a revolving line of credit at the bank to

handle her cash flow during the construction of a project.
She believes that she needs to borrow $12,000 with which to set up
the account, and that she can obtain the money at 1.45% per
month.
If she pays back the loan and accumulated interest after 8 months,
how much will she have to pay back?
F = 12,000(1 + 0.0145)8 = 12,000(1.122061)= 13,464.73 = $13,465
The amount of interest will be:
$13,465 - 12,000 = $1,465.

Dr. Assakkaf
Slide No. 14
7
ENCE 202
Eng. Econ
Handout 8
Example 2: Single Payment
A construction company wants to set aside enough money today in

an interest-bearing account in order to have $ 100,000 five years
from now for the purchase of a replacement piece of equipment.
If the company can receive 8% interest on its investment, how much

should be set aside now to collect the $100,000 five years from
now?
P = 100,000/(I + 0.08)5 =100,000/(1.46933) = $68,058.32 = $68,060
To solve this problem you can also use the interest tables.
P =100,000 (P/F, 8,5) = 100,000(0.6805832) $68,058.32 = $68,060

Dr. Assakkaf
Slide No. 15
ENCE 202
Uniform Series of Payments
Eng. Econ
Handout 8
Analysis

Compound-Amount Factor (USCAF)
(1 + i ) n 1
F = A

i
OR
F
F= , i, n
A
Dr. Assakkaf
Slide No. 16
8
ENCE 202
Eng. Econ
Handout 8
Analysis

Sinking-Fund Factor (USSFF)
i
A = F

(1 + i )n
1
OR
A
A= , i, n
F
Dr. Assakkaf
Slide No. 17
ENCE 202
Eng. Econ
Handout 8
Interest Formulas

Capital-Recovery Factor (USCRF)
i (1 + i ) n
A = P
(1 + i )n 1
OR
A
A= , i, n
P
NOTE: This is the case of loans (mortgages)
Dr. Assakkaf
Slide No. 18
9
ENCE 202
Eng. Econ
Handout 8
Interest Formulas

Present-Worth Factor (USPWF)
(1 + i ) n 1
P = A
i (1 + i )
n

OR
P
P= , i, n
A
Dr. Assakkaf
Slide No. 19
ENCE 202
Eng. Econ
Handout 8
Analysis
Often payments or receipts occur at regular intervals, and such
uniform values can be handled by the use of additional functions.
Another symbol:
A = uniform end-of-period payments or receipts continuing for
a duration of n periods
If a uniform amount A is invested at the end of each period for n
periods at a rate of interest i per period, then the total equivalent
amount F at the end of the n periods will be:
F = A[(1 + i ) (1 + i )n 2 + .... + (1 + i ) + 1]
n1
+
By multiplying both sides of above equation by (1+i) and subtracting

from the original equation, the following expression is obtained:
Fi = A(1 + i ) 1
n
Dr. Assakkaf
Slide No. 20
10
ENCE 202
Eng. Econ
Handout 8
Analysis
Which can be rearrange to give

(1 + i)
n
1
F = A
i
The relationship can also be expressed in a functional form as
F
F = A , i, n
A
[(1+i)n - 1]/i is called the uniform series compound amount factor (USCAF)
It can also be shown that
i
A = F
(1 + i ) 1
n
Dr. Assakkaf
Slide No. 21
ENCE 202
Eng. Econ
Handout 8
Analysis
Which can be rearrange to give

(1 + i)
n
1
F = A
i
The relationship can also be expressed in a functional form as
F
F = A , i, n
A
[(1+i)n - 1]/i is called the uniform series compound amount factor (USCAF)
It can also be shown that
i
A = F
(1 + i ) 1
n
Dr. Assakkaf
Slide No. 22
11
ENCE 202
Eng. Econ
Handout 8
Analysis
Which can be expressed in a functional form as
A
A = F , i, n
F
The relationship i / [(1+i)n - 1]is termed as the uniform series sinking fund factor
(USSFF)
F = P (1 + i )
n
Recall that
Hence
(1 + i)
1
n
P
P = A n
or P = A , i, n
i (1 + i ) A
Dr. Assakkaf
Slide No. 23
ENCE 202
Eng. Econ
Handout 8
Analysis
The relationship (1 + i ) 1 is called the uniform series present worth factor

n

i (1 + i )
n
(USPWF)
Also
i (1 + i )
n
A
A = P or A = P , i, n
(1 + i ) 1
n
P
The relationship i(1 + i ) is called the uniform series capital recovery factor
n
n
(USCRF) (1 + i ) 1
Dr. Assakkaf
Slide No. 24
12
ENCE 202
Cash Flow Diagram for Single
Eng. Econ
Handout 8
Payment
F
0 1 2 3 4 5 6 n-1
n
1
F = P (1 + i ) or P = F
n
n
P (1 + i )
Dr. Assakkaf
Slide No. 25
ENCE 202
Eng. Econ
Handout 8
Payment
F
A A A A A A A A
0 1 2 3 4 5 6 n-1
n
(1 + i ) 1
n
i
F = A or A = F
(1 + i ) 1
n
i
Dr. Assakkaf
Slide No. 26
13
ENCE 202
Eng. Econ
Handout 8
Payment
A A A A A A A A
0 1 2 3 4 5 6 n-1
n
(1 + i ) 1 i (1 + i )
n n
P = A n
or A = P
i (1 + i ) (1 + i ) 1
n
P
Dr. Assakkaf
Slide No. 27
ENCE 202
Eng. Econ
Handout 8
Example 3
A piece of construction equipment costs $45,000 to

purchase. Fuel, oil, grease, and minor maintenance are
estimated to cost $12.34 for each hour that the equipment
is used. The tires cost $3,200 to replace (estimated to
occur every 2,800 hours of use), and major repairs of
$6,000 are expected after 4,200 hours of use.
The piece of equipment is expected to last for 8,400 hours,
after which it will have an estimated salvage value of 10%
of the purchase price.
How much should the owner of the equipment
charge, per hour of use, if he expects to use the piece of
equipment about 1,400 hours per year? Assume an
annual interest rate of 15%.
Dr. Assakkaf
Slide No. 28
14
ENCE 202
Eng. Econ
Handout 8
Example 3 (continued)
Cash Flow Diagram

4,500
0 1 2 3 4 5 6
12.34 (1,400)
3,200 3,200
6,000
45,000
n = 8,400/1,400 = 6 yrs,
nT = 2800/1400 = 2 yrs,
nR= 4200/1400 = 3yrs
Dr. Assakkaf
Slide No. 29
ENCE 202
Eng. Econ
Handout 8
n = 8,400/1,400 = 6 yrs, nT = 2800/1400 = 2 yrs, nR = 4200/1400 = 3yrs

A1 = - 45,000(A/P,15,6) = - 45,000 (0.26424) = -11,890.80
A2= - 12.34 (1,400) = -17,276.00
A3=[ - 3,200 (P/F,15,2) 3,200 (P/F,15,4)] (A/P,15,6)
= [- 3,200 (0.75614) 3,200 (0.57175)] (0.26424) = -1,122.78
A4= - 6,000 (P/F,15,3)(A/P,15,6)
= - 6,000 (0.65752)(0.26424) = -1,042.46
A5= + 4,500(A/F,15,6) = 4,500 (0.11424) = +514.08
AT= the total annual cost = -30,817.96
The hourly cost = 30,817.96/1,400 = $22.01/hr
n
i 1+ i
A = P ( n ) or A = P , i, n
A i
A = F
(1 + i ) 1
(1 + i ) 1 P n
(1 + i )n 1 P
1
n

=
P
, i, n
P = A n
or P = A , i, n (1 + i ) F
i (1 + i ) A Dr. Assakkaf
Slide No. 30
15
ENCE 202
Eng. Econ
Handout 8
Dr. Assakkaf
Slide No. 31
16
INTRODUCTION TO
by

ENCE 202
Spring 2000
ENCE 202
Economic Analysis of
Eng. Econ
Handout 9
Alternatives
n Net Cash Flow of Investment

Opportunities
Payments and disbursements need to be
determined. Then a net cash flow can be
developed
Dr. Assakkaf
Slide No. 2
1
ENCE 202
Eng. Econ
Handout 9
Alternatives
n Present-Worth Amount
It is the difference between the equivalent
receipts and disbursements at the present.
Assume Ft is a cash flow at time t, the
present worth (PW) is
n n
PW (i ) = Ft ( P / F , i, t ) = Ft (1 + i) t
t =0 t =0
for any interest -1< i <.
Dr. Assakkaf
Slide No. 3
ENCE 202
Eng. Econ
Handout 9
Alternatives
n Annual Equivalent Amount

The annual equivalent amount is the
annual equivalent receipts minus the
annual equivalent disbursements of a cash
flow. It is used for repeated cash flows per
year.
n
i(1 + i) n
AE (i ) = PW (i)( A / P, i, n) = Ft (1 + i ) t n

t= 0 (1 + i ) 1
Dr. Assakkaf
Slide No. 4
2
ENCE 202
Eng. Econ
Handout 9
Example 1
Given the following cash flow:

Year end Receipts Disbursements
0 0 -1000
1 400 0
2 900 -1000
3 400 -
4 900 -1000
. . .
n-2 900 -1000
n-1 400 0
n 900 0
Therefore, AE(10) = [-1000+400(P/F,10,1)+900(P/F,10,2)](A/P,10,2)
or AE(10) = [-1000+400(0.9091)+900(0.8265)](0.5762) = 61.9
Dr. Assakkaf
Slide No. 5
ENCE 202
Discounted Present Worth
Eng. Econ
Handout 9
Analysis
Often in engineering economic studies, as well as in general

financial analyses, a discounted present worth analysis is made of
each alternative under consideration.
It involves calculating the equivalent present worth or present value
of all the dollar amounts involved in the alternative to determine its
present worth.
Definition:
The present worth is discounted at a predetermined rate of interest
called the minimum attractive rate of return (MARR or i*).
The MARR is usually equal to the current rate of interest for
borrowed capital plus an additional rate for such factors as risk,
uncertainty, and contingencies.
MARR = i* = i + i(risk)
Dr. Assakkaf
Slide No. 6
3
ENCE 202
Eng. Econ
Handout 9
Example 2
The Ace-in-the-Hole Construction Company is considering three

methods of acquiring company pickups for use by field engineers.
The alternatives are:
A. Purchase the pickups for $7,200 each and sell after 4 years for
an estimated $1,200 each.
B. Lease the pickups for 4 years for $2,250 per year paid in
advance at the beginning of each year. The contractor pays all
operating and maintenance costs on the pickups and the
leasing company retains ownership.
C. Purchase the pickups on special time payments with $750 down
now and $2,700 per year at the end of each year for 3 years.
Assume the pickups will be sold after 4 years for $1,200 each.
If the contractor's MARR is 15%, which alternative should he choose?
Dr. Assakkaf
Note: All alternatives involve equal lives. Slide No. 7
ENCE 202
Eng. Econ
Handout 9
To solve, calculate the net present worth (NPW) of each alternative

at 15% and select the least costly alternative:
1,200
A 0 4 NPWA = -7,200 + 1,200(P/F),15,4) = -$6,514
7,200
0 4
B
NPWB = -2,250 - 2,250(P/A),15,3) = -$7,387
2,250 2,250 2,250 2,250 1,200
4
0
C NPWC = -750 - 2,700(P/A),15,4)+1,200(P/A),15,4) = -$7,772
750
2,700 2,700 2,700 2,700

The least costly alternative is A
Dr. Assakkaf
Slide No. 8
4
ENCE 202
Eng. Econ
Handout 9
Example 3
The engineering estimate for the cost of

installing a new Astro-Turf for the college
football field is $378,000 and is guaranteed
for 5 years. Another artificial turf, the
MACHO-TURF, is advertised for $494,000,
installed, and guaranteed to last 8 years.
Neglecting salvage value, which turf should
be selected:
(a) if the MARR is 12%?
(b) if the MARR is 20%?
Dr. Assakkaf
Slide No. 9
ENCE 202
Eng. Econ
Handout 9
(a)
MARR = 12%
NACAT = 378,000 (A/P,12,5) = $104,861 / yr
NACMT = 494,000 (A/P,12,8) = $99,444 / yr
Choose Macho-Turf (Lower cost)
(b)
MARR = 20%
NACAT = 378,000 (A/P,20,5) = $126,396 / yr
NACMT = 494,000 (A/P,20,8) = $128,741 / yr
Choose Astro-Turf (Lower cost)
Dr. Assakkaf
Slide No. 10
5
ENCE 202
What to do When Alternatives
Eng. Econ
Handout 9
Involve Different Lives
Approach 1.
Truncate (cut off) the longer-lived alternative(s) to equal the
shorter lived alternative and assume a salvage value for the
unused portion of the longer lived alternatives. Then make
the comparison on the basis of equal lives.
Approach 2.
Assume equal replacement conditions (costs and incomes)
for each alternative and compute the discounted present
worth on the basis of the least common multiple of lives for
all alternatives.
Dr. Assakkaf
Slide No. 11
ENCE 202
Eng. Econ
Handout 9
Example 4
A contractor is considering the purchase of

either a new track-type tractor for $73,570,
which has a 6-year life with an estimated net
annual income of $26,000 and a salvage
value of $8,000, or a used track-type tractor
for $24,680, with an estimated life of 3 years
and no salvage value and an estimated net
annual income of $12,000.
If the contractor's MARR is 20%, which
tractor, if any, should she choose?
Dr. Assakkaf
Slide No. 12
6
ENCE 202
Eng. Econ
Handout 9
Approach 1. (comparison on the basis of equal lives)

8,000
26,000 26,000 26,000 26,000 26,000
New 26,000
tractor
0 6 Assumed Salvage
Value
73,750 30,000
12,000 12,000 12,000 26,000 26,000
Old New 26,000
tractor tractor
0 3 0 3
24,680 73,570
NPWnew = -73,570 + 26,000(P/A,20,3) + 30,000(P/F,20,3) = -73,570 + 26,000(2.10648) + 30,000(0.5787) = -$1,443
NPWold = -24,680 + 12,000(P/A,20,3) = -24,680 + 12,000(2.10648) = + $597
Conclusion: Old tractor is a better Alternative Dr. Assakkaf

Slide No. 13
ENCE 202
Eng. Econ
Handout 9
Approach 2. (comparison on the basis of equal replacement conditions)

8,000
26,000 26,000 26,000 26,000 26,000
26,000
New
tractor 0
6
73,570
12,000 12,000 12,000 12,000 12,000 12,000

Old
tractor
0 6
24,680 24,680
NPWnew = -73,570 + 26,000(P/A,20,6) + 8,000(P/F,20,6) = -73570 + 26,000(3.32551) + 8,000(0.33490) = $15,570
NPWold = -24,680 + 12,000(P/A,20,6) - 24,680(P/F,20,3) = -24,680 + 12,000 (3.32551) - 24,680(0.57870) = +$944
Conclusion: New tractor is a better Alternative

Dr. Assakkaf
Slide No. 14
7
ENCE 202
Eng. Econ
Handout 9
Rate of Return (ROR) Analysis
Knowing the anticipated rate of return of an investment

permits decision maker to have more "perceived" confidence
in its decision!
Definition:
The rate of return of a proposed investment is that interest
rate which makes the discounted present worth of the
investment equal to zero.
To calculate the rate of return, simply set up the equation to

be equal to zero and solve for i.
Dr. Assakkaf
Slide No. 15
ENCE 202
Eng. Econ
Handout 9
Example 5
A contractor is considering the purchase of

either a new track-type tractor for $73,570,
which has a 6-year life with an estimated net
annual income of $26,000, or a used track-
type tractor for $24,680, with an estimated life
of 3 years and no salvage value and an
estimated net annual income of $12,000.
If the contractor's MARR is 20%, which
tractor, if any, should be chosen?
Dr. Assakkaf
Slide No. 16
8
ENCE 202
Eng. Econ
Handout 9
Approach 1. (comparison on the basis of equal lives)
26,000 26,000 26,000 26,000 26,000

New 26,000
tractor
0 6
P
NPWnew = 73,570 + 26,000 , i,6 = 0
A
73,750
P 73,570 (1 + i ) 1 6
12,000 12,000 12,000 , i,6 = = 2.82962 =
i (1 + i )
6
Old A 26,000
tractor
inew = 26.9%
0 3
P
24,680 NPWold = 24,680 + 12,000 , i,3 = 0
A
P 24,680 (1 + i ) 1 3
, i,3 = = 2.05667 =
i(1 + i )
3
A 12,000
iold = 21.5%
Dr. Assakkaf
Slide No. 17
ENCE 202
Eng. Econ
Handout 9 Iterative Solution
P
NPW new = 73,570 + 26,000 , i, 6 = 0
A
P 73,570 (1 + i ) 1 6
(1 + i )6 1
, i ,6 = = 2.82962 = inew =
i(1 + i ) 2.82962(1 + i )
6 6
A 26,000
P
NPW new = 24,680 + 12,000 , i,3 = 0
A
P 24,680 (1 + i ) 1 3
(1 + i )3 1
, i ,6 = = 2.05667 = iold =
i (1 + i ) 2.05667(1 + i )
3 3
A 12,000
Dr. Assakkaf
Slide No. 18
9
ENCE 202
Eng. Econ
Handout 9 Iterative Solution

i NPW new i NPWold
0.200 12893 0.150 2719
(1 + i )6 1 0.235 5877 0.167 1985 (1 + i )3 1
inew = 0.254 2498 0.180 1415 iold =
2.05667(1 + i )
3
2.82962(1 + i )
6
0.262 1027 0.190 990
0.266 416 0.198 683
0.268 168 0.203 466
0.268 67 0.207 316
0.268 27 0.210 214
0.269 11 0.212 144
0.269 4 0.213 97
0.269 2 0.214 65
0.269 1 0.214 43
0.269 0 0.215 29
0.269 0 0.215 19
0.269 0 0.215 13
0.269 0 0.215 9
0.269 0 0.215 6
0.269 0 0.215 4
0.269 0 0.215 3
0.269 0 0.215 2
0.269 0 0.215 1
0.269 0 0.215 1
inew = 26.9% 0.269
0.269
0
0
0.215
0.215
1
0
inew = 21.5%
0.269 0 0.215 0 Dr. Assakkaf
Slide No. 19
ENCE 202
Eng. Econ
Handout 9
n If MARR is 20%
n Then, the new tractor is selected

because i = 26.9 % is greater than
MARR = 20%
Dr. Assakkaf
Slide No. 20
10
ENCE 202
Eng. Econ
Handout 9
If we assume the salvage value for the new tractor to be

$30,000 after 3 years, the NPWnew will be:
NPWold = -24,680 + 12,000(P/A,i,3) = 0
iold = 21.5%
NPWnew = - 73,570 + 26,000(P/A,i,3) + 30,000(P/F,i,3) = 0
inew = 18.9%
Before the decision can be reached
YOU MUST KNOW YOUR MARR.
If MARR = 20% and 3 year analysis period, we choose old tractor.
If MARR = 30%, we choose neither tractor - do nothing alternative.
If the MARR was 15%, which alternative should we select then?
Dr. Assakkaf
Slide No. 21
ENCE 202
Eng. Econ
Handout 9
Both NPWold and NPWnew exceed the MARR = 15%.

But since the old tractor yields a higher MARR, should it not be
selected?
To answer this question, determine each alternative's net present
worth at 15%.
NPWold = -24,680 + 12,000(P/A,15,3) = $2,719
NPWnew = - 73,570 + 26,000(P/A,15,3) + 30,000(P/F,15,3) = $5,519
According to the above NPW analysis, the new tractor yields a

higher value for a MARR of 15%?
Shouldn't the alternative with the higher rate of return would yield
the higher NPW regardless of the assumed interest rate?
NO IT SHOULD NOT!
The initial investments in the tractor examples we used are not theDr. Assakkaf
same. Slide No. 22
11
ENCE 202
Incremental Rate of Return
Eng. Econ
Handout 9
(ROR) Analysis
When we examined the rate of return of each alternative, we have

ignored their respective differences in initial cash flows. Therefore,
we can obtain misleading results through such an analysis.
To deal with the problem of unequal initial investments, an
incremental rate of return (IROR) analysis is required.

"For alternatives that have a satisfactory rate of return (ROR), what
is the IROR of the difference in the cash flows of the alternatives?"
To make this analysis, first arrange the alternatives in ascending

order of initial cash flow. Then compare alternatives, two by two,
alternatively rejecting the alternative with the lower IROR.
Dr. Assakkaf
Slide No. 23
ENCE 202
Eng. Econ
Handout 9
(ROR) Analysis
8,000
26,000 26,000 26,000 26,000 26,000
26,000
New
tractor 0
6
73,570
12,000 12,000 12,000 12,000 12,000 12,000

Old
tractor
0 6
24,680 24,680
Dr. Assakkaf
Slide No. 24
12
ENCE 202
Eng. Econ
Handout 9
(ROR) Analysis
NPWnew-old = - 48,890 + 14,000(P/A,i,6) + 24,680(P/F,i,3) + 8,000(P/F,i,6) = 0
i = 30.9%
24,680
8,000
14,000
0 6
48,890
Dr. Assakkaf
Slide No. 25
ENCE 202
Eng. Econ
Handout 9
(ROR) Analysis
n While the initial investment of $24,680 for the old tractor will yield a
ROR of 21.5%, the incremental increase in initial investment of
$48,890 (by purchasing the new tractor) will yield an IROR of
30.9%.
n Now that all the rates of return are known, a decision can be
reached which is dependent on the MARR.
For a MARR of 20% the ROR of the new tractor is too low, and
therefore the old tractor is chosen.
For a MARR of 15% both alternatives exceed it and we have to examine
the IROR.
In this case the IROR is higher than the MARR, so we should choose
the new tractor.
Dr. Assakkaf
Slide No. 26
13
INTRODUCTION TO
by

ENCE 202
Spring 2000
ENCE 202
Economic Equivalence
Eng. Econ
Handout 10
Involving Inflation
n Measure of Inflation and Deflation

The consumer price index (CPI) is the ratio
between the current price of a commodity
or service to the price at some earlier
reference time.
For example, the base year is 1967 (index
=100), commodity price is $1.46/lb. The
price in 1993 is $5.74/lb. Therefore, the
1993 index is 5.74/1.46 = 393.2
Dr. Assakkaf
Slide No. 2
1
ENCE 202
Eng. Econ
Handout 10
Involving Inflation
n The Annual Inflation Rate

The annual inflation rate at t+1 can be
computed as
CPI t + 1 CPI t
annual inflation rate at t+1 =
CPI t
Dr. Assakkaf
Slide No. 3
ENCE 202
Eng. Econ
Handout 10
Involving Inflation
n The Annual Inflation Rate

Assume the average inflation rate = f
The average rate can be computed as
CPI t (1 + f ) n = CPI t + n
Or
CPI t + n
f =n 1
CPI t
Dr. Assakkaf
Slide No. 4
2
ENCE 202
Eng. Econ
Handout 10
Involving Inflation
n Example
1 / 14
246.80 246.80
f = 14 1 = 1 = 6.882%
97.2 97.2
Dr. Assakkaf
Slide No. 5
ENCE 202
Eng. Econ
Handout 10
Involving Inflation
n Purchasing Power of Money

Purchasing power at t in reference to t-n
It is equal to
CPI t n
CPI t
Define k = annual rate of loss in purchasing
power. Therefore, the average rate of loss
of purchasing power is
Dr. Assakkaf
Slide No. 6
3
ENCE 202
Eng. Econ
Handout 10
Involving Inflation
CPI base year CPI base year

(1 k ) n =
CPI t CPI t + n
Resulting into CPI t = (1 k ) n CPI t + n
Therefore, 1
(1 + f ) n =
(1 k ) n
This equation relates the average f and k.
Dr. Assakkaf
Slide No. 7
ENCE 202
Depreciation and Depreciation
Eng. Econ
Handout 10
Accounting
Depreciation is the loss in value of a piece of equipment

over time, generally caused by wear and tear from use,
deterioration, obsolescence, or reduced need.
Depreciation accounting is the systematic allocation of the

costs of a capital investment over some specific number of
years.
Dr. Assakkaf
Slide No. 8
4
ENCE 202
Eng. Econ
Handout 10
Depreciation Accounting
Reasons for calculating the depreciation accounting value

(usually termed book value) of a piece of equipment:
1. To provide the construction owner and project manager with an
easily calculated estimate of the current market value of the
equipment.
2. To provide a systematic method for allocating the depreciation
portion of equipment ownership costs over a period of time and
to a specific productivity rate.
3. To allocate the depreciation portion of ownership costs in such a
manner that the greatest tax benefits will accrue.
Dr. Assakkaf
Slide No. 9
ENCE 202
Eng. Econ
Handout 10
Depreciation Accounting
Information needed for depreciation accounting:

1. The purchase price of the piece of equipment, P
2. The optimum period of time to keep the equipment or the
recovery period allowed for income tax purposes, N
3. The estimated resale value at the close of the optimum period of
time, F
Dr. Assakkaf
Slide No. 10
5
ENCE 202
Depreciation Calculation
Eng. Econ
Handout 10
Methods
1. Straight-line (SL) Method
2. Sum-of-the-years (SOY) Method
3. Declining-balance (DB) Method
Dr. Assakkaf
Slide No. 11
ENCE 202
Eng. Econ
Handout 10
Straight-line (SL) Method
The annual amount of depreciation Dm,,for any year m, is a constant

value, and thus the book value BVm decreases at a uniform rate
over the useful life of the equipment.
Depreciation rate Rm = 1/N
Annual depreciation amount Dm = Rm (P - F) = (P - F)/N
Book value at year m BVm = P - mDm
Note: The value (P - F) is often referred to as the depreciable value of

the investment.
Dr. Assakkaf
Slide No. 12
6
ENCE 202
Eng. Econ
Handout 10
Example 1
A piece of equipment is available for purchase for $12,000, has an estimated useful
life of 5 years, and has an estimated salvage value of $2,000. Determine the
depreciation and the book value for each of the 5 years using the SL method.
Rm = 1/5 = 0.2
Dm= 0.2(12,000 - 2,000) = $2,000 per year
The table of values is: BV2 = 12,000 2( 2,000) = $8,000
m BVm-1 Dm BVm
0 $0 $0 $12,000
1 12,000 2,000 10,000
2 10,000 2,000 8,000
3 8,000 2,000 6,000
4 6,000 2,000 4,000
5 4,000 2,000 2,000
If the equipment is expected to be used about 1,400 hours per year then its
estimated hourly depreciation portion of the ownership cost is
Dr. Assakkaf
$2,000/1,400 = $1.428 = $1.43 per hour Slide No. 13
ENCE 202
Eng. Econ
Handout 10
Sum-of-the-years (SOY) Method
SOY is an accelerated depreciation method (fast write-off), which is

a term applied to accounting methods which permit rates of
depreciation faster than straight line.
The rate of depreciation is a factor Rm (depreciation rate) times the

depreciable value (P - F).
Dm = Rm (P-F)
SOY = N(N+1)/2
Rm = (N-m+1)/SOY
The annual depreciation Dm for mth year (at any age m) is

Dm = {(N-m+1)/SOY}(P-F)
The book value at the end of year m is

BVm = P-(P-F)[m(N-m/2+0.5)/SOY] Dr. Assakkaf
Slide No. 14
7
ENCE 202
Eng. Econ
Handout 10
Example 2
Using the same values as given in Example 1, calculate the allowable depreciation
and the book value for each of the 5 years using the SOY method.
SOY = 1+2+3+4+5 = 15 or =5(6)/2 = 15

Rm = (5-m+1)/15
Dm = R m (12,000-2,000) = (5-m+1)10,000/(15)
Year Rm Dm BVm
0 $ 0 $12,000
1 5/15 3,333 8,667
2 4/15 2,667 6,000
3 3/15 2,000 4,000
4 2/15 1,333 2,667
5 1/15 667 2,000
Dr. Assakkaf
Slide No. 15
ENCE 202
Eng. Econ
Handout 10
Declining-balance (DB) Method
Declining-balance (DB) methods also are accelerated depreciation

methods that provide for even larger portions of the cost of a piece
of equipment to be written off in the early years.
DB method often more nearly approximates the actual loss in
market value with time.
Declining methods range from 1.25 times the current book value
divided by the life to 2.00 times the current book value divided by
the life (the latter is termed double declining balance).
Note: Although the estimated salvage value F is not included in the
calculation, the book value cannot go below the salvage value.
Dr. Assakkaf
Slide No. 16
8
ENCE 202
Eng. Econ
Handout 10
Declining-balance (DB) Method
The following equations are necessary to use the declining-balance

methods.
The symbol R is used for the depreciation rate for the declining-balance
method of depreciation:
1. For 1.25 declining-balance (1.25DB) method, R = 1.25/N

For 1.50 declining-balance (1.5DB) method, R = 1.50/N
For 1.75 declining-balance (1.75DB) method, R = 1.75/N
For double-declining-balance (DDB) method, R = 2.00/N
2. The allowable depreciation Dm, for any year m and any depreciation rate R is
Dm = R P(1 - R)m-1 or D m = (BVm-1)R
3. The book value for any year m is
BVm = P(1-R)m or BVm = BV m-1 - BVm provided that BVm > F

Dr. Assakkaf
Slide No. 17
ENCE 202
Eng. Econ
Handout 10
Example 3
For the same piece of equipment described in Example 2, calculate the

allowable depreciation and the book value for each of the 5 years of its life.
R = 2.0/5 = 0.4
Dm = 0.4(BVm-1)
BVm = BVm-1 - Dm
Year Dm BVm
0 0 12,000
1 0.4x12,000 = 4,800 7,200
2 0.4x7,200 = 2,880 4,320
3 0.4x4,320 = 1,728 2,592
4 0.4x2,592 = 592 2,000
5 0 2,000
Dr. Assakkaf
Slide No. 18
9
ENCE 202
Depreciation Curves for the
Eng. Econ
Handout 10
Examples
12,000
SL - Straight-line depreciation method
SOY - Sum-of-the-Years depreciation method
DDB - Double-Declining-Balance depreciation method
10,000
Book value, $
8,000
SL
6,000 SOY
DDB
4,000
F = $2,000
2,000
0 1 2 3 4 5
Time, years
Dr. Assakkaf
Slide No. 19
ENCE 202
Eng. Econ
Handout 10
Good Luck with your Finals
Dr. Assakkaf
Slide No. 20
10

Case Study 1 BULLY Arena

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ENCE 202

Dr. Ibrahim A. Assakkaf

n FORTRAN is a high-level language

n EXAMPLE 1: Volume of a Cylinder

n Flow Chart for Example 1

A flow chart is a block diagram that summarizes

n EXAMPLE 2: Height of a Cylinder

n Flow Chart for Example 2

A flow chart is a block diagram that summarizes

n The following is a format of a simple

Statement labels in columns 1 to 5

C or * in column 1 indicates a comment

n Examples: Type statements

n Standard Library Functions

n List-directed Input and Output

PRINT *, output-list (separators are commas)

n List-directed Input and Output

n This program calculates the velocity and

REAL HGHT , HGHT, VELOC , VELO, ACCEL, TIME

HGHT = . * ACCEL * TIME ** +VELOC * TIME + HGHT

PRINT *, `AT TIME `, TIME, ` THE VERTICAL VELOCITY IS `, VELOC

Dr. Ibrahim A. Assakkaf

n Example: Type II ENTER 3 POLLUTION READINGS:

INTEGER CUTOFF, LEVEL1, LEVEL2, LEVEL3, INDEX

PRINT *, ` ENTER 3 POLLUTION READINGS:`

n Repetition Structure (The DO and

NOTE that the default for step size =1

n The WHILE (repetition) Statement

WHILE (logical expression) DO DO WHILE (logical expression)

n Examples: DO WHILE & GO TO

DO WHILE (SUM .LE. LIMIT) 10 IF (SUM .LE. LLIMIT) THEN

n Non-formatted input and output was

PRINT format-identifier, output-list

n EXAMPLE: Formatted Output

10 FORMAT (1X, I5, 2F8.2)

READ format-identifier, input-list

It is common to use non-formatted (or called free

n The WRITE Statement

WRITE (control-list) output-list

Control-list consists of the following:

n EXAMPLES: WRITE Statement

n The General READ Statement

READ (control-list) input-list

n Example: File Processing

OPEN (UNIT = 13, FILE = `File-name`, SATAUS = `NEW`)

Dr. Ibrahim A. Assakkaf

n Logical Data Type

n Logical Data Type

n Logical Data Type

n Declare using the type statement

We can compare character values using

n Variables can be classified as:

which means that X can take values X(1), X(2), ...

The list consists of array-name (l : u), where l =

n Input and Output of Arrays

n Examples: Input and Output of Arrays

n Examples: Output and Input of Arrays

n Examples: Output and Input of Arrays

n In general the READ or PRINT can be:

READ *, (input/output list, control-variable = initial value, limit)

PRINT *, (input/output list, control-variable = initial value, limit)

n PARAMETER and DATA Statements

PARAMETER (par1 = val1, par2 = val2, )

n Examples: PARAMETER Statements