Module 2&3 - Eng Eco

discrete compounding

the interest is compound at the end of each finite – length period such as a month, a quarter or a year.

continuous compounding

it is assumed that cash payments occur once per year, but the compounding is continuous throughout the year.

Discount

is the difference between the worth in the future and its present worth

Rate of discount

is the discount on one unit of principal per unit of time.

Inflation

increase in prices for goods and services from one year to another, thus decreasing the purchasing power of money.

Annuity

is a series of payments made at equal intervals.

is a series of equal payments occurring at equal period of time.

annuity

provides for payments for the remainder of a person's lifetime is a life annuity or perpetuity.

Examples of annuities

are regular deposits to a savings account, monthly , insurance payments and pension payments.

Annuity

can be classified by the frequency of payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time.

perpetuity

y is an annuity in which the periodic payments begin on a fixed date and continue indefinitely.

perpetuity

sometimes referred to as a perpetual annuity

Amortization

can refer to the process of paying off debt over time in regular installments of interest and principal sufficient to repay the loan in full by its maturity date.

amortization schedule

is used to reduce the current balance on a loan, for example, a mortgage or car loan, through installment payments.

amortization

is used in the process of paying off debt through regular principal and interest payments over time.

is any method of repaying debt, the principal and interest included, usually by a series of equal payments at equal interval of time

amortization

can also refer to the spreading out of capital expenses related to intangible assets over a specific duration—usually over the asset's useful life—for accounting and tax purposes.

Depreciation

is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy.

Depreciation

represents how much of an asset's value has been used up

Depreciating

assets helps companies earn revenue from an asset while expensing a portion of its cost each year the asset is in use. If not taken into account, it can greatly affect profits.

Ordinary annuities

one where the equal payments are made at the end of each payment period starting from the first period.

capitalized cost

One of the most important application of perpetuity is

capitalizing costs

It helps the company's management measure the amount of profits earned over time in a more meaningful way.

Capitalized cost

Value

in a commercial sense, is the present worth of a particular property

Market value

of a property, is the amount which a willing buyer will pay to a willing seller for the property where each has an equal advantage and is under no compulsion to buy or sell.

Utility or Use value

of a property, is what the property is worth to the owner as an operating unit

Fair value

is the value which is normally determined by a disinterested third party to establish a price that is fair to both seller and buyer

Book value

sometimes called depreciated book value, is the worth of the property as shown in the accounting records of an enterprise.

Salvage or Resale value

is the price that can be obtained from the sale of the property as second hand

Scrap value

is the amount of the property would sell for if disposed as junk

Physical life

of a property, is the length of time during which it is capable of performing the function for which it was designed and manufactured.

Economic life

of a property, is the length of time during which the property maybe operated at a profit

Physical depreciation

is due to the lessening of the physical ability of the property to produce results. Its common causes are wear and deterioration

Functional depreciation

is due to the lessening in the demand for the function which the property was designed to render. It’s common causes are inadequacy, changes in style, population center shift, saturation of markets or more efficient machines are produce or available.

Straight Line Method

in Depreciation Methods: assumes that the loss in value is directly proportional to the age of the property

Sinking Fund Method

in Depreciation Methods: assumes that a sinking fund is established in which funds will accumulate for replacement. The total depreciation that has taken place up to any given time is assumed to be equal to the accumulated amount in the sinking fund at that time