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Engineering Economy, 5/e
Leland Blank, Texas A&M University
Anthony Tarquin, University of Texas - El Paso


Glossary

Below you will find the Glossary of Common Terms. When you view the definition you will see the symbol and description (with initial section reference in parentheses).
Annual amount or worth  A or AW - Equivalent uniform annual worth of all cash inflows and outflows over estimated life (1.7, 6.1).
Annual operating cost  AOC - Estimated annual costs to maintain and support an alternative (1.3).
Benefit/cost ratio  B/C - Ratio of a project’s benefits to costs expressed in PW, AW, or FW terms (9.2).
Breakeven point  QBE - Quantity at which revenues and costs are equal, or two alternatives are equivalent (13.1).
Book value  BV - Remaining capital investment in an asset after depreciation is accounted for (16.1).
Capital budget  b - Amount of money available for capital investment projects (12.1).
Capital recovery  CR or A - Equivalent annual cost of owning an asset plus the required return on the initial investment (6.2).
Capitalized cost  CC or P - Present worth of an alternative that will last forever (or a long time) (5.5).
Cash flow  CF - Actual cash amounts which are receipts (inflow) and disbursements (outflow) (1.10).
Cash flow before or after taxes  CFBT or CFAT - Cash flow amount before relevant taxes or after taxes are applied (17.2).
Composite rate of return  i' - Unique rate of return when a reinvestment rate c is applied to a multiple-rate cash flow series (7.5).
Cost estimating relationships  C2 or CT - Relations that use design variables and changing costs over time to estimate current and future costs (15.3–4).
Cost of capital  i or WACC - Interest rate paid for the use of capital funds; includes both debt and equity funds. For debt and equity considered, it is weighted average cost of capital (10.2–3).
Debt-equity mix  D-E - Percentages of debt and equity investment capital used by a corporation (1.9, 10.3).
Depreciation  D - Reduction in the value of assets using specific models and rules; there are book and tax depreciation methods (16.1).
Depreciation rate  dt - Annual rate for reducing the value of assets using depreciation models (16.1).
Economic service life  ESL or n - Number of years at which the AW of costs is a minimum (11.2).
Expected value (average)  x‾, μ or E(X) - Long-run expected average if a random variable is sampled many times (18.3, 19.4).
Expenses  E - All corporate costs incurred in transacting business (17.1).
First cost  P - Total initial cost—purchase, construction, setup, etc. (1.3, 16.1).
Future amount or worth  F or FW - Amount at some future date considering time value of money (1.7).
Gradient, arithmetic  G - Uniform change (+ or -) in cash flow each time period (2.5, 3.3–4).
Gradient, geometric  g - Constant rate of change (+ or -) each time period (2.6).
Gross income  GI - Income from all sources for corporations or individuals (17.1).
Inflation rate  f - Rate that reflects changes in the value of a currency over time (14.1).
Interest rate  i or r - Interest expressed as a percentage of the original amount per time period; nominal (r) and effective (i) rates (1.4, 4.1).
Life (estimated)  n - Number of years or periods over which an alternative or asset will be used; the evaluation time (1.7).
Life-cycle cost  LCC - Evaluation of costs for a system over all stages: feasibility to design to phaseout (5.7).
Measure of worth  Varies - Value, such as PW,AW, i*, used to judge economic viability (1.2).
Minimum attractive rate of return  MARR - Minimum value of the rate of return for an alternative to be financially viable (1.9, 10.2).
Net cash flow  NCF - Resulting, actual amount of cash that flows in or out during a time period (1.10).
Net present value  NPV - Another name for the present worth, PW.
Payback period  np - Number of years to recover the initial investment and a stated rate of return (5.6).
Present amount or worth  P or PW - Amount of money at the current time or a time denoted as present (1.7, 5.1).
Probability distribution  P(X) - Distribution of probability over different values of a variable (19.2).
Random variable  X - Parameter or characteristic that can take on any one of several values; discrete and continuous (19.2).
Rate of return  i* - Compound interest rate on unpaid or unrecovered balances such that the final amount results in a zero balance (7.1).
Recovery period  n - Number of years to completely depreciate an asset (16.1).
Salvage value  S - Expected trade-in or market value when an asset is traded or disposed of (16.1).
Standard deviation  s or σ - Measure of dispersion or spread about the expected value or average (19.4).
Taxable income  TI - Amount upon which income taxes are based (17.1).
Tax rate  T - Decimal rate, usually graduated, used to calculate corporate or individual taxes (17.1).
Time  t - Indicator for a time period (1.7).
Value added  EVA - Economic value added reflects net profit after taxes (NPAT) after removing cost of invested capital during the year (17.8).