# Z94.7 ENGINEERING ECONOMY

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PAYBACK PERIOD. (1) Regarding an investment, the number of years (or months) required for the related profit or savings in operating cost to equal the amount of said investment. (2) The period of time at which a machine, facility, or other investment has produced sufficient net revenue to recover its investment costs.

PAYBACK PERIOD, DISCOUNTED. Same as payback period except the period includes a return on investment at the interest rate used in the discounting.

PAYOFF PERIOD. (See PAYBACK PERIOD.)

PAYOFF TABLE. A tabular presentation of the payoff results of complex decision questions involving many alternatives, events, and possible future states.

PAYOUT PERIOD. (See PAYBACK PERIOD.)

PERPETUAL ENDOWMENT. An endowment with hypothetically infinite life. (See CAPITALIZED COST, ENDOWMENT.)

PLANNING HORIZON. (1) A stipulated period of time over which proposed projects are to be evaluated. (2) That point of time in the future at which subsequent courses of action are independent of decisions made prior to that time. (3) In utility theory, the largest single dollar amount that a decision maker would recommend be spent. (See UTILITY.)

PRESENT WORTH (PRESENT VALUE). (1) The monetary sum which is equivalent to a future sum or sums when interest is compounded at a given rate. (2) The discounted value of future sums.

PRESENT WORTH FACTOR(S). (1) Mathematical formulae involving compound interest used to calculate present worths of various cash flow streams. In table form, these formulae may include factors to calculate the present worth of a single payment, of a uniform annual series, of an arithmetic gradient, and of a geometric gradient. (2) A mathematical expression also known as the present value of an annuity of one. (The present worth factor, uniform series, also is known as the annuity fund factor.)

PRINCIPAL. Property or capital, as opposed to interest or income.

PROFITABILITY INDEX. An economic measure of project performance. There are a number of such indexes described in the literature. One of the most widely quoted is one originally developed and so named (the PI) by Ray I. Reul, which essentially is based upon the internal rate of return. (See DISCOUNTED CASH FLOW, INVESTOR’S METHOD, RATE OF RETURN.)

PROMOTION COST. The sum of all expenses found to be necessary to arrange for the financing and organizing of the business unit which will build and operate a project.

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