Z94.7 ENGINEERING ECONOMY

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SALVAGE VALUE. (1)  The cost recovered or which could be recovered from a used property when removed from service, sold, or scrapped. A factor in appraisal of property value and in computing depreciation. (2)  Normally, an estimate of an asset’s net market value at the end of its estimated life.  In some cases, the cost of removal may exceed any sale or scrap value; thus net salvage value is negative.  (3) The market value of a machine or facility at any point in time. 

SENSITIVITY. The relative magnitude of decision criterion change with changes in one or more elements of an economy study. If the relative magnitude of the criterion exhibits large change, the criterion is said to be sensitive; otherwise it is insensitive. 

SENSITIVITY ANALYSIS. A study in which the elements of an engineering economy study are changed in order to test for sensitivity of the decision criterion.  Typically it is used to assess needed measurement or estimation precision and often it is used as a substitute for more formal or sophisticated methods such as risk analysis. 

SERVICE LIFE. (See LIFE.) 

SIMPLE INTEREST. (1)  Interest that is not compounded, i.e., is not added to the income-producing investment or loan. (2) Interest charges under the condition that interest in any time period is only charged on the principal.  Frequently interest is charged on the original principal amount disregarding the fact that the principal still owing may be declining through time.  (See INTEREST RATE-NOMINAL.)

SINKING FUND. (1) A fund accumulated by periodic deposits and reserved exclusively for a specific purpose, such as retirement of a debt or replacement of a property. (2) A fund created by making periodic deposits (usually equal) at compound interest in order to accumulate a given sum at a given future time usually for some specific purpose. 

SINKING FUND DEPOSIT FACTOR. (See SINKING FUND FACTOR.) 

SINKING FUND FACTOR. The function of interest rate and time that determines the periodic deposit required to accumulate a specified future amount. 

STUDY PERIOD. The length of time that is presumed to be covered in the schedule of events and appraisal of results. Often it is the anticipated life of the project under consideration, but may be either longer or (more likely) shorter. (See LIFE, PLANNING HORIZON.)

SUNK COST. A cost which, since it occurred in the past, has no relevance with respect to estimates of future receipts or disbursements. This concept implies that, since a past outlay is the same regardless of the alternative selected, it should not influence a new choice among alternatives. 

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