ENGINEERING MIDTERM

01/17
MANAGEMENT LECTURE / FIRST SEMESTER

GRADIENT
DEFINITION
 in certain cases, Engineering Economy problems involve a series of disbursements
or receipts that increase or decrease in each succeeding period by varying amounts
 if the change in succeeding periods is constant, then the series is known as a
uniform arithmetic gradient
 a geometric gradient series is a sequence consisting of end-of-period payments,
where each payment increases or decreases by a fixed percentage
 in a geometric gradient, payment begins at the end of the first period

UNIFORM ARITHMETIC GRADIENT

 PRESENT WORTH (P)

G
P= ¿
i
 FUTURE WORTH (F)

G
F= ¿
i
 EQUIVALENT UNIFORM ANNUAL AMOUNTS

A=G¿
EXAMPLE PROBLEMS

Ma. Elaine T. Francisco | 1

ENGINEERING MIDTERM
01/17
MANAGEMENT LECTURE / FIRST SEMESTER

1. Find the present worth of all the cash disbursements using gradient interest formulas
if money is worth 15% per annum. Annual cash disbursements increases by Php
1,000.00 every year thereafter, until the end of the forth year. The first cash
disbursement amount to Php 5,000.00.
Given: A = 5,000
G = 1,000
P =?
i = 15%
n=4
Solution:
P 1= A ¿ ¿
P1=5,000 ¿ ¿
P1=Php 14,274.89

G
P 2= ¿
i
1000
P 2= ¿
0.15
P2=Php 3,786.44

P=P1 + P2
P=14,274.89+3,786.44
P=Php 18 , 061.33

Ma. Elaine T. Francisco | 2

ENGINEERING MIDTERM
01/17
MANAGEMENT LECTURE / FIRST SEMESTER

2. A firm considering the installation of an automatic data processing unit to handle

some of its accounting operations. Machines for that purpose may be purchased for
Php 20,000.00, or maybe leased for Php 8,000.00 for the first year and Php 1,000.00
less every year now and then until the end of the 4 th year. If money is worth 15%, is
it advisable to rent or buy the machine?
Given: A = 8,000
G = 1,000
P =?
i = 15%
n=4
Solution:
P 1= A ¿ ¿
P1=8,000 ¿ ¿
P1=Php 22,839.83

G
P 2= ¿
i
1000
P 2= ¿
0.15
P2=Php 3,786.44

P=P1 −P2
P=22,839.83−3,786.44
P=Php 19 , 053.39
It is advisable to rent because it is lower than to buy the machine.

Ma. Elaine T. Francisco | 3

ENGINEERING MIDTERM
01/17
MANAGEMENT LECTURE / FIRST SEMESTER

3. The maintenance on a machine is expected to be Php 155.00 at the end of the first
year and it is expected to increase Php 35.00 each year for the following 7 years.
What sum of money should be set aside now to pay the maintenance for the eight-
year period? Assume 6% interest.
Given: A = 155
G = 35
P =?
i = 6%
n=8
Solution:
P 1= A ¿ ¿
P1=155 ¿ ¿
P1=Php 962.52

G
P 2= ¿
i
35
P2= ¿
0.06
P2=Php 694.46

P=P1 + P2
P=962.5200+694.46
P=Php 1 ,656.98

Ma. Elaine T. Francisco | 4

ENGINEERING MIDTERM
01/17
MANAGEMENT LECTURE / FIRST SEMESTER

4. The maintenance of a room air conditioner is expected to be Php 2,000.00 at the end
of the first year and is expected to increase by Php 100.00 each year for the
following 7 years. Assuming rate of interest is 6%, compute the equivalent uniform
annual maintenance cost.
Given: A1 = 2,000
G = 100
A =?
i = 6%
n=8
Solution:

A=A 1 +G¿
A=2,000+100 ¿
A=Php2 , 319.52

Ma. Elaine T. Francisco | 5

ENGINEERING MIDTERM
01/17
MANAGEMENT LECTURE / FIRST SEMESTER

GEOMETRIC GRADIENT

 PRESENT VALUE (P)

P=
C 1−wn
1+i 1−w(,w≠1 )
1+ r
w=
1+i
o If w = 1, that is, r = 1
Cn
P=
1+r
Where:
C = first payment at the end of the first period
1 + r = rate of increase

Ma. Elaine T. Francisco | 6

ENGINEERING MIDTERM
01/17
MANAGEMENT LECTURE / FIRST SEMESTER

EXAMPLE PROBLEMS
1. For the cash flow shown in the figure, find the values of P and F if i =15% per year.

Given: P =?
F =?
C = 1,000
r = 12%
i = 15%
n=6
Solution:

( )
P=Php 4 ,126.82
( )
n
1+ r
1−
C 1+i F=P(1+i)n
P=
1−(
1+i )
1+i 1+r
F=4,126.82(1+ 0.1
F=Php 9 ,545.59

( ( ))
( )
5
1+0.12
1−
1,000 1+0.15
P=
1+0.15 1+ 0.12
1−
1+ 0.15

Ma. Elaine T. Francisco | 7