Faculty of Engineering

Production Engineering Department

BUS x21 – Engineering Economy

Money-Time Relationships (Uniform Series)
Dr. Hadi Fors
Revision

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Uniform Series

Necessary Conditions:
• A occurs at the end of periods 1 through N
• P occurs one interest period before the first A
• F occurs at the same time as the last A and N periods after P
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Uniform Series Formulas & Factors
• Finding F when given A

• Finding A when given F

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Uniform Series Formulas & Factors
• Finding P when given A

• Finding A when given P

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 Examples

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Examples
• How much will you have in 40 years if you save $3,000 each year in an account that
earns 8% interest each year?
F = ???, A = $3,000, i% = 8%, N = 40 years

F = A * (F/A, 8%, 40)

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Examples
• How much will you have in 40 years if you save $3,000 each year in an account that
earns 8% interest each year?
F = ???, A = $3,000, i% = 8%, N = 40 years

F = $3,000 * (F/A, 8%, 40)

(F/A, 8%, 40)

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Examples
• How much will you have in 40 years if you save $3,000 each year in an account that
earns 8% interest each year?
F = ???, A = $3,000, i% = 8%, N = 40 years

F = $3,000 * (F/A, 8%, 40)

F = $3,000 * (259.0565)
F = $777,170

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Examples
• A recent government study reported that a college degree is worth an extra $23,000
per year in income compared to what a high-school graduate makes. If the interest rate
is 10% per year and you work for 30 years, what is the future compound amount of this
extra income?
F = ???, A = $23,000, i% = 10%, N = 30 years

F = A * (F/A, 10%, 30)

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Examples
• A recent government study reported that a college degree is worth an extra $23,000
per year in income compared to what a high-school graduate makes. If the interest rate
is 10% per year and you work for 30 years, what is the future compound amount of this
extra income?
F = ???, A = $23,000, i% = 10%, N = 30 years

F = $23,000 * (F/A, 10%, 30)

F = $23,000 * (164.4940)
F = $3,783,362

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Examples
• How much would you need to set aside each year for 25 years, at 8% interest
compounded annually, to have accumulated $1,000,000 at the end of the 25 years?
F = $1,000,000, A = ???, i% = 8%, N = 25 years

A = F * (A/F, 8%, 25)

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Examples
• How much would you need to set aside each year for 25 years, at 8% interest
compounded annually, to have accumulated $1,000,000 at the end of the 25 years?
F = $1,000,000, A = ???, i% = 8%, N = 25 years

A = $1,000,000 * (A/F, 8%, 25)

(A/F, 8%, 25)

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Examples
• How much would you need to set aside each year for 25 years, at 8% interest
compounded annually, to have accumulated $1,000,000 at the end of the 25 years?
F = $1,000,000, A = ???, i% = 8%, N = 25 years

A = $1,000,000 * (A/F, 8%, 25)

A = $1,000,000 * (0.0137)
A = $13,700

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Examples
• How much is needed today to provide an annual amount of $50,000 each year for 20
years, at 8% interest each year?
P = ???, A = $50,000, i% = 8%, N = 20 years

P = A * (P/A, 8%, 20)

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Examples
• How much is needed today to provide an annual amount of $50,000 each year for 20
years, at 8% interest each year?
P = ???, A = $50,000, i% = 8%, N = 20 years

P = $50,000 * (P/A, 8%, 20)

(P/A, 8%, 20)

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Examples
• How much is needed today to provide an annual amount of $50,000 each year for 20
years, at 8% interest each year?
P = ???, A = $50,000, i% = 8%, N = 20 years

P = $50,000 * (P/A, 8%, 20)

P = $50,000 * (9.8181)
P = $490,905

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Examples
• A company is considering the installation of a newly designed boiler system. The boiler
will save $450,000 per year over the boiler’s expected life of 10 years. If the interest
rate is 12% per year, how much money can the company afford to invest in the new
boiler system?
P = ???, A = $450,000, i% = 12%, N = 10 years

P = A * (P/A, 12%, 10)

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Examples
• A company is considering the installation of a newly designed boiler system. The boiler
will save $450,000 per year over the boiler’s expected life of 10 years. If the interest
rate is 12% per year, how much money can the company afford to invest in the new
boiler system?
P = ???, A = $450,000, i% = 12%, N = 10 years

P = $450,000 * (P/A, 12%, 10)

P = $450,000 * (5.6502)
P = $2,542,590
Therefore, the upper limit the company can spend on new system is $2,542,590.

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Examples
• If you put $500,000 today in an account earning 8% each year, how much could you
withdraw each year for 25 years?
P = $500,000, A = ???, i% = 8%, N = 25 years

A = P * (A/P, 8%, 25)

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Examples
• If you put $500,000 today in an account earning 8% each year, how much could you
withdraw each year for 25 years?
P = $500,000, A = ???, i% = 8%, N = 25 years

P = $500,000 * (A/P, 8%, 25)

(A/P, 8%, 25)

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Examples
• If you put $500,000 today in an account earning 8% each year, how much could you
withdraw each year for 25 years?
P = $500,000, A = ???, i% = 8%, N = 25 years

A = $500,000 * (A/P, 8%, 25)

A = $500,000 * (0.0937)
A = $46,850

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Summary

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Examples (Finding i)
• After years of being college student, you decide that you want to pay for your dream
car in cash. Not having enough money now, you decide to specifically put money away
each year in a "dream car" fund. The car you want to buy will cost $60,000 in eight
years. You are going to put aside $6,000 each year (for eight years) to save for this. At
what interest rate must you invest your money to achieve your goal of having enough
money to purchase the car after eight years?
F = $60,000, A = $6,000, i% = ???, N = 8 years

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Examples (Finding i)
F = A * (F/A, i%, 8)
$60,000 = $6,000 * (F/A, i%, 8)
10 = (F/A, i%, 8)
• We can use the interest tables to track down the unknown value of i. What we are
looking for are two interest rates, one with an (F/A, i%, 8) value greater than 10 and
one with an (F/A, i%, 8) less than 10.
• After searching in the interest tables, we found the following:

• This means that the interest rate is between 6% and 7%.

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Examples (Finding i)

We can use linear

interpolation to
find approximate
value of i

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Examples (Finding i)

• So, if you can find an account that will earn at least 6.28% interest per year, you'll have
the $60,000 you need to buy your dream car in eight years.

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Examples (Finding N)
• Your company has a $100,000 loan for a new security system it just bought. Your
company decides that it can afford to pay $10,000 per year. After how many payments
(years) will the loan be paid off if the interest rate is 8% per year?
P = $100,000, A = $10,000, i% = 8%, N = ???
P = A * (P/A, 8%, N)
$100,000 = $10,000 * (P/A, 8%, N)
10 = (P/A, 8%, N)

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Examples (Finding N)
• Your company has a $100,000 loan for a new security system it just bought. Your
company decides that it can afford to pay $10,000 per year. After how many payments
(years) will the loan be paid off if the interest rate is 8% per year?
P = $100,000, A = $10,000, i% = 8%, N = ???
P = A * (P/A, 8%, N)
$100,000=$10,000 * (P/A, 8%, N)
10 = (P/A, 8%, N)

9.8181 = (P/A, 8%, 20)

10.0168 = (P/A, 8%, 21)

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Examples (Finding N)
• Your company has a $100,000 loan for a new security system it just bought. Your
company decides that it can afford to pay $10,000 per year. After how many payments
(years) will the loan be paid off if the interest rate is 8% per year?
P = $100,000, A = $10,000, i% = 8%, N = ???
P = A * (P/A, 8%, N)
$100,000=$10,000 * (P/A, 8%, N)
10 = (P/A, 8%, N)
• From the interest table:
9.8181 = (P/A, 8%, 20)
10.0168 = (P/A, 8%, 21)
• Therefore N = 21 years
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 Thank You

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