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Engeco Chap 04 - The Time Value of Money (Addtional)

This document discusses various cash flow formulas and concepts related to economic feasibility analysis of engineering projects. It covers single cash flows, equal payment series, gradient series, sinking funds, capital recovery factors, and present worth factors. Examples are provided to illustrate how to calculate compound amounts, present worths, sinking funds, and capital recovery amounts for different cash flow scenarios using the appropriate formulas. Unconventional equivalence calculations involving deposits and withdrawals over time at a given interest rate are also introduced.

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Jun Hao Heng
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69 views18 pages

Engeco Chap 04 - The Time Value of Money (Addtional)

This document discusses various cash flow formulas and concepts related to economic feasibility analysis of engineering projects. It covers single cash flows, equal payment series, gradient series, sinking funds, capital recovery factors, and present worth factors. Examples are provided to illustrate how to calculate compound amounts, present worths, sinking funds, and capital recovery amounts for different cash flow scenarios using the appropriate formulas. Unconventional equivalence calculations involving deposits and withdrawals over time at a given interest rate are also introduced.

Uploaded by

Jun Hao Heng
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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ECONOMIC FEASIBILITY ANALYSIS

OF ENGINEERING PROJECTS

CHAPTER 4
(ADDITIONAL)
TIME IS MONEY

NOVEMBER 2015 1
Types of Cash Flows

(a) Single cash flow


(b) Equal (uniform)
payment series
(c) Linear gradient
series
(d) Geometric
gradient series
(e) Irregular
payment series
NOVEMBER 2015 2
Single Cash Flow Formula
• Single payment F
compound amount F  P(1  i) N

factor (growth factor) F  P( F / P, i, N )


• Given:
i  10% 0
N  8 years N
P  $2,000
• Find: P
F  $2,000(1  010
. )8

 $2,000( F / P,10%,8)
 $4,28718
.
NOVEMBER 2015 3
Single Cash Flow Formula
• Single payment P  F(1  i)  N F
present worth factor
P  F( P / F, i, N )
(discount factor)
• Given: 0
i  12%
N  5 years N
F  $1,000
• Find: P
5
P  $1,000(1  0.12)
 $1,000( P / F,12%,5)
 $567.40
NOVEMBER 2015 4
Uneven Payment Series

P1  $25,000( P / F,10%,1)
P2  $3,000( P / F,10%,2)
P4  $5,000( P / F,10%,4)
P  P1  P2  P4
 $28,622

NOVEMBER 2015 5
Equal Payment Series Compound Amount Factor

F
(1  i )  1
N
0 1 2 3 FA
N i
A
 A( F / A, i , N )
Example 4.13:
• Given: A = $3,000, N = 10 years, and i = 7%
• Find: F
• Solution: F = $3,000(F/A,7%,10) = $41,449.20
NOVEMBER 2015 6
Sinking Fund Factor

F
i
A F
0 1 2 3 (1  i )  1
N
N

A  F ( A / F ,i, N )

Example 4.15:
• Given: F = $5,000, N = 5 years, and i = 7%
• Find: A
• Solution: A = $5,000(A/F,7%,5) = $869.50
NOVEMBER 2015 7
Capital Recovery Factor

P
i (1  i )N
A P
1 2 3 (1  i )  1
N

0 N
 P( A / P, i , N )
A

Example 4.16:
• Given: P = $250,000, N = 6 years, and i = 8%
• Find: A
• Solution: A = $250,000(A/P,8%,6) = $54,075
NOVEMBER 2015 8
Equal Payment Series Present Worth Factor

P
(1  i ) N  1
P A
1 2 3 i (1  i ) N
0 N

A  A( P / A , i , N )

Example 4.18:
• Given: A = $32,639, N = 9 years, and i = 8%
• Find: P
• Solution: P = $32,639(P/A,8%,9) = $203,893
NOVEMBER 2015 9
Linear Gradient Series

i (1  i )  iN  1
N
PG
i (1  i )
2 N

 G( P / G, i, N )

P
NOVEMBER 2015 10
Gradient Series as a Composite Series

NOVEMBER 2015 11
Example 4.20 $2,000
$1,750
$1,250 $1,500
$1,000

0
1 2 3 4 5

How much do you have to deposit


now in a savings account that
earns a 12% annual interest, if
P =? you want to withdraw the annual
series as shown in the figure?

NOVEMBER 2015 12
Method 1: $2,000
$1,750
$1,250 $1,500
$1,000

0
1 2 3 4 5

$1,000(P/F, 12%, 1) = $892.86


$1,250(P/F, 12%, 2) = $996.49
$1,500(P/F, 12%, 3) = $1,067.67
P =? $1,750(P/F, 12%, 4) = $1,112.16
$2,000(P/F, 12%, 5) = $1,134.85
$5,204.03
NOVEMBER 2015 13
Method 2:

P1  $1,000( P / A,12%,5)
 $3,604.80

P2  $250( P / G,12%,5)
 $1,599.20

P  $3,604.08  $1,599.20
 $5,204

NOVEMBER 2015 14
Unconventional Equivalence
Calculations
Situation 1: If you
make 4 annual
deposits of $100 in
your savings account
which earns a 10%
annual interest, what
equal annual amount
can be withdrawn over
4 subsequent years?
NOVEMBER 2015 15
Unconventional Equivalence Calculations

• Situation 2:
What value of A
would make the two
cash flow
transactions
equivalent if i =
10%?

NOVEMBER 2015 16
NOVEMBER 2015 17
NOVEMBER 2015 18

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