68 vues

Transféré par KHAKSAR

- 9860_pact_b01_01
- Quiz No-02
- MC Review
- Class Problems
- Simple and Compound Interest
- Present Value of an Annuity
- Excel Material
- TVM-Notes
- Introduction Excel
- 2. Time Value of Money(1)
- 2. Accounting and Finance for Bankers IIBF 2nd Edition by get unlimited knowledge
- Chap006.doc
- 01 Time Value of Money.pdf
- Main Aasignment
- Time Value of Money
- ECON1
- Time Value for Money [Compatibility Mode] - Copy
- ps1a_f10
- Chap010 Slides
- App_C

Vous êtes sur la page 1sur 23

(3 Credit Hours)

Announcements

Due Date is 12th February 2016 (next Friday) during class

hours.

2/5/2016

Previous Lecture

Simple and Compound Interest

SPCAF

SPPWF

Today Lecture

- USPWF

- Capital Recovery Factor

Compounding and

Discounting

When we convert a P value into a F using some

rate we call this process . COMPOUNDING

and the rate use is called Interest rate

When we convert F into P using some rate we

call the process Discounting and the rate we

use is called Discount rate

Compounding increase your amount (as its

compounded).discounting decrease your amount

as its (discounted)

2/5/2016

Example

Find the present value of $10,000 to be

received 10 years from now at a discount rate

of 10%

F = $10,000

i or r = 10%

n = 10

P = F (1+i)-n

=> P = 10,000 (1+0.1)-10

= 10,000 x 0.385

= $3850

Class Practice:

Allowed time 5 minutes

Sandy, a manufacturing engineer, just received a yearend bonus of $10,000 that will be invested

immediately. With the expectation of earning at the

rate of 8% per year, Sandy hopes to take the entire

amount out in exactly 20 years to pay for a family

vacation when the oldest daughter is due to graduate

from college. Find the amount of funds that will be

available in 20 years?

2/5/2016

A Standard Notation

simplicity there is a standard notation

This notations includes two cash flows symbols, interest rate and

number of periods

sought, Y is given, i is interest rate and n is number of periods

Examples:

Equation with

factor formula

Name

Single-payment compound

amount

Single-payment present

worth

F = P(1+i)n

P = F(1+i)-n

Notation

(F/P, i, n)

Standard Notation

Equation

Find/

Given

F = P(F/P, i, n)

F/P

(P/F, i, n) P = F(P/F, i, n)

P/F

Example

What will be the future value of Rs. 100,000

compounded for 17 years at rate of interest

(F/P, i, n)

10% ?

F= (1+ i)n or F = P(1+0.1)n now writing that

in standard notation we have

F = P(F/P, i, n)

F = 100,000(F/P, 10%, 17)

That value you

get from Table

F = 100,000 (5.054)

F= 505400

2/5/2016

P = F(1+i)-n

F = P(1+i)n

as Single Payment

Compound Amount Factor

(SPCAF)

when multiplied by P

yields the future amount

F of initial amount P

after n years at interest

rate i

Single Payment Present Worth

Factor (SPPWF)

multiplied by F yields the present

amount P of initial amount F

after n years at interest rate i

Annuity

Normally, in real world we do not face Single

payments mostly instead faces cash flows

such as home mortgage payments and

monthly insurance payments etc

An annuity is an equal annual(periodic)

series of cash flows. It may be equal annual

deposits, equal annual withdrawals, equal

annual payments, or equal annual receipts.

The key is equal, annual cash flows

2/5/2016

Factor (P/A factor)

P=?

t = given

1

n1

Payment Present Worth

Factor (P/F, i%, n), to get

P for this cash flow ?

t=0

A = given

A

1

+

(1 + )

= [

1

(1 + )

(

+ .+

1

(1 + )

. +

(

1

(1 + )

] . (1)

Multiply Eq(1) by (P/F, i, n) factor and subtract the equation(1) from Eq (2)

+ .+

+ .+

] ..(2)

Factor (P/A factor)

Subtracting Eq(1)

from Eq(2)

= [

(1 + )

(

+

(

= [

= [

= [

=

+ .+

1

1+

+ .+

1]

1

]

(1 + )

] ..(2)

] . (1)

= [

1]

)

1]

(1 + ) 1

(1 + )

2/5/2016

(USPWF)

P=?

A = given

1

n1

t=0

t = given

do not have a single amount but a uniform series in which cash flows

occurs in equal amounts (in each period) and in consecutive interest

periods.

Yes P/F can be use for each A separatelybut thats a lengthy process

Uniform Series Present Worth Factor (USPWF) represented as P/A is

used to calculate the equivalent P value in year 0 for uniform end-of-period

series of A values beginning at the end of period 1 and extend

Mathematically:

(1 + ) 1

(1 + )

=

(1 + ) 1

(1 + )

(1 + )

(1 + ) 1

P = given

t = given

1

A=?

n-1

t=0

or A/P factor and it calculates the equivalent uniform annual

worth A over n yearshttps://www.epnuffic.nl/en

for a given P in year 0, when the

interest rate is i

Name

Uniform Series

Present Worth

Capital Recovery

formula

=

=

(1 + ) 1

(1 + )

(1 + )

(1 + ) 1

Notation

(P/A, i, n)

(A/P, i, n)

Standard Notation

Equation

P = A(P/A, i, n)

A = P(A/P, i, n)

2/5/2016

Present Worth (P/A)

A chemical engineer believes that by modifying the structure of a

certain water treatment polymer, his company would earn an extra

$5000 per year. At an interest rate of 10% per year, how much

could the company afford to spend now to just break even over a 5

year project period?

The cash flow diagram is as follows:

Solution:

A = 5000

A = $5000

i = 10%

n=5

P = A(P/A, i, n)

0

i =10%

P=?

P = 5000(P/A,10%,5)

= 5000(3.7908)

= $18,954

Our course book (Blank and Tarquin) from time to time refers to

Spread sheet functions

You will also be come across various Spread sheet formulas

while reading the book

We are going to Ignore that parts because you cannot use it in

exams. Yes you will need it while doing projects in real life, but

applying that from EXCEL is not difficult if you know what it

mean.

However, to get familiar with it, I will give you one home

assignment to do it with help of Excel sheet, after doing a

session on it in class

2/5/2016

Untabulated i or n

There are 3 ways to find factor values for

untabulated i or n values

1. Use formula

2. Use spreadsheet function

3. Linearly interpolate in interest tables

Interpolation is only approximate

or n

Linear Interpolation

Factor value

axis

formula

f2

Example

Linear

assumption

unknown

( )

We have value of 8% and 9% only in

Tables

from Factor Tables for F/P

8 % ... 2.1589

8.3% (x).. unknown

9 % ... 2.3674

f1

=

X1

Required

X

i or n axis

X2

= 2.1589 +

( )

(2.3674 2.1589)

= 2.2215

= 0.0018

2/5/2016

Factor (USCAF) F = ?

t = given

n-1

A = given

Uniform Series Compound Amount Factor which is given

as follows (only the term in the parenthesis)

=

(1 + ) 1

Compound Amount Factor (USCAF) represented as F/A, to

multiply with given uniform amount gives future worth of a

uniform series

2/5/2016

F = given

t = given

n-1

n

A=?

Sinking Fund Factor can be obtained from USCA and given as:

(1 + ) 1

(1 + ) 1

The term in the brackets is Sinking Fund Factor and is used to determines

the uniform annual series A that is equivalent to a given future amount F

Practice

An industrial engineer made a modification to a chip manufacturing process that

will save her company $10,000 per year. At an interest rate of 8% per year, how

much will the savings amount to in 7 years?

Solution:

A = $10,000

F=?

i = 8%

A =10,000

i =8%

n =7

F = A(F/A, i, n)

F = 10,000(F/A,8%,7)

= 10,000(8.9228)

= $89,228

2/5/2016

Class Practice:

4 Minutes

Question No. A

The president of Ford Motor

Company wants to know the

equivalent future worth of

a $1 million capital

investment each year for 8

years, starting 1 year from

now. Ford capital earns at a

rate of 14% per year.

Class Practice

Question No. A

i= 14%

n = 8 years

A= 10,000

F=?

i = 14%

1 2

A = $10,000

F = A(F/A, i, n)

F = 1000( F/A, 14%,8)

= 1000(13.2328)

$13,232.80

2/5/2016

Class Practice:

4 Minutes

Question No. B

A company that makes selfclinching fasteners expects

to purchase new

production-line equipment

in 3 years. If the new units

will cost $350,000, how

much should the company

set aside each year, if the

account earns 10% per

year?

Class Practice

Question No. B

i= 10%

n = 3 years

A= ?

F = 350, 000

F = 350,000

i = 10%

1

A=?

A = 350,000 (A/F, i, n)

A = 350,000(A/F,10%,3)

= 350,000(0.30211)

= $105,739

2/5/2016

Class Assignment

Allowed time 5 minutes

Take a paper sheet

Write down your name and Registration number on

top of the paper sheet

Those who talk will get Zero

When I announce time overstop writing

2/5/2016

Class Practice A:

Allowed Time 7

A chemical product company is considering investment in

cost saving equipment. If the new equipment will cost

$220,000 to purchase and install, how much must the

company save each year for 3 years in order to justify the

investment, if the interest rate is 10% per year?

Class Practice:

Allowed Time 7

A chemical product company is considering investment in

cost saving equipment. If the new equipment will cost

$220,000 to purchase and install, how much must the

company save each year for 3 years in order to justify the

investment, if the interest rate is 10% per year?

The cash flow diagram is as follows:

A=?

Solution:

P = 220,000

I = 10%

n=3

Which factor should be used ?

P = $220,000

i =10%

A = P(A/P, i, n)

A = 220,000(A/P,10%,3)

= 220,000(0.40211)

= $88,464

2/5/2016

Practice B: 5 minutes

How much money should you be willing to pay now for

a guaranteed $600 per year for 9 years starting next

year, at a rate of return of 16% per year?

Example 2.3

How much money should you be willing to

pay now for a guaranteed $600 per year for

9 years starting next year, at a rate of return

of 16% per year?

Solution:

P=?

i = 16%

n=9

Which factor should be used ?

P = A(P/A, i, n)

A = $600

t=0

P=?

2/5/2016

Gradient

or future values

normally

Geometric Gradient Series cash flows

Example

expected costs during first year will

be fuel and insurance that is $2500

increasing by $200 every year

what will be the amount in Second Year ?

0

n-1

Base amount

$2500

$2700

$2900

$2500+(n-2)200

$2500+(n-1)200

2/5/2016

(P/G, A/G)

Cash flows that increase or decrease by a constant amount

are considered arithmetic gradient cash flows.

The amount of increase (or decrease) is called the gradient

$2000

$1500

$175

$125

$100

$150

$500

G = $25

Base = $100

$1000

G = -$500

Base = $2000

Gradient

series

could be

both: cash

inflow (as

given

here) or

Outflows

(P/G, A/G)

cannot apply Single Amount Present

Worth/Future Worth factors or Uniform

Series factors

We have to use a different methodology to

address problems related to gradient cash

flows.

2/5/2016

related problems

Present value of the Arithmetic Gradient series can be

calculated as follows:

1. Find the gradient and base

2. Cash flow diagram maybe helpful if you draw it

3. Break the gradient series into a Uniform series and a

Gradient Series as shown on next slide

4. The formula for calculating present value of the

Arithmetic Gradient series is as follows;

PT =

PA

PG

get the present value of the Arithmetic Gradient

(P/G, A/G)

The base amount is A and the Gradient is G in the

following graph

CFn = base amount + (n-1)G

Important!!!

PG series start

with year 2

A+(n-1) G

A+3G

(n-1)G

3G

A+2G

A+G

=

0

+

0

PT =

2G

PA

PG

2/5/2016

(P/G, A/G)

PT =

PA

PG

Factor

PG = G(P/G, i, n) or Arithmetic Gradient Present

Worth Factor you can use table for it too.

Alternatively, PG can also be calculated by

following formula

G (1 i ) n 1

n

PG

i i (1 i ) n

(

1

i)n

PG

Or

G (1 i ) n in 1

i

i 2 (1 i ) n

(P/G, A/G)

Equivalent cash flows:

$175

$150

$125

$100

$100

$50

$25

=>

0

0

G = $25

PA

$P = $100(P/A,i,4) + $25(P/G,i,4)

(PG) by convention starts

in year 2.

starts from year 1.

Base = $100

PT =

$75

PG

PG

G (1 i )n 1

n

i i (1 i )n

(1 i )n

Where PA = Present worth uniform series (P/A, i,n) and PG = present worth of the gradient series (P/G,i, n)

2/5/2016

Profits from recycling paper, cardboard, aluminium,

and glass at a liberal arts college have increased at a

constant rate of $1100 in each of the last 3 years.

If this years profit (end of year 1) is expected to be

$6000 and the profit trend continues through year 5,

(a) what will the profit be at the end of year 5 and

(b) what is the present worth of the profit at an interest

rate of 8% per year?

G = $1100,

Base = $6000

(a)

(b)

what is the present worth of the profit at an interest rate of 8% per

year?

G = $1100

Base = $6000

$10400

$9300

$8200

$1100

1 2

=>

$7100

$6000

0

$4400

$3300

$2200

$6000

CF = Base + G(n-1)

CF1 = 6000 + 1100(1-1)= 6000

CF2 = 6000 + 1100(2-1)= 7100

CF3 = 6000 + 1100(3-1)= 8200

CF4 = 6000 + 1100(4-1)= 9300

CF5 = 6000 + 1100(5-1)= 10400

PT =

PA

P = A(P/A, i, n)

P = 6000(P/A, 8%, 5)

P=

6000(3.9927)

P = 32066

+

PG

G(P/G, i, n)

+

+ 1100(P/G, 8%, 5)

+ 1100(7.3724)

4 5

2/5/2016

Neighboring parishes in Louisiana have agreed to pool

road tax resources already designated for bridge

refurbishment. At a recent meeting, the engineers

estimated that a total of $500,000 will be deposited at

the end of next year into an account for the repair of

old and safety-questionable bridges throughout the area.

Further, they estimate that the deposits will increase

by $100,000 per year for only 9 year thereafter, then

cease. Determine the equivalent: present worth, if public

funds earn at a rate of 5% per year.

5%

Athematic Gradient

Sinking

Fund

(A/F)

Compound

Amount

(F/A)

Capital

Recovery

(A/P)

Present Gradient

Worth

Present Worth

(P/A)

(P/G)

Gradient

Uniform

Series (A/G)

0.09069

11.0266

0.14069

7.1078

26.1268

3.6758

10

0.07950

12.5779.

0.12950

7.7217

31.6520

4.0991

Solution

Base = 500,000

PT =

PA +

PG

Gradient = 100,000

PT = 500(P/A,5%,10) + 100(P/G,5%,10)

= 500(7.7217)

+ 100(31.6520)

Taking units in 1000

=$7026.05 or .. ($7,026,050)

P=?

Base = 500

0 1

2

3

4

5

6

7

8

9 10

Gradient =100

i= 5%

$500

$600

n=1+9 = 10

$700

$800

$900

$1000

$1100

$1200

$1300

$1400

2/5/2016

Thank You

- 9860_pact_b01_01Transféré parFranz Rojas Luque
- Quiz No-02Transféré parkalir12
- MC ReviewTransféré parIqtidar Khan
- Class ProblemsTransféré parGajendra Singh Raghav
- Simple and Compound InterestTransféré parGyle Contawe Garcia
- Present Value of an AnnuityTransféré pariris
- Excel MaterialTransféré parBHGARRACHH
- TVM-NotesTransféré parHasan Khan
- Introduction ExcelTransféré parEvelyn Demure
- 2. Time Value of Money(1)Transféré parRajat
- 2. Accounting and Finance for Bankers IIBF 2nd Edition by get unlimited knowledgeTransféré parPraveen Kumar
- Chap006.docTransféré pardbjn
- 01 Time Value of Money.pdfTransféré parJainn S
- Main AasignmentTransféré parM Mahfuzur Rahman
- Time Value of MoneyTransféré parNikhil Sawant
- ECON1Transféré parDayLe Ferrer Abapo
- Time Value for Money [Compatibility Mode] - CopyTransféré parAzman Scx
- ps1a_f10Transféré parMohsin Iqbal
- Chap010 SlidesTransféré parPedro
- App_CTransféré parJulious Caalim
- Scan 0005Transféré parapi-3834751
- Accounts and Finance for BankersTransféré parneevcoaching
- accTransféré parpoo_adhi3
- Chapter 2Transféré parfarooq
- ANNUITY-DUE.pptxTransféré pardame wayne
- Time Value of MoneyTransféré parAli Jumani
- Engineering Economy 111Transféré parKristopher Ehilla Recto
- FFM12, Ch 05, Slides, 01-08-09Transféré parkarmabites
- Present Value TablesTransféré parFreelansir
- Chap 006Transféré parLi Yichao

- Midterm Date Sheet Fall 2015.pdfTransféré parKHAKSAR
- 3_torsionTransféré parMujtaba Rizvi
- allotment_current_freshmen.pdfTransféré parKHAKSAR
- 2_axial_loading.pptxTransféré parKHAKSAR
- Contents.pdfTransféré parKHAKSAR
- Final Date Sheet Fall 2015.pdfTransféré parKHAKSAR
- Design Projects-dynamics.pdfTransféré parKHAKSAR
- 5_beams1Transféré parMujtaba Rizvi
- 6 Shearing Stresses1Transféré parMujtaba Rizvi
- FACULTY MISSION.docxTransféré parKHAKSAR
- TimeTable Fall 2015.pdfTransféré parKHAKSAR
- 4 Pure BendingTransféré parMujtaba Rizvi
- Week3.pdfTransféré parKHAKSAR
- FactorTables.pdfTransféré parKHAKSAR
- Week_9.pdfTransféré parKHAKSAR
- Week_7.pdfTransféré parKHAKSAR
- Week_1.pdfTransféré parKHAKSAR
- Week_8.pdfTransféré parKHAKSAR
- 1_introduction.pptxTransféré parKHAKSAR
- Week_2.pdfTransféré parKHAKSAR
- Week_5 and 6.pdfTransféré parKHAKSAR
- Week_5 and 6.pdfTransféré parKHAKSAR
- 1. IntroductionTransféré parMujtaba Rizvi
- 2 AxialTransféré parMujtaba Rizvi

- Philomatheia Insurance Finals TipsTransféré parCatherine Rae Espinosa
- MarriotTransféré parNaman Sharma
- Iraq.docxTransféré parpaola
- Nursing Home 25 BededTransféré parsharif
- OBC PolicyTransféré parShagun Singla
- 2010-2011 ChristLike Daycare Contract AgreementTransféré parmacks4praise
- Annual Report 2004Transféré parthestorydotie
- Debt Validation- Collections AND the internetTransféré parNate Nartest
- SBI Policy Guidelines 2009-10Transféré parmahesh8169
- Desiccated CoconutTransféré parYohanes Slamet Widodo
- Objectives Feasibility StudiesTransféré parMyoungki Jung
- Affordable Housing Recommendations to the Mayor ReportTransféré parMinnesota Public Radio
- PIV GeneralTransféré parSM Zuhail
- summary on investment environmentTransféré parAmi Mehta
- Case 3 European Economic Crisis Impact on International BusinessTransféré parLeesaChen
- Human Resource Management at HBL PAKISTANTransféré parWasimAslam
- OAITA's MSJ filed Against ODI in Declaratory Judgment ActionTransféré parOAITA
- Washington Mutual (WMI) - Letter Filed by Sankarshan Acharya Regarding Response to the Objections Filed by the FDIC and Department of Treasury to the Equity Committee's Motion on Investigation and ExaminationTransféré parmeischer
- Feasibility Report UnisonTransféré parAdhiraj
- Fran Corp. v. United States, 164 F.3d 814, 2d Cir. (1999)Transféré parScribd Government Docs
- Runwal Garden CityTransféré parShree Mahesh Badgujar
- Couriers-Lines_4921_L.pdfTransféré parDataGroup Editorial
- SOAL BAHASA INGGRIS KELAS XII SMA UST Umar (2).docxTransféré parAndi Hasdi Alam
- Asset PricingTransféré parmorinsola
- Fiscal PolicyTransféré parsanath77
- Termination of ContractTransféré parzhangj5
- Cayetano vs MonsodTransféré parMichael Variacion
- Accounting and FinanceTransféré parVipul Shrivastav
- August 2015 Current AffairsTransféré parRahul Banerjee
- mnimonioTransféré parJenny Tsiropoulou