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Types of Common
Cash Flows in
Engineering
Economics
payment series at
regular intervals
Linear gradient
series
Geometric
gradient series
Irregular
(random) payment
series
Contemporary Engineering Economics, 5th edition, 2010
Equivalence
Relationship
Between P and
F
Compounding
Process Finding an
equivalent future
value of current
cash payment
Discounting
Process Finding an
equivalent present
value of a future
cash payment
Contemporary Engineering Economics, 5th edition, 2010
Example 3.7
Single
Amounts: Find
F, Given i, N,
and P
Single Cash Flow Formula
Given: P =
$2,000, i = 10%, N
= 8 years
Find: F
Compound Amount
Factor
F P(1 i)
F P(F / P,i,N)
N
0
Excel Solution:
N
P
A Typical
Compound
Interest Table
say 12%
To find the compound
interest factor when
the interest rate is
12% and the number
interest periods is 10,
we could evaluate the
following equation
using the interest
table.
Example 3.8
Single
Amounts: Find
P, Given i, N,
and F
Single Cash Flow Formula
Given: F =
$1,000, i = 12%, N
= 5 years
Find: P
P F(1 i)
P F(P / F,i,N)
0
Excel Solution:
N
P
Example 3.9
Single
Amounts: Find
i, Given P, F,
and N
Solving for i
Given: F = $20, P =
$10, N = 5 years
Find: i
Excel Solution:
Example 3.10
Single
Amounts: Find
N, Given P, F,
and i
Solving for N
Given: P = $6,000,
F = $12,000, and i =
20%
Find: N
Excel Solution:
Rule of
72
Number of Years Required to
Approximatin
g how long it
will take for a
sum of money
to double
Contemporary Engineering Economics, 5th edition, 2010
Example 3.11
Uneven
Payment
Series
How much do
you need to
deposit today (P)
to withdraw
$25,000
at n =1,
$25,000
$3,000 at n = 2,
$3,000 $5,000
and
$5,000
at n
0
=4, if
1 your
2
3
4
account earns
10% annual
P
interest?
Contemporary Engineering Economics, 5th edition, 2010
Beginni
ng
Balance
28,622
6,484.2
0
4,132.6
2
4,545.8
8
Interest
Earned
(10%)
2,862
648.42
413.26
454.59
Paymen
t
+28,62
2
-25,000
-3,000
-5,000
Ending
Balance
$28,622
6,484.2
0
4,132.6
2
4,545.8
8
0.47
Rounding error
It should be 0.
Contemporary Engineering Economics, 5th edition, 2010
Example 3.12
Future Value of an
Uneven Series
with Varying
Interest Rates
end of year 5
Contemporary Engineering Economics, 5th edition, 2010