Diploma in Quantity Surveying (AP114)

Construction Economic III (QSD386)

Life Cycle Costing
Valuation Tables
BY

Mohd Hafiz Saberi

INTRODUCTION
Evaluating both initial and future costs, it is
important to reduce all costs to present
values or to annual equivalents.

Used to rationalize the face value of costs.

Compound interest calculated at the end of

each year as the % of the amount deposited
at the beginning of the year.
 SIMPLE APPLICATION OF VALUATION TABLES

Types of Valuation Table

Amount of 1
Present value of 1
Amount of 1 per annum
Present value of 1 per annum
Annual Sinking Fund
 SIMPLE APPLICATION OF VALUATION TABLES

Amount of 1
Extent the RM1.00 value that has been invested at the
beginning of the year will accumulate by the end of the
period at a given compound interest rate.

At the end of the year, the investor will receive his

principal investment and the accumulated compound
interest rate on the RM1.00 invested for several years at
a specific interest rate.

The interest rate is added annually at the end of the

year.
 SIMPLE APPLICATION OF VALUATION TABLES

Amount of 1
Formula : A = P(1+i)

?
RM1.00 (1+i)

1 2 3 4 5 n years

@ i compound interest

P = Principal
i = Interest rate
n = Numbers of years
 SIMPLE APPLICATION OF VALUATION TABLES

Amount of 1
Example :

What is the total investment of RM1.00 that has been invested for a
period of 5 years at 5% compound interest rate?

Amount of 1 @ 5 years @ 5%
A = P(1+i)
= 1.00 (1+0.05)5
= 1.00 (1.2763)
= 1.27
 SIMPLE APPLICATION OF VALUATION TABLES

Present Value of 1 (PV of 1)

The amount today/current which if invested at a
compound interest for the period involved, will grow to
that sum at the interest rate specified.

Based on the right to receive on the current value at a

known future date.

PV of 1 is the reciprocal to the Amount of 1 table.

 SIMPLE APPLICATION OF VALUATION TABLES

Present Value of 1 (PV of 1)

Formula : 1
(1+i)

1
RM1.00
(1+i)
1 2 3 4 5 n years
@ i compound interest

i = Interest rate
n = Numbers of years
 SIMPLE APPLICATION OF VALUATION TABLES

Present Value of 1 (PV of 1)

Example:

What is the prevent value for RM1.00 invested for duration of 7 years at 8%
interest rate?

PV of 1 @ 7 years @ 8% = 1 x 1.00
(1 + 0.08)7

= 1.00 x 0.58349
= 0.58349
Thus, the equation for the present value;
1
P= A x
(1+i)
P = Present value of RM
A = Total amount in future
 SIMPLE APPLICATION OF VALUATION TABLES

Amount of 1 Per Annum (Future Worth of an

Annuity of 1)
An annuity shows a series of periodic payments

The annuity payments can be made either at the beginning/at the

end of each period.

An addition of the compound interest amounts of each payment

over the period specified.

Advanced income payments are an exception rather than a rule, the

emphasis will be given on the development and explanation to the
future worth of an ordinary table.
 SIMPLE APPLICATION OF VALUATION TABLES

Amount of 1 Per Annum (Future Worth of an

Annuity of 1)
Formula : 1 (1+i) - 1 or (1+i) - 1
(1+i) - 1 i

?
RM1.00 RM1.00 RM1.00 (1+i) - 1
i

1 2 3 4 5 n years
@ i compound interest

i = Interest rate
n = Numbers of years
 SIMPLE APPLICATION OF VALUATION TABLES

Amount of 1 Per Annum (Amount of 1 pa)

Example:
Calculate the Amount of 1 per annum for a period of 5 years at 5%
compound interest rate.

i. Addition to amount of 1,
= (1+i)5-1 + (1+i)4-1 + (1+i)3-1 + (1+i)2-1 + 1
= (1.05)4 + (1.05)3 + (1.05)2 + (1.05)1 + 1
= 1.2155 + 1.1576 + 1.1025 + 1.0500 + 1
= 5.5256

ii. Formula,
(1+i) -1 = (1.05)5 -1 = 5.5256
i 0.05
 SIMPLE APPLICATION OF VALUATION TABLES

Present Value of 1 Per Annum (Years

Purchase or Present Worth of an Annuity of 1)
Provides the factors that indicate the present worth of an
ordinary annuity.

Provides discount factors for present value

measurement in the future.

The present worth of the income flow, it is important to

convert these earnings into a sum of PV
 SIMPLE APPLICATION OF VALUATION TABLES

Present Value of 1 Per Annum (Years

Purchase or Present Worth of an Annuity of 1)
Formula : 1 1/(1+i) or 1 - PV
i i

?
1 PV RM1.00 RM1.00 RM1.00
i

1 2 3 4 5 n years
@ i compound interest

i = Interest rate
n = Numbers of years
 SIMPLE APPLICATION OF VALUATION TABLES

Present Value of 1 Per Annum (Years

Purchase or Present Worth of an Annuity of 1)
Example:
What is the total present annual expenditure of small renovation
works of a house worth RM5,000.00 if the interest rate is 5% for
duration of 5 years?
i. Addition to PV of 1,
= 1/(1+i)1 + 1/(1+i)2 + 1/(1+i)3 + 1/(1+i)4 + 1/(1+i)5
= 1/(1.05)1 + 1/(1.05)2 + 1/(1.05)3 + 1/(1.05)4 + 1/(1.05)5
= 0.9524 + 0.9070 + 0.8638 + 0.8227 + 0.7835
= 4.3294 x RM5,000.00
= RM21,647.00

ii. Formula,
1 1/(1+i) = 1 1/(1.05)5 = 4.3294 x RM5,000 = RM21,647.00
i 0.05
 SIMPLE APPLICATION OF VALUATION TABLES

Annual Sinking Fund

An annual sum required to be invested at the end of the
year to accumulate to a certain amount at a certain year
and interest rate.

As accumulative interest rate in which the rate is lower

and risk-free as compared to the borrowing interest rate,
which is a rate expected by the investors.

To calculate the annual amount to be allocated to meet a

known future liability or expense.
 SIMPLE APPLICATION OF VALUATION TABLES

Annual Sinking Fund

Formula : 1 or i
Amount of 1 p.a (1+i) - 1

RM? RM? RM? RM1.00

i
(1+i) - 1

1 2 3 4 5 n years
@ i compound interest
i = Interest rate
n = Numbers of years
 SIMPLE APPLICATION OF VALUATION TABLES

Annual Sinking Fund

Example:
A building client expects that he will have to replace several services at his
building in five years time. He plans to get advice on the amount to be
invested at the end of each year if the investment interest rate is 7% and the
estimated cost of replacement is RM150,000.00.

Replacement cost RM150,000.00

ASF to replace RM1.00 @ 5 years @ 7% RM 0.1739
Amount of ASF RM26,085.00

Check using Amount of 1 p.a table

ASF payment RM26,0085.00

Amount of 1 p.a @ 5 years @ 7% RM 5.750
Capital sum to be replaced in 5 years RM149,989.75
EXERCISES
 EXERCISES

1. Sr. Mohmad bought a property at a price of RM100,000 five years ago. If

the property put on sale now, what is the cost the Sr. Mohmad should
receive if the investment interest rate is 5% ? RM 127 628. 16

2. What is the amount of interest earned by an investment of RM15,000.00 at

7% interest rate for duration of ten years? RM 14 507. 27

3. If RM 200,000 is invested an a unit trust fund at 10% interest, what is the

total investment at the 45th year? RM 14, 578, 096. 74

4. En. Ismail is entitled to receive RM5,000.00 in five years time. What is the
present value of his entitlement if the capital can be invested at 7 %?
RM 3 482. 79

1. Pn. Azura hopes to buy a car for RM150,000.00 in five years time. How
much money should she put a side now in order for her to own the car if the
investment rate is 10%? RM 93 138. 20
 EXERCISES

6. Assuming that the management cost of a property covering taxes,

insurances and related maintenance amounts is RM5,000.00/per annum
over a five years period. How much should the owner gets back from the
original investment if the interest is 5%? RM 27 628. 20

7. En. Danial invests RM5,000.00 at the end of every year at 8% interest. How
much interest is accumulated for this investment for the duration of ten
years? RM 72 433. 00 (amount of 1 pa)

8. A buyer has calculated the yearly maintenance expenditure of his shop-

house is RM1,500.00 for the next five years. How much does he need to
save now for him to fulfill this expenditure if the investment interest rate is
7%? RM 6 150. 21 (present value of 1 pa)

9. Pn. Hasnah is entitled to receive RM10,000.00 per annum for the next ten
years from her savings in a unit trust fund. If the capital can be invested at
8% rate, what is her entitlement value now? RM 67 101. 00
 EXERCISES

10. Pn. Kaisara plans to extend her house ten years from now at an estimated
cost of RM50,000.00. If the capital can be invested at a rate of 7%, what
amount should be invested annually by her to meet this future liability?
RM 3 618. 18
10. En. Ahmad wishes to allocate RM100,000.00 for his childrens education
expenses in eight years time. What is the yearly amount he needs to
provide now in order to fulfill this responsibility if it is invested at a rate of
8%? RM 9 401. 48

11. The price of a piece of land was RM200,000.00 ten years ago. If the land is
put on sale now, what will the price be if the compound interest rate is 7%?
RM 393 430. 27
10. An investor bought property at a price of RM100,000.00 five year ago. If
the property is put on sale now, what is the cost the investor should receive
if the investment interest rate is 5%? RM 127 628. 16
 EXERCISES

14. Dr.Nash plans to buy a house worth RM125,000.00 in six years time. He
also intends to expand this house at a cost of RM50,000.00, two years
after buying it. How much money should he set aside now to meet the
expenditure if the interest rate is 9%? RM 99 626. 73

15. RM10,000.00 is invested in a bank at the end of each year at 6%

interest. What is the accumulated total after 20 years? What is the total
interest earned? RM 388 253. 00/ RM 188 253. 00

16. En. Rosli bought a property at a cost of RM50,000.00 twenty years ago.
Since then he has been spending RM3,000.00 a year to pay all costs
pertaining to taxes, insurances and maintenance. If he plans to sell the
property now at an interest rate of 10%, what is its current value?
RM 508 200. 00
 EXERCISES

18. En. Nasa bought a house five years ago at a price of RM140,000.00. He
intends to renovate the house at a cost of RM10,000.00 in two years time
and subsequently sells it out in five years time. Calculate the selling price
of the house if the interest rate is 6%? RM 262 628. 84

MONEY MAKES MONEY AND A RICH

MANS JOKES ARE ALWAYS FUNNY
What Einstein believed about compounding interest