Tishk International University

Faculty of Engineering
Petroleum and Mining Engineering Department

Course name : Petroleum Engineering Economics - PTR 328

TOPIC: Cash Flow Applications – Week 6

Grade 3 - Spring Semester 2020-2021

Instructor: AbdulNasser M. Fatah

Topic Title :

Cash Flow Examples

- Define Cash Flow Types & Application

Types of Cash Flows
Whenever patterns are identified in cash flow transactions, these patterns
can be used to develop concise expressions for computing either the present or future worth
of the series. Cash flows can be classified into five categories:
1. Single Cash Flows: The simplest case involves the equivalence of a single cash present
amount and its future worth. Thus, the single-cash flow formula deal with only two amounts:
the single present amount P, and its future worth F.
2. Equal Uniform Series: Probably the most familiar category includes transactions arranged as
a series of equal cash flows at regular intervals, known as an equal-payment series (or
uniform series) .
3. Linear Gradient Series : consists of cash flows that increase or decrease by uniform amount
each periods.
4. Geometric Gradient Series : consist of cash flows that increase or decrease by a fixed
percentage.
5. Irregular Series : consists of cash flows that change with no pattern.
Dividing Time Periods

The following list the different compounding periods and the occurrence in one
year which already used in Economics :
annually once a year
semi- annually twice a year
Quarterly every 3 months
Bi – monthly every 2 months
Monthly every month
Semi- monthly twice a month
Weekly 7 days
Daily 24 Hours
Continuously ---------------
 Examples
1- The sum of P10, 000 was deposited to a fund earning interest 10% per annum
compounded quarterly, what was the principal in the fund at the end of a year?
Given: P = 10,000
r = 10% per year compounded quarterly
n= 3 years (4) = 12 quarters
Required: The amount in the fund at the end of 3 years
Solution: Solving for the rate of interest per period.
i = r /m = 10 / 12 = 2.5 % per quarter
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2-If you borrow money from your friend with simple interest of 12%, find the present
worth of P20, 000, which is due at the end of nine months ?
Given: F = 20,000
Solution :
F = P (1 + ni)
20,000 = P [ 1 + ( 9/12 ) (0.12) ]
20,000 = P (1.09)
P = 18,348.6
 Examples

3- A loan of P2000 is made for a period of 13 months, from January 1 to January 31

the following year, at simple interest rate of 20% . What future amount is due as
the end of the loan period?
Solution:
F = P (1 + ni)
F = P2000 [ 1+(13/12)(0.20) ]
F = P2433.33
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4- Determine the ordinary simple interest (O.S.I.) on P8,000 for 8 months at 7% per year.
Given: P = 8,000
i = 7% / yr
n = 8 monthly
Required: O.S.I.
Solution:
OSI = Pni
OSI = 8000 (8/12)(0.07)
OSI = P373.33
 -When the total interest earned is linearly proportional to the amount of the loan
(principal), the number of the interest rate per interest periods for which the
principal is committed, and the interest rate per interest period, the interest is said to
be simple.
- It is the calculated using the principal only, ignoring any interest that had been
accrued in preceding periods. In practice, simple interest is paid on short term loans
in which the time of the loan is measured in days
i =Pni
F = P + I = P + Pni
F = P (1+ni)
Where: i = interest
P = principal or present worth
n = number of interest periods
i = rate of interest per interest period
F = accumulated amount or future