Lecture No.

7
Chapter 3
Contemporary Engineering Economics
Copyright © 2010

Contemporary Engineering Economics, 5th edition, © 2010

Equal Payment Series
F

0 1 2 N
A A A

P
0 1 2 N

0 N

Contemporary Engineering Economics, 5th edition, © 2010

Equal-Payment Series Compound Amount Factor
 Formula

A A A

0 1 2 N
0 1 2 N

0 1 2
= N

A A A

Contemporary Engineering Economics, 5th edition, © 2010

An Alternate Way of Calculating the
Equivalent Future Worth, F F
A

A(1+i)N-2
A A A

A(1+i)N-1

0 1 2 N 0 1 2 N

N −1 N −2  (1 + i ) N
−1
F = A(1 + i) + A(1 + i) +  + A = A  
 i 
Contemporary Engineering Economics, 5th edition, © 2010
Example 3.14
Uniform Series: Find
F, Given i, A, and N
 Given: A = $3,000, N = 10
years, and i = 7% per year

 Find: F

 Excel Solution:

Contemporary Engineering Economics, 5th edition, © 2010

Example 3.15 Handling
Time Shifts: Find F, Given
i, A, and N
 Given: A = $3,000, N = 10
years, and i = 7% per year

 Find: F

o Each payment has been shifted to one year

earlier, thus each payment would be compounded
 Excel Solution: for one extra year

Contemporary Engineering Economics, 5th edition, © 2010

Sinking-Fund Factor:
Find A, Given i, A,
and F
 Given: F = $5,000, N = 5  Formula – Sinking Fund Factor
years, and i = 7% per year

 Find: A

A = $5,000(A / F ,7%,5) A = $5,000(A / F ,7%,5)

= $869.50 = $869.50

$5,000
 Excel Solution:
0 1 5
=PMT(7%,5,0,5000)

Contemporary Engineering Economics, 5th edition, © 2010

Example 3.17 Comparison
of Three Different
Investment Plans

 Given: Three investment

plans and i = 8%
 Find: Balance on the 65th
birthday

Contemporary Engineering Economics, 5th edition, © 2010

How Long
Would It
Take to Save
$1 Million?

Contemporary Engineering Economics, 5th edition, © 2010

Example 3.18
Uniform Series: Find
A, Given P, i, and N
 Given: P = $250,000, N = 6  Capital Recovery Factor
years, and i = 8% per year
 Find: A
 Formula to use:

 Excel Solution:

Contemporary Engineering Economics, 5th edition, © 2010

Example 3.18 –
Deferred Loan
Repayment
 Given: P = $250,000, N = 6
years, and i = 8% per year, but
the first payment occurs at the
end of year 2
 Find: A
Step 1: Find the equivalent
amount of borrowing at the end
of year 1:

 Step 2: Use the capital

recovery factor to find the size
of annual installment:

Contemporary Engineering Economics, 5th edition, © 2010

Example 3.20
Uniform Series: Find
P, Given A, i, and N
 Given: A = $10,576,923, N =  Present Worth Factor
26 years, and i = 5% per year
 Find: P
 Formula to use:

 Excel Solution:

(1 + i )N − 1 1 − (1 + i )− N 1
lim (P A , i, N ) = lim = lim =
N →∞ N → ∞ i (1 + i ) N N →∞ i i
Contemporary Engineering Economics, 5th edition, © 2010