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Lesson Rationale:
This lesson contains the arithmetic and geometric gradients and cash flows and explains their purpose and the procedures for
incorporating gradients into engineering economic analysis. In certain cases, Engineering Economy problems involve a series of
disbursements or receipts that increase or decrease in each succeeding period by varying amounts.
Lesson Outcomes:
At the end of the lesson, you are expected to:
1. Familiarize the basic definition of arithmetic and geometric gradients;
2. Understand the cash flow of arithmetic and geometric gradients;
3. Apply and analyze different formulas to the sample problems
Figure 5.2.1 Equivalent Cash Flow Diagram for Uniform Arithmetic Gradient
The second diagram in the right member of Figure 5.2.1 illustrated a uniform arithmetic gradient. Note that at the end of the
first period G=0. The relations between present values and accumulated amounts are:
In conformity with present practice the following symbols will be used:
A= uniform periodic amount equivalent to the arithmetic gradient series
G= arithmetic gradient change in the periodic amounts at the end of each period
P= present worth of the uniform gradient
F= future worth or accumulated amount of the uniform gradient at the end of n periods
i= interest rate per period
n= number of periods
The functional symbols and formulas used in dealing with uniform arithmetic gradients are:
When x ≠ or < 1
𝑮 𝟏 − 𝒙𝒏
𝐏= [ ]
(𝟏 + 𝒊) 𝟏 − 𝒙
Present Worth (P)
When x=1
𝑮𝒏
𝐏=
(𝟏 + 𝒊)
When x ≠ or < 1
𝟏 − 𝒙𝒏
𝐅 = 𝐆(𝟏 + 𝒊)𝐧−𝟏 [ ]
𝟏−𝒙
Future Worth (F)
When x=1
𝐅 = 𝐆𝐧(𝟏 + 𝒊)𝐧−𝟏
PRACTICE PROBLEM!
2. Annual maintenance costs for a machine are ₱1,500 this year and are estimated to increase 10% each year every year. What
is the present worth of the maintenance costs six years if (a) i=8%, (b) i=10%, and (c) i=12%
Answers: a. P=₱8,729.4 b. P=₱8,181.82 c. P=₱7,682.87
3. The year-end operating and maintenance costs of a certain machine are estimated to be ₱12,000 the first year and to
increase by ₱2,500 each year during its 4th year life. If capital worth 12 %, determine the equivalent uniform year end costs.
Answer: AT=₱15,397.13
4. Suppose a man receives an initial annual salary of ₱60,000, increasing at the rate of ₱5,000 a year. If money is worth 10%,
determine his equivalent uniform salary for period of 8 years.
Answers: AT=₱75,022.39