Interest Formulas for Single Cash

Flows
MUH 301
Engineering Economics

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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Types of Common
Cash Flows in
Engineering
Economics
Single cash flow
Equal (uniform)
payment series at
regular intervals
 Linear gradient series
 Geometric gradient
series
 Irregular (random)
payment series

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 Equivalence Relationship Between P and F

Compounding
Process
Finding an
equivalent future
value of a current
cash payment

Discounting Process
Finding an
equivalent present
value of a future
cash payment

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 Singe Cash Flow Formula
Compound Amount Factor

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Example : Find F, Given i, N, and P
Given: P = $2,000,
i = 10%, N = 8 years

Find: F

F  $2,000(1  0.10)8
 $2,000(F / P ,10%,8)
 $4,287.18

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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 A Typical Compound Interest Table at 12%

To find the compound

interest factor when the
interest rate is 12% and
the number of interest
periods is 10, we could
evaluate the following
equation using the
interest table.

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 Single Cash Flow Formula
Present Worth Amount Factor

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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 Example : Find P, Given i, N, and F

Given: F = $1,000, i= 12%, N =5 years

Find: P

P  $1,000(1  0.12)5
 $1,000(P / F ,12%,5)
 $567.43

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 Example : Find i, Given P, F, and N
Suppose you buy share
of stock for 10 dollar and
sell it for 20 dollar. If it • Cash Flow Diagram
takes five years what
would be the rate of
return your investment?
Given: F = $20, P = $10,
N = 5 years
Find: I

F = P (1 + i)N
$20 = $10 (1 + i)5 ; solve for i
i = 21/5 – 1
= 14,87%

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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 Example : Find N, Given P, F, and i
Given: P = $6,000, • Solving for N
F = $12,000,i = 20%
Find: N
F  2P  P(1  0.20)N
2  1.2N
log2  N log1.2
log2
N
log1.2
 3.80 years

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