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Module 2: Factors

SI-4251 Ekonomi Teknik
Dr.Ir.Krishna S.Pribadi.

Outline Modul 2
• Engineering Economy Factors
• Single-Payment Factors
• Uniform-Series Present-Worth Factor
• Capital-Recovery Factor
• Sinking-Fund Factor
• Gradient Formulas

2013 SI-4251 Ekonomi Teknik 2-2

accumulated value at some future time  A = a series of consecutive. usually used to represent initial investment  F = future value. Engineering Economy Factors  P = present value. constant rate of change in magnitude of payment / receipts. %  n = number of (interest) periods  G = arithmetic gradient. uniform arithmetic change in magnitude of payment / receipts  g = geometric gradient. end-of-period amount of payment  I = interest. equal. usually compounded  i = interest rate per interest period. % 2013 SI-4251 Ekonomi Teknik 2-3 .

Single-Payment Factors F P ? 0 1 2 3 n-1 n SPCAF = single-payment compound-amount factor Fn = P (1+i)n Notation: (F/P. n) 2013 SI-4251 Ekonomi Teknik 2-4 . i. if F is given: P F ? 0 1 2 3 n-1 n  1  SPPWF = single-payment present worth factor P  F n  1  i   Notation: (P/F. n) From the opposite side. i.

i. n) USPWF = uniform-series present-worth factor 2013 SI-4251 Ekonomi Teknik 2-5 . Uniform-Series Present-Worth Factor ? P A A A A A A A 0 1 2 3 n-1 n  1   1   1   1   1  P  A 1  A  2  A  3    A  n 1   A  n  1  i    1  i    1  i    1  i    1  i    1   1   1   1   1  P  A 1  2  3   n 1   n    1  i    1  i    1  i    1  i    1  i    SPPWF = single-payment present-worth factor  1  i n  1 P  A n   i 1  i   Notation: (P/A.

n) 2013 SI-4251 Ekonomi Teknik 2-6 . i. Capital-Recovery Factor P A A A A A A A ? 0 1 2 3 n-1 n What A is needed to equal P at t=0?  i1  i n  A  P   1  i   1 n CRF = capital recovery factor Notation: (A/P.

n)  1  i n  1 USCAF = uniform-series compound-amount factor F  A  Notation: (F/A. Sinking-Fund Factor A A A A A A A 0 1 2 3 n-1 n F  1   i 1  i n  A  F n    1  i   1  i n  1   i  A  F   1  i n  1  SFF = sinking-fund factor Notation: (A/F. n)  i  2013 SI-4251 Ekonomi Teknik 2-7 . i. i.

n) Uniform-Series Compound-Amount USCAF (F/A . n) 2013 SI-4251 Ekonomi Teknik 2-8 . i% . n) Uniform-Series Present-Worth USPWF (P/A . i% . n) Single-Payment Compound-Amount SPCAF (F/P . Standard Factor Notations Factor Name Standard Notation Single-Payment Present-Worth SPPWF (P/F . i% . n) Capital-Recovery CRF (A/P . i% . n) Sinking-Fund SFF (A/F . i% . i% .

i % . n ) ∞ 1 ( P / F. Extreme Values factor n = ∞ . n ) 0 NA (F/A . i % . i % . i known n = 0 . n ) 0 1 ( P/A . i%. i % . i % . n ) ~1/i 0 ( A / P. n ) ~i NA ( A / F. i known ( F / P. n) ∞ 0 2013 SI-4251 Ekonomi Teknik 2-9 .

10 . periodic payments do not occur in an equal series. Arithmetic Gradient (1) • In some cases. but they maybe in a constant increase amount 0 1 2 3 n-1 n (n-1)G • Equivalent with: (n-2)G 3G (n-3)G 2G G A1 A1 A1 A1 A1 A1 A1 0 1 2 3 n-1 n 2013 SI-4251 Ekonomi Teknik 2 .

11 . Arithmetic Gradient (2) • Equivalent with: A1 A1 A1 A1 A1 A1 A1 0 1 2 3 n-1 n + (n-1)G (n-2)G 3G (n-3)G 2G G 0 1 2 3 n-1 n 2013 SI-4251 Ekonomi Teknik 2 .

Arithmetic Gradient (3) • Equivalent with: A = A1 + A2 A1 A1 A1 A1 A1 A1 A1 0 1 2 3 n-1 n + A2 A2 A2 A2 A2 A2 A2 0 1 2 3 n-1 n = A A A A A A A 0 1 2 3 n-1 n 2013 SI-4251 Ekonomi Teknik 2 .12 .

annual change n = number of period A = equivalent equal annual payment  A = A1 + A2 1 n  A2  G     i 1  i n  1  UGSF = uniform-gradient-series factor 2013 SI-4251 Ekonomi Teknik 2 .13 . Arithmetic Gradient (4) • Where: A1 = payment at the end of the first year G = gradient.

Arithmetic Gradient Formulas 1  1  i n  1 n  P  G   n   i  i1  i  1  i    n UGPWF = uniform-gradient-present-worth factor 1  1  i n  1  F  G   n  i  i   UGFWF = uniform-gradient-future-worth factor 2013 SI-4251 Ekonomi Teknik 2 .14 .

but they maybe in a constant decrease amount 0 1 2 3 n-1 n 2013 SI-4251 Ekonomi Teknik 2 . Negative Arithmetic Gradient (1) • In some cases.15 . periodic payments do not occur in an equal series.

Arithmetic Gradient (2) • Equivalent with: A1 A1 A1 A1 A1 A1 A1 0 1 2 3 n-1 n . (n-1)G (n-2)G 3G (n-3)G 2G G 0 1 2 3 n-1 n 2013 SI-4251 Ekonomi Teknik 2 .16 .

Arithmetic Gradient (3) • Equivalent with: A = A1 – A2 A1 A1 A1 A1 A1 A1 A1 0 1 2 3 n-1 n - A2 A2 A2 A2 A2 A2 A2 0 1 2 3 n-1 n = A A A A A A A 0 1 2 3 n-1 n 2013 SI-4251 Ekonomi Teknik 2 .17 .

18 . Geometric Gradient • In many situations. but at a constant percentage F1(1+g)n-1 F1(1+g)n-2 F1(1+g)3 growth-free rate 1 i F1(1+g)2 g  1 F1(1+g) 1 g F1 0 1 2 3 n-1 n 1  1  g   1 n P  F1 1  g   g 1  g n  GGSF = geometric-gradient-series factor 2013 SI-4251 Ekonomi Teknik 2 . periodic payments decreases or increases not by a constant amount.

i%. n) F = A (F/A. n) P  F n   1  i   F  P 1  i  n F P ( F / P. i % . i % . n ) F = P (F/P. n) P  A   i 1  i   n A P ( A / P. i % . n)  11  i n  A  P   1  i   1 n  i  A F ( A / F. i%. i%. n) A  F   1  i   1 n F A (F/A . Using Factors Finding Given Factor Equation Formula  1  P F ( P / F. n) A  G    i 1  i   1 n 1  1  i n  1 n  P G ( P/ G . i%. i%.19 . i%. i % . i%. n)  1  i n  1 P A ( P/A . n) A = G (A/G. i%. n) P  G     i  i 1  i  n 1  i n   2013 SI-4251 Ekonomi Teknik 2 . i%. i%. n)  1  i n  1 F  A   i  1 n  A G (A/G. n ) P = G (P/G. n ) P = F (P/F. n ) A = F (A/F. i % . n ) P = A (P/A. i % . n ) A = P (A/P.

433-1. n) for i = 12% and n = 2.000 1. (F/P.8869 1.1551 3.352 2013 SI-4251 Ekonomi Teknik 2 .5) = 1.2826 1.023 0. i n) 1 1.0000 2 1. 2.128 0.0127 7.399 0.448 0. n) (A/G.5332 20 11. n = 3 .0907 78.197 0. i.433 0.20 .271) = 1.1275 0.625 0.832 0.9202 4 1.320 0. 12.2070 2.3505 5 1.7866 2.5388 0.7615 10 3.822 0.0550 5.4700 1. 3) = 1.2942 2.1402 5.616 0.271.6188 4. i.128 0. n) (A/F.3012 18. (F/P.0000 0. i. n) (F/A. i n) (A/P.6977 3.4700 3 1. 12.5975 0.4217 0.271 0.9900 0.4810 0. (F/P. interpolation or extrapolation can be applied: Example: find value of (F/P.5 (1. i n) (P/A.5 period  n = 2 .3712 0.433  n = 2. Interest Table  For the shake of simplicity and easier calculation all values based on interest formulas have been tabularized 12% interest factors for continuous compounding Uniform Single Payment Equal Payment Series Gradient n Series (F/P. 2) = 1.1318 0.8480  For any values that are not available in the interest table. n) (P/F. i.271 + 0. 12.1825 3. i.3345 1.5.6736 0.5488 6.8869 1.

P.A.A.21 .F) F = Future Value = FV (i%. Periodic Value = PMT (i%.F) i = Compound Interest Rate = RATE (i%.P) A = Equal.P.n. Spreadsheet Formulas Factors in Engineering Economy Excel Functions P = Present Value = PV (i%.A.A.P.F) 2013 SI-4251 Ekonomi Teknik 2 .n.F) n = Number of Periods = NPER (i%.n.

a. at a rate of return of 16% per year? 2.000 maintenance savings occur now. 7.3% and n of 10 years. HP has completed a study indicating that $50. find the equivalent value of this result after 5 years. How much money should you be willing to pay now for a guaranteed $600 per year for 9 years starting next year. Determine the value of the A/P factor for an interest rate of 7. b. Exercises (1) 1.3%. If the $50.000 in reduced maintenance this year on one processing line resulted from improved integrated circuit (IC) fabrication technology based on rapidly changing designs. 10). If HP considers these types of savings worth 20% per year. (A/P. that is. 3. find its equivalent value 3 years earlier with interest at 20% per year. 2013 SI-4251 Ekonomi Teknik 22 .

they estimate that the deposits will increase by $100. Annual series amounts if county funds earn interest at a rate of 5% per year. Exercises (2) 4. Present worth if county funds earn interest at a rate of 5% per year. Further. b. At a recent meeting. 2013 SI-4251 Ekonomi Teknik 23 . Three contiguous counties in Florida have agreed to pool tax resources already designated for county-maintained bridge refurbishment. the county engineers estimated that a total $500.000 per year for only 9 years thereafter.000 will be deposited at the end of the next year into an account for the repair of old and safety-questionable bridges throughout the three-county area. then cease. Determine the equivalent: a.

Engineers at SeaWorld. The interest rate is 8% per year. a division of Busch Garden. determine the rate of return.. The maintenance cost is expected to be high at $1700 the first year. Exercises (3) 5. increasing by 11% per year thereafter. If Laurel can make an investment in a friend’s business of $3000 now in order to receive $5000 five years from now. Determine the equivalent present worth of the modification and maintenance cost. which investment should be made? 2013 SI-4251 Ekonomi Teknik 24 . The modification costs only $8000 and is expected to last 6 years with a $1300 salvage value for the solenoid mechanisms. Inc. have completed an innovation on an existing water sports ride to make it more exciting. If Laurel can receive 7% per year interest on a certificate of deposit. 7. How long will it take for $1000 to double if the interest rate is 5% per year? 6.

Annual series over all 22 years. An engineering technology group just purchased new CAD software for $5. Exercises (4) 8. 2013 SI-4251 Ekonomi Teknik 25 . calculate the 8-year equivalent uniform series at 16% per year.000 sixteen years from now. The engineering company makes a proposal to the mining company that it pay $20. 2. The primary objective is to obtain long term income to finance ongoing projects 6 and 16 years from the present time. Determine the equivalent values listed below at 16% per year: 1. 5. Recalibration of sensitive measuring devices costs $8. 3.000 per year for 20 years beginning 3 years from now. An engineering company in Wyoming that owns 50 hectares of valuable land has decided to lease the mineral rights to a mining company.000 six years from now and $15. 4. If the machine will be recalibrated for each of 6 years starting 3 years after purchase. What is the present worth of the payments if the interest rate is 8% per year? 9. Future worth in year 22. Annual series over the first 10 years. Total present worth in year 0.000 now and annual payment of $500 per year for 6 years starting 3 years from now for annual upgrades. Annual series over the last 12 years. 10. plus $10.000 per year.

He expects the annual price to increase by 12% per year thereafter for the next 8 years. an engineer at Fujitsu. Gerri plans to analyze the gradient increase using the P/G factor.000 per year. Where is the present worth located for gradient? What is the general relation used to calculate total present worth in year 0? 12. has tracked the average inspection cost on a robotics manufacturing line for 8 years. an initial investment of $35. Chemical engineers at a Coleman Industries plants in the Midwest have determined that a small amount of a newly available chemical additive will increase the water repellency of Coleman’s tent fabric by 20%.. 26 . Use i = 2013 15% to determine the equivalent totalTeknik SI-4251 Ekonomi present worth for all cash flows. starting 1 year from now. The plant superintendent has arranged to purchase the additive through a 5- year contract at $7. Additionally. Inc. Cost averages were steady at $100 per completed unit for the first 4 years.000 was made now to prepare a site suitable for the contractor to deliver the additive. Gerri. Exercises (5) 11. but have increased consistently by $50 per unit for each of the last 4 years.

$5000 $4000 $3000 $2000 $1000 $1000 $1000 0 1 2 3 4 5 6 7 8 9 10 11 12 $2000 $2500 $3000 $3500 $4000 2013 SI-4251 Ekonomi Teknik 27 . you expect to withdraw according to the decreasing gradient shown. Find the net present worth and equivalent annual series for the entire cash flow sequence and interpret the results. Further. Assume that you are planning to invest money at 7% per year as shown by the increasing gradient of the following figure. Exercises (6) 13.

2013 SI-4251 Ekonomi Teknik 28 . Homework #2 • Redo all exercises (#1 to #13) in this session using a computer (spreadsheet application).