COMBINING

FACTOR
9.03.2021.
Ekonomi Teknik 02
Nabila Putriyandri Alifa S.T., M.Sc
Learning Objectives
■ Refresher from Previous Meeting
■ Shifted Series
■ Shifted Series and Single Amounts
■ Shifted Gradients
■ Decreasing Gradients
■ Spreadsheets

Cash flow does not fit the pattern learned in chp 2.

Goals : combine engineering economy factors to address complex situation :
Refresher from Previous Meeting

■ Please go to www.kahoot.it
CALCULATIONS FOR
UNIFORM SERIES
THAT ARE SHIFTED
Uniform Series that are SHIFTED
■ A shifted series is one whose present worth point in time is NOT
at the period of 1.
P

IDEALLY
0 1 2 … n

A1 A2

SHIFTED

Shifted either to the left of “0” or to the right of t = “0”.

How to find the equivalent value of this
chasflow?
 Uniform Series that are SHIFTED
Dealing with a uniform series:
■ Finding Equivalent P using P/A
• The PA point is always one period to the left of the first series value
• No matter where the series falls on the time line

P?
Shifted Uniform Series ;
Consider:

0 1 2 3 4 5 6 7 8

A = -$500/year
P2
P

PA of this series is at t = 2 (P2); interest rate (i%);

P2 = A (P/A,i%,n) = $500(P/A,i%,4) or F2
P = P2(P/F,i%,n) or, F2 (P/F,i%,2)
P = A (P/A,i%,4) (P/F,i%,2)
 Uniform Series that are SHIFTED
Dealing with a uniform series:
■ Finding F using F/A

• The F point is always in one period as the last uniform series

• No matter where the series falls on the time line
• Consider to renumber the cashflow diagram
Shifted Series:
Require F6

0 1 2 3 4 5 6 7 8
P0 1 2 3 4

A = -$500/year
P3
F6 = ??

•F for this series is at t = 6

•F6 = A(F/A,i%,4) where n = 4 time periods
forward.
•F = 500 (F/A, i%, 4)
1 2 3 4 5 6 7 8 9 10 11

EOY
A = 100
Suggested Steps

■ Draw and correctly label the cash flow diagram that defines the problem
■ Locate the present and future worth points for each series
■ Write the time value of money equivalence relationships
■ Substitute the correct factor values and solve
CALCULATION FOR UNIFORM
SERIES AND RANDOMLY
PLACED SINGLE AMOUNTS
Series with other single cash flows
■ It is common to find cash flows that are combinations of series and other single
cash flows.
■ For shifted uniform series : use the previous section (shifted series) to solve the
series present worth values then move to t = 0.
■ For single cash flow Solve for the P at t = 0 for the single cash flows.
■ Add the equivalent P’s at t = 0.
Series with Other cash flows
F4 = $300
■ Consider:
A = $500

0 1 2 3 4 5 6 7 8

i = 10%

F5 = -$400

•Find the P at t = 0 for this cash flow –watch the

signs!
 The P1 Points are:
F4 = $300

A = $500

1 2 3
0 1 2 3 4 5 6 7
8
i = 10%

F5 = -$400

t = 1 is the P1 point for the $500 annuity;

“n” = 3
The P Points are:
Back 4 periods
F4 = $300

A = $500

1 2 3
0 1 2 3 4 5 6 7
8
i = 10%
Back 5 Periods
F5 = -$400

t = 1 is the P point for the two other single

cash flows
Write the Equivalence
P = $500(P/A,10%,3)(P/F,10%,1)
Statement
+
$300(P/F,10%,4)
-
400(P/F,10%,5)

Substituting the factor values into the equivalence

expression and solving….
Substitute the Factors and Solve
P = $500( 2.4869 )( 0.9090 ) $1,130.30
+
$300( 0.6830 )
- $204.90
400( 0.6209 )
= $248.36
$1583.56
CALCULATIONS INCREASING
SHIFTED GRADIENTS
The Linear Gradient – Revisited
■ The Present Worth of an arithmetic gradient (linear gradient) is
always located:
– One period to the left of the first cash flow in
the series ( “0” gradient cash flow) or,
– Two periods to the left of the “1G” cash flow
Shifted Gradient
■ A Shifted Gradient is one whose present value point is removed from
time t = 0.
■ A Conventional Gradient is one whose present worth point is t = 0.
 Example of a Conventional Gradient
■ Consider:

•This Represents a Conventional Gradient.

•The present worth point is t = 0.
 Example of a Shifted Gradient
■ Consider:

Gradient Series

……..Base Annuity ……..

1 2 3 4 n-1 n
0

The Present Worth Point for the

Base Annuity and the Gradient
would be here!

This Represents a Shifted Gradient.

Shifted Gradient: Example
■ Given:

G = +$100

Base Annuity = $100

0 1 2 3 4 ……….. ……….. 9 10

•Let Cash Flow (CF) start at t = 3:

•$100/ yr increasing by $100/year through
year 10; i = 10%; Find the P at t = 0.
Shifted Gradient: Example
■ P of the Base Annuity

P2 = $100(P/A,10%,8)

Base Annuity = $100

0 1 2 3 4 ……….. ……….. 9 10

nannuity = 8 time periods

P2 Base= $100( P/A,10%,8 ) = $100( 5.3349 ) = $533.49

P0 = $533.49( P/F,10%,2 ) = $533.49( 0.8264 )

= $440.88
 Shifted Gradient Present Worth
■ For the gradient component

P2 = $100(P/G,10%,8)

G = +$100

0 1 2 3 4 ……….. ……….. 9 10

• P of gradient is at t = 2:
•P2 Gradient = $100( P/G,10%,8 ) = $100( 16.0287 ) = $1,602.87

•P0 = $1,602.87( P/F,10%,2 ) = $1,602.87( 0.8264 )

• = $1,324.61
3.3 ■Example: Final
For the Base Annuity
Solution
– P0 = $440.88
■ For the Linear Gradient
– P0 = $1,324.61

■ Total Present Worth:

– $440.88 + $1,324.61 = $1,765.49
Shifted Geometric Gradient
■ Conventional Geometric Gradient

P of g. Grad. Is at t = “0”

A1

0 1 2 3 … … … n

Present worth point is at t = 0 for a conventional

geometric gradient!
Shifted Geometric Gradient
■ Shifted Geometric Gradient

A1

0 1 2 3 … … … n

Present worth point is at t = 2 for this example

Geometric Gradient Example

i = 10%/year

0 1 2 3 4 5 6 7
8

A = $700/yr

A1 = $400 @ t = 5

12% Increase/yr
Geometric Gradient Example
i = 10%/year

0 1 2 3 4 5 6 7
8

A = $700/yr

PW point for the

annuity

12% Increase/yr

PW point for the

gradient
The Gradient Amounts
t Base Amt
51 $400.00
62 $448.00
73 $501.76
84 $561.97

Present Worth of the Gradient at t = 4

3.73674
P4 = $400{ P/A1,12%,10%,4 } = $ 1,494.70

P0 = $1,494.70( P/F,10%,4) = $1,494.70( 0. 6830 )

P0 = $1,020,88
The Annuity Present Worth
■ PW of the Annuity

i = 10%/year

0 1 2 3 4 5 6 7
8

A = $700/yr

P0 = $700(P/A,10%,4)
= $700( 3.1699 ) = $2,218.94
Total Present Worth
■ Geometric Gradient @ t =
– P0 = $1,020,88

■ Annuity
– P0 = $2,218.94

■ Total Present Worth”

– $1,020.88 + $2,218.94

– = $3,239.82
CALCULATIONS DECREASING
SHIFTED GRADIENTS
Shifted Decreasing Gradient

■ The Base Amount A (Arithmetic) or initial Amount A1 (geometric) is the largest amount
■ The gradient amount is subtracted from previous year amount (-G for arithmetic and –g
for geometric).
■ Present Worth PG or Pg is located 2 point (years) prior to the appearance of the first
gradient
 𝑎=𝑏
  −𝑐

PT = 800 (P/F,I ,1 ) + P0A – P0G = 800 (P/F,I,1) + 800 (P/A,i , 5) (P/F, i , 1) – 100 (P/G, i,5) (P/F, i,1)
Shifted Decreasing Linear Gradients
■ Given the following shifted, decreasing gradient:

F3 = $1,000; G=-$100

i = 10%/year

0 1 2 3 4 5 6 7
8

Find the Present Worth @ t = 0

 Shifted Decreasing Linear Gradients
■ Given the following shifted, decreasing gradient:

F3 = $1,000; G=-$100

0 1 2 3 4 5 6 7
8
PW point @ t = 2
Shifted Decreasing Linear Gradients

F3 = $1,000; G=-$100
i = 10%/year

0 1 2 3 4 5 6 7
8
Use
(P/F,10%,2)

P0 here P2 or, F2: Then take back to t = 0

 Shifted Decreasing Linear Gradients
F3 = $1,000; G=-$100
Base Annuity = $1,000

i = 10%/year

(P/F,10%,2)

0 1 2 3 4 5 6 7
8
P2 or, F2: Then take back to t = 0

P0 here
Time Periods Involved

F3 = $1,000; G=-$100
i = 10%/year

1 2 3 4 5

0 1 2 3 4 5 6 7
8

P2 or, F2: Take back to t = 0

P0 here Dealing with n = 5 periods.

Time Periods Involved

$1,000 G = -$100/yr
i = 10%/year

1 2 3 4 5

0 1 2 3 4 5 6 7
8
P2 = $1,000( P/A,10%,5 ) – 100( P/G,10%.5 )

P2= $1,000( 3.7908 ) - $100( 6.8618 ) = $3,104.62

P0 = $3,104.62( P/F,10%,2 ) = $3104.62( 0 .8264 ) = $2,565.65

SUMMARY
3. Summary
■ In Chapter 2, we derived the time value of money relationships;
■ In this chapter, those relationships have been applied for a variety of
cash flow situations;
■ We have seen how to handle “shifted” or non-conventional cash
flows using multiple factors;
3. Summary
■ Thus, more complex cash flows can be handled using multiple factors
operating on the respective cash flow patterns.
■ The notion of spreadsheets is introduced as a powerful analysis tool
for engineering economy problems.
 THANK YOU
Home work Individu : 3.2 ; 3.25; 3.37;
3.41; 3.49
Please Read Ch.4