Time Value of Money (2)

Hakimul Batih
MTE 0101 Ekonomi Energi Ketenagalistrikan dan Efisiensi

Magister Teknik Elektro

Institut Teknologi PLN (IT PLN)
Uniform Series Compound Interest Formulas

• Many times we will find uniform series of receipts or disbursements.

Automobile loans, house payments, and many other loans are based
on a uniform payment series.

F = P (F/P, i, n)
Uniform Series Compound Interest Formulas
Uniform Series Compound Interest Formulas
Uniform Series Compound Interest Formulas
Uniform Series Compound Interest Formulas
Arithmetic Gradient
• It frequently happens that the cash flow series is not of constant
amount A. Instead, there is a uniformly increasing series as shown:
Arithmetic Gradient
• Cash flows of this form may be resolved into two components:

P = P’ + P’’ = A(P/A, i, n) + G(P/G, i, n)

Arithmetic Gradient
• arithmetic gradient present worth factor:

• arithmetic gradient uniform series factor:

Geometric Gradient
• In the preceding section, we saw that the arithmetic gradient is
applicable where the period by period change in a cash receiptor
payment is a uniform amount
• There are other situations where the period-by-period change is a
uniform rate, g. For example, if the maintenance costs for an
automobile are $100 the first year and they increase at a uniform
rate, g, of 10% per year, the cash flow for the first 5 years would be as
follows:
Geometric Gradient
• geometric series present worth factor where i ≠ g.

• In the special case of i =g

Present Worth Analysis
• One of the easiest ways to compare mutually exclusive alternatives is
to resolve their consequences to the present time
Present Worth Analysis
• Two different analysis-period situations are encountered in economic
analysis problems:
• 1. The useful life of each alternative equals the analysis period.
• 2. The alternatives have useful lives different from the analysis period.
The useful life of each
alternative equals the
analysis period
The alternatives have useful
lives different from the analysis
period