contemporary engineering economics, 6 th edition park copyright © 2016 by pearson education, inc....
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Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Interest Formulas for Single Cash Flows
Lecture No. 6Chapter 3
Contemporary Engineering EconomicsCopyright © 2016
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
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
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Equivalence Relationship Between P and F
Compounding ProcessFinding an equivalent future value of a current cash payment
Discounting Process Finding an equivalent present value of a future cash payment
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Singe Cash Flow FormulaCompound Amount Factor
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Example 3.7: Find F, Given i, N, and P
Excel SolutionGiven: P = $2,000, i = 10%, N = 8 years
Find: F
8$2,000(1 0.10)$2,000( / ,10%,8)$4,287.18
FF P
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
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.
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Single Cash Flow FormulaPresent Worth Amount Factor
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Example 3.8: Find P, Given i, N, and F
Given: F = $1,000, i = 12%, N = 5 years
Find: P
Excel Solution
5$1,000(1 0.12)$1,000( / ,12%,5)$567.43
PP F
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Example 3.9: Find i, Given P, F, and N
• Cash Flow DiagramGiven: F = $20, P = $10, N = 5 yearsFind: i
Excel Solution
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Example 3.10: Find N, Given P, F, and i
• Solving for N Given: P = $6,000, F = $12,000, i = 20%Find: N
Excel Solution
2 (1 0.20)
2 1.2 log2 log1.2
log2log1.23.80 years
N
N
F P P
N
N
Contemporary Engineering Economics, 6th editionPark
Copyright © 2016 by Pearson Education, Inc.All Rights Reserved
Rule of 72• Number of Years Required to Double an
Initial Investment at Various Interest RatesApproximating how long it will take for a sum of money to double
72interest rate (%)72203.6 years
N