ECONOMIC FEASIBILITY ANALYSIS

OF ENGINEERING PROJECTS

CHAPTER 4
(ADDITIONAL)
TIME IS MONEY

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 Types of Cash Flows

(a) Single cash flow

(b) Equal (uniform)
payment series
(c) Linear gradient
series
(d) Geometric
gradient series
(e) Irregular
payment series
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 Single Cash Flow Formula
• Single payment F
compound amount F  P(1  i) N

factor (growth factor) F  P( F / P, i, N )

• Given:
i  10% 0
N  8 years N
P  $2,000
• Find: P
F  $2,000(1  010
. )8

 $2,000( F / P,10%,8)
 $4,28718
.
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 Single Cash Flow Formula
• Single payment P  F(1  i)  N F
present worth factor
P  F( P / F, i, N )
(discount factor)
• Given: 0
i  12%
N  5 years N
F  $1,000
• Find: P
5
P  $1,000(1  0.12)
 $1,000( P / F,12%,5)
 $567.40
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 Uneven Payment Series

P1  $25,000( P / F,10%,1)
P2  $3,000( P / F,10%,2)
P4  $5,000( P / F,10%,4)
P  P1  P2  P4
 $28,622

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 Equal Payment Series Compound Amount Factor

F
(1  i )  1
N
0 1 2 3 FA
N i
A
 A( F / A, i , N )
Example 4.13:
• Given: A = $3,000, N = 10 years, and i = 7%
• Find: F
• Solution: F = $3,000(F/A,7%,10) = $41,449.20
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 Sinking Fund Factor

F
i
A F
0 1 2 3 (1  i )  1
N
N

A  F ( A / F ,i, N )

Example 4.15:
• Given: F = $5,000, N = 5 years, and i = 7%
• Find: A
• Solution: A = $5,000(A/F,7%,5) = $869.50
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 Capital Recovery Factor

P
i (1  i )N
A P
1 2 3 (1  i )  1
N

0 N
 P( A / P, i , N )
A

Example 4.16:
• Given: P = $250,000, N = 6 years, and i = 8%
• Find: A
• Solution: A = $250,000(A/P,8%,6) = $54,075
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 Equal Payment Series Present Worth Factor

P
(1  i ) N  1
P A
1 2 3 i (1  i ) N
0 N

A  A( P / A , i , N )

Example 4.18:
• Given: A = $32,639, N = 9 years, and i = 8%
• Find: P
• Solution: P = $32,639(P/A,8%,9) = $203,893
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 Linear Gradient Series

i (1  i )  iN  1
N
PG
i (1  i )
2 N

 G( P / G, i, N )

P
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Gradient Series as a Composite Series

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Example 4.20 $2,000
$1,750
$1,250 $1,500
$1,000

0
1 2 3 4 5

How much do you have to deposit

now in a savings account that
earns a 12% annual interest, if
P =? you want to withdraw the annual
series as shown in the figure?

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Method 1: $2,000
$1,750
$1,250 $1,500
$1,000

0
1 2 3 4 5

$1,000(P/F, 12%, 1) = $892.86

$1,250(P/F, 12%, 2) = $996.49
$1,500(P/F, 12%, 3) = $1,067.67
P =? $1,750(P/F, 12%, 4) = $1,112.16
$2,000(P/F, 12%, 5) = $1,134.85
$5,204.03
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Method 2:

P1  $1,000( P / A,12%,5)
 $3,604.80

P2  $250( P / G,12%,5)
 $1,599.20

P  $3,604.08  $1,599.20
 $5,204

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 Unconventional Equivalence
Calculations
Situation 1: If you
make 4 annual
deposits of $100 in
your savings account
which earns a 10%
annual interest, what
equal annual amount
can be withdrawn over
4 subsequent years?
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 Unconventional Equivalence Calculations

• Situation 2:
What value of A
would make the two
cash flow
transactions
equivalent if i =
10%?

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