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Minggu 2 - 3 - Equivalence For Repeated Cash Flows
Minggu 2 - 3 - Equivalence For Repeated Cash Flows
Minggu 2 - 3 - Equivalence For Repeated Cash Flows
ENGINEERING
Newnan, Lavelle, and Eschenbach
ECONOMIC
ANALYSIS, 12/e Copyright © 2014 by Oxford University Press
Chapter 4
Equivalence for
Repeated Cash Flow
2/14/2017 5
Uniform Series
Compound Interest Formulas
Notation:
A = an end-of-period cash flow in a uniform series,
continuing for 𝑛 periods
A A A A
0 1 2 n-1 n
Examples:
• Automobile loans, mortgage payments, insurance
premium, rents, and other periodic payments
• Estimated future costs and benefits
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Uniform Series Formula (2)
0 1 2 3 4 5
0 1 2 3 4 5 9 10 11 12
A A A A A A A A A=?
𝑖𝑚𝑜 = 6% 12 = 0.5%
𝐴 = 𝐹(𝐴 𝐹, 𝑖, 𝑛) = 1000(𝐴 𝐹, 0.5%, 12) = 1000 0.0811 = $81.10
A A A A A
0 1 2 3 4 5
5000
A P ( A P , i, n)
5000( A P ,8%,5) 5000(0.2505) $1252.50
n=60 i=1%
n=60 i=?
P=6800
6800 = 140(𝑃 𝐴, 𝑖, 60) (𝑃 𝐴, 𝑖, 60) = 48.571
From the compound interest tables,
(P/A, i, 60) = 51.726 when i = 0.5%
(P/A, i, 60) = 48.174 when i = 0.75%
By linear interpolation, rate of return would be 0.72%
0 1 2 3 4 5 = 0 1 2 3 4 5 + 0 1 2 3 4 5 + 0 1 2 3 4 5
F3
F1 F2
F
𝐹 = 𝐹1 + 𝐹2 + 𝐹3
= 100(𝐹 𝑃, 15%, 4) + 100(𝐹 𝑃, 15%, 3) + 100(𝐹 𝑃, 15%, 2)
= 100 1.749 + 100 1.521 + 100 1.322 = $459.20
F3
𝐹 = 𝐹3 (𝐹 𝑃, 15%, 2)
A A A=100 = 347.20 1.322
0 1 2 3 4 5 = 0 1 2 3 4 5 = $347.20
F F
P1 P2 P3
𝑃 = 𝑃1 + 𝑃2 + 𝑃3
= 2000(𝑃 𝐹, 15%, 2) + 3000(𝑃 𝐹, 15%, 3) + 2000(𝑃 𝐹, 15%, 4)
= 2000 0.7561 + 3000 0.6575 + 2000 0.5718
= $4628
0 1 2 3= 0 1 2 3 4+ 0 1 2 3 4 +0 1 2 3 4
4
𝐹 = 𝐹1 + 𝐹2 + 𝐹3
= 2000(𝐹 𝑃, 15%, 2) + 3000(𝐹 𝑃, 15%, 1) + 2000
= 2000 1.322 + 3000 1.150 + 2000 = $8094
3k F
2k 2k
𝑃 = 𝐹(𝑃 𝐹, 15%, 4)
0 1 2 3 4 = 0 1 2 3 4 = 8094 0.5718
= $4628
P P
P P1 P1
𝑃 = 𝑃1 (𝑃 𝐹, 15%, 1)
= [2000(𝑃 𝐴, 15%, 3) + 1000(𝑃 𝐹, 15%, 2)](𝑃 𝐹, 15%, 1)
= 2000 2.283 + 1000 0.7561 0.8696
= $4628
Uniform Series
1
(𝐴 𝑃, 𝑖, 𝑛) =
(𝑃 𝐴, 𝑖, 𝑛)
(4-9)
1
(𝐹 𝐴, 𝑖, 𝑛) =
(𝐴 𝐹, 𝑖, 𝑛) (4-10)
(𝑃 𝐴, 𝑖, 𝑛) = (𝑃 𝐹, 𝑖, 𝑡) (4-11)
𝑡=1
𝑛−1
(𝐹 𝐴, 𝑖, 𝑛) = 1 + (𝐹 𝑃, 𝑖, 𝑡) (4-12)
𝑡=1
(𝐴 𝑃, 𝑖, 𝑛) = (𝐴 𝐹, 𝑖, 𝑛) + 𝑖 (4-13)
A+4G
A+3G
A+2G 4G
A+G 3G
A A A A A A 2G
G
0 1 2 3 4 5 = 0 1 2 3 4 5 + 0 1 2 3 4 5
Examples:
• Operating and maintenance costs
• Salary packages
Notation:
G = a fixed amount increment or decrement per time period
(n-1)G
(n-2)G
2G
G
0
0 1 2 3 n-1 n
F FI FII FIII
i
Thus the equation becomes
(1 i ) n 1
iF G nG
i
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Arithmetic Gradient(3)
Using F A
(1 i ) n
1 then,
i
G (1 i ) n 1 i
A n
i i (1 i ) n
1
(1 i ) n in 1
G
i (1 i ) n
i
The term in the bracket (1 i ) n in 1
i (1 i ) n
i
is called arithmetic gradient uniform series factor and denote
by (A/G,i,n)
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Arithmetic Gradient
Compound Interest Formulas
Arithmetic Gradient Present Worth Factor
(1 + 𝑖)𝑛 −𝑖𝑛 − 1 (4-19)
𝑃=𝐺 2 𝑛
= 𝐺(𝑃 𝐺, 𝑖, 𝑛)
𝑖 (1 + 𝑖)
Arithmetic Gradient Uniform Series Factor
(1 + 𝑖)𝑛 −𝑖𝑛 − 1 1 𝑛
𝐴=𝐺 𝑛
=𝐺 −
𝑖(1 + 𝑖) −𝑖 𝑖 (1 + 𝑖)𝑛
= 𝐺(𝐴 𝐺, 𝑖, 𝑛) (4-20)
0 1 2 3 4 = 0 1 2 3 4 + 0 1 2 3 4
6000
12000
Year Cash Flow 18000
0 1 2 3 4 5 6 7 = 0 1 2 3 4 5 6 7 + 0 1 2 3 4 5 6 7
25 50
75
150 175
200 225 A=150
P P3
𝑃3 = 150(𝑃 𝐴, 10%, 4) + 25(𝑃 𝐺, 10%, 4)
Year Cash Flow = 150 3.170 + 25 4.378
4 150 = $584.95
5 175 𝑃0 = 𝑃3 (𝑃 𝐹, 10%, 3)
6 200 = 584.95 0.7513
7 225 = $439.47
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Geometric Gradient (2)
100.00
110.00
121.00
133.10
146.41
2/14/2017 36
Geometric Gradient (3)
2/14/2017 38
Geometric Gradient
Notation:
g = a constant growth rate (+ or -) per period
A1 = cash flow at period 1
A1(1+g)n-1
A1(1+g)n-2
A1(1+g)2
A1 A1(1+g)
0 1 2 3 n-1 n
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Geometric Gradient (7)
P = a + ab + ab2 + …. + abn-1
multiply the equation above by b :
bP = ab + ab2 + ab3 + …. + abn-1 +
abn
subtract two equation above :
P – bP = a – abn
P(1 – b) = a(1 – bn)
P = a(1 – bn) / (1 – b)
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Geometric Gradient (8)
1 (1 g ) n (1 i ) n
P A1
where i ≠ g
ig
2/14/2017 42
Geometric Gradient (9)
( P / A, g , i, n) n(1 i) 1
2/14/2017 43
Geometric Gradient
Compound Interest Formulas
Geometric Gradient Present Worth Factor
1 − (1 + 𝑔)𝑛 (1 + 𝑖)−𝑛
𝑃 = 𝐴1 𝑤ℎ𝑒𝑟𝑒 𝑖 ≠ 𝑔
𝑖−𝑔
(4-28)
𝑛𝐴1
𝑃= 𝑤ℎ𝑒𝑟𝑒 𝑖 = 𝑔
(1 + 𝑖) (4-30)
2/14/2017 46
Single Payment Interest Factors
Continuous Compounding(1)
If we set x = r/m, then mn may be written as (1/x)(rn)
mn
r rn
F P lim 1 x
1/ x
F P lim 1
x
m x
Because
lim 1 x 2.71828 e
1/ x
x
F = P(1+i)n becomes F = Pern = P(F/P,r,n) and
P = F(1+i)-n becomes P = Pe-rn = F(P/F,r,n)
2/14/2017 47
Single Payment Interest Factors
Continuous Compounding(2)
• Example :
If you were to deposit $2000 in a bank that pays
5% nominal interest, compounded continuously,
how much would be in the account at the end of
two years?
r = 0,05 ; n = 2
F = P(er n)
F = 2000(e0,05x2)
= $ 2210,4
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Continuous Compounding Interest
Formulas with Uniform Payment Series