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Modul 2 Factor

SI4151 – Ekonomi Teknik

Meifrinaldi

Teknik Sipil - FTSL ITB

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Outline Modul 2

• Engineering Economy Factors

• Single-Payment Factors
• Uniform-Series Present-Worth Factor
• Capital-Recovery Factor
• Sinking-Fund Factor
• Gradient Formulas

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Engineering Economy Factors

 P = present value, usually used to represent initial investment

 F = future value, accumulated value at some future time
 A = a series of consecutive, equal, end-of-period amount of payment
 I = interest, usually compounded
 i = interest rate per interest period, %
 n = number of (interest) periods
 G = arithmetic gradient, uniform arithmetic change in magnitude of
payment / receipts
 g = geometric gradient, constant rate of change in magnitude of
payment / receipts, %
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Simple and CompoundInterest

Example: $100,000 lent for 3 years at interest rate i = 10% per year.
What is repayment after 3 years ?

Simple Interest Compound Interest

Here ❑ Interest, year 1: I1 = 100,000(0.10) =$10,000
❑ Total due, year 1: F1= 100,000 +10,000
P=$100,000
=$110,000
n= 3
i= 10% ❑ Interest, year 2: I2 = 110,000(0.10) = $11,000
Simple interest = PXn x i ❑ Total due, year 2: F2= 110,000 + 11,000
Interest = 100,000(3)(0.10) = $121,000
= $30,000
❑ Interest, year 3: I3 = 121,000(0.10) = $12,100
Total due = 100,000 + 30,000
❑ Total due, year 3: F3= 121,000 +12,100
= $130,000 = $133,100

Simple: $130,000: Compounded: $133,100

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 Single Payment Compound Amount Factor (SPCAF)
If an amount “P” is invested at to generalize the process for period
time “t=0” the amount “n” we can write as;
accumulated after a year is
given as
F= P(1+i)n
F1 = P + Pi
= P(1 + i) ………. (1)
❑ The term“(1+i)n” is known as
At the end of second year, the Single Payment Compound
accumulated amount F2 is Amount Factor (SPCAF)
given as;

F2 = F1 + F1 i (fromEq.1) ❑ It is also refer as F/P factor

= P(1+i) + P(1+i)i
= P + Pi + Pi+ Pi2 ❑ This is a converting factor,
= P(1+i)2 …………(2) when multiplied by “P” yields
the future amount “F” of initial
Similarly; amount “P” after “n” years at
interest rate “i”
F 3 = F2 + F2 i
= P(1+i)3 ………..(3)

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Simple and CompoundInterest

Example: $100,000 lent for 3 years at interest rate i = 10% per year.
What is repayment after 3 years ?

Simple Interest Compound Interest

Here Now we have F =
P=$100,000 P(1+i)n
n= 3 i= 10%
P = $100,000
Simple interest = P X n x i n=3 i=10%
Interest = 100,000(3)(0.10) So F = 100,000 (1+0.10)3
= $30,000
Total due = 100,000 + 30,000 F=100,000(1.331)
= $130,000 F =133100

Simple: $130,000: Compounded: $133,100

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FromSPCAFtoSPPWF

❑Now we have the formula how to “convert”

present amounts into future amount at a given
interest rate i.e. F = P(1+i)n

❑What if we are given a future amount (F) and

we are asked to calculate present worth (P) ?

F = P(1+i)n
=> P = F [1/(1+i)n]
orP = F(1+i)-n

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Single Payment Present Worth

Factor (SPPWF)
▪ The term“(1+i)-n” is known as Single Payment
Present Worth Factor (SPPWF)

▪ It is also referred as P/F factor

▪ This is a converting factor, when multiplied

by “F” yields the present amount “P” of
initial amount “F” after “n” years at interest
rate “i”

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Example

❑Find the present value of $10,000 to be

received 10 years from now at a
discount rate of 10%
F = $10,000 r = 10%
n = 10
P = F (1+i)-n
=> P = 10,000 (1+0.1)-10
= 10,000 x 0.385
= $385

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AStandardNotation
❑ Instead of writing the full formulas of SPCAF and SPPWF for simplicity
there is a standard notation

❑ This notations includes two cash flows symbols, interest rate and
number of periods

❑ General formis: (X/Y, i, n) which means “X” represents what is sought, Y is

given, i is interest rate and n is number of periods

❑ Examples:
Name Equation with Notation Standard Notation Find/
factor formula Equation
Given

Single-payment compound A= P(1+i)n F = P(F/P, i, n) F/P

amount (F/P, i, n)
Single-payment present (P/F, i, n) P = F(P/F, i, n) P/F
P = F(1+i)-n
worth

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Interest Table
 For the shake of simplicity and easier calculation all values based on interest formulas have been tabularized
12% interest factors for continuous compounding
Uniform
Single Payment Equal Payment Series Gradient
n Series
(F/P, i, n) (P/F, i, n) (F/A, i, n) (A/F, i n) (P/A, i n) (A/P, i, n) (A/G, i n)
1 1.128 0.8869 1.000 1.0000 0.8869 1.1275 0.0000
2 1.271 0.7866 2.128 0.4700 1.6736 0.5975 0.4700
3 1.433 0.6977 3.399 0.2942 2.3712 0.4217 0.9202
4 1.616 0.6188 4.832 0.2070 2.9900 0.3345 1.3505
5 1.822 0.5488 6.448 0.1551 3.5388 0.2826 1.7615
10 3.320 0.3012 18.197 0.0550 5.4810 0.1825 3.5332
20 11.023 0.0907 78.625 0.0127 7.1318 0.1402 5.8480
 For any values that are not available in the interest table, interpolation or extrapolation can be applied:

Example: find value of (F/P, i, n) for i = 12% and n = 2.5 period → n = 2 , (F/P,
12, 2) = 1.271; n = 3 , (F/P, 12, 3) = 1.433 → n = 2.5, (F/P, 12, 2,5) = 1.271 +
0.5 (1.433-1.271) = 1.352
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Using Standard Notation Example

❑What will be the future value of
$100,000 compounded for 17 years
at rate of interest 10% ?

❑F= (1+ i)n or F = P(1+0.1)n now

writing that in standard notation we
have
(F/P, i,n)
❑ F = P(F/P, i, n)
❑ F = 100,000(F/P,10%,17)
That value
❑ F = 100,000(5.054) you get from
❑ F= 505400 “Table”

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Single-Payment Factors F
P
?
0 1 2 3 n-1 n
SPCAF = single-payment compound-amount factor
Fn = P (1+i)n Notation: (F/P, i, n)

From the opposite side, if F is given:

P F
?

0 1 2 3 n-1 n

 1  SPPWF = single-payment present worth factor

P = F n
 (1 + i ) 
Notation: (P/F, i, n)

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Single Paymentsto Annuity

❑ Normally, in real world we do not face Single

payments mostly instead faces cash flows
such as home mortgage payments and
monthly insurance payments etc

❑ An annuity is an equal annual series of

cash flows. It may be equal annual deposits,
equal annual withdrawals, equal annual
payments, or equal annual receipts. The
key is equal, annual cash flows

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Uniform Series Present Worth Factor (USPWF)

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Capital RecoveryFactor (CRF)

P =given
t = given
1 2 3 A= ? n-1 n

t=0

Name Equation with factor Notation Standard Notation

formula Equation

Uniform Series
(P/A, i, n) P = A(F/P, i, n)
Present Worth

Capital Recovery
(A/P, i, n) A= P(A/P, i, n)

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Example 1: Uniform Series Present Worth (P/A)

Achemical engineer believes that by modifying the structure of a
certain water treatment polymer, his company would earn an
extra
$5000 per year. At an interest rate of 10% per year, how
much could the company afford to spend now to just break
even over a 5 year project period?

Solution:
Thecashflowdiagramis asfollows:
A= 5000 I =10% n= 5
A= $5000
P= A(P/A, i,n)

4 5
P=5000(P/A,10%,5)
0 1 2 3
i =10%
= 5000(3.7908)
P= ? = $18,954

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Example 2: Uniform Series Capital

Recovery (A/P)
A chemical product company is considering investment in
cost saving equipment. If the new equipment will cost
$220,000 to purchase and install, how much must the
company save each year for 3 years in order to justify the
investment, if the interest rate is 10%peryear
Solution:
Thecashflowdiagramis asfollows:
P= 220,000
I = 10%
A= ? n =3

A= P(A/P, i, n)
0 1 2 3
i =10% A= 220,000(A/P,10%,3)
P= $220,000
= 220,000(0.40211)
= $88,464
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UniformSeries CompoundAmountFactor(USCAF)
F= ?

0 1 2 n-1 n

A= given

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Sinking FundFactor (SFF)

t =given

0 1 2 3 n-1 n

A= ?

F = given

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Example3: UniformSeries Involving F/A

An industrial engineer made a modification to a chip

manufacturing process that will save her company
$10,000 per year. At an interest rate of 8% per year, how
much will the savings amount to in 7 years?

Solution:
The cash flow diagram is:
F= ? A=10,000
i =8%
n =7
i = 8%
0 1 2 3 4 5 6 7 F = A(F/A, i, n)
F = 10,000(F/A,8%,7)
= 10,000(8.9228)
A = $10,000
= $89,228

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UniformSeries CompoundAmountFactor (USCAF)

F= ?
t = given

0 1 2 3
n-1 n

A= given

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Sinking FundFactor (SFF)

t =given F = given

0 1 2 3 n-1 n

A= ?

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Example3: UniformSeries Involving F/A

An industrial engineer made a modification to a chip

manufacturing process that will save her company
$10,000 per year. At an interest rate of 8% per year, how
much will the savings amount to in 7 years?

Solution:
The cash flow diagram is:
F= ? A=10,000
i =8%
A = $10,000
n =7

0 1 2 3 4 5 6 7 F = A(F/A, i, n)
F = 10,000(F/A,8%,7)
i = 8%
= 10,000(8.9228)
= $89,228

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Uniform-Series Present-Worth Factor

? P
A A A A A A A

0 1 2 3 n-1 n
 1   1   1   1   1 
P = A 1
+ A  2
+ A  3
+  + A  n −1 
+ A  n
 (1 + i )   (1 + i )   (1 + i )   (1 + i )   (1 + i ) 

 1   1   1   1   1 
P = A 1
+ 2
+ 3
++  n −1 
+ n 
  (1 + i )   (1 + i )   (1 + i )   (1 + i )   (1 + i )  
SPPWF = single-payment present-worth factor

 (1 + i )n − 1
P = A n 
 i (1 + i )  Notation: (P/A, i, n)
USPWF = uniform-series present-worth factor
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Capital-Recovery Factor
P
A A A A A A A ?
0 1 2 3 n-1 n

What A is needed to equal P at t=0?

 1(1 + i )n 
A = P 
 (1 + i ) − 1
n

CRF = capital recovery factor

Notation: (A/P, i, n)

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Sinking-Fund Factor
A A A A A A A

0 1 2 3 n-1 n
F
 1   i (1 + i )n 
A = F n  
 (1 + i )  (1 + i )n
− 1 

 i 
A = F 
 (1 + i ) − 1
n

SFF = sinking-fund factor Notation: (A/F, i, n)

 (1 + i )n − 1 USCAF = uniform-series compound-amount factor

F = A  Notation: (F/A, i, n)
 i 
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Standard Factor Notations

Factor Name Standard Notation

Single-Payment Present-Worth SPPWF (P/F , i% , n)

Single-Payment Compound-Amount SPCAF (F/P , i% , n)
Uniform-Series Present-Worth USPWF (P/A , i% , n)
Capital-Recovery CRF (A/P , i% , n)
Sinking-Fund SFF (A/F , i% , n)
Uniform-Series Compound-Amount USCAF (F/A , i% , n)

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Extreme Values
factor n = ∞ ; i known n = 0 ; i known

( F / P, i % , n ) ∞ 1

( P / F, i % , n ) 0 1

( P/A , i % , n ) ~1/i 0

( A / P, i % , n ) ~i NA

( A / F, i % , n ) 0 NA

(F/A , i%, n) ∞ 0

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Arithmetic Gradient (1)

• In some cases, periodic payments do not occur in an equal series, but they maybe in a constant
increase amount

0 1 2 3 n-1 n

• Equivalent with: (n-1)G

(n-2)G
3G (n-3)G
2G
G
A1 A1 A1 A1 A1 A1 A1

0 1 2 3 n-1 n
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Arithmetic Gradient (2)

• Equivalent with:
A1 A1 A1 A1 A1 A1 A1

0 1 2 3 n-1 n

+ (n-1)G
(n-2)G
3G (n-3)G
2G
G

0 1 2 3 n-1 n

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Arithmetic Gradient (3)

• Equivalent with: A = A1 + A2
A1 A1 A1 A1 A1 A1 A1

0 1 2 3 n-1 n

+
A2 A2 A2 A2 A2 A2 A2

0 1 2 3 n-1 n

=
A A A A A A A

0 1 2 3 n-1 n
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Arithmetic Gradient (4)

• Where:
A1 = payment at the end of the first year
G = gradient, annual change
n = number of period
A = equivalent equal annual payment → A = A1 + A2

1 n 
A2 = G  − 
 i (1 + i )n
− 1 
UGSF = uniform-gradient-series factor

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Arithmetic Gradient Formulas

1  (1 + i )n − 1 n 
P = G  − n 
 i  i (1 + i ) (1 + i )  
n

UGPWF = uniform-gradient-present-worth factor

1  (1 + i )n − 1 
F = G  − n
 i  i  
UGFWF = uniform-gradient-future-worth factor

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Negative Arithmetic Gradient (1)

• In some cases, periodic payments do not occur in an equal series, but they maybe in a constant
decrease amount

0 1 2 3 n-1 n

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Arithmetic Gradient (2)

• Equivalent with: A1 A1 A1 A1 A1 A1 A1

0 1 2 3 n-1 n

- (n-1)G
(n-2)G
3G (n-3)G
2G
G

0 1 2 3 n-1 n

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Arithmetic Gradient (3)

• Equivalent with: A = A1 – A2
A1 A1 A1 A1 A1 A1 A1

0 1 2 3 n-1 n
-
A2 A2 A2 A2 A2 A2 A2

0 1 2 3 n-1 n
=
A A A A A A A

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Geometric Gradient

• In many situations, periodic payments decreases or increases not by a constant

amount, but at a constant percentage F1(1+g)n-1
F1(1+g)n-2
F1(1+g)3
growth-free rate
F1(1+g)2
1+ i
F1(1+g) g = −1
F1 1+ g

0 1 2 3 n-1 n

1  (1 + g ) − 1
n
P = F1
(1 + g )  g (1 + g )n 
GGSF = geometric-gradient-series factor
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Example
Profits from recycling paper, cardboard,
aluminium, and glass at a liberal arts college
have increased at a constant rate of $1100 in
each of the last 3 years.
If this year’s profit (end of year 1) is
expected to be
$6000 and the profit trend continues
through year 5,
(a)what will the profit be at the end of year 5
and
(b)what is the present worth of the profit at an
interest rate of 8%per year?
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G = $1100, Base = $6000
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Example
(a) whatwill theprofit beat theendof year5 &
(b) whatis thepresent worth of the profit at aninterest rateof 8%per year?
G=$1100 Base = $6000
$4400
$10400 $6000 $3300
$2200
$9300 $1100
$8200
=> +
$7100 0 1 2 3 4 5
0 1 2 3 4 5
$6000

0 1 2 3 4 5 P = A(P/A, i, n) + G(P/G, i, n)
Find the cash flows as follows:
CF= Base+ G(n-1)G P = 6000(P/A, 8%, 5) + 1100(P/G, 8%, 5)
CF1 = 6000+ 1100(1-1)=6000
CF2 = 6000+ 1100(2-1)=7100 P=6000(3.9927) + 1100(7.3724)
CF3 = 6000+ 1100(3-1)=8200
CF4 = 6000+ 1100(4-1)=9300 P= 326066
CF5= 6000 + 1100(5-1)= 10400

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Using Factors

Finding Given Factor Equation Formula

 1 
P F ( P / F, i % , n ) P = F (P/F, i%, n) P = F n 
 (1 + i ) 

F = P (1 + i )
n
F P ( F / P, i % , n ) F = P (F/P, i%, n)
 (1 + i )n − 1
P A ( P/A , i % , n ) P = A (P/A, i%, n) P = A n 
 i (1 + i ) 

A P ( A / P, i % , n ) A = P (A/P, i%, n)  1(1 + i )n 

A = P 
 (1 + i ) − 1
n

 i 
A F ( A / F, i % , n ) A = F (A/F, i%, n) A = F 
 (1 + i ) − 1
n

F A (F/A, i%, n) F = A (F/A, i%, n)  (1 + i )n − 1

F = A 
 i 
1 n 
A G (A/G, i%, n) A = G (A/G, i%, n) A = G − 
 i (1 + i ) − 1
n

1  (1 + i )n − 1 n 
P G ( P/ G , i % , n ) P = G (P/G, i%, n) P = G  − 
 i  i (1 + i )
n
(1 + i )n  
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Spreadsheet Formulas

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Diskusi dan Studi Kasus

Latar Belakang
Selama 1 minggu kemarin, setelah mendapat kuliah ekonomi Teknik, kalian mulai memikirkan hal – hal terkait uang, interest rate, dan nilai
nominal uang yang berebeda – beda sepanjang waktu. Kalian tertarik mempelajari akibat dari waktu dan interest rate terhadap nominal uang,
dan ada penambahan nominal yang signifikan dalam waktu yang cukup panjang. Berikut adalah hal – hal yang terpikir oleh kalian selama
seminggu kemarin

Informasi
A. Pulau Sipadan pernah ingin dijual oleh Inggris pada tahun 1636 dengan taksiran pada saat itu setara 24 Poundsterling. Dengan perkiraan
investasi menghasilkan 6% compound interest per tahun. Harga pada saat ini (Tahun 2021) pastilah sangat besar.
B. Pada umur 22 tahun, Kalian berencana untuk menabung sebesar 20 Juta Rupiah per tahun sampai 10 tahun berikutnya. Jika rencana
menabung itu dilakukan pada suatu instrument investasi yang memberikan return 6% per tahun. Untuk standar saat ini, kalian merasa
bahwa pada umur 60 Tahun, kalian akan punya cukup banyak uang.
C. Perusahaan Maja Maju Jaya, berinvestasi sebesar Rp. 20 Milyar di bidang usaha perkebunan pada tahun 1945. Dari hasil perhitungan
diketahui perusahaan tersebut akan mendapatkan penghasilan tetap dari investasi sebesar Rp.3 Milyar per tahun sampai 65 Tahun ke
depan. Kalian menduga bahwa nilai rate of return pertahun dari investasi tersebut tentulah baik, mengingat pada saat ini mendapatkan
investasi dengan rate of return 4% pertahun saja sudah cukup sulit.
D. Seorang teman bercerita kepada kalian, bahwa mereka melakukan pinjaman pada sebuah fasilitas pinajaman online. Dia meminjam
sebesar Rp. 2.000.000 dan mengembalikannya 1 minggu kemudian dengan bunga Rp. 300.000. Kalian merasa bahwa jika kalian butuh
juga dana dengan cepat kalian bisa menggunakan cara yang sama. Akan tetapi ada hal yang mengganjal, Kalian tidak mengetahui apakah
pinjaman tersebut dikenakan simple interest atau compound interest per bulannya. Lalu jika kalian tidak membayar hutang tersebut selama
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Diskusi dan Studi Kasus

Diskusi
1. Berapakah interest rate per tahun dari tiap kasus yang ada? Termasuk simple dan compound interest pada
kasus D
2. Estimasi secara cepat dan bayangkan secara kualitatif, dibandingkan dengan nilai awalnya, apakah nominal
uang pada akhir periode untuk setiap kasus akan berbeda jauh? dan seberapa besar?
3. Lakukan perhitungan detail untuk masing – masing kasus, nilai nominal uang pada akhir periode.
Kemudian bandingkan dengan point 2, apakah sesuai ekspektasi?

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TERIMA KASIH

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