The change in the amount of money overa given] ime period i called the time value of money, By far, the most important concept in engineering |_| Role fEnnering Economy in Decision Making) “pege ona ci -Eeceamerzemsitee Seno “games rem teeta + INTEREST - MANIFESTATION OF THE TIME \VALUE OF MONEY. THE AMOUNT PAID TO Interest Rate: Example USE MONEY. oat esau RESEEERSEEEEESSEE SSS A Before-Tax cash flow analysis (while not as accurate) is often performed as a preliminary analysis. A final, more complete analysis should be performed using an After-Tax analysis Juable analysis approaches | Simple Tnte Formula : Pann) he prt ‘example Barrow $1,003 years at pe year + INVESTMENT ‘odet Alera 1000 to aden Yor oneal year wen) ‘Student A wil gt$ 10,70 tthe end of one yea. Meanie tent B mast poy back 10,700, Interest amoun i) = $10,700 -$ 10,000 $700 Intrastate) = 700/ $10,000 = 75/yeor Interest Rates /EREST PER TIME UNIT MOU Compounds INTEREST RATE = N= No.of inter Interest amount is $ = the interest rate (96interest period) "problem Perspective 0 a53)= 5102 F/P factor Ieulation of F/P factor pyr facto ing back n time Present Worth Factor from F/P us) + cooing back romthe fare of FaveaP hee ° beck rom the + Since Fy = P14)? somadranene Fy = P(AAi)(A6i) = PDIP * *We solve for P in terms of Fx, L eta - F{a/ (14i)") = F(24)° w ln generat: ae Example- F/P Analysis + ample: §1,000753)610% y + thisexpresion wil comet an any cash ow oan | F7FTocar brings sale > recure sur back toa specie Uniform Series Present Worth and Capital Recovery Factors aoa m3) =F, N0OTEAOP Pra fact = 000113310)» $1331.00 > Ing near rer Bale eal — peal o+d"=1 rrr (+i =1 i Arran tor Faso tctoe Piers ere: Frat Result ‘The Gradient Component ‘Capital Recovery Factor: NP, % n a P=F(P/EI%n) where (P/rivn) = "PIA factor for Geometric Grader et twin EB sale: Decreasing Linear Gradient ‘Example comer taeecare™ unknown EEE «2. “ammon compound Frequencies + xerest Maybe eonbute compounded: Anna -One ie aya (tthe ea oer month 2 nes yeoman very quarter 4 nea yor quarter) very Month 12 times year (monty vey Day ~365 times yar ay) hee Siete iempeniiy Examples Nominal Interest Rates Interest Rate iNominal and Effective Interest Rate Example: Unequal Lives Sesto