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6 Gradient

The document covers topics related to engineering economy including annuities, gradients, and applications of money time relationships. It provides information on uniform and geometric cash flow series, arithmetic and geometric gradient formulas, and includes example problems demonstrating calculations for present, future, and equivalent uniform values.

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dimayugallen
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
57 views

6 Gradient

The document covers topics related to engineering economy including annuities, gradients, and applications of money time relationships. It provides information on uniform and geometric cash flow series, arithmetic and geometric gradient formulas, and includes example problems demonstrating calculations for present, future, and equivalent uniform values.

Uploaded by

dimayugallen
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Engineering Economy

Engineering Economy
✔ Topic 7 – Annuities

✔ Topic 8 – Gradient

✔ Topic 9 – Application of Money Time Relationship

Engineering Economy
Introduction to Gradient

UNIFORM GRADIENT SERIES OF CASH FLOWS

Arithmetic gradient series is a series of payments in


which each payment is greater than or less than
previous one by a constant amount

GEOMETRIC SERIES OF CASH FLOWS

Geometric gradient series is series of payments


where annual payments increase or decrease over
time, by a constant percentage.

Engineering Economy
Arithmetic Gradient Cash Flow

(n-1)G
(n-2)G
4G
3G
2G
G
0

0 1 2 3 4 n-1

P F

Engineering Economy
Geometric Gradient Cash Flow

AN =A1(1+f )N - 1

A3 =A1(1+f )2
A2 =A1(1+f )
A1

0 1 2 3 4 N
End of Period
P

Engineering Economy
Arithmetic Gradient Formula

A = G ( A/G, i%, n)

P = G ( P/G, i%, n)

F = G ( F/G, i%, n)

Engineering Economy
Sample Problem - Arithmetic

The cash flow associated with a strip mining


operation is expected to be $200,000 in year 1,
$180,000 in year 2, and amounts decreasing by
$20,000 per year through 8. At an interest rate of
12% per year, the equivalent annual cash flow is
nearest to ________.

Engineering Economy
Sample Problem - Arithmetic

The cash flow associated with a strip mining operation


is expected to be $200,000 in year 1, $180,000 in year
2, and amounts decreasing by $20,000 per year
through 8. At an interest rate of 12% per year, the
equivalent annual cash flow is nearest to:

Solution:
AT = A 1 + A G
= 200,000 - 20,000 (A/G, 12%, 8)
= 200,000 - 20,000 (2.9131)
= $141,737.12

Engineering Economy
Geometric Gradient Formula

Engineering Economy
Sample Problem - Geometric
A mechanical contractor has four employees
whose combined salaries through the end of this
year are $250,000. If he expects to give an average
raise of 5% each year, calculate the present value of
the employee’s salaries over the next 5 years.
Let i = 12% per year.

Solution:

Engineering Economy
Practice Problem - Arithmetic

1.Find the value of each of the following:


a. (A/G, 14.5%,23)
b. (P/G, 12%,10)
c. (F/G,7.8%,21)

2. Compute for the present value


150
100
50
0
0 1 2 3 4
i= 10%

Engineering Economy
Practice Problem - Arithmetic
200
150
100
3. Compute the 50
value of the
amount of F 0 1 2 3 4
i= 10%

4. Suppose a man receives an initial annual salary


of $60,000, increasing at the rate of $5,000 a
year. If money is worth 10%, determine his
equivalent uniform salary for the period of 8
years.

Engineering Economy
Practice Problem - Arithmetic

5. Suppose that you make a series of annual


deposits into a bank account that pays 10%
interest. The initial deposit at the end of the first
year is $1,200. The deposit amounts decline by
$200 in each of the next four years. How much
would you have immediately after the fifth
deposit?

Engineering Economy
Practice Problem - Geometric

1. Annual maintenance cost for the machine are 1,500


this year and estimated to increase 10% each year
every year. What is the present worth of the
maintenance cost for 6 years if i= 8%

Engineering Economy
Practice Problem - Geometric

2. On Domingo’s 23rd birthday you decide to invest


$4,500 (10% of your annual salary) in a mutual fund
earning 7% per year. You will continue to make
annual deposits equal to 10% of your annual salary
until you retire at age 62 (40 years after you started
your job). You expect your salary to increase by an
average of 4% each year during this time. How
much money will you have accumulated in your
mutual fund when you retire?

Engineering Economy

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