LECTURE FOUR

Geometric (Escalating ) series ( E )

The form of this cash is as shown : i%
0 1 2 3 4 5 6 n
Let D= amount at end of year 1 .
Let E = geometric rate as %
Let n number of years D
E%
So ;
Amount at end year 2 = D + ED=D(1+E)
Amount at end year 3 = D(1+E) + E D(1+E)= D(1+E)²
D(1+E)ⁿ¯¹
Amount at end year 4 = D(1+E)² + E D(1+E)²= D(1+E)³
ȋ
So generally : the amount at end of year n = D (1+E)ⁿ¯¹

Finally the present worth of this type of cash will be as :

P = {D /(E-i) } *{ [( 1+E)/(1+i)]ⁿ -1 } The present

Worth of geometric series

Example :
1. Find the present worth of this machine shown in cash flow at i= 10%
and the geometric rate is 5% .
2. What the annual equivalent of this machine in $/year
i=10 %
solution : 0 1 2 3 4 5 6 7
[1]: Find P equivalent .

. $ 250
P?
D = $ 250 E=5%
P′ = {D /(E-i) } *{ [( 1+E)/(1+i)]ⁿ -1 }
= { 250 /( 0.05 -0.1) }* { [(1+0.05)/ (1+0.1)]⁵ -1 } = $ 1037.6
P = P ′ ( P/F, 10% , 2) = 1037.6 /(1+0.1)² = $ 857.56
[2] : Find annual equivalent .
A = P (A/P ,10% , 7) = 857.56 (0.2054)= $ 176.15/year
0 1 2 3 4 5 6 7

Annual equivalent A= $ 176.15 /year

Home work

The revenue and costs of the machine is shown in the cash flow.
Make economic decision whether to accept or reject this machine
at i= 12% ?

E=8 %
G=0.5K
1.5K 2K 3K

0 1 2 3 4 5 6 7 8 9 10 14 year

2K A=2K

20 K Answer PT= $ - 11.731 K

Example :
An engineer is designing an irrigation system , and wants to select an
electrical motor to drive a pump to meet a pumping fluid ( relative
density is 1.25 ) to 15 foot head with the discharge ( 5 m³/min ) .
Information:-

Motor X initial cost $ 9450 (5 year useful life ) with efficiency 78 % .

Motor Y initial cost $ 11250 (5 year useful life ) with efficiency 86 % .
also ; operating time is 200 day /year for 24 hr/day . The energy cost is
0.015 $/kwh .

Required : Tank
Which motor is economically selected at i= 14 % .
h=15′
Input motor

output
Solve with complete calculations.
LECTURE is Finished

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